Caason Investments Pty Ltd v Cao

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FEDERAL COURT OF AUSTRALIA

Caason Investments Pty Ltd v Cao [2015] FCAFC 94

Citation: Caason Investments Pty Ltd v Cao [2015] FCAFC 94
Appeal from: Caason Investments Pty Ltd v Cao [2014] FCA 1410
Parties: CAASON INVESTMENTS PTY LTD ACN 089 590 858 and WISE PLAN PTY LTD ACN 007 008 577 v SIMON XIAO FAN CAO, CHARLES MAO, LARRY MARSHALL, GEORGE SYCIP, JI RAN LAURIE KAN, IAN RICHARD NEAL, ANTHONY JOHN SURTEES, SIMON JEREMY NEWTON GRAY, JAMES ABERDEIN HARVEY, PHILIP SYDNEY PATERSON, DEAN LLOYD MARSH, JOHN STEVEN WESTAWAY, TIMOTHY WILLIAM MURTON, DARREN CRAIG KLENK, MALCOLM STEVEN WIGHT, DEAN BRIAN CROOK, DALE JOHN RYAN, STEPHEN HAROLD KUCHAR, GEOFFREY ALLAN LLOYD and JUSTIN LUKE HUMPHREY
File number: NSD 269 of 2015
Judges: GILMOUR, FOSTER AND EDELMAN JJ
Date of judgment: 3 September 2015
Catchwords: PRACTICE AND PROCEDURE – application for leave to appeal - application for leave to amend pleading - representative proceeding under Federal Court of Australia Act 1976 (Cth) Pt IVA – claim for compensation for loss or damage resulting from misstatement in, or omission from, disclosure document under Corporations Act 2001 (Cth) s 729 - claims of misleading or deceptive conduct - causation – market-based causation – whether primary judge erred in rejecting proposed amendments to reflect market-based causation case – whether the market-based causation case is a viable one in the context of the claim under s 729 - whether reliance is a necessary element under s 729 - leave to appeal granted – appeal allowed.
Legislation: Corporations Act 2001 (Cth) ss 728, 729(1), 729(2), 1041H
Australian Securities and Investments Commission Act 2001 (Cth) s 12DA
Corporate Law Economic Reform Program Bill 1998 (Cth)
Fair Trading Act 1999 (Vic) s 9
Federal Court of Australia Act 1976 (Cth) s 31A, Pt IVA, s 37M(3)
Federal Court Rules 2011 (Cth) rr 8.21, 16.21, 16.55
Cases cited: ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1
Australian Competition and Consumer Commission v Jutsen(No 2) [2010] FCA 982
Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26
Amaca Pty Ltd v Booth (2011) 246 CLR 36
Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175
Bolitho v Banksia Securities Ltd [2014] VSC 8
Bowen Energy Limited v 2KD Drilling Pty Ltd [2012] FCA 275
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Camping Warehouse Australia Pty Limited (formerly Mountain Buggy Australia Pty Limited) v Downer EDI Limited [2014] VSC 357
Clough and Rogers v Frog (1974) 4 ALR 615
CQ Pty Ltd v Cook (2009) 237 CLR 656
Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397
Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328
Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498
Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235
Grant-Taylor v Babcock & Brown Limited (in liq) (2015) 104 ACSR 195
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd
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Details
Case
[2015] FCAFC 94
Decision Date

CaseChat Overview and Summary

The case of Caason Investments Pty Ltd v Cao involved an appeal against a decision by the primary judge to refuse the appellants leave to amend their statement of claim in relation to market-based causation claims. The appeal was heard in the Federal Court of Australia, and the respondents conceded that any reliance restriction must be a matter independent of causation. The appellants sought to amend their statement of claim to bring claims based on misleading or deceptive conduct and contravention of certain sections of the Corporations Act, Australian Securities and Investments Commission Act, and Fair Trading Act. The primary judge rejected the proposed amendments, but the Court of Appeal found that the primary judge ought not to have refused to grant leave to make the amendments.

The primary legal issue before the Court of Appeal was whether the primary judge erred in rejecting the proposed amendments to reflect a market-based causation case. The Court of Appeal found that the primary judge had accepted that the market-based causation case had reasonable prospects of success, and that the issue of whether market-based causation was established as a matter of fact would require expert evidence. The Court of Appeal also found that the respondents had conceded that any reliance restriction must be a matter independent of causation, which meant that the market-based causation case should be allowed to proceed to trial.

The Court of Appeal granted leave to appeal, allowed the appeal, and made several orders, including setting aside certain orders of the primary judge, granting leave to the plaintiffs to file and serve an amended consolidated statement of claim, and varying certain orders to include the amended consolidated statement of claim. The Court of Appeal also ordered that certain group members who had become group members by reason of the deletion of a paragraph in the consolidated statement of claim were taken to have become group members from the date of filing of the interlocutory application.

The Court of Appeal found that the primary judge had erred in refusing to grant leave to make the proposed amendments, and that the market-based causation case had reasonable prospects of success. The Court of Appeal also found that the primary judge had misunderstood the appellants' case, and that doubts about the primary judge's decision should have been resolved by the supplementary oral reasons delivered by her Honour. The Court of Appeal concluded that the primary judge ought not to have refused to grant leave to make the proposed amendments, and that the appellants' market-based causation case should be allowed to proceed to trial.

Orders

Orders of the court

1. The application for leave to appeal be granted and the Draft Notice of Appeal stand as the Notice of Appeal.

2. The appeal be allowed.

3. Orders 4 and 5 of the Orders of the Court made on 6 March 2015 in proceedings NSD 1558/2012 and NSD 341/2013 be set aside.

4. In lieu thereof, there be an order that the plaintiffs have leave to file and serve the Amended Consolidated Statement of Claim found at Tab 3 of Part A of the Application Book.

5. Order 6 of the Orders of the Court made on 6 March 2015 in proceedings NSD 1558/2012 and NSD 341/2013 be varied so as to add at the end of the Order the words “and the Amended Consolidated Statement of Claim”.

6. Those Group Members who have become Group Members by reason of the deletion of paragraph 3.2 of the Consolidated Statement of Claim are taken to have become Group Members from the date of filing of the Interlocutory Application, namely 21 March 2014.

7. The parties have leave to file, within 14 days of delivery of the Reasons in this Appeal, Outlines of Written Submissions, not exceeding two (2) pages, on the question of costs of the Interlocutory Application, which will thereafter be decided on the papers.

8. The respondents, other than the first and fifth respondents, pay the appellants’ costs of the Appeal, to be taxed if not agreed.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

In oral submissions on the appeal, senior counsel for the second to fourth respondents conceded that any reliance restriction must be a matter independent of causation, arising even if causation was satisfied (appeal ts 45). As I explain below, that concession has the effect that the legal argument of market based causation has reasonable prospects of success and should be allowed to proceed to trial, as the primary judge accepted. Whether market based causation is established as a matter of fact is a different question which will require expert evidence. Summary and background to the proposed amendments in this appeal The appellants’ proposed amended statement of claim sought to bring claims based on: (1)misleading or deceptive conduct in contravention of (i) s 1041H of the Corporations Act, (ii) s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), and (iii) s 9 of the Fair Trading Act 1999 (Vic) causing losses; and(2)conduct in contravention of s 728 of the Corporations Act causing losses which relied upon claims based on (i) a September 2006 prospectus, and (ii) a March 2007 prospectus . Before the primary judge, the respondents resisted the amendment application on two bases. First, the respondents made a pleading submission: the proposed pleading was inadequate to reveal to the respondents the case which the respondents had to meet in relation to causation. Secondly, the respondents made a substantive legal submission: any pleading of causation was required to include a pleading of reliance; a plea of “market based causation” must inevitably fail. The primary judge delivered reasons for decision which refused leave to amend six paragraphs of the statement of claim as proposed. But she foreshadowed that leave might be given to amend the statement of claim in some respects. Both the appellants and the respondents misunderstood the primary judge’s reasons. They correctly understood that her Honour had permitted them to bring a properly pleaded market based causation claim in respect of the misleading or deceptive conduct claims, but they thought that her Honour had implicitly (but not expressly) denied that a properly pleaded market based causation claim could ever be brought for a claim based on contravention of s 728. Stated in these terms, this conclusion is very surprising. As I explain below, it was not what her Honour decided in her written reasons. And doubts should have been resolved by the supplementary oral reasons delivered by her Honour when she handed down her written reasons. Nevertheless, the appellants proceeded on the assumption that they could not plead a market based causation claim for breaches of s 728. The appellants sought leave from the primary judge to file a Consolidated Statement of Claim which rectified the pleading defects in the proposed statement of claim which had been before her Honour. Leave was granted. Because of the appellants’ assumption that they had been precluded from pleading market based causation in relation to the alleged breaches of s 728, these matters were not pleaded in the Consolidated Statement of Claim.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The applicants do not seek to depart from the concession made below that any amendment to the group definition should date from when the interlocutory application was filed (21 March 2014). The respondents propose this date. We propose to so order. This seems to us to be the appropriate date rather than the date on which the applicants served their Proposed Amended CSOC, being 29 April 2015, as was the sixth respondent’s submissions.Conclusion and orders We accept the applicants’ submission that it cannot be said that the Rejected Amendments, which reflect the causation theory were incapable of succeeding, or liable to be struck out. The primary judge rejected the other bases upon which it was contended that the proposed amendments should not be allowed: delay, lack of utility, and limitations issues. Accordingly, there was no basis for rejecting the proposed amendments. The primary judge ought not to have refused to grant leave to make the Rejected Amendments. We would grant leave to appeal, allow the appeal and make the following orders:(1)The application for leave to appeal be granted and the Draft Notice of Appeal stand as the Notice of Appeal. (2)The appeal be allowed. (3)Orders 4 and 5 of the Orders of the Court made on 6 March 2015 in proceedings NSD 1558/2012 and NSD 341/2013 be set aside. (4)In lieu thereof, there be an order that the plaintiffs have leave to file and serve the Amended Consolidated Statement of Claim found at Tab 3 of Part A of the Application Book. (5)Order 6 of the Orders of the Court made on 6 March 2015 in proceedings NSD 1558/2012 and NSD 341/2013 be varied so as to add at the end of the Order the words “and the Amended Consolidated Statement of Claim”. (6)Those Group Members who have become Group Members by reason of the deletion of paragraph 3.2 of the Consolidated Statement of Claim are taken to have become Group Members from the date of filing of the Interlocutory Application, namely 21 March 2014. (7)The parties have leave to file, within 14 days of delivery of the Reasons in this Appeal, Outlines of Written Submissions, not exceeding two (2) pages, on the question of costs of the Interlocutory Application, which will thereafter be decided on the papers. (8)The respondents, other than the first and fifth respondents, pay the appellants’ costs of the Appeal, to be taxed if not agreed. This appeal, for which leave was granted at the conclusion of the hearing, concerned a decision by the primary judge to refuse the appellants leave to amend their statement of claim in relation to various aspects of what was described as “market based causation claims”. The parties raised broadly two points. They were (i) a point of appellate procedure concerning whether an appeal can be allowed without the demonstration of any error in any orders by the primary judge based on the material before her, and (ii) an alleged error in the primary judge’s reasons concerning a point of statutory construction about causation.

Ratio Decidendi

Legal Principle Established

The respondents’ submissions may be summarised as follows: (a)the applicable test on leave to amend is somehow different because of the enactment of s 31A of the FCA Act: (Proper Test Contention);(b)comments made in three cases, stand in the way of the applicants contending for market-based causation: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 at [37]; Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [442] and Woodcroft-Brown v Timbercorp Securities Ltd (2013) 96 ACSR 307 at [227] (Ingot Contention);(c)section 729(2) (which refers to circumstances, absent here, where an acquirer is reliant on a profile statement), is a textual indication which necessitates individual reliance as a precondition to recovery in all s 729 cases: (Profile statement Contention);(d)the policy of Corporations Act Ch 6D being “to protect potential investors” is undermined by the applicants’ argument (Policy Contention);(e)the criterion for group membership which mentions “reliance” is somehow relevant to the issue of the amendment (Group Member definition Contention).ConsiderationProper Test Contention We accept the applicants’ submission that FCA Act s 31A, which concerns summary judgment, does not affect the well-established approach to cases where proposed amendments raise contentious legal issues: the amendments “should be allowed unless they are obviously futile in the sense that they disclose no reasonable cause of action”: Allstate Life Insurance Company v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 at 36. We do not, contrary to the respondents’ submissions, think that her Honour was pointing to a different test at [45]-[46] of the Reasons.Ingot Contention The applicants’ market-based causation case argues causation in the specific context of an information effect in an actively traded market. Neither Gardiner nor Woodcroft-Brown were market-based causation cases. Justice Handley in Gardiner, said at [442], in the context of a case where direct-reliance was pleaded, that a “plaintiff relying on a contravention of those sections [ss 995, 996(1), 1023B and 1024 of the Corporations Law] must establish that he relied on the misleading or deceptive conduct, or the false or misleading statement, or that he would have acted differently if the material omission had been disclosed”. The Victorian Court of Appeal, in Woodcroft-Brown, another direct reliance case, adopted the whole of this passage at [227]. The applicants’ pleading, relevantly, is, as they observe, that they and those group members, dealing on-market, did act differently, in that they acquired Arasor Shares at a price higher than the price that would have prevailed but for the contraventions and/or retained the Arasor Shares in the different circumstances of an inflated market. The applicants further contend that a range of persons, being the market, acted differently. Thus, their causation case relies on the market of investors operating efficiently in that there are sufficient participants making decisions which cause the market to reflect information which was or ought to have been represented or disclosed to the market.