FEDERAL COURT OF AUSTRALIA
Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328
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Details
- AGLC
- Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328
- Case
- [2015] FCA 328
- Decision Date
CaseChat Overview and Summary
Earglow Pty Ltd commenced proceedings against Newcrest Mining Ltd alleging breaches of s 674 of the Corporations Act 2001 (Cth) in relation to the disclosure of certain information to the Australian Securities Exchange (ASX). The case before the court was Newcrest Mining Ltd's application seeking orders that would require the identification and accelerated adjudication of two additional sample group members' claims for the first stage trial. The key legal issues were the scope and application of s 33ZF of the Federal Court of Australia Act 1976 (Cth) and whether evidence of institutional investors would be relevant to the first stage trial. The court found that the orders sought by Newcrest were not necessary or appropriate, as they were not conducive to the resolution of the proceeding "as quickly, inexpensively and efficiently as possible." The court also held that evidence of institutional investors could be relevant to the first stage trial in establishing the materiality of the information and the statutory requirement of s 677 of the Corporations Act.
The court dismissed Newcrest Mining Ltd's application and ordered that the costs of all parties of and incidental to the respondent’s application be their costs in the cause. The decision highlights the importance of considering the efficiency and effectiveness of case management in securities class actions, as well as the relevance of evidence related to institutional investors in establishing materiality and causation in such proceedings.
The court dismissed Newcrest Mining Ltd's application and ordered that the costs of all parties of and incidental to the respondent’s application be their costs in the cause. The decision highlights the importance of considering the efficiency and effectiveness of case management in securities class actions, as well as the relevance of evidence related to institutional investors in establishing materiality and causation in such proceedings.
Orders
Orders of the court
1. The respondent’s application seeking the identification and adjudication of two additional sample group members’ claims for the first stage trial be dismissed.
2. The costs of all parties of and incidental to the respondent’s application be their costs in the cause.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Notwithstanding my initial attraction to the convenience and utility of the orders sought by Newcrest, I have determined that its application should be refused. BACKGROUND(a) The proceedings and its history In 2013 and 2014, the Australian Securities and Investments Commission (ASIC) carried out an investigation into the conduct of Newcrest which culminated on 2 July 2014 in the imposition of pecuniary penalties against Newcrest as set out in Australian Securities and Investments Commission v Newcrest Mining Limited (2014) 101 ACSR 46; [2014] FCA 698 (the ASIC proceeding). In the ASIC proceeding, ASIC alleged that Newcrest had engaged in two contraventions of s 674(2) of the Corporations Act 2001 (Cth) (the Corporations Act). The alleged contraventions related to a failure to disclose to the Australian Securities Exchange (ASX), Newcrest’s total expected gold production and capital expenditure for the financial year ending 30 June 2014 (FY14). Specifically, it was alleged that:(a)Newcrest had contravened s 674(2) on and from 12.05 pm on 28 May 2013 continuing until 9.19 am on 7 June 2013 by failing to notify the ASX that Newcrest management expected total gold production for FY14 to be approximately 2.2 to 2.3 million ounces (Moz); and(b)Newcrest had contravened s 674(2) on and from 5 June 2013 continuing until 9.19 am on 7 June 2013 by failing to notify the ASX that Newcrest management expected Newcrest's capital expenditure figure for FY14 to be approximately A$1 billion. Newcrest admitted each contravention for the purpose of the ASIC proceeding and consented to appropriate declarations being made and the imposition of pecuniary penalties. Newcrest and ASIC made joint submissions to the Court in relation to the allegations, including the filing of an agreed statement of facts setting out the factual context for the allegations and Newcrest’s admissions. The Court declared that Newcrest had contravened s 674(2) as alleged. The Court ordered that it pay the Commonwealth $1.2 million in penalties. In or about December 2013 (during the pendency of the ASIC investigation) the lawyers for the applicant (Slater & Gordon) informed Newcrest that they had received instructions to commence a representative proceeding against Newcrest concerning a failure by Newcrest to make certain market disclosures over a period between 2012 and 2013. In or around February 2014, Newcrest, Slater & Gordon and the applicant's litigation funder, Comprehensive Legal Funding LLC, agreed to participate in a confidential and without prejudice process for the purpose of considering the resolution of the dispute. The confidential process did not result in the resolution of the dispute. On 21 July 2014, the applicant filed an originating application and statement of claim commencing the present proceeding against Newcrest under Pt IVA of the Act. The first directions hearing was held on 15 August 2014. At that directions hearing it was ordered inter alia that:(a)the applicant file and serve an amended statement of claim on or before 19 September 2014; and(b)the matter be listed for further directions on 26 September 2014.
Evidence
Evidence Before The Court
Finally, Newcrest has referred to the capacity of large shareholders to “move the market”. But accepting that by virtue of the scale of their trades, institutional investors can and do “move the market”, where does this take Newcrest? It is not established that the two institutional investors to be selected would have or had that capacity. I accept though that an institution pursuing a technical strategy such as a contrarian strategy or a momentum strategy could stabilise or exacerbate price changes respectively if persisting with such a strategy, which is known to the market, even if the magnitude of the scale of the trades on each occasion may not be very large. Moreover, if at the first stage trial this is somehow established on the evidence and they are funded group members who have not been called by the applicant, then that may have a Jones v Dunkel (1959) 101 CLR 298 consequence. (e) Is evidence of institutional investors relevant to the first stage trial? There can be little doubt as to the relevance (in the sense required by s 55(1) of the Evidence Act 1995 (Cth)) of the role and behaviour of institutional investors and the significance of such evidence to the common issues. Let me begin with the question of materiality of the relevant information. Materiality arises in a number of contexts. First, it is embedded in ss 674(1) and 674(2)(b) itself, which requires reference to listing rule 3.1 of the ASX Listing Rules. Listing rule 3.1 in turn refers to information that “a reasonable person would expect to have a material effect on the price or value” of the relevant shares. Second, and relatedly, it is expressly referred to in s 674(2)(c)(ii) in similar terms. This is elaborated on in s 677, which refers to information that would, or would be likely to, “influence persons who commonly invest in securities”; the issue as to whether s 677 only applies to s 674(2)(c)(ii) or also s 674(2)(b) and listing rule 3.1 can be put to one side for the moment. Note also that s 677 provides a sufficient condition for establishing the s 674 materiality, but it is not expressed to be a necessary condition. Third, it arises separately in dealing with causation. The first two contexts refer to a reasonable person’s expectation on materiality. But in the general causation context (as opposed to individual investor’s actions or failures to act on the basis of information or the absence of information) where one is seeking to ascertain the effect of information or its non-disclosure on share price, what I would describe as objective materiality arises. In other words, did the non-disclosure of adverse information produce share price inflation? Did the non-disclosure of favourable information produce share price deflation? Now in terms of the first two contexts, the headline test is objective and not focused on individual subjective states of mind. But how is this objective test established forensically? Usually evidence will be sought to be adduced in the following manner:(a)One will have the direct evidence of the applicant to establish its individual causation case.(b)One may have evidence from large institutional or wholesale investors (including fund managers) as to their expectation of materiality; this is relevant given the genus of the class referred to in s 677 of the Corporations Act (see National Australia Bank Ltd v Pathway Investments Pty Ltd (2012) 265 FLR 247; [2012] VSCA 168 at [89] to [90]). Now to say that the evidence of institutional investors may be relevant to materiality and its statutory elaboration in s 677 is not to limit materiality and the operation of s 677 to any particular genus narrower than the breadth of the statutory language used, being “persons who commonly invest in securities”. And nor is it to introduce any fluctuating standard (see the discussion in Grant-Taylor v Babcock & Brown Ltd (in liq) [2015] FCA 149 at [69]). Rather, it is simply to recognise that such evidence is relevant, whatever the breadth the language of s 677 can accommodate. To say that materiality and s 677 is not a subjective test is not to deny that evidence of institutional investors’ behaviour and perceptions can inform the application of the objective test.(c)One may have expert evidence from brokers, analysts, investment bankers and capital market researchers opining on the question of materiality and expectation; this is more indirect than category (b) evidence.(d)One will have evidence, at least on the causation question, on the purely objective materiality question ie whether the information and its non-disclosure actually produced share price inflation or deflation. Alternatively expressed, if on the day the information is disclosed to the market there is a statistically significant movement in the share price that can be attributed to the disclosed information, then this provides some evidence of materiality. But the absence of such evidence does not mean that one cannot establish the relevant s 674(2)(c)(ii) expectation as illuminated by s 677. As noted in Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [188], s 677 is not a “high threshold”. The terms of s 677 “do not invite any inquiry as to whether any change in the price of securities has occurred… caused by an announcement”. Nevertheless “[w]hat happened in the market, in terms of movements in share price, may assist the Court in applying the ‘likely influence’ test”; such an analysis is an ex post analysis, albeit that the expectation issue is an ex ante one (see also at first instance (2009) 264 ALR 201; [2009] FCA 1586 at [474] to [629] and James Hardie Industries NV v ASIC (2010) 274 ALR 85; [2010] NSWCA 332 at [531] to [540]). Now all of this is to be understood in the context of s 677.(e)Finally, the company’s own views on materiality are not irrelevant, but may carry little weight.
Decision
Reasons for decision
For the foregoing reasons, I do not think it appropriate, let alone necessary, to make the orders sought to ensure that justice is done in the proceeding. Justice will be done absent such orders. Alternatively, even if the trigger for the exercise of the s 33ZF(1) power was enlivened, I would in the exercise of my discretion decline to make the orders sought for all the above reasons. Finally, if s 37M(3) is controlling or s 33ZF is to be read subject thereto such that part of ensuring that justice is done in the proceeding requires me to consider whether the orders sought are conducive to the resolution of the proceeding “as quickly, inexpensively and efficiently as possible,” in my view they are not so conducive. First, they are likely at the least to cause the acceleration of the incurring of costs or additional costs that may otherwise (on some contingencies) never need to be incurred for the reasons previously discussed, albeit not excessive costs. Second, I cannot say that they would quicken the resolution of the proceedings; on one view they may even extend the first stage trial. Third, I also cannot be satisfied that the proceedings would run more efficiently if the orders were made.CONCLUSION I will dismiss Newcrest’s application. On the question of costs, I would propose, subject to hearing further from the parties, that all parties’ costs of and incidental to the application be their costs in the cause. The present application was partly encouraged by a suggestion that I had previously made. Further, I consider that the application was an appropriate vehicle for the Court to address an important aspect of the case management of this proceeding that needed to be considered.
Ratio Decidendi
Legal Principle Established
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