Causation In Australian Shareholder Class Actions Uncertain

Key Points

The provisions that allow shareholders to seek compensation for contravention of the continuous disclosure regime and prohibitions on misleading conduct, Corporations Act 2001 (Cth) ss 1041I, 1317HA and 1325, require proof of causation. However, the manner of proving causation is uncertain, with the plaintiffs pleading that reliance was not necessary or that causation may be satisfied by indirect reliance or through the fraud on the market theory. The Supreme Court of Victoria in Camping Warehouse Australia Pty Ltd v Downer EDI Ltd [2014] VSC 357 ruled that, in the context of an interlocutory application to strike out the statement of claim, the plaintiffs' approach should be allowed to go forward. The requirements for causation will remain unsettled until subject to a trial and judgment. The proceedings followed on from an earlier settlement with some but not all potential group members prior to the commencement of a class action. A settlement within the class action framework may have averted supplementary claims and achieved certainty for the defendant. Settlement of multiple claims requires a considered strategy as to the best way to achieve finality. Background

The plaintiff, Camping Warehouse Australia Pty Ltd commenced proceedings in the Supreme Court of Victoria alleging that the defendant Downer EDI Limited breached its continuous disclosure obligations under s 674 of the Corporations Act 2001 (Cth) (the "Act") and the prohibition on misleading or deceptive conduct in s1041H of the Act. The plaintiff alleged that the defendant had failed to disclose in a timely manner a number of matters in relation to the design, manufacture and delivery by the defendant to RailCorp NSW of 624 new double-deck passenger rail cars, known as the Waratah train project, including delays and additional costs. The defendant sought to strike out the pleading on a number of grounds, including that it failed to plead reliance and inconsistencies in the group definition.

Reliance

The provisions that allow shareholders to seek compensation for contravention of the continuous disclosure regime and prohibitions on misleading conduct contain the statutory wording "resulted from", "because" and "by", which have been interpreted as necessitating proof of causation.1 However, the pleadings initiating shareholder class actions have sought to prove causation in a number of ways: through direct reliance, indirect reliance and the fraud on the market...