Crowley v Worley Limited

[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 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.

REASONS FOR JUDGMENT
CONTENTS:

Introduction	[1]
Mr Crowley and the group members	[16]
Outline of Mr Crowley’s case	[18]
Budget case	[20]
Pleaded case	[32]
Management adjustments case	[34]
Contingency against operational underperformance	[40]
Blue sky case	[41]
Contentions not pursued	[46]
Opening submissions	[47]
Final submissions	[49]
Performance case	[53]
Consensus case	[55]
Issues for determination	[57]
Legal principles concerning fact finding	[58]
Assessment of witnesses	[78]
Consensus expectation about WOR’s FY14 NPAT	[80]
Falling “materially short” of consensus expectation	[84]
Background to WOR FY14 budget	[88]
WOR’s business	[88]
WOR’s senior management structure	[96]
WOR’s officers within the meaning of the continuous disclosure provisions	[103]
Overview of WOR’s budget process and market guidance	[110]
Context for FY14 budget setting process	[121]
Vision 2017	[121]
WOR’s FY13 earnings guidance	[123]
WOR’s markets in the second half of FY13	[129]
February to May 2013: High level budget process	[135]
“Review calls” and “adjusted” HLB process (22 to 26 April 2013)	[139]
March 2013: Ojai conference and the “growth assumption”	[152]
March to May 2013: Bottom-up build and management reviews	[164]
Detailed budget compilation (3 to 27 May 2013)	[168]
27 May 2013 draft budget	[184]
June 2013 management adjustments	[197]
“First round” adjustments (29 to 31 May 2013)	[198]
31 May 2013 budget and acquisition stretch	[208]
31 May 2013 to 10 June 2013	[214]
“Second round” adjustments (11 to 17 June 2013)	[233]
“Third round” adjustments (CEOC overhead commitments) (21 to 25 June 2013)	[248]
Draft FY14 budget presented to Board (26 to 27 June 2013)	[258]
Mr Crowley’s criticisms of Board scrutiny	[271]
Post Board meeting (27 June to 17 July 2013)	[279]
Late July 2013 foreign exchange update and phasing “concern”	[282]
HOH phasing review	[288]
Approval of FY14 budget and August 2013 earnings guidance	[297]
FY14 Group Budget Board pack	[297]
A&RC approval of draft earnings guidance	[298]
Board approval of FY14 budget	[309]
Mr Crowley’s criticism of Board’s failure to make inquiries	[310]
Evidence of Messrs Wood, Ashton and Lucey	[311]
What was conveyed by the August 2013 earnings guidance statement?	[315]
Did the FY14 budget provide reasonable grounds for the August 2013 earnings guidance statement?	[321]
Pleaded case	[321]
Growth strategy	[321]
$88.6 million operational EBIT	[324]
First round adjustments	[330]
Second round adjustments	[333]
CEOC overhead commitments	[336]
Acquisition stretch	[341]
Contingency against operational underperformance	[343]
Failure to include adjustments for projected restructuring costs	[348]
Blue sky revenue forecasts	[350]
Inadequate or no review of forecasts before FY14 budget was approved	[350]
ASCH region	[352]
MENAI region	[360]
Conclusion	[375]
Unreasonable forecasts	[376]
ANZ region	[382]
SWO location of USAC	[396]
Argument based on Holt Memo interview notes	[400]
Closing submissions	[409]
Track record of underperformance against internal budget	[410]
FY13 earnings guidance downgrades	[416]
WOR’s major markets	[418]
Characteristics of the budget compiled by late May 2013	[422]
Management adjustments	[424]
$12 million acquisition stretch	[425]
FY14 budget was “not a true P50 budget”	[426]
Lack of risk-adjusted review	[427]
The eight matters considered together	[428]
Conclusions	[429]
2013 Annual Report	[430]
FY14 performance (August to September 2013)	[431]
July 2013 results (About 22 August 2013 to 9 September 2013)	[431]
2+10 forecast (early September 2013)	[436]
“Major reset” (21 September 2013)	[443]
EBIT Improvement Program	[450]
Late September 2013	[466]
CEOC and Board meetings (4 to 8 October 2013)	[488]
Market reaction	[503]
FY14 performance (mid-October 2013)	[505]
Late October 2013	[514]
Early November 2013	[535]
15 November 2013	[546]
19 and 20 November 2013	[561]
20 November 2013 revised earnings guidance	[567]
December 2013	[575]
Holt Memorandum	[575]
Content	[580]
Purpose of Holt’s inquiry	[595]
Conclusions that can be drawn from Holt Memorandum	[599]
ExCo 8 December 2013 meeting	[607]
A&RC (11 December 2013)	[608]
WOR FY14 actual results	[609]
Half year results	[609]
WOR FY14 final results	[611]
Continuous disclosure	[614]
Misleading or deceptive conduct	[621]
FY14 guidance representation	[624]
Representation with respect to future matter	[625]
Onus on WOR to adduce evidence of reasonable grounds for representation	[634]
Who relied on evidence to the contrary?	[641]
Evidence of reliance on evidence to the contrary	[643]
Conclusions	[646]
Listing Rule compliance representation	[652]
Risk management representation	[657]
Mr Crowley’s reliance evidence	[659]
Joint list of issues for determination	[678]
Costs	[700]

GLEESON J:

Introduction

1. In late November 2013, the price of ordinary shares in the respondent (WOR shares) fell approximately 26% on the company’s announcement of revised earnings guidance. That guidance was markedly different from the company’s 14 August 2013 announcement to the effect that WOR had a solid foundation for expecting earnings growth on the figure of $322 million, being WOR’s net profit after tax (NPAT) for the year ended 30 June 2013 (FY13).

2. WOR’s August 2013 earnings guidance statement, published on 14 August 2013 was as follows:

   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.

3. On 9 October 2013, WOR made a further relevant announcement to the market, 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 (9 October 2013 announcement).

4. The August 2013 earnings guidance statement was repeated on 10 and 15 October 2013.

5. WOR’s November 2013 revised earnings guidance, published on 20 November 2013, was in the following terms:

   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.

6. Looking back, the basis for the August 2013 earnings guidance statement is plainly open to question. What could have changed between 14 August 2013 and 20 November 2013 (just over three months) to cause WOR to revise its forecast so significantly? In early December 2013, WOR’s Chief Financial Officer (CFO), Simon Holt’s description of WOR’s budgeting/forecasting performance as “poor”, would reasonably strengthen a suspicion that the August 2013 earnings guidance statement might not have been well-founded.

7. The applicant (Mr Crowley) contended that the August 2013 earnings guidance statement forecast an earnings result that was unreasonably high, having regard to the information available to WOR at the time. Alternatively, Mr Crowley argued, even if the August 2013 earnings guidance statement could be justified when first made, by 21 September 2013, WOR was on notice that the year ending 30 June 2014 (FY14) was tracking far worse than expected and, accordingly, on that day (or in the days following) it should have issued revised guidance to the effect of the November 2013 revised earnings guidance.

8. WOR’s earnings guidance was based upon its internal FY14 budget, initially approved by WOR’s board of directors (Board) in August 2013. The FY14 budget forecast FY14 NPAT of $352 million. WOR contended that the FY14 budget was the result of a comprehensive, robust and detailed process.

9. Mr Crowley submitted that the FY14 budget did not provide a reasonable basis for the August 2013 earnings guidance statement because, in outline:

   … although the early part of the budget process – in May 2013 – can be regarded as a “bottom up build”, from the end of May 2013 the inputs from senior management went beyond “challenge” and pushed the Locations to forecast revenues and cost savings that in combination went beyond aggressive, to become plainly unreasonable and improbable of achievement. The budget also lacked a risk analysis that would have identified this serious overreach.

   …

   The initial bottom-up build from the Locations and Regions became distorted by a series of “challenges” from management, to which the Locations and Regions acquiesced because … the lower-level managers recognised that the targets were being set by senior management and they had to be reflected in the “forecasts”, one way or another. That was the practical reality of the demands expressed as “challenges”.

10. The expression bottom-up indicates the role of the individual locations and cost centres in the early construction of the draft budget.

11. Mr Crowley argued that “clinching support” for his case was to be found in the events leading to the November 2013 revised earnings guidance. Specifically, Mr Crowley referred to “two senior executives, working overnight on 18-19 November 2013 and bluntly stripping $97 million in projected earnings from the then-current FY2014 forecast”.

12. Mr Crowley’s case that was, by this activity, WOR removed so-called management adjustments (defined at [34] below) that had been made to the draft FY14 budget in late May and June 2013. In final submissions, Mr Crowley characterised the management adjustments as a series of top-down adjustments (that is adjustments by or at the behest of senior management) that aimed to increase operational EBIT (operational earnings before interest and tax) by $88.6 million. Mr Crowley also contended that “the essential effect was that the revenue line … was held too high, having regard to the expected market conditions and to the reductions being demanded for the costs line”.

13. Although hindsight plainly suggests that the FY14 budget may have been overly optimistic, for the reasons that follow, I am not persuaded by the available evidence that WOR’s FY14 budget lacked reasonable grounds when it was approved by the Board on 14 August 2013. It follows that I am not satisfied that WOR’s August 2013 earnings guidance statement lacked reasonable grounds. As explained below, these factual conclusions lead to the result that Mr Crowley’s primary “budget” case must fail.

14. Nor am I am satisfied that the position changed so that, by 21 September 2013, 9 October 2013, 10 October 2013 or 15 October 2013 (being the dates alleged by Mr Crowley), WOR lacked a reasonable basis for maintaining or failing to correct the August 2013 earnings guidance statement. Again, as explained below, the consequence is that Mr Crowley’s alternative “performance” case must fail.

15. Mr Crowley’s third case, the “consensus” case, was predicated on the existence of a consensus expectation of professional analysts covering the Australian Stock Exchange (ASX) and WOR shares, held between 14 August 2013 and immediately prior to the November 2013 revised earnings guidance, that WOR would deliver between $354 and $368 million in NPAT for FY14. Assuming in Mr Crowley’s favour the existence of that consensus expectation, his “consensus” case also fails because it required Mr Crowley to demonstrate that, while the so-called consensus expectation existed, WOR knew or ought to have known that its FY14 earnings would fall materially short of a range between $354 and $368 million. I am not satisfied that any relevant officer or officers of WOR, whose state of mind is to be attributed to WOR, had or ought to have had that knowledge or belief at any relevant time.

    Mr Crowley and the group members

16. Mr Crowley is a self-funded retiree and former accountant who manages his own share portfolio. Mr Crowley purchased 423 WOR shares on 4 October 2013 for a total consideration (including brokerage) of $10,046.59. On 30 May 2015, Mr Crowley sold all of his WOR shares for $2,755.70.

17. Mr Crowley brought the proceeding on his own behalf and on behalf of other persons (with the exception of those who opted out) who purchased WOR shares in the period between 14 August 2013 and 20 November 2013 (relevant period), and who allegedly suffered loss by reason of WOR’s conduct as pleaded in the fourth further amended statement of claim (4FASOC) filed on 28 August 2019, that is, the first day of the trial.

    Outline of Mr Crowley’s case

18. Analysed by reference to the alleged facts, Mr Crowley’s case involved the following three aspects:

    (1)the budget case;

    (2)the performance case; and

    (3)the consensus case.

19. 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

20. 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).

21. 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.

22. 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.

23. 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).

24. 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.

25. 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.

1. 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.

2. In Forrest v Australian Securities Investments Commission [2012] HCA 39; (2012) 247 CLR 486 at [102], Heydon J stated:

   … It is often said that to state an opinion one does not hold misleads the audience about one’s state of mind. That is understandable. It is also often said that to state an opinion which one does hold implies that one has reasonable grounds for holding it. In some circumstances that may be so, but why should it be so in all? Assume that two people are asked: “In your opinion, is that document a contract?”, one answers “Yes”, and the other answers “Yes, and I have reasonable grounds for that view.” The two answers are different. The first answer does not imply the second, unless there are special circumstances indicating that it should.

3. I accept Mr Crowley’s contention that the circumstances in which WOR made and repeated its August 2013 earnings guidance statement, including the fact that it was intended to convey information that would assist the market to understand WOR’s financial situation and that may have been material to an assessment of the value of WOR shares, were such that a reasonable person hearing or reading that statement was likely to understand WOR to convey that the company had reasonable grounds for the statement.

4. Accordingly, I accept that WOR made the FY14 guidance representation as pleaded, on the occasions pleaded.

5. At the core of Mr Crowley’s budget case is the proposition that the FY14 budget did not provide reasonable grounds for the August 2013 earnings guidance statement.

6. Mr Crowley alleged that the effect of the August 2013 earnings guidance statement (and the FY14 guidance representation conveyed by that statement) was that the trading price of WOR shares was higher than it otherwise would have been, and that the price was inflated from the time of the announcement until the corrective announcement on 20 November 2013.

   Pleaded case

7. The 4FASOC provides particulars in support of the allegation that the August 2013 earnings guidance statement lacked a reasonable basis. In summary, they concern:

   (1)The development of the FY14 budget during which it is alleged that WOR senior management:

   i.required Locations to reflect WOR’s FY14 “growth strategy” as determined by ExCo and CEOC without any or due regard to the market conditions referred to in (a) to (b) above [sic – there is no (a) to (b) above]

   ii.added $88.6m of operational EBIT, via the Management Adjustments, to the “bottom up” build of Location budgets;

   iii.included a $12m acquisition stretch to WOR’s EBIT figure without a proper basis;

   iv.did not include in the budget any contingency against operational underperformance, except the FX contingency (described in par.22B [of the 4FASOC]) based on short term fluctuations in FX spot rates that were inherently volatile, with the result that the FX contingency was not appropriate or reliable as a contingency for operational risk; and

   v.did not include any or adequate adjustments for projected restructuring costs arising from staff cuts made in order to implement the CEOC Commitments (as to reductions in overheads) or, after 15 October 2013, the termination of a further 1200 full time equivalent staff (FTE) as part of a redundancy program called ‘Project X’ and adopted by WOR to attempt to meet market earnings guidance…

   (2)The absence of any or any adequate critical review of blue sky revenue figures in the FY14 budget prior to its approval, to ensure that those figures were not inflated.

   (3)The claim that the FY14 budget included unreasonable amounts of blue sky revenue in WOR’s Australia New Zealand (ANZ) region and in the Southwest Ops (SWO) location of WOR’s USA and Caribbean (USAC) region.

   (4)The conclusion, from (1) to (3), that WOR did not have reasonable grounds for including in the FY14 budget a NPAT forecast materially higher than approximately $284 million; or alternatively for a profit guidance to the market of “growth” on its FY13 result of $322 million.

8. In particular (1)(i) above, CEOC is a reference to the CEO’s Committee, which was a committee comprising members of WOR’s senior management that advised WOR’s Chief Executive Officer (CEO), Andrew Wood. CEOC is described in more detail at [100] below.

   Management adjustments case

9. As to particular (1)(ii) above, the “Management Adjustments” are defined in the particulars to para 22B of the 4FASOC as follows:

   … [T]he FY14 Budget as approved by the Board … set a budget NPAT approximately $100m higher than the NPAT indicated by Locations’ forecasts (being $252m …) of which $68m was attributable to the adjustments, acquisition stretch and CEOC commitments (together Management Adjustments) …

10. Paragraph 22B of the 4FASOC alleges, relevantly, that by 14 August 2013, it was a fact that the FY14 budget would be “challenging to achieve”. Paragraph 22B set out the following particulars about the management adjustments:

    7)during the reviews in ‘6’, alternatively on or about 31 May 2013 at the time of compiling the Locations’ detailed budget submissions, Messrs Bradie and Daly instructed the Locations to include in their detailed budgets increased operational EBIT of $34.9m in total, resulting in the detailed budgets as compiled indicating a budgeted NPAT of $288.6m…;

    8)        further to the matters in ‘7’:

    a)on or about 7 June 2013, Mr Allen added to the budget $12m EBIT as a provision for additional operational EBIT generated through acquisitions during FY14 (acquisitions stretch)…; and

    b)on or about 12 June 2013, Messrs Bradie and Daly instructed a number of Locations to make further adjustments to their detailed budgets with the effect of increasing operational EBIT by $20.7m…;

    with the result that budgeted NPAT increased to $295m;

    9)        then further to the matters in ‘8’:

    a)on or about 17 June 2013, Mr Holt provided a draft budget to ExCo reflecting the outcome of the process particularised in ‘1’ to ‘8’ above and indicating an NPAT of $297m…;

    b)on or about 25 June 2013, a CEOC meeting resolved to include an additional $43.8m in overhead savings in the FY14 budget (CEOC commitments), of which $33m would be recorded in operational EBIT …;

    c)on or about 26 June 2013, Messrs Allen, Daly and/or Holt incorporated the FX spot rate as at 14 June as the assumed FX rate for FY14, with the result that $32m was added to the budget NPAT figure…;

    (Emphasis added)

11. As to (7) immediately above, Stuart Bradie was WOR’s Group Managing Director (GMD) of Operations. Michael Daly’s title was Global Director – Operations and Communications Support. As to (8), John Allen’s title was Global Director – Corporate Finance.

12. The figure of $88.6 million in particular (1)(ii) is the sum of the following three items referred to in the particulars to para 22B of the 4FASOC:

    (1)$34.9 million;

    (2)$20.7 million; and

    (3)$33 million.

13. The $68 million figure ([34] above) comprises the $88.6 million, less the $33 million for “CEOC commitments”, plus the $12 million acquisition stretch referred to in (8) of the particulars at [32] above.

14. In contrast with particular (1)(iii), particular (1)(ii) does not allege that the addition of $88.6 million to operational EBIT lacked a proper basis. This is consistent with para 22B of the 4FASOC, to which particular (1)(ii) refers, which only alleges that the FY14 budget would be “challenging to achieve”.

    Contingency against operational underperformance

15. As to particular (1)(iv) ([32] above), the “FX contingency” was also identified in the particulars to para 22B of the 4FASOC, as follows:

    [P]rior to the presentation of the final FY14 Budget to the Board on 13 August 2013, FX spot rate movements since June indicated a positive NPAT effect of up to $48m, which effect was booked to operational EBIT but (at the direction of Wood and Allen) was offset by a $16.1m “contingency” (FX contingency) resulting in no change to the $32m FX contribution to NPAT …

    Blue sky case

16. As explained in more detail below, blue sky is estimated revenue from projects not identified at the time of forecasting. As expressed in the 4FASOC, the first of the two allegations concerning blue sky revenue ([32](2) above) focuses on the absence of any or any adequate review of the estimates. It does not make a positive allegation that blue sky revenue forecasts were inflated by any particular amount.

17. Mr Crowley’s case as particularised was that the absence of a review could be inferred from the following two matters:

    (1)Mr Daly’s 7 November 2013 observation that “some locations added blue sky to increase their figures to maintain budget but increased overhead in line with this proportionately”.

    (2)Mr Daly’s “very critical” look at WOR’s operational EBIT forecast in November 2013, which led to his recommendation that the budget be changed in the following three respects:

    (a)$97 million of operational EBIT relating to blue sky revenue should be removed;

    (b)the $12 million acquisition stretch should be removed; and

    (c)a $10 million provision for the Arkutun-Dagi project ought to be taken against EBIT.

18. The case that the blue sky revenue forecasts were inflated, as expressed in the second particular ([32](3) above) concerning blue sky revenue, is limited to WOR’s ANZ region and the SWO location of the USAC region.

19. The 4FASOC states that, in these premises:

    (1)WOR did not have reasonable grounds for including in the FY14 budget an NPAT forecast materially higher than approximately $284 million; further or alternatively

    (2)WOR did not have reasonable grounds for a profit guidance to the market of “growth” on its FY13 NPAT result of $322 million.

20. The figure of $284 million is said by Mr Crowley to be the approximate sum of the 27 May 2013 forecast NPAT of $252 million plus an allowance for foreign exchange effects accrued between that time and the final budget.

    Contentions not pursued

21. In the 4FASOC, Mr Crowley removed the following earlier allegations:

    (1)WOR did not budget for the most reasonable and likely view of the outcome of the Imperial Oil Limited Aurora Tailings Management (IOL ATM) project in Canada.

    (2)WOR did not incorporate an appropriate business risk or integration contingency in respect of “TWP” in the Sub-Saharan Africa (SSA) region.

    (3)WOR did not budget for an appropriate provision of contingency in respect of an anticipated claim in relation to its Arkutun-Dagi project in the SWO location.

    Opening submissions

22. In opening, Mr Crowley contended that, over three rounds of management adjustments, approximately $100 million in operational EBIT was added to the bottom-up build of the FY14 budget. By the following process, WOR’s projected FY14 NPAT was increased from $252 million to $352.1 million:

    (1)the 27 May 2013 draft budget produced a forecast NPAT of $252 million;

    (2)Messrs Bradie and Daly then added $34.9 million in operational EBIT and Mr Allen added $12 million for acquisition stretch with the result that the budgeted FY14 NPAT was $288.6 million;

    (3)Messrs Bradie and Daly then added $20.7 million in operational EBIT with the result that budgeted FY14 NPAT increased to $295 million;

    (4)CEOC then resolved to include an additional $43.8 million in overhead savings in the FY14 budget, of which $33 million would be recorded in operational EBIT; and

    (5)$32 million was added to the budget NPAT figure using the current foreign exchange spot rate (Mr Crowley makes no complaint about this adjustment).

23. As opened, the case was that the management adjustments were “imposed” by senior management.

    Final submissions

24. In final submissions, Mr Crowley maintained the contentions that WOR did not have reasonable grounds on 14 August 2013:

    (1)for calculating, in the FY14 budget, an NPAT forecast materially higher than approximately $284 million; and

    (2)for giving guidance to the market to the effect of “growth” on its FY13 NPAT result of $322 million.

25. Further, Mr Crowley contended that a reasonable budget process would have forecast a FY14 result in the range $260 to $300 million, or in any event materially lower than the post-August 2013 analysts’ consensus promoted by WOR. This contention is similar to the following allegation that was deleted from the particulars to para 46(d) of the 4FASOC:

    iii.WOR did not have reasonable grounds for a profit guidance to the market materially higher than:

    …

    B alternatively to A, NPAT of around $296.9m (Jaski Reply Report, 163);

    …

    D … NPAT of between $260m-$300m, inclusive of redundancy costs, being the amount in “B” less the further adjustment determined during the Board meeting on 20 November 2013 on the grounds that the ExCo recommendation of a forecast of $280-300m was insufficiently conservative.

26. The “Jaski Reply Report” was an expert report that was ultimately not relied on by Mr Crowley.

27. Mr Crowley identified eight core factual matters in support of his contention that the FY14 budget did not in fact provide reasonable grounds for the earnings guidance (and that the Board and other officers of WOR ought reasonably to have recognised as much). The eight core factual propositions are as follows:

    (1)WOR had a consistent record of underperforming against its internal budget since FY09, with the sole exception of FY12, and had not materially changed its FY14 budget-setting process from previous years.

    (2)WOR had been required to downgrade its earnings guidance on two occasions in FY13 because of underperformance against its internal budget.

    (3)In early 2013, as the FY14 budget-setting process began, WOR’s major markets were either not growing, or were deteriorating, and the expectation was for continued uncertainty in its markets during FY14.

    (4)Between March and May 2013 the locations, together with the regional managing directors (RMDs) and managing directors of the customer service groups (CSGs), engaged in a thorough bottom-up budget process, with conscientious regard to “growth” and overhead reduction directives issued by senior management. The result was that the “detailed budget” compiled in very late May 2013 already incorporated stretch targets in respect of both revenue, and costs savings. Those targets were already optimistic, given market conditions.

    (5)In June and July 2013, when it became apparent that the actual bottom-up budget would not support WOR’s Vision 2017 objective of year-on-year growth in every year from FY13 to FY17 (set out in full at [121] below), senior management, by the so-called management adjustments, demanded a series of top-down adjustments that aimed to increase operational EBIT by $88.6 million. The locations duly stretched again to reflect the majority of those adjustments in their local budgets (however improbable they were and proved to be).

    (6)The FY14 budget included the $12 million acquisition stretch addition to EBIT that lacked a proper basis.

    (7)The FY14 budget was not a true P50 budget (explained at [114] below), but rather included no adequate allowance for the risks associated with continued slow markets and operational underperformance.

    (8)WOR’s budget process lacked a risk-adjusted review of its internal budget, particularly in relation to unsecured work, for the purpose of ensuring that any consequential guidance to the market properly reflected the risk associated with its stretch budget targets.

    Performance case

28. The performance case was put in the alternative to the budget case, against the possibility that the Court was not satisfied that the August 2013 earnings guidance statement lacked reasonable grounds. On this aspect of the case, Mr Crowley alleged that WOR’s actual performance in the early months of FY14 dissolved whatever hopes that had underpinned the FY14 budget. More specifically, Mr Crowley alleged that by late September 2013, WOR’s senior management was aware that the assumptions in the FY14 budget were failing but did not revisit those assumptions.

29. The performance case was that from 14 August 2013 and, specifically, on 9 October 2013, 10 October 2013 or 15 October 2013, WOR lacked a reasonable basis for maintaining the FY14 guidance representation and by failing to correct the August 2013 earning guidance statement (or the 9 October 2013 announcement), WOR engaged in conduct that was misleading or deceptive or likely to mislead or deceive.

    Consensus case

30. The consensus case, as described in this judgment, comprises the claims premised upon a proposition that WOR was aware of a consensus expectation of market analysts that it would deliver between approximately $354 and $368 million in NPAT for FY14. Mr Crowley put a case that WOR had this state of knowledge from 14 August 2013 and that WOR ought to have known that its earnings were likely to fall materially short of the consensus expectation from 14 August 2013. In the alternatively, Mr Crowley contended that by specific dates, being 21 September 2013, 9 October 2013, 10 October 2013 or 15 October 2013, WOR was or ought reasonably to have been aware that its FY14 earnings were likely to fall materially short of $354 million. By failing to disclose that information, Mr Crowley alleges, WOR contravened s 674 of the Corporations Act.

31. Mr Crowley explained that the key difference between the performance case and the consensus case is that even if a reasonable forecast for FY14 was, for example, an NPAT of $323 million, so as to constitute minimal “growth” over the FY13 result and therefore be “notionally compliant” with the August 2013 earnings guidance statement, nonetheless that result was still sufficiently below the consensus expectation that it was material information that was required to be disclosed to the market.

    Issues for determination

32. By order made on 3 December 2018, the trial was a hearing of Mr Crowley’s claim and of issues common to the claims of group members as agreed by the parties or determined by the Court. On 22 March 2019, subject to further order, the Court made an order identifying the list of issues common as between Mr Crowley and the group members and to be determined at the initial trial. The common issues are addressed at the end of these reasons for judgment, amended to incorporate terms used in the judgment.

    Legal principles concerning fact finding

33. Mr Crowley accepted that, in order to succeed, he must prove his case on the balance of probabilities in accordance with s 140 of the Evidence Act 1995 (Cth). By s 140(2), without limiting the matters that the Court may take into account in deciding whether it is satisfied that the case has been proved on the balance of probabilities, it is to take into account:

    (a)the nature of the cause of action or defence; and

    (b)the nature of the subject-matter of the proceeding; and

    (c)the gravity of the matters alleged.

34. The allegation that a publicly listed company did not have reasonable grounds for its earnings guidance is a relatively serious one. In Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, Dixon J (as his Honour then was) explained at 361-362:

    Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

1. Mr Crowley observed that inferences, whether drawn from documents or from the absence of contradictory evidence, are part of the process by which the Court determines whether it has been persuaded of a fact in issue to the requisite standard. In Transport Industries Insurance Company Ltd v Longmuir [1997] 1 VR 125 at 141, where the issue was whether the respondent was responsible for causing a fire, Tadgell JA (Winneke P and Phillips JA agreeing) explained:

   As will be seen, I respectfully differ from the learned [primary] judge upon several of the individual conclusions of fact which he drew from the evidence and which he considered to preclude a finding that the respondent was responsible for the fire. That aside, it should be said that, to assess the evidence in a case like this by reference to various individually-pleaded particulars, as though running through items on a check list, is apt to mislead. The evidence is to be evaluated as a whole in order fairly to consider whether the party bearing the onus of proof has established what is ultimately sought to be proved. The object of the exercise of evaluation is to discover whether the evidence paints a picture reflecting real life, rather than to place a tick or a cross against paragraph after paragraph of torpid pleading. A true picture is to be derived from an accumulation of detail. The overall effect of the detailed picture can sometimes be best appreciated by standing back and viewing it from a distance, making an informed, considered, qualitative appreciation of the whole. The overall effect of the detail is not necessarily the same as the sum total of the individual details …

   (Citations excluded)

2. This analysis was adopted by Tracey J in Mathai v Nelson [2012] FCA 1448; (2012) 208 FCR 165 at [46] and following, in deciding the question whether Mr Mathai had used certain funds to purchase properties.

3. Whether an inference should be drawn is decided by reference to the particular circumstances of the case. In G v H [1994] HCA 48; (1994) 181 CLR 387 at 390, Brennan and McHugh JJ explained:

   It is one thing to say that the Court may draw an inference; it is another to say what inference should be drawn. An inference is a tentative or final assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts. The drawing of an inference is an exercise of the ordinary powers of human reason in the light of human experience; it is not affected directly by any rule of law …

4. In that regard, the principle in Blatch v Archer (1774) 98 ER 969 at 970 may be relevant, namely, that “all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”.

5. Mr Crowley noted that, relatedly, in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 321, Windeyer J stated that, when a party who is capable of testifying, fails to give evidence without explanation “it may lead rationally to an inference that his evidence would not help his case”.

6. The failure to call a witness may also permit the Court to draw with greater confidence any inference that is unfavourable to the party that failed to call the witness, if that inference is open on the evidence and the uncalled witness appears to be in a position to cast light on whether the inference should be drawn: Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361, 384-385 at [63].

7. Mr Crowley observed that, by virtue of his position as a former shareholder of WOR, he has primarily sought to make his case at the initial trial from discovered documents while WOR is in possession of all available information concerning its FY14 budget and its performance against that budget. Mr Crowley did not make any complaint about the adequacy of discovery provided but observed that it was necessarily limited, including because of the passage of time, and because all information may not be recorded or recorded in documents that are now retrievable.

8. Mr Crowley acknowledged that neither Blatch v Archer nor Jones v Dunkel can be relied upon to “convert conjecture and suspicion into inference”: Fair Work Ombudsman v Hu [2019] FCAFC 133 at [56], but argued that, in the absence of clear evidence from WOR contradicting any inference available from the material relied upon by Mr Crowley for any particular fact in dispute, the Court may more readily draw the inference proposed by Mr Crowley.

9. Mr Crowley submitted that the documentary record in this case, taken as a whole, presents a picture which is not ambiguous but that WOR’s three lay witnesses had sought to “recharacterise” that record. Those witnesses were three senior executives: Mr Wood; Robert Ashton, the RMD of the Middle East, North Africa, India (MENAI) region from March 2013 to November 2016 and Denis Lucey, RMD of the Asia and China (ASCH) region from 2011 to 2014.

10. I do not accept either element of this submission, which is not supported by my detailed findings below. In summary, my impression was that the documentary record of the development of the FY14 budget is generally consistent with the evidence of WOR’s witnesses. The evidence that supports Mr Crowley’s case is mostly hindsight and is not supported by detail that might have contradicted the evidence of WOR’s witnesses in substantial respects.

11. Mr Crowley drew attention to WOR’s failure to call witnesses in the following three categories:

    (1)Persons who were “key” to the 2013 budget process but who are no longer employed by WOR, particularly Mr Bradie, Mr Holt and Ian Wilkinson, RMD of the ANZ region at the relevant times.

    (2)Persons whose current employment is not known, particularly Mr Daly.

    (3)WOR employees and members of the Board, whose affidavits were served but who were not ultimately called. This included John Grill, the Board Chairman and Mr Allen.

12. Mr Crowley referred to In the matter of HIH Insurance Limited (In Liq) [2016] NSWSC 482; (2016) 335 ALR 320 at [33], in which Brereton J rejected a submission that the former CFO of HIH, Mr Fodera, was not in the defendants’ camp. His Honour inferred that Mr Fodera knew that the treatment of certain arrangements was incorrect according to proper accounting practice and standards and would create a misleading appearance of profitability. His Honour noted that, as a former officer, Mr Fodera was obliged to assist the liquidators and “he would much more naturally be called by the defendants to deny that he had guilty knowledge than by the plaintiffs to confess that he did”.

13. At a general level, I accept that WOR’s failure to call the witnesses identified by Mr Crowley may provide support for one or more adverse inferences. However, it is necessary to address the issue by reference to particular inferences and the available evidence for and against any proposed inference.

14. Mr Crowley identified as a significant proposed inference:

    … that the descriptions of the budget-setting process recorded in the interview notes collated for the purposes of Mr Holt’s memorandum prepared for the Audit and Risk Committee of the Board (and comprising Board members) (A&RC) on 5 December 2013 (what became known at trial as the Holt Memorandum) were an accurate description of the process actually followed.

15. The interview notes (Holt Memo interview notes), which accompany the Holt Memorandum addressed by Mr Holt to the A&RC and dated 5 December 2013, are just that: 14 pages of bullet pointed observations, some of which are attributed to particular individuals but others of which are unattributed. There is no reason to doubt that they are an accurate record of the interviews that they record; or that they reflect opinions genuinely held (although Mr Lucey did not remember the discussion recorded in the notes and Mr Ashton had only a limited recollection). However, the meaning of the notes is very often unclear, as is the basis upon which interviewees expressed their opinions. For example, the notes include the following:

    Strategy

    •  Location managers can only do so much

    •  Probably react by cutting costs

    •  If the market is declining there is not much to manage and there is not much that the location manager can do

    •  You need to Grow market share but that is a medium to long term strategy

    •  How do you grow by 10% in a flat market?

    •  Reality is that strategy change will only benefit in the new few years

    •  Where is the revenue going to come from

    Financial Realities

    •  Over the last couple of years we have been bled down

    •  Underlying performance vs release of provisioning (headline performance)

    •  In the current cycle we are struggling to turn

    Mal practice

    •  Little evidence of deliberate mal practice

16. By way of a further example, the following notes appear under the heading “Process”:

    •  Recognition of BlueSky

    •  Sum of the Locations does not equal Actual

    •  Multiple passes at forecast and reforecasts trying to get to a more palatable outcome

    •  Desire to get rid of the sandbagging

    •  Cultural pressure for Reforecasts to hold the line on budgets

    •  Culture of fear if they tell the truth with consequence of staff cuts

    •  Underlying performance vs Headline performance

    •  People put in number which look right rather than are right

    •  Exco will make the decision anyhow, and they WILL be asking for more

    •  There are too many people budgeting!!

    •  We budget too often

    •  Lack of transparency, if it is bad we have to know it is going bad!!!

    •  Push to Grow regardless of actual trading conditions and cycle

    •  Every budget has a perceived target which requires bluesky with great deal of uncertainty

    •  Higher and higher BlueSky with lower and lower probabilities leads to falling behind on actuals

    •  Nervous about the degree of BlueSky in the budget

    •  General recognition of P50 trending now to P25

    •  Some budgetary risk not provisions in final budget outcomes

    •  We do not have very good location controls and location level transparency to challenge and provide commercial oversight

17. And under the heading “How can we improve the process”

    …

    •  With hindsight we would have attacked the overheads at the locations earlier

    •  Unrealistically high BlueSky number with little proper risk assessment

    •  What is the minimum we can spend globally since the cost base is too high

    •  The actual budget process is good we just need to risk assess it better

    •  We get a good first cut and then talk it up

    •  We are setting hurdles which are way too high

    •  …

    •  We have to stop kidding ourselves on revenue and take out costs quickly before the lag of 3, 4 or sometimes 6 months

    …

18. These notes certainly indicate possible significant defects in the FY14 budget setting process and, ultimately, the FY14 budget. However, ultimately, it is necessary to look at all the available evidence concerning the process to determine whether WOR’s failure to call one or more witnesses supports an adverse inference based on documentary evidence (including the interview notes) or the oral evidence of Messrs Wood, Ashton and Lucey, each of whom was cross-examined by counsel for Mr Crowley.

    Assessment of witnesses

19. As explained below, I concluded that Mr Crowley was a truthful witness.

20. I formed favourable views of the credibility of each of Messrs Wood, Ashton and Lucey. Each of these witnesses gave evidence that was forthright and generally responsive to the questions asked of them in cross-examination. Each appeared to be experienced and knowledgeable about WOR’s business and the budget setting process within their respective areas of responsibility. I was satisfied that they were truthful and candid witnesses and I generally accepted the evidence given by each of them.

    Consensus expectation about WOR’s FY14 NPAT

21. Paragraph 22D of the 4FASOC alleges:

    By 14 August 2013 WOR was aware, and it was the fact, that at all material times between 14 August 2013 and immediately before the 20 November 2013 Announcement and 20 November 2013 Presentation, the consensus expectation of professional analysts covering the ASX and WOR Securities was that WOR would deliver between approximately $354 and $368m in NPAT for FY14 (FY14 WOR Earnings Expectation).

22. As noted below, both WOR and professional analysts commenting on WOR made reference to “consensus” forecasts of WOR’s NPAT. The ASX also referred to “consensus estimate” in the following passage of its ASX Listing Rules Guidance Note 8:

    ASX does not believe that a listed entity has any obligation, whether under the Listing Rules or otherwise, to correct the earnings forecast of any individual analyst or the consensus estimate of any individual information vendor to bring them into alignment with its own internal earnings forecast.

23. The evidence did not refer to any consensus expectation of NPAT expressed as a range. Rather, the evidence identified consensus NPAT figures as follows:

    (1)“Average analyst consensus” of $374.6 million and “Bloomberg NPAT consensus at 17th June 2013” as $359.4 million in WOR’s FY14 Draft Group Budget pack dated 26 June 2013 (see [263], [264] and [306]);

    (2)On 15 August 2013, Macquarie Equities Research stated, in relation to its forecast of WOR’s FY14 NPAT, “Consensus is similar at $368m” (see [320]);

    (3)On about 24 September 2013, the FY14 August financial report ExCo pack stated “FY14 internal forecast NPAT of $352.1m is $12.5m or 3.5% below the average analyst estimate of $364.6m” (see [469]);

    (4)On 19 October 2013, Mr Holt received the “Finance Report – ExCo September FY14” slide pack which recorded an average of analysts earnings estimates of $353.6 million and noted the Bloomberg consensus of $356.3 million (see [504]).

24. This evidence suggests that there was no single consensus expectation of professional analysts during the relevant period. However, WOR considered that there was a consensus expectation of professional analysts covering the ASX and WOR Securities throughout the relevant period, calculated by WOR to be $364.6 million on about 24 September 2013 and $353.6 million on about 19 October 2013.

    Falling “materially short” of consensus expectation

25. Mr Crowley’s case included an allegation that, by no later than 14 August 2013 or (alternatively) 21 September 2013, 9 October 2013 or 15 October 2013, WOR’s FY14 earnings were likely to fall materially short of the FY14 WOR Earnings Expectation pleaded in para 22D of the 4FASOC, set out at [80] above.

26. In final submissions, Mr Crowley submitted that “materiality” is likely to connote a change between 5% and 10%. For the purpose of its case, WOR noted that throughout the relevant period, WOR’s internal forecasts were estimating its full year earnings to be within 5% of the pleaded “consensus estimates”.

27. In TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Ltd [2019] FCA 1747 (Myer) at [1166], Beach J found that information that the forecast NPAT in that case would be “materially lower” meant at least 5% lower, and rejected Myer’s contention that it was closer to 15% lower. His Honour referred to Guidance Note 8 which, during the relevant period stated relevantly:

    ASX would therefore recommend that an entity consider updating its published earnings guidance for the current reporting period if and when it expects its earnings for the period to differ materially from that guidance. For these purposes, ASX would suggest that entities apply the guidance on materiality in Australian Accounting and International Financial Reporting Standards, that is:

    •  treat an expected variation in earnings compared to its published guidance equal to or greater than 10% as material and presume that its guidance needs updating; and

    •  treat an expected variation in earnings compared to its published guidance equal to or less than 5% as not being material and presume that its guidance therefore does not need updating,

    unless, in either case, there is evidence or convincing argument to the contrary. Where the expected variation in earnings compared to its published earnings guidance is between 5% and 10%, the entity needs to form a judgment as to whether or not it is material. Smaller listed entities or those that have relatively variable earnings may consider that a materiality threshold of 10% or close to it is appropriate. Very large listed entities or those that normally have very stable or predictable earnings may consider that a materiality threshold that is closer to 5% than to 10% is appropriate.

    This recommendation is purely a suggestion to assist listed entities in determining if and when they should be updating their published earnings guidance. The mere fact that an entity may expect its earnings to differ from its published guidance by more (or less) than a particular percentage will not necessarily mean that its guidance is (or is not) misleading.

    (Footnotes omitted)

28. 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

29. 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.

30. 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).

31. 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.

32. 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.

33. 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.

34. 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).

35. There was a CSG managing director for each of the CSGs.

36. 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

1. From 23 October 2012 and throughout the relevant period, Mr Wood was CEO and WOR’s only executive director. The other members of the Board were Mr Grill (Chairman), Ron McNeilly (Deputy Chairman), Christopher Haynes OBE, Erich Fraunschiel, Catherine Livingstone AO, Xiao Bin Wang, JB McNeil, Larry Benke and John Green.

2. During the relevant period, the following executives reported directly to Mr Wood:

   (1)CFO, Mr Holt;

   (2)GMD Operations, Mr Bradie;

   (3)GMD Development, Iain Ross;

   (4)GMD New Ventures, David Steele;

   (5)GMD Improve, Randy Karren; and

   (6)GMD People, Barry Bloch.

3. The eight RMDs reported to Mr Bradie.

4. The CSG managing directors reported to Mr Ross. They were Brian Evans (Hydrocarbons), Andy Cole (Infrastructure) and Mark Southey (MM&C).

5. There were three management committees of relevance to this proceeding:

   (1)The Board, which operated on a consensus basis and for which Mr Wood prepared a monthly CEO report or a CEO summary providing information on the prior month. There were two key sections of the CEO Report and CEO Summary: (i) a report of market conditions, which the CSG managing directors assisted in preparing; and (ii) a report on operational performance, which Mr Bradie had input into, assisted by the RMDs.

   (2)The Executive Committee (ExCo), which comprised Mr Wood and his six direct reports from September 2013. Prior to that time, it comprised those individuals except Mr Holt. The ExCo met at least monthly.

   (3)The CEOC, which comprised ExCo, the CFO (when not formally in ExCo), the eight RMDs and the three CSG managing directors. As Mr Wood explained it, the CEOC was an advisory group that provided him with advice and support. Many of the key business leaders at WOR were on the CEOC. The CEOC was not a decision-making body.

6. Mr Crowley referred to the following two other executives in particular:

   (1)Mr Daly, who was “effectively the financial lead for Mr Bradie”. As previously noted, Mr Daly’s title was Global Director – Operations and Communications Support. Mr Daly reported to Mr Holt but Mr Wood had direct formal and informal discussions with him.

   (2)Mr Allen, also reported to Mr Holt but, again, Mr Wood had direct formal and informal discussions with him. As previously noted, Mr Allen’s title was Global Director – Corporate Finance.

7. WOR monitored its financial performance through, among other things, monthly financial reports that detailed actual monthly financial performance and were typically finalised approximately two to three weeks after the end of each month. These monthly financial reports were provided both to the Board and ExCo.

   WOR’s officers within the meaning of the continuous disclosure provisions

8. The definition of “officer” in s 9 of the Corporations Act (which applies to the ASX Listing Rules pursuant to r 19.3) is as follows:

   “officer” of a corporation means:

   (a)       a director or secretary of the corporation; or

   (b)       a person:

   (i)who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or

   (ii)who has the capacity to affect significantly the corporation’s financial standing; or

   (iii)in accordance with whose instructions or wishes the directors of the corporation are accustomed to act …

9. There is no dispute that each of the members of the Board, including Mr Wood, was an “officer” of WOR at the relevant times.

10. WOR also admitted that Mr Bradie was an officer of WOR, and that Mr Holt was an officer of WOR from September 2013, when he became a member of ExCo.

11. Mr Wood’s affidavit identified Mr Holt as CFO during the period 1 February to 19 November 2013. The Board minutes identify Mr Holt as CFO on 12 February 2013. On this evidence, and having regard to Mr Holt’s leading role in the development and finalisation of the FY14 budget, I find that Mr Holt was an officer of WOR from at least 1 February 2013.

12. Mr Crowley also contended that Messrs Allen and Daly were officers of WOR at the relevant times.

13. As Mr Crowley has failed in his case that WOR lacked a reasonable basis for its August 2013 earnings guidance statement to the market prior to the corrective disclosure on 20 November 2013, the issue (identified by Mr Crowley) of whether any WOR officer ought reasonably to have recognised the lack of such a basis does not arise.

14. Accordingly, it is unnecessary to decide whether either Mr Allen or Mr Daly was an officer of WOR within the meaning of the Corporations Act at any relevant time.

    Overview of WOR’s budget process and market guidance

15. WOR admitted that, at all material times, it reported:

    (1)on a consolidated basis for itself and its controlled entities;

    (2)earnings as EBIT and profit as NPAT; and

    (3)revenue as “aggregated revenue” which it defined as “statutory revenue and other income plus share of revenue from associates less procurement services revenue at nil margin, interest income and net gain on revaluation of investments previously accounted for as equity accounted associates”.

16. Mr Wood’s evidence was that WOR’s earnings guidance from time to time was based on its expected NPAT, calculated by reference to the company’s internal budgets and forecasts and business strategy for the financial year. The Board approved all earnings guidance given to the market. It was the practice of the Board, when forming its opinion regarding earnings guidance, that it also approved the internal budget on which the guidance was based. Mr Wood’s evidence was that “we work very hard in framing our guidance such that it gives a clear indication of our expectations of the business’s performance and where we sit in the market”. He agreed with Mr Holt’s December 2013 statement that “we have done a good job at year end of guiding the analysts to a consensus that is approaching our budgeted figure”.

17. As outlined in Mr Wood’s affidavit, WOR’s annual budget setting process broadly followed the following steps:

    (1)In around March, a strategy session that involved identifying what was happening in the markets in which WOR operated, where the opportunities were and where the company should direct its efforts. The business presented a picture of expectations around sector or location market changes. The strategic plan was typically set in March and communicated to the Board in April. The strategic plan provided a framework for the budget process.

    (2)A bottom-up build of the draft budget, involving each location considering and assessing anticipated revenues and costs or each project of contract. The bottom-up build was based on WOR’s portfolio of work in hand (referred to as “secured work”) and estimates for “unsecured work” which consisted of “proposals”, “prospects” and blue sky.

    (3)Between March and June, the location draft budgets were reviewed by the RMDs, the Regional Finance Directors (RFDs), the CSG managing directors and ExCo. Thus, the bottom-up build was subject to top-down review and CSG “side-check”.

    (4)In June, the draft budget was presented to the Board, with ExCo members, RMDs, CSG managing directors and other budget owners who stated their budget expectations for their own regions or sectors. The strategic plan was also presented to the Board for discussion.

    (5)In August, the budget (typically closely aligned with the draft budget presented in June) was approved by the Board. The Board would also typically (and in August 2013 did) approve a separate directional guidance to be released to the ASX, indicating WOR’s expectation as to its earnings for the coming year.

18. This broad outline does not identify how WOR’s non-operational overheads are incorporated into the annual budget. WOR’s business structure included Global Functions, which were non-revenue generating cost centres. WOR’s Global Management Reporting FY14 Budget Global Instructions (FY14 budget instructions) indicate that Global Functions budgets were prepared separately from the location draft budgets. Global Functions costs totalled $437.4 million in the FY14 budget.

19. WOR professed to adopt the P50 parameter to produce its budgets. Mr Wood explained that P50 is the probabilistic Monte Carlo analysis of the statistical confidence level for an estimate. As Mr Wood put it, P50 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.

20. In relation to “unsecured work”, WOR defined the different categories as follows.

21. “Proposal” related to tenders for which WOR had bid, or had received a request for tender information. Usually, there was 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.

22. “Prospect” related to tender processes for which WOR had not yet submitted a bid, or known projects where the tender process had not started. Budgeted revenue from “Prospects” was also discounted for “Go” and “Get” risks.

23. Blue sky was described by Mr Wood as 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. Mr Lucey described blue sky 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. Mr Ashton described blue sky 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.

24. Blue sky was estimated at a numerical value and accounted for that value in the budget without any discount.

25. The following financial terms were used in WOR’s budgeting documents:

    (1)Revenue is WOR’s direct income from professional services.

    (2)Costs of sales are deducted from the revenue figure to arrive at the gross margin (or GM).

    (3)From the gross margin, each location deducted location-specific overheads to arrive at a “business earnings before interest and taxes” (BEBIT) figure.

    (4)The total of BEBIT figures was operational EBIT. Operational EBIT is a metric that reflects the underlying performance of WOR’s business exclusive of head office expenses.

    (5)WOR’s total group EBIT is calculated by deducting its global head office or Global Function costs from operational EBIT.

    (6)NPAT is determined primarily by deducting corporate tax from group EBIT (at an effective tax rate of approximately 30%).

    Context for FY14 budget setting process

    Vision 2017

26. In its 2012 annual report, released in August 2012, WOR recorded its Vision 2017 strategy as follows:

    OUR VISION

    It is 2017 ……..

    •  We consistently deliver high quality engineering, consulting, project and Improve services and as a result have become a world leader

    •  We have a recognized and valued position with our customers

    •  We are an admired employer

    •  We have a facilitating organizational structure

    As a consequence of these attributes, we have enjoyed good growth, year-on-year for the last five years.

27. WOR’s Improve business provided asset maintenance services.

    WOR’s FY13 earnings guidance

28. Also in the 2012 annual report, WOR reported an underlying NPAT excluding fair value gain on acquisitions for 2012 of $345.6 million, “an increase of 15.8% on the $298.5 million net profit reported in 2011”. The annual report made the following statements about growth:

    (1)“we have enjoyed good growth, year-on-year for the last five years”;

    (2)Under the heading “10 years of growth”:

    Looking to the future, WorleyParsons will endeavour to continue to deliver to our shareholders through our vision of being the preferred global provider of technical, project and operational support services to our customers and using the distinctive WorleyParsons culture to create value for them and prosperity for our people and stakeholders.

    (3)In the “Chairman’s Review”:

    Our growth during the year was underpinned by strong capital spending by major global customers and strengthening of our global relationships with these customers. The ever growing demand for energy is driving the unconventional oil and gas sector, where we have seen strong growth in oil sands, shale gas and coal seam methane, in Canada, the USA and Australia.

    Developing markets were also a significant driver of growth as large global clients continue to invest in projects in countries where the bulk of the world’s undeveloped resources lie.

29. On 29 August 2012, WOR made an announcement to the ASX which included the following statement:

    Subject to the markets for our services remaining strong, we expect to achieve good growth in FY2013 compared to FY2012 underlying earnings.

    We have a clear growth strategy in place focused on improving margins and developing our skill set and geographic footprint across our four customer sectors. This will be achieved through organic growth as well as by taking advantage of acquisition opportunities that provide value for shareholders.

    We are confident that our medium and long term prospects remain positive based on our competitive position, our diversified operations and strong financial capacity.

30. On 13 February 2013, WOR made an announcement to the ASX which included the following statement:

    Volatility in commodity prices impacted the market for our services and our growth in the first half. The markets for our services improved towards the end of the period and we continue to expect growth for FY2013 on FY2012 underlying earnings.

31. Mr Crowley described this statement as a qualitative downgrade from “good growth” to “growth”.

32. On 17 May 2013, WOR issued a trading update to the ASX, stating:

    WorleyParsons Limited (“the Company”) provides a trading update and updated earnings guidance for the year to 30 June 2013.

    At the Company’s half year results announcement on 13 February 2013 WorleyParsons provided guidance for FY2013 of growth compared to FY2012 underlying earnings. The company now expects to report a net profit after tax in the range of $320 million to $340 million compared to FY2012 underlying earnings of $345.6 million.

    The West Australian business has been impacted by the softening of demand for resource infrastructure as clients defer major projects and implement cost management initiatives. This has particularly impacted the company’s Infrastructure & Environment and Minerals, Metals & Chemicals business.

    In addition, the company’s fabrication and construction business in Canada, WorleyParsonsCord, has been impacted by a softening in construction activity in the Canadian oil sands market and will not achieve the growth previously expected.

    Outperformance in a number of other markets will serve to largely offset the decline experienced in Western Australia. The company continues to achieve outperformance in the Chemicals sector, particularly in China and Brazil, and growth in the Hydrocarbons sector has continued, particularly in the Improve business in Canada.

    Commenting, Chief Executive Officer, Andrew Wood, said: “Despite weaker than anticipated market conditions impacting the second half result we continue to have confidence in the medium and long term growth prospects of our business.

    “The diversity of our business in terms of its geography, industry sector and service offering is a fundamental driver of this confidence. While Western Australia and WorleyParsonsCord have underperformed, a number of regions are performing strongly, particularly the United States, Canada and China. As existing assets age, new assets come online and regulatory requirements increase, we continue to see increased demand for our Improve services”.

33. On 14 August 2013, WOR announced NPAT of $322 million for FY13, down 7% on the previous year.

    WOR’s markets in the second half of FY13

34. Mr Wood said that, coming out of the Global Financial Crisis (GFC), WOR experienced a period of growth in both the resources and hydrocarbons markets “on the back of very high resource prices and high levels of activity”. His evidence referred to an “incredibly turbulent period” in which it was very difficult to budget and forecast. I understood FY13 and FY14 to be part of the period of turbulence. Concerning FY13, Mr Wood said:

    What we saw in FY13 was, even though – we saw a rapid falloff in key-resource prices and, basically, the minerals-and-metals market pretty much calling a halt to further development, and that impacted our business. But at the same time, we saw significant activity in the hydrocarbons market and that, with high oil prices, and an outlook, continued outlook from most of the major forecasters and our customers that they expected that to continue. So it’s a – was an incredibly turbulent period, and then we found what we then led into was the biggest crash in activity levels and prices for a couple of generations, in the following year. That’s the period we were trying to fore-cast in. It’s [an] exceptionally difficult time.

35. Concerning WOR’s various markets by early 2013, Mr Wood’s undisputed evidence was that:

    (1)Hydrocarbons was broadly stable;

    (2)the minerals and metals part of MM&C continued to struggle, and was particularly affected by delays and deferrals on major projects, especially in Australia;

    (3)the chemicals part of MM&C was fine, especially in the USA and China;

    (4)the infrastructure and environment sector was continuing to struggle in some places; and

    (5)the power business was “okay”.

36. Mr Wood said that power, infrastructure, and minerals and metals were each overall small contributors to EBIT, while “Hydrocarbons was the big one”. This evidence is consistent with Mr Crowley’s view that the Hydrocarbons sector was one of the “primary financial engines” of WOR.

37. Mr Crowley submitted that, having regard to the state of WOR’s markets, “it is clear that estimates for blue sky revenue could not reasonably have been expected to match the estimates that had been adopted for the FY2013 year (and as we have seen, were not achieved). At the very least, blue sky projections that were of similar magnitude to prior years should have been seen as already ‘aggressive’ targets”.

38. This submission was not made out by the available evidence. In particular, the proposition that blue sky revenue targets for FY13 were not achieved was not the subject of supporting analysis on behalf of Mr Crowley. Further, it is far from clear that the FY14 blue sky revenue targets for the Hydrocarbons CSG (which contributed approximately 70% of revenue in 2013), could not reasonably have been expected to match FY13 estimates, where that business was “broadly stable”.

39. At this point, Mr Crowley also noted the general proposition that WOR’s capacity to win and complete blue sky work was affected by its spend on staff and overheads. Mr Crowley contended that “[i]f costs are cut then the ability to earn the blue sky is impaired”. No doubt, WOR could have cut costs in a way that would impair its ability to earn blue sky revenue. However, I do not accept that cost cutting impaired WOR’s ability to earn blue sky revenue without some analysis of the precise impact of cuts on WOR’s revenue earning capacity.

    February to May 2013: High level budget process

40. In the light of Mr Crowley’s case, it is not necessary to make detailed findings about the high level budget (HLB) process. Mr Crowley noted that it was a new process at WOR.

1. By s 4(2) of the Australian Consumer Law, for the purpose of applying s 4(1), WOR is taken not to have had reasonable grounds for making the FY14 guidance representation unless evidence is adduced to the contrary. Section 12BB(2) of the ASIC Act operates in a similar way in relation to s 12BB(1).

2. Mr Crowley raised the following issues:

   (1)Whether the evidence adduced by WOR is, properly assessed, “evidence to the contrary” so as to discharge the low threshold set by the deeming provision.

   (2)Whether upon all the evidence there were reasonable grounds for the August 2013 earnings guidance statement.

3. As to (1), Mr Crowley referred to the following statement in Sykes v Reserve Bank of Australia (1988) 88 FCR 511; [1998] FCA 1405 at 513 (concerning s 51A of the Trade Practices Act 1974 (Cth), the predecessor provision to s 4 of the Australian Consumer Law):

   If there was a representation as to a future matter, s 51A requires the representor to show:

   •  some facts or circumstances

   •  existing at the time of the representation

   •  on which the representor in fact relied

   •  which are objectively reasonable and

   •  which support the representation made.

4. In McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230 at [191], Allsop J (as his Honour then was) explained that that a provision of this kind “required evidence ‘to the contrary’ to be adduced, that is evidence that tended to establish, or that admitted of the inference that there were, reasonable grounds for making the representation, before the deeming provision ceased to operate”.

5. At [192], his Honour added:

   If evidence is adduced by the representor that is said to be evidence to the contrary, it will be for the Court to determine whether it is to the contrary in the sense just discussed. If it is, the deeming provision will cease to operate. … if evidence “to the contrary” is adduced by the representor, and if the representee itself adduces evidence tending to the lack of reasonable grounds, the matter might be equally poised. In such a case, there has been evidence “to the contrary” adduced by the representee, thereby eliminating the operation of the deeming provision, and, on the totality of the evidence, the proof of the reasonableness (or lack thereof) of the grounds is evenly balanced. Section 51A(2) does not, in my view, mean that in those circumstances the representor has not met an onus. The section does not cast the legal or persuasive onus, in such a case, on the representor. Its terms do not say so. The enactment history makes clear that the terms were deliberately chosen not to say so.

6. See also Botany Bay City Council v JazabasPty Ltd [2001] NSWCA 94 at [84] and Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 at [128].

7. Mr Crowley contended that it was necessary for WOR to identify the relevant decision makers who relied on the asserted evidence to the contrary; and to prove that the asserted evidence to the contrary was in fact relied on by those decision makers.

   Who relied on evidence to the contrary?

8. Mr Crowley submitted, and I accept, that the relevant inquiry is whether WOR’s senior executives (particularly Messrs Wood and Holt) and the Board were aligned in their expectation that WOR would achieve increased earnings in FY14.

9. 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

10. 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.

11. 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.

12. 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

13. On the available evidence, WOR through its Board considered that its stated expectation was held on reasonable grounds, being the FY14 budget.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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

19. 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.

20. 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).

21. Mr Crowley alleged that these representations were conveyed expressly by the 2013 annual report, in the passages set out at [430] above, and were made impliedly, on the basis of WOR’s continuous disclosure obligations and the absence of any statement by WOR in the relevant period to the effect that it had not complied with its continuous disclosure obligations.

22. WOR denied that it made representations. I do not accept that the representations were conveyed by the 2013 annual report as alleged. The annual report identifies processes by which WOR endeavoured to manage risk and comply with its continuous disclosure obligations. In my view, a reasonable reader would not understand the report to convey either the disclosure representation or the reasonable enquiry representation in the absence of clear words to the effect of those representations. The 2013 annual report does not contain clear words to that effect.

23. In the absence of detailed argument as to the effect of the continuous disclosure obligations taken together with the absence of any statement of non-compliance with the obligations, I do not make a finding as to whether the alleged representations were otherwise made.

    Risk management representation

24. I accept that, by section 3.3 of the WOR 2013 annual report (set out at [430] above), WOR represented to the affected market that it had effective management and internal control systems to identify, assess and manage the group’s material financial and non-financial business risks and report those risks to the board.

25. Based on the findings set out above, WOR did not engage in conduct in contravention of any of s 1041H of the Corporations Act, s 12DA(1) of the ASIC Act or s 18 of the Australian Consumer Law because the evidence does not demonstrate that it did not have effective management and internal control systems of the kind that WOR claimed to have had.

    Mr Crowley’s reliance evidence

26. Mr Crowley’s affidavit evidence was that he has relied on his investments to generate ongoing income and capital growth since 2003. His affidavit evidence in relation to his share trading practice was:

    (1)Mr Crowley’s main source of information when researching a company for share trading is company ASX announcements and company financial reports.

    (2)Mr Crowley had due regard to any forward looking statements in the Chairman’s report and the CEO’s report in the annual and half yearly reports when making investment decisions.

    (3)Mr Crowley’s objectives for his overall share portfolio are to generate a base of income producing stocks, and to seek long-term and, from time to time, short to medium term capital gains and to obtain the benefit of franking credits.

27. In about 2005, Mr Crowley placed WOR on a “watch list” on his online broker service. He had previously invested in WOR around that time and made a capital gain.

28. Mr Crowley received alerts when WOR issued ASX announcements. He generally reviewed all financial announcements made by companies on his watch list.

29. In his affidavit, Mr Crowley stated that he recalled reviewing WOR’s 14 August 2013 full year results announcement and the 2013 annual report around the time they were published. Mr Crowley also stated that he recalled reading the August 2013 earnings guidance statement in both the results announcement and the annual report. Mr Crowley recalled “forming the overall impression that, despite there being some volatility in the market for WOR’s services, the management of WOR was confident about its earnings outlook and that it had a growth strategy in place”.

30. In cross-examination, Mr Crowley did not recall reading either of these two documents, but stated that he would have done so.

31. According to his affidavit, after reading the 14 August 2013 full year results announcement and the 2013 annual report, Mr Crowley continued to monitor WOR’s share price with a view to buying shares “at an opportune time”.

32. In cross-examination, Mr Crowley agreed that his interest in WOR shares was not “enlivened” by his review of the 14 August 2013 full year results announcement and the 2013 annual report. The cross-examination revealed that Mr Crowley had acquired and disposed of 17 separate parcels of shares in WOR (amounting to 6779 shares in total). In respect of 11 of these transactions, Mr Crowley held the shares for less than 10 days. In respect of four transactions, Mr Crowley held the shares for one day or less. It was also revealed in cross-examination that Mr Crowley had traded in WOR shares in the weeks prior to the 1 October 2013 purchase by:

    (1)disposing of a parcel of 433 WOR shares on 17 September 2013;

    (2)disposing of a parcel of 720 WOR share on 18 September 2013;

    (3)acquiring and disposing of a parcel of 467 WOR shares on 23 and 24 September 2013.

33. From 27 September 2013, WOR’s share price began to decline. According to his affidavit, Mr Crowley formed the view that this presented a good opportunity to buy shares in WOR as he believe that the share price was likely to rebound in the near to medium term which would allow him to make a capital gain. If that did not occur, Mr Crowley believed that WOR would be a good addition to his portfolio to provide capital gain and income over the longer term.

34. Mr Crowley stated: “It’s a share that I was always going to be interested in, if – if I got it for a good price”.

35. In his affidavit at [24]-[25], Mr Crowley stated:

    Because my primary goal in purchasing WOR shares at this time was to obtain a short to medium term capital gain, my decision to purchase the shares was based in large part on the positive growth statements in the Financial Results and the Annual Report (and the absence of any “warning sign” or negative statements which might suggest near term developments which would adversely affect the share price). As discussed above, WOR’s subsequent announcements concerning its new contracts gave me additional confidence in the Outlook Statement in the Annual Report and Results Announcement.

    If at any time during the period from 14 August 2013 to the time of my purchase on 1 October 2013 WOR had expressed any significant doubts about its earnings growth prospects for FY 2014, I am confident that I would not have purchased its shares. As I was primarily trading this share for short to medium capital gain, any suggestion of near to medium term volatility in the share price would have put me off purchasing it. I generally only purchase shares which appear to have positive growth prospects.

36. When Ms Harris QC suggested to Mr Crowley that what WOR told the market on 14 August 2013 had nothing to do with his decisions after that date to buy or sell WOR shares, Mr Crowley replied:

    It probably strengthened on those – that – those reports come out, what the 14^th? It probably strengthened my resolve that the company was in good shape.

37. This answer suggested that Mr Crowley was not definite that WOR’s communications to the market on 14 August 2013 had in fact affected the relevant share trading decisions.

38. When asked again, Mr Crowley was more positive. The relevant passage of the evidence was as follows:

    Ms Harris QC: Do you agree with me that – when you look at all of the transactions to which I have taken you, that what Worley told the market on 14 August 2013 had nothing to do with your decisions after that date to buy or sell Worley shares? That is correct, isn’t it?

    Mr Crowley: No, it isn’t.

    Ms Harris QC: It isn’t?

    Mr Crowley: It’s not my – that’s your opinion, not mine.

39. However, when directed to the 1 October 2013 purchase, Mr Crowley gave the following evidence:

    Ms Harris QC: Mr Crowley, I want to put to you that you did not acquire Worley shares on 1 October 2013 because you had gained confidence in the growth prospects of the company through the announcements it had made to the market. That’s the first thing I want to put to you.

    Her Honour: Is that true or false?

    Mr Crowley: It could have been just the share price.

    Ms Harris QC: It could have been - - -?

    Mr Crowley: It could have been a dive in the market or something. I thought they looked cheap and I jumped in and got them. I would have had to have spare cash available. That’s – that’s all I can really say.

    Ms Harris QC: It’s in the same – that acquisition was in the same category as all of the other acquisitions that we have seen, wasn’t it? You see an opportunity and you take it?

    Mr Crowley: Yes.

40. In re-examination, there was the following exchange:

    Mr Armstrong QC: Mr Crowley, can I ask you the question again. As you sit here today, do you now recall what, if any, role the company’s August 2013 outlook guidance played in your decision to purchase WorleyParsons shares on 1 October 2013?

    Mr Crowley: Well, it wasn’t too bad a result at that stage, and if you look at the charts, the projection of the company was to go up. So, yes, that reinforced some of my views.

41. Thus, in cross-examination, Mr Crowley acknowledged that he may not have relied on the August 2013 earnings guidance statement in deciding to purchase WOR shares on 1 October 2013, and may have relied only on the share price. In re-examination, when given the opportunity to re-affirm his reliance on the August 2013 earnings guidance statement, Mr Crowley’s evidence was unclear.

42. WOR contended that the Court should treat Mr Crowley’s affidavit evidence of reliance with “extreme caution”. I accept that the omission from Mr Crowley’s affidavit of facts concerning his historical trading in WOR shares, particularly between 14 August 2013 and 1 October 2013 casts a degree of doubt as to his frankness. However, I do not conclude that Mr Crowley was less than frank in his affidavit. Having observed him giving oral evidence, I was satisfied that Mr Crowley was a truthful witness and I do not doubt that he gave truthful evidence in his affidavit.

43. Mr Crowley acknowledged that his primary goal was to sell his package of WOR shares for a profit. In cross-examination, it was revealed that Mr Crowley agreed that he purchased WOR shares on 23 September 2013 with a view to making a quick profit, that is, a profit within a year of the purchase.

44. Having accepted that Mr Crowley gave truthful evidence in his affidavit, I accept that he read both the August 2013 earnings guidance statement and the statement to similar effect in the 2013 WOR annual report around the time that they were published. I also conclude that, notwithstanding Mr Crowley’s acknowledgement that it is possible that the decision could have been made on “just the share price”, on the balance of probabilities, Mr Crowley did rely on WOR’s statements to the effect of the August 2013 earnings guidance statement in deciding to purchase the 423 WOR shares on 1 October 2013.

    Joint list of issues for determination

45. Based on the findings above, the issues common as between Mr Crowley and the group members, set out in Annexure B of orders made on 22 March 2019 as amended to correspond with terms used in these reasons for judgment, are determined as follows:

    Continuous disclosure case

46. Question 1: At any time during the relevant period, was it the fact that WOR did not have a reasonable basis for making the August 2013 earnings guidance statement?

    Answer 1: No.

47. Question 2: If the answer to 1 is “yes”, was WOR “aware” within the meaning of r 19.12 of the ASX Listing Rules of the Material Information (being that WOR did not have a reasonable basis for making the August 2013 earnings guidance statement) at any time during the relevant period (and if so, when)?

    Answer 2: Not applicable.

48. Question 3: At all material times between 14 August 2013 and immediately before WOR's November 2013 revised earnings guidance, was it a fact that the consensus expectation of professional analysts covering the ASX and ordinary shares in WOR, that WOR would deliver between $354 and $368 million in NPAT for FY2014?

    Answer 3: No.

49. Question 4: If the answer to paragraph 3 above is “yes”, by 14 August 2013, was WOR aware of the expectation described in Question 3?

    Answer 4: Not applicable. However, WOR was aware of the facts found at [87].

50. Question 5: At any time during the relevant period, was it the fact 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?

    Answer 5: No.

51. Question 6: If the answer to paragraph 5 above is “yes”, was WOR “aware” within the meaning of r 19.12 of the ASX Listing Rules of the Earnings Expectation Material Information (being 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) at any time during the relevant period (and if so, when)?

    Answer 6: Not applicable.

1. Question 7: Did WOR at any time prior to 20 November 2013 become obliged pursuant to r 3.1 of the ASX Listing Rules to tell the ASX of the Material Information and/or the Earnings Expectation Material Information?

   Answer 7: No.

2. Question 8: Did WOR contravene s 674(2) of the Corporations Act by not informing the ASX of:

   (a)the Material Information on 14 August 2013, 21 September 2013, 9 October 2013 or 15 October 2013; and/or

   (b)the Earnings Expectation Material Information on 14 August 2013, 21 September 2013, 9 October 2013 or 15 October 2013?

   Answer 8: No.

   Misleading or deceptive conduct case

3. Question 9: Was the FY14 guidance representation a representation as to future matters and, if so, in what respects?

   Answer 9: Yes, to the extent only that it conveyed the representation that WOR expected to achieve NPAT in excess of $322 million in FY14.

4. Question 10: Throughout the relevant period, alternatively in the period from 9 October 2013, 10 October 2013 or 15 October 2013 to the end of the relevant period:

   (a)in so far as the FY14 guidance representation was a representation as to present matters, was it misleading or deceptive, or likely to mislead or deceive; and

   (b)in so far as the FY14 guidance representation was a representation as to future matters, was it made without a reasonable basis?

   Answer 10: No.

5. Question 11: By making the FY14 guidance representation, did WOR engage in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 1041H(1) of the Corporations Act; s 12DA(1) of the ASIC Act and/or s 18 of the Australian Consumer Law during all or any part of the relevant period (and if so, when)?

   Answer 11: No.

6. Question 12: By making the August 2013 earnings guidance statement, did WOR contravene s 1041H(1) of the Corporations Act; s 12DA(1) of the ASIC Act and/or s 18 of the Australian Consumer Law during all or any part of the relevant period (and if so, when)?

   Answer 12: No.

7. Question 13: By publicly releasing the announcements listed in 4FASOC para 57, did WOR represent to the affected market that:

   (a)it had told or given the ASX all the information it was required to tell or give under the ASX Listing Rules; and/or

   (b)it 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,

   (individually and together, the Listing Rule compliance representations)?

   Answer 13: See [656] above.

8. Question 14: If WOR made the Listing Rule compliance representations, in so doing did it contravene s 1041H(1) of the Corporations Act; s 12DA(1) of the ASIC Act and/or s 18 of the Australian Consumer Law during all or any part of the relevant period (and if so, when)?

   Answer 14: No.

9. Question 15: By making the statements contained in the WOR Annual Report 2013 under the heading “3.3 MANAGEMENT OF MATERIAL BUSINESS RISKS” (risk management statement) (set out at [430]), did WOR represent to the affected market that it had effective management and internal control systems to identify, assess and manage the group’s material financial and non-financial business risks and report to those risks to the board (risk management representation)?

   Answer 15: Yes

10. Question 16: If WOR made the risk management representation, in so doing, did it contravene s 1041H(1) of the Corporations Act; s 12DA(1) of the ASIC Act and/or s 18 of the Australian Consumer Law during all or any part of the relevant period (and if so, when)?

11. Answer 16: No.

12. Question 17: By making the risk management statement, did WOR contravene s 1041H(1) of the Corporations Act; s 12DA(1) of the ASIC Act and/or s 18 of the Australian Consumer Law during all or any part of the relevant period (and if so, when)?

    Answer 17: No.

    Causation, loss and damage

13. Question 18: During the relevant period, did or any of the above contraventions cause the market price for WOR securities to be substantially greater than:

    (a)their true value; and/or

    (b)the market price that would have prevailed but for the above contraventions (or any of them), and if so, by how much?

    Answer 18: Not applicable. There were no contraventions.

14. Question 19: In the decision to acquire WOR shares did Mr Crowley rely directly on the FY14 guidance representation, the August 2013 earnings guidance statement and its repetition on 9, 10 and 15 October 2013, the Listing Rule compliance representation, the risk management representation or the risk management statement?

    Answer 19: Mr Crowley relied on the August 2013 earnings guidance statement made on about 14 August 2013 in making his decision to acquire WOR shares on 1 October 2013. Otherwise, no.

15. Question 20: Has the Mr Crowley suffered loss and damage in relation to his interest in WOR securities by and resulting from his reliance on the above contraventions?

    Answer 20: Not applicable. There was no contraventions.

    Costs

16. Subject to any application that might be made by WOR for a special costs order or costs, costs should follow the event.

I certify that the preceding seven hundred (700) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gleeson.

Associate:

Dated:       22 October 2020