FEDERAL COURT OF AUSTRALIA
Crowley v Worley Limited [2022] FCAFC 33
Appeal from: Crowley v Worley Limited [2020] FCA 1522 File number(s): NSD 1248 of 2020 Judgment of: PERRAM, JAGOT AND MURPHY JJ Date of judgment: 11 March 2022 Catchwords: CORPORATIONS – representative proceedings – whether primary judge erred in not finding that respondent engaged in misleading and deceptive conduct –whether primary judge erred in not finding that respondent contravened its continuous disclosure obligations – relevant representor was the corporation and not the board of the corporation – knowledge of the board not determinative – inferences from facts as found – failure to call officers and employees – attribution of knowledge to a corporation – officer – meaning of “aware” – meaning of “information” – opinions are information – opinions that ought reasonable to have been formed are information – appeal allowed – remittal required Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12BB, 12DA
Competition and Consumer Act 2010 (Cth) Sch 2, ss 4, 18
Corporations Act 2001 (Cth) ss 9, 674, 677, 1041H
Cases cited: Australian Competition and Consumer Commission v Woolworths Limited [2019] FCA 1039
Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521; (2019) 138 ACSR 459
Blatch v Archer (1774) 98 ER 969
Browne v Dunn (1893) 6 R 67
City of Botany Bay Council v Jazabas Pty Limited [2001] NSWCA 94; (2001) ATPR 46-210
Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 341 ALR 572
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2015] FCA 149; (2015) 322 ALR 723
Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2016] FCAFC 60; (2016) 330 ALR 642
James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; (2010) 274 ALR 85
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Jubilee Mines NL v Riley [2009] WASCA 62; (2009) 40 WAR 299
Maloney v Commissioner for Railways (NSW) (1978) 18 ALR 147
Pancontinental Mining Limited v Posgold Investments Pty Ltd [1994] FCA 131; (1994) 121 ALR 405
Sykes v Reserve Bank of Australia [1998] FCA 1405; (1988) 88 FCR 511
The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1
TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited [2019] FCA 1747; (2019) 140 ACSR 38
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 186 Date of hearing: 16-17 August 2021 Date of last submissions: 22 October 2021 Counsel for the Appellant: Mr J Sheahan QC with Mr D Sulan SC and Mr A Edwards Solicitor for the Appellant: ACA Lawyers Counsel for the Respondent: Ms W Harris QC with Mr R G Craig QC and…
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- AGLC
- Crowley v Worley Limited [2022] FCAFC 33
- Case
- [2022] FCAFC 33
- Decision Date
CaseChat Overview and Summary
Crowley, the appellant, filed an action against Worley Limited, the respondent, in the Federal Court of Australia. Crowley alleged that Worley had engaged in misleading and deceptive conduct by publishing and maintaining a statement on 14 August 2013 that it expected its geographic and sector diversification to deliver increased earnings in FY2014. Crowley further claimed that Worley contravened its continuous disclosure obligations by not disclosing that it did not have a reasonable basis for making the August 2013 earnings guidance statement and that its FY14 earnings were likely to fall materially short of the consensus expectation of professional analysts covering the ASX and WOR securities.
The primary judge dismissed Crowley’s claims, and Crowley appealed to the Full Court. The Full Court had to decide whether the primary judge erred in not finding that Worley engaged in misleading and deceptive conduct and contravened its continuous disclosure obligations. The Full Court had to determine whether the relevant representor was the corporation and not the board of the corporation and whether knowledge of the board was determinative. The Full Court also had to consider the inferences from the facts as found and the failure to call officers and employees.
The Full Court held that the primary judge erred in not finding that Worley engaged in misleading and deceptive conduct and contravened its continuous disclosure obligations. The Full Court held that the relevant representor was the corporation and not the board of the corporation and that knowledge of the board was not determinative. The Full Court held that the inferences from the facts as found established that Worley engaged in misleading and deceptive conduct and contravened its continuous disclosure obligations. The Full Court held that the failure to call officers and employees did not affect the outcome of the case.
The Full Court allowed the appeal and set aside the orders made by the primary judge. The Full Court remitted the matter to a single judge for further hearing as that judge decides and for determination. The Full Court ordered that the respondent pay the appellant’s costs of the appeal as agreed or taxed and that the costs of the hearing below be remitted to the single judge for such further hearing as that judge decides and for determination.
The primary judge dismissed Crowley’s claims, and Crowley appealed to the Full Court. The Full Court had to decide whether the primary judge erred in not finding that Worley engaged in misleading and deceptive conduct and contravened its continuous disclosure obligations. The Full Court had to determine whether the relevant representor was the corporation and not the board of the corporation and whether knowledge of the board was determinative. The Full Court also had to consider the inferences from the facts as found and the failure to call officers and employees.
The Full Court held that the primary judge erred in not finding that Worley engaged in misleading and deceptive conduct and contravened its continuous disclosure obligations. The Full Court held that the relevant representor was the corporation and not the board of the corporation and that knowledge of the board was not determinative. The Full Court held that the inferences from the facts as found established that Worley engaged in misleading and deceptive conduct and contravened its continuous disclosure obligations. The Full Court held that the failure to call officers and employees did not affect the outcome of the case.
The Full Court allowed the appeal and set aside the orders made by the primary judge. The Full Court remitted the matter to a single judge for further hearing as that judge decides and for determination. The Full Court ordered that the respondent pay the appellant’s costs of the appeal as agreed or taxed and that the costs of the hearing below be remitted to the single judge for such further hearing as that judge decides and for determination.
Orders
Orders of the court
1. The appeal be allowed.
2. Orders 2 and 3 made on 22 October 2020 be set aside.
3. The matter be remitted to a single judge for such further hearing as that judge decides and for determination.
4. The respondent pay the appellant’s costs of the appeal as agreed or taxed.
5. The costs of the hearing below be remitted to the single judge for such further hearing as that judge decides and for determination.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
For the reasons given below the appeal must be allowed and the matter must be remitted to a single judge for further hearing as that judge decides and determination. It is a matter for decision by that judge, but there is no apparent reason why it would be necessary for the further hearing to involve anything other than submissions as required, having regard to the reasons of the Full Court in this matter. 2 BACKGROUND2.1 Defined terms Terms defined in the judgment below have the same meaning in these reasons for judgment. In particular:2.1.1Budgets and budgeting terms(3)the 27 May 2013 draft budget means the proposed budgets prepared by each of the locations in which WOR operated, which when compiled together disclosed an NPAT of $252 million for FY14 (which NPAT increased to $284 million by the time of adoption of the FY14 budget due to changes in foreign exchange (FX) rates: J [45], [47], [165];(4)the FY14 budget means WOR’s budget for the financial year 2013/2014 approved by WOR’s board in August 2013 and which forecast NPAT of $352 million: J [8];(5)HOH means “Half on half” and refers to the “phasing” or timing of financial results; in particular comparisons of results between the first half of a financial year, 1 July to 31 December (H1) and the second half, 1 January to 30 June (H2): J [172];(6)P50 budget means a budget using the P50 parameter. P50 is a probabilistic Monte Carlo analysis of the statistical confidence level for an estimate. It means that 50% of estimates exceed the P50 estimate and, by definition, 50% of estimates are less than the P50 estimate. In other words, there is an equal chance of exceeding or going below the estimate: J [114];(7)sandbagging means the suspected practice of executives in WOR’s locations attempting to lower the expectations of senior management by submitting a draft budget that they could then exceed quite readily: J [151];2.1.2WOR’s statements and alleged representations(8)the August 2013 earnings guidance statement means the statement WOR published on 14 August 2013 saying (J [2]):While recognizing the uncertainties in world markets, we expect our geographic and sector diversification to provide a solid foundation to deliver increased earnings in FY2014;(9)the 9 October 2013 announcement means the statement WOR published on 9 October 2013 to the effect that its first-half result would be lower than in the prior year, but that it affirmed the August 2013 earnings guidance statement: J [3];(10)the November 2013 revised earnings guidance means the statement WOR published on 20 November 2013 that (J [5]):On current indications the company now expects to report underlying NPAT for FY2014 in the range of $260 million to $300 million with first half underlying NPAT in the range of $90 million to $100 million;(11)the FY14 guidance representation means the representation alleged to have been conveyed by WOR publishing and maintaining its August 2013 earnings guidance statement that: (a) it expected to achieve NPAT in excess of $322 million in FY14, and (b) it had reasonable grounds to expect that it would achieve NPAT in excess of $322 million in FY14: J [23] and [624];2.1.3The allegedly non-disclosed material information(12)Material Information means the claim that WOR did not have a reasonable basis for making the August 2013 earnings guidance statement: J [20];(13)Earnings Expectation Material Information means the claim that WOR’s FY14 earnings were likely to fall materially short of the consensus expectation of professional analysts covering the ASX and WOR securities that WOR would deliver between approximately $354 and $368 million in NPAT for FY14: J [20];2.1.4WOR’s organisational structure(14)region means one of the following eight regions around the world into which WOR’s business was organised, known as ANZ (Australia New Zealand), CAN (Canada), ASCH (Asia and China), USAC (USA and Caribbean), LAM (Latin America), MENAI (Middle East, North Africa, India), EUR (Europe), and SSA (Sub-Saharan Africa): J [91]; (15)location means the business locations into which each region was divided, of which there were 43 in total. For example, the ASCH region comprised eight locations, while MENAI comprised seven locations: J [92].(16)CSGs means the three Customer Service Groups into which WOR allocated customers for FY14, being;(a)Hydrocarbons: being customers involved in extracting and processing oil and gas;(b)Minerals, Metals & Chemicals (MM&C): customers involved in extracting and processing mineral resources and manufacturing chemicals; and(c)Infrastructure: a consolidation of two sectors Infrastructure & Environment (customers involved in projects relating to water, the environment, transport, ports and site remediation and decommissioning) and Power (customers involved in power generation, transmission and distribution).There was a Managing Director for each CSG: J [93]-[94].(17)ExCo means the Executive Committee, which reported directly to Andrew Wood, WOR’s Chief Executive Officer (CEO), means the committee comprising Mr Wood and six Group Managing Directors (GMDs) who reported directly to Mr Wood, being Stuart Bradie (GMD Operations), Iain Ross (GMD Development), David Steele (GMD New Ventures), Randy Karren (GMD Improve), Barry Bloch (GMD People), and, from September 2013, Simon Holt, WOR’s Chief Financial Officer (CFO). The ExCo met at least monthly: J [97]-[100];(18)CEOC means the CEO’s Committee, comprising the members of ExCo, the CFO in the period when he was not formally on ExCo, eight Regional Managing Directors (RMDs) who reported to Mr Bradie, and three Managing Directors of the Customer Service Groups (CSGs). The CEOC’s role was only to advise Mr Wood, and it did not make decisions: J [33], [91]-[93], [100];(19)board means WOR’s board of directors. From 23 October 2012 and throughout the relevant period, Mr Wood was WOR’s only executive director. (20)A&RC means the Audit and Risk Committee of the board, comprised of board members;2.1.5The different types of work for budgeting purposes(21)secured work related to revenue from WOR’s portfolio of work in hand; where a signed contract for the work existed: J [112]; (22)unsecured work related to revenue from work described either as a “proposal”, “prospect” or “blue sky”; which had the following meanings:(a)proposals related to work for which WOR had submitted a tender or had received a request for a tender, where there was usually a proposed start date for the project within the forthcoming year. An assessment of “Go” and “Get” likelihood was made for proposals in order to risk weight forecasted revenue and costs for work that may not materialise. “Go” was a percentage figure representing the likelihood that the project would be undertaken at all. “Get” was a percentage figure representing the likelihood that WOR would be engaged for the work in the event that the project went ahead: J [116];(b)prospects related to tender processes for which WOR had not yet submitted a tender, or known projects where the tender process had not started. Budgeted revenue from “Prospects” was also discounted for “Go” and “Get” risks: J [117];(c)blue sky means estimated revenue from expected projects not identified at the time of forecasting. Mr Wood described “blue sky” as estimated revenue from expected projects based on discussions with customers and projects that are likely to materialise based on history and past experience, such as under a framework agreement. Denis Lucey, RMD of the ASCH region from 2011 to 2014, described it as an estimate of the value of projects which WOR expected to be engaged to undertake during the course of the financial year (other than secured work, proposals and prospects), based on a subjective assessment of the particular location’s historical performance and current market conditions and also taking into account WOR’s strategy for the coming year. Robert Ashton, RMD of the MENAI region from March 2013 to November 2016, described it as projects that were not known but were anticipated based on a combination of the operational history of the location, information obtained from customers or industry analysts and or anticipated market conditions. Blue sky was estimated at a numerical value and accounted for that value in the budget without any discount: J [41], [118]-[119];2.1.6Other(23)BEBIT means business earnings before interest and taxes.(24)EBIT means earnings before interest and tax.(25)the Holt memorandum means a memorandum from Mr Holt, CFO, to the A&RC dated 5 December 2013: J [74];(26)Michael Daly was WOR’s Global Director – Operations and Communications Support. He reported directly to Mr Holt: J [101]; (27)John Allen was WOR’s Global Director – Corporate Finance. He reported directly to Mr Holt: J [101];2.2 Key facts
Evidence
Evidence Before The Court
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Decision
Reasons for decision
The primary judge’s reasons for rejecting the appellant’s claims are set out in Crowley v Worley Limited [2020] FCA 1522 (the judgment below or J). For the reasons given below the appeal must be allowed and the matter must be remitted to a single judge for further hearing as that judge decides and determination. It is a matter for decision by that judge, but there is no apparent reason why it would be necessary for the further hearing to involve anything other than submissions as required, having regard to the reasons of the Full Court in this matter. 2 BACKGROUND2.1 Defined terms Terms defined in the judgment below have the same meaning in these reasons for judgment. In particular:2.1.1Budgets and budgeting terms(3)the 27 May 2013 draft budget means the proposed budgets prepared by each of the locations in which WOR operated, which when compiled together disclosed an NPAT of $252 million for FY14 (which NPAT increased to $284 million by the time of adoption of the FY14 budget due to changes in foreign exchange (FX) rates: J [45], [47], [165];(4)the FY14 budget means WOR’s budget for the financial year 2013/2014 approved by WOR’s board in August 2013 and which forecast NPAT of $352 million: J [8];(5)HOH means “Half on half” and refers to the “phasing” or timing of financial results; in particular comparisons of results between the first half of a financial year, 1 July to 31 December (H1) and the second half, 1 January to 30 June (H2): J [172];(6)P50 budget means a budget using the P50 parameter. P50 is a probabilistic Monte Carlo analysis of the statistical confidence level for an estimate. It means that 50% of estimates exceed the P50 estimate and, by definition, 50% of estimates are less than the P50 estimate. In other words, there is an equal chance of exceeding or going below the estimate: J [114];(7)sandbagging means the suspected practice of executives in WOR’s locations attempting to lower the expectations of senior management by submitting a draft budget that they could then exceed quite readily: J [151];2.1.2WOR’s statements and alleged representations(8)the August 2013 earnings guidance statement means the statement WOR published on 14 August 2013 saying (J [2]):While recognizing the uncertainties in world markets, we expect our geographic and sector diversification to provide a solid foundation to deliver increased earnings in FY2014;(9)the 9 October 2013 announcement means the statement WOR published on 9 October 2013 to the effect that its first-half result would be lower than in the prior year, but that it affirmed the August 2013 earnings guidance statement: J [3];(10)the November 2013 revised earnings guidance means the statement WOR published on 20 November 2013 that (J [5]):On current indications the company now expects to report underlying NPAT for FY2014 in the range of $260 million to $300 million with first half underlying NPAT in the range of $90 million to $100 million;(11)the FY14 guidance representation means the representation alleged to have been conveyed by WOR publishing and maintaining its August 2013 earnings guidance statement that: (a) it expected to achieve NPAT in excess of $322 million in FY14, and (b) it had reasonable grounds to expect that it would achieve NPAT in excess of $322 million in FY14: J [23] and [624];2.1.3The allegedly non-disclosed material information(12)Material Information means the claim that WOR did not have a reasonable basis for making the August 2013 earnings guidance statement: J [20];(13)Earnings Expectation Material Information means the claim that WOR’s FY14 earnings were likely to fall materially short of the consensus expectation of professional analysts covering the ASX and WOR securities that WOR would deliver between approximately $354 and $368 million in NPAT for FY14: J [20];2.1.4WOR’s organisational structure(14)region means one of the following eight regions around the world into which WOR’s business was organised, known as ANZ (Australia New Zealand), CAN (Canada), ASCH (Asia and China), USAC (USA and Caribbean), LAM (Latin America), MENAI (Middle East, North Africa, India), EUR (Europe), and SSA (Sub-Saharan Africa): J [91]; (15)location means the business locations into which each region was divided, of which there were 43 in total. For example, the ASCH region comprised eight locations, while MENAI comprised seven locations: J [92].(16)CSGs means the three Customer Service Groups into which WOR allocated customers for FY14, being;(a)Hydrocarbons: being customers involved in extracting and processing oil and gas;(b)Minerals, Metals & Chemicals (MM&C): customers involved in extracting and processing mineral resources and manufacturing chemicals; and(c)Infrastructure: a consolidation of two sectors Infrastructure & Environment (customers involved in projects relating to water, the environment, transport, ports and site remediation and decommissioning) and Power (customers involved in power generation, transmission and distribution).There was a Managing Director for each CSG: J [93]-[94].(17)ExCo means the Executive Committee, which reported directly to Andrew Wood, WOR’s Chief Executive Officer (CEO), means the committee comprising Mr Wood and six Group Managing Directors (GMDs) who reported directly to Mr Wood, being Stuart Bradie (GMD Operations), Iain Ross (GMD Development), David Steele (GMD New Ventures), Randy Karren (GMD Improve), Barry Bloch (GMD People), and, from September 2013, Simon Holt, WOR’s Chief Financial Officer (CFO). The ExCo met at least monthly: J [97]-[100];(18)CEOC means the CEO’s Committee, comprising the members of ExCo, the CFO in the period when he was not formally on ExCo, eight Regional Managing Directors (RMDs) who reported to Mr Bradie, and three Managing Directors of the Customer Service Groups (CSGs). The CEOC’s role was only to advise Mr Wood, and it did not make decisions: J [33], [91]-[93], [100];(19)board means WOR’s board of directors. From 23 October 2012 and throughout the relevant period, Mr Wood was WOR’s only executive director. (20)A&RC means the Audit and Risk Committee of the board, comprised of board members;2.1.5The different types of work for budgeting purposes(21)secured work related to revenue from WOR’s portfolio of work in hand; where a signed contract for the work existed: J [112]; (22)unsecured work related to revenue from work described either as a “proposal”, “prospect” or “blue sky”; which had the following meanings:(a)proposals related to work for which WOR had submitted a tender or had received a request for a tender, where there was usually a proposed start date for the project within the forthcoming year. An assessment of “Go” and “Get” likelihood was made for proposals in order to risk weight forecasted revenue and costs for work that may not materialise. “Go” was a percentage figure representing the likelihood that the project would be undertaken at all. “Get” was a percentage figure representing the likelihood that WOR would be engaged for the work in the event that the project went ahead: J [116];(b)prospects related to tender processes for which WOR had not yet submitted a tender, or known projects where the tender process had not started. Budgeted revenue from “Prospects” was also discounted for “Go” and “Get” risks: J [117];(c)blue sky means estimated revenue from expected projects not identified at the time of forecasting. Mr Wood described “blue sky” as estimated revenue from expected projects based on discussions with customers and projects that are likely to materialise based on history and past experience, such as under a framework agreement. Denis Lucey, RMD of the ASCH region from 2011 to 2014, described it as an estimate of the value of projects which WOR expected to be engaged to undertake during the course of the financial year (other than secured work, proposals and prospects), based on a subjective assessment of the particular location’s historical performance and current market conditions and also taking into account WOR’s strategy for the coming year. Robert Ashton, RMD of the MENAI region from March 2013 to November 2016, described it as projects that were not known but were anticipated based on a combination of the operational history of the location, information obtained from customers or industry analysts and or anticipated market conditions. Blue sky was estimated at a numerical value and accounted for that value in the budget without any discount: J [41], [118]-[119];2.1.6Other(23)BEBIT means business earnings before interest and taxes.(24)EBIT means earnings before interest and tax.(25)the Holt memorandum means a memorandum from Mr Holt, CFO, to the A&RC dated 5 December 2013: J [74];(26)Michael Daly was WOR’s Global Director – Operations and Communications Support. He reported directly to Mr Holt: J [101]; (27)John Allen was WOR’s Global Director – Corporate Finance. He reported directly to Mr Holt: J [101];2.2 Key facts
Ratio Decidendi
Legal Principle Established
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