Crowley v Worley Limited

Case [2020] FCA 1522

Federal Court of Australia

Crowley v Worley Limited [2020] FCA 1522

File number: NSD 1292 of 2015
Judgment of: GLEESON J
Date of judgment: 22 October 2020
Catchwords: CORPORATIONS – representative proceedings – listed securities – continuous disclosure obligations under ASX listing rule 3.1 – misleading or deceptive conduct relating to securities – whether WOR had a reasonable basis for earnings guidance statement – no contraventions found
Legislation:

Competition and Consumer Act 2010 (Cth) Sch 2, ss 4, 18

Australian Securities and Investments Commission Act 2001 (Cth) ss 12BB, 12DA

Corporations Act 2001 (Cth) ss 111AE, 111AL, 111AP, 674, 675, 676, 677, 1041H

Evidence Act 1995 (Cth) s 140
Cases cited:

Blatch v Archer (1774) 98 ER 969

Botany Bay City Council v JazabasPty Ltd [2001] NSWCA 94

Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304

Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58

Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199

Fair Work Ombudsman v Hu [2019] FCAFC 133

Forrest v Australian Securities Investments Commission [2012] HCA 39; (2012) 247 CLR 486

G v H [1994] HCA 48; (1994) 181 CLR 387

GIO Australia Holdings Ltd v AMP Insurance Investment Holdings Pty Ltd [1998] FCA 1486; (1998) 29 ACSR 584

Global Sportsman Pty Ltd v Mirror Newspapers Ltd [1984] FCA 180; (1984) 2 FCR 82

In the matter of HIH Insurance Limited (In Liq) [2016] NSWSC 482; (2016) 335 ALR 320

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361

Mathai v Nelson [2012] FCA 1448; (2012) 208 FCR 165

McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230

Sykes v Reserve Bank of Australia (1988) 88 FCR 511; [1998] FCA 1405

Ting v Blanche [1993] FCA 524; (1993) 119 ALR 543

TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Ltd [2019] FCA 1747

Transport Industries Insurance Company Ltd v Longmuir [1997] 1 VR 125

Willett v Thomas [2012] NSWCA 97
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 700
Date of hearing: 28-30 August 2019; 2-5, 9-13, 16, 19, 20, 23 September 2019; 9-12 December 2019
Counsel for the Applicant: L Armstrong QC, G Donnellan and A Edwards
Solicitor for the Applicant: ACA Lawyers
Counsel for the Respondent: W Harris QC, R Craig SC and J Findlay
Solicitor for the Respondent: Herbert Smith Freehills

ORDERS

NSD 1292 of 2015
BETWEEN:

LARRY CROWLEY

Applicant
AND:

WORLEY LIMITED (ACN 096 090 158)

Respondent

order made by:

GLEESON J

DATE OF ORDER:

22 October 2020

THE COURT ORDERS THAT:

1.The issues common as between the applicant and the group members and to…

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Crowley v Worley Limited [2020] FCA 1522
Case
[2020] FCA 1522
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CaseChat Overview and Summary

Crowley v Worley Limited is a case before the Federal Court of Australia, which centres on allegations of misleading and deceptive conduct and breaches of continuous disclosure obligations by Worley Limited (WOR), a professional services provider listed on the Australian Securities Exchange (ASX). The plaintiff, Mr. Crowley, contends that WOR contravened statutory rules against misleading and deceptive conduct by making, repeating, and maintaining certain financial guidance representations between August and October 2013. Specifically, he argues that WOR did not have a reasonable basis for its earnings guidance statement and failed to disclose material information that would have impacted the value of WOR shares.

The central legal issues in this case revolve around whether WOR had a reasonable basis for its FY14 earnings guidance representations and whether it contravened its continuous disclosure obligations under the Corporations Act and ASX Listing Rules. Mr. Crowley asserts that WOR's FY14 budget did not support the earnings guidance and that WOR should have disclosed this to the ASX. He further argues that WOR's board and senior management failed to exercise reasonable scepticism in their assessment of the budget, thereby lacking a reasonable basis for the guidance statements. Additionally, Mr. Crowley claims that WOR made representations regarding its compliance with ASX Listing Rules, which were allegedly misleading.

The court found that WOR, through its Board, had a reasonable basis for its FY14 guidance representations, as the FY14 budget was developed through a reasonable process. The court rejected Mr. Crowley's arguments that the budget process was unreasonable and that the Board lacked scepticism in its consideration of the budget. The evidence did not support the contention that the FY14 budget integers were unreasonable or unjustifiable, despite some indications of pressure to grow revenue and earnings. The court also concluded that WOR did not contravene its continuous disclosure obligations, as it found no evidence to suggest that WOR's FY14 NPAT was likely to fall materially short of the consensus expectation as alleged by Mr. Crowley.

Based on the findings, the court dismissed Mr. Crowley's claims, holding that WOR did not contravene any statutory rules against misleading and deceptive conduct or its continuous disclosure obligations. The court ordered that the originating application and the fourth further amended statement of claim be dismissed and that Mr. Crowley pay WOR's costs of the proceeding, subject to certain conditions.

Orders

Orders of the court

1. The issues common as between the applicant and the group members and to be determined at the initial trial, identified by order made on 22 March 2019 be amended in the terms set out at [678] and following of the accompanying reasons for judgment, to correspond with terms used in the accompanying reasons for judgment.

2. The originating application and the fourth further amended statement of claim be dismissed.

3. Provided that the respondent does not file an application for a different costs order or orders, and subject to any costs order previously made, the applicant pay the respondent’s costs of the proceeding.

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

Background

Background to the litigation

For the purposes of considering this aspect of Mr Crowley’s case, I have adopted Beach J’s approach in Myer. Accordingly, the relevant question is whether at the pleaded dates, WOR’s FY14 NPAT was likely to fall materially short of (more than 5% below) the following figures:(1)by no later than 14 August 2013, $368 million (that is, below $349.6 million);(2)by no later than 21 September 2013, $364.6 million (that is, below $346.37 million);(3)by no later than 9 October 2013, $364.6 million (that is, below $346.37 million);(4)by no later than 15 October 2013, $364.6 million (that is, below $346.37 million).Background to WOR FY14 budget WOR’s business WOR is a professional services provider to customers in the resources, energy and infrastructure sectors. Its customers include multinational oil and gas, resources and chemicals companies, as well as more regionally and locally focussed companies, national oil companies and government owned utilities. At all relevant times, WOR was listed on the ASX. As at 30 June 2013, it had 246.5 million ordinary shares on issue. WOR admitted that it was: (1)a corporation included in the official list of the financial market operated by ASX and whose securities are enhanced disclosure (ED) securities for the purposes of s 111AE of the Corporations Act; (2)subject to and bound by the ASX Listing Rules; (3)a listed disclosing entity within the meaning of s 111AL(1) of the Corporations Act; (4)a trading corporation within the meaning of the ASIC Act; and (5)a corporation within the meaning of the Competition and Consumer Act 2010 (Cth). During FY13, WOR operated out of 165 offices in 43 countries and employed approximately 39,800 people. During FY14, WOR operated out of 157 offices in 46 countries and employed approximately 35,600 people. At the relevant times, WOR’s business was organised into the following eight regions, each headed by a RMD:(1)ANZ (as previously noted Mr Wilkinson was RMD of ANZ);(2)Canada (CAN);(3)ASCH (as previously noted Mr Lucey was RMD of ASCH);(4)USAC;(5)Latin America (LAM);(6)MENAI (as previously noted Mr Ashton was RMD of MENAI); (7)Europe (EUR); and(8)SSA. Each region was divided into locations, of which there were 43 in total. For example, the ASCH region comprised eight locations, while MENAI comprised seven locations. For FY14, WOR allocated customers to three CSGs:(1)Hydrocarbons: being customers involved in extracting and processing oil and gas;(2)“Minerals, Metals & Chemicals” (MM&C): customers involved in extracting and processing mineral resources and manufacturing chemicals; and(3)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 CSG managing director for each of the CSGs. According to WOR’s 2013 annual report, the Hydrocarbons sector contributed 70% of WOR’s aggregated FY13 revenue. Considered by region, ANZ, CAN and USAC together generated 67% of aggregated FY13 revenue. Mr Crowley described the Hydrocarbons sector and the ANZ, CAN and USAC regions as the “primary financial engines” of WOR. ANZ comprised four locations, CAN comprised six locations and USAC comprised five locations. WOR’s senior management structure

Evidence

Evidence Before The Court

Mr Crowley contended that it is relevant to consider the state of mind of the Board collectively and Mr Wood individually. I accept that it is appropriate to consider each of these.Evidence of reliance on evidence to the contrary In his final submissions, Mr Crowley stated that it was not in dispute that the Board and Mr Wood relied on the outcome of the FY14 budget process as the basis for the August 2013 earnings guidance statement and the FY14 guidance representation. As set out above, I have not found that the FY14 budget was deficient. Accordingly, I reject Mr Crowley’s contentions that the budget process was not reasonable and that the Board did not have a reasonable basis for relying on it. Further, I am not persuaded that the Board was insufficiently sceptical or inquisitive: in particular, I do not accept that the available Board minutes support that inference. In the absence of substantial evidence that the Board’s consideration of the draft FY14 budget was deficient, I do not consider that significant weight should be attached to the fact that none of Board members gave evidence except Mr Wood. Accordingly, I do not accept that ss 4(2) or 12BB(2) operates so that WOR is to be taken not to have had reasonable grounds for making the FY14 guidance representation at any relevant time.Conclusions On the available evidence, WOR through its Board considered that its stated expectation was held on reasonable grounds, being the FY14 budget. Further, the Board of WOR and Mr Wood individually had reasonable grounds for the FY14 guidance representation at all relevant times, being the FY14 budget. On the available evidence, the process by which the FY14 budget was developed was reasonable, contrary to Mr Crowley’s contention. Specifically, and addressing Mr Crowley’s closing written submissions, although there is some evidence (particularly in the Holt Memo interview notes) that senior management may have applied unreasonable pressure to locations to grow revenue, grow earnings and reduce overheads, the evidence does not show that particular integers or portions of the FY14 budget were overstated or understated so as to be unreasonable or unjustifiable. Mr Crowley identified reasons for the Board to have approached the FY14 budget with scepticism, such as WOR’s historical performance against budget and the available knowledge concerning market conditions in August 2013. However, the evidence does not demonstrate that the Board was not duly sceptical in its consideration of the WOR budget. Nor does the evidence demonstrate that a more sceptical approach would probably have led the Board to conclude that the FY14 budget should not be approved. The position did not change materially for WOR’s Board between 14 August 2013 and 20 November 2013. That is, there was no circumstance in that period that led the Board to lack a reasonable basis for maintaining or reiterating the FY14 guidance representation. It follows that Mr Crowley has failed to demonstrate that WOR contravened any of the statutory rules against misleading and deceptive conduct by making, repeating and maintaining the FY14 guidance representation.Listing Rule compliance representation

Decision

Reasons for decision

Accordingly, I do not accept that ss 4(2) or 12BB(2) operates so that WOR is to be taken not to have had reasonable grounds for making the FY14 guidance representation at any relevant time.Conclusions On the available evidence, WOR through its Board considered that its stated expectation was held on reasonable grounds, being the FY14 budget. Further, the Board of WOR and Mr Wood individually had reasonable grounds for the FY14 guidance representation at all relevant times, being the FY14 budget. On the available evidence, the process by which the FY14 budget was developed was reasonable, contrary to Mr Crowley’s contention. Specifically, and addressing Mr Crowley’s closing written submissions, although there is some evidence (particularly in the Holt Memo interview notes) that senior management may have applied unreasonable pressure to locations to grow revenue, grow earnings and reduce overheads, the evidence does not show that particular integers or portions of the FY14 budget were overstated or understated so as to be unreasonable or unjustifiable. Mr Crowley identified reasons for the Board to have approached the FY14 budget with scepticism, such as WOR’s historical performance against budget and the available knowledge concerning market conditions in August 2013. However, the evidence does not demonstrate that the Board was not duly sceptical in its consideration of the WOR budget. Nor does the evidence demonstrate that a more sceptical approach would probably have led the Board to conclude that the FY14 budget should not be approved. The position did not change materially for WOR’s Board between 14 August 2013 and 20 November 2013. That is, there was no circumstance in that period that led the Board to lack a reasonable basis for maintaining or reiterating the FY14 guidance representation. It follows that Mr Crowley has failed to demonstrate that WOR contravened any of the statutory rules against misleading and deceptive conduct by making, repeating and maintaining the FY14 guidance representation.Listing Rule compliance representation Mr Crowley stated that his case based on this alleged representation rises and follows on his success on the cases addressed above. As those cases have failed, it is unnecessary to address this aspect of the case in any detail. The alleged Listing Rule compliance representation contravention case was that WOR made the following two representations to the affected market, being investors and potential investors in WOR shares, in several public statements and communications between 14 August 2013 and 15 October 2013:(1)WOR had told or given the ASX all the information it was required to tell or give under the ASX Listing Rules (disclosure representation); and/or (2)WOR had undertaken all necessary and reasonable investigations before making representations as to the state of its business and accounts and had satisfied itself on reasonable grounds following those investigations that its public statements were substantially accurate and not misleading or deceptive in any respect (reasonable enquiry representation).

Ratio Decidendi

Legal Principle Established

Analysed by the pleaded laws, Mr Crowley’s case alleged contraventions of:(1)WOR’s “continuous disclosure obligations” which arose under s 674 of the Corporations Act2001 (Cth) (Corporations Act) and r 3.1 of the ASX Listing Rules.(2)Proscriptions on misleading or deceptive conduct in s 1041H of the Corporations Act, s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and or s 18 of the Australian Consumer Law (being Schedule 2 of the Competition and Consumer Act 2010 (Cth)).Budget case Mr Crowley’s budget case is first predicated on allegations that, by no later than 14 August 2013:(a)WOR did not have a reasonable basis for making the August 2013 earnings guidance statement (defined in the 4FASOC as Material Information); and(b)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 (defined in the 4FASOC as Earnings Expectation Material Information). Mr Crowley alleged that, in circumstances pleaded in the 4FASOC, by no later than 14 August 2013, WOR became obliged pursuant to Listing Rule 3.1 to tell the ASX the Material Information and or the Earnings Expectation Material Information. There is no dispute that WOR did not tell the ASX either of these matters. Mr Crowley alleges that, by this failure, WOR contravened s 674 of the Corporations Act which, in summary, required disclosure to the market of information that was not generally available and that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of WOR shares. In support of the alleged contraventions, Mr Crowley ultimately alleged that the Board of WOR and other “officers” of the company, within the meaning of the Corporations Act, ought reasonably to have recognised that the FY14 budget did not support the August 2013 earnings guidance statement. Next, Mr Crowley made a case based on the allegation that, by making (and then maintaining) the August 2013 earnings guidance statement, WOR represented that:(1)it expected to achieve NPAT in excess of $322 million in FY14; and(2)it had reasonable grounds to expect that it would achieve NPAT in excess of $322 million in FY14, (individually and together the FY14 guidance representation). By its defence, WOR admitted that it made the FY14 guidance representation to the extent that WOR represented that it expected to achieve NPAT in excess of $322 million in FY14 in its August 2013 earnings guidance statement and repeated this statement on 9, 10 and 15 October 2013. WOR also admitted that, by the August 2013 earnings guidance statement and the repetition of that statement, WOR represented that it had a basis for expecting that it would achieve NPAT in excess of $322 million in FY14. In closing submissions, WOR acknowledged that, by conveying an opinion, WOR also conveyed that WOR had a basis that it considered reasonable for the opinion. However, WOR disagreed that it conveyed that it had reasonable grounds for expecting to achieve NPAT in excess of $322 million, relying on the following observation of the Full Court in Global Sportsman Pty Ltd v Mirror Newspapers Ltd [1984] FCA 180; (1984) 2 FCR 82 at 88:An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion.