Myer Holdings – Part 1: A reader’s digest

TPT Patrol Pty Ltd v Myer Holdings Ltd [2019] FCA 1747

On 11 September 2014, Myer’s chief executive officer (Bernie Brooks) made statements in question and answer sessions with equity analysts and financial journalists to the effect that Myer would have a net profit after tax (NPAT) in excess of Myer’s NPAT in the previous financial year (FY14) (the 11 September Representations), which was $98.5m.  On 19 March 2015, Myer announced to the market that it then expected its FY15 NPAT to be between $75m-$80m, excluding one-off costs (the Downgrade).  Its share price declined by more than 10%.

The applicant brought representative proceedings, alleging that:

1. Myer did not have reasonable grounds for making the 11 September Representations (with the consequence that those statements constituted misleading or deceptive conduct, contrary to s 1041H of the Corporations Act 2001 (Cth)); and
2. Myer’s failure to give corrective disclosure at any time after 11 September 2014 and prior to 19 March 2015 was a breach of its continuous disclosure obligations (s 674 of the Corporations Act and ASX Listing Rule 3.1) and also constituted misleading or deceptive conduct.

The applicant and group members’ case on causation and loss was based solely on indirect or market-based causation theory, and not on specific reliance. They alleged that the contraventions caused the market price for Myer securities to be substantially greater than the market price that would have prevailed but for Myer’s contraventions.

In short, Beach J found that whilst the 11 September Representations were not misleading or deceptive when made, Myer should have made corrective disclosures to the market at later points in time, including:

1. by no later than 21 November 2014 (the date of its AGM), that its likely NPAT for FY15 would not be materially above the FY14 NPAT; and
2. by no later than 9 December 2014, that its likely NPAT for FY15 was around $92m.

Despite these findings on liability, his Honour indicated that he was not convinced that the applicant and group members had suffered any loss flowing from the contraventions.  That was so notwithstanding his Honour’s acceptance of market-based causation theory.  The applicant’s failure in this regard was essentially because it had sought to prove loss only on a share price inflation basis and because its loss expert accepted that, in order to prove any share-price inflation in the circumstances, Myer would have had to make a disclosure of an expected FY15 NPAT of less than consensus (which the expert had used as a proxy for market expectations).  None of the disclosures that his Honour found Myer ought to have made were to that effect.  Therefore, it appeared, Myer’s contraventions did not in fact cause any share-price inflation, and the applicant suffered no loss.  

Subsequently, in December 2019, Beach J entered judgment for Myer in respect of the claims made by the applicant on its own behalf, and ultimately made orders in May 2020 otherwise dismissing the proceeding.[1]  Paradoxically, his Honour’s finding that it appeared that the applicant had not suffered any loss was essentially a product of Myer’s erroneous use of consensus as a benchmark for its disclosure obligations.  Whilst this paved the way for the applicant to establish liability against Myer, it immunised Myer against the applicant’s loss case.  However, respondents should not take too much from this, given the unique set of circumstances that combined to produce this result. 

The judgment dealt with some of the issues that commonly arise in securities class actions involving allegations relating to forecasting (not the least of which was his Honour’s acceptance of market-based causation theory), and is likely to be the first port of call for practitioners and their clients involved in such litigation in the future, at least until the Full Court determines the appeal from Crowley v Worley Ltd [2020] FCA 1522, in which Gleeson J found that the applicant had failed at trial on all aspects of his liability case.  This note and three to follow seek to break down his Honour’s 380 page judgment and identify aspects of likely interest, and to identify some implications for securities class action practice and evidence preparation. Part 2 deals with his Honour’s findings on liability, Part 3, to be published shortly, will deal with his Honour’s findings on market-based causation and Part 4 will deal with loss and damage.

Daniel Lorbeer is a barrister at the Victorian Bar practising in commercial law, including in class actions.

Liability limited by a scheme approved under professional standards legislation.

[1] In February 2020, Beach J ordered the applicant to file and serve any further proposed evidence on loss assessment that it sought leave to adduce. It appears that ultimately the applicant did not pursue this.