Hostname: page-component-745bb68f8f-f46jp Total loading time: 0 Render date: 2025-01-07T18:58:42.261Z Has data issue: false hasContentIssue false
  • English
  • Français

Causation in Securities and Financial Product Disclosure Cases: An Analysis and Critique

Published online by Cambridge University Press:  01 January 2025

Benjamin B Saunders
Benjamin B Saunders*
Affiliation:
Deakin Law School, Deakin University
*
The author may be contacted at b.saunders@deakin.edu.au.
Get access Rights & Permissions [Opens in a new window]

Abstract

This article critically examines the approach adopted by the courts to causation in securities and financial product disclosure cases, where a plaintiff alleges loss as a result of defective disclosure by a product issuer. The article argues that the reliance approach should be rejected as the sole approach to causation in securities and financial product disclosure cases. The article gives two principal arguments in support of this claim. Firstly, the reliance approach, by insisting that causation may only be established by proving reliance on the disclosure document, implicitly assumes a ‘rational choice’ approach to investor decision-making which, as demonstrated by a significant body of behavioural research, does not accurately reflect the reality of investor decision-making. Secondly, the reliance approach sits at odds with other developments in securities cases and misleading and deceptive conduct jurisprudence. I argue that the courts should recognise that causation may potentially be demonstrated in a variety of ways other than reliance on the disclosure document, including reliance on sources such as communications from financial advisers, newspapers, online sources, briefings, investor roadshows, social media and other marketing practices.

Type
Articles
Information
Federal Law Review , Volume 47 , Issue 3 , September 2019 , pp. 494 - 518
Copyright
Copyright © 2019 The Author(s)

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

Many thanks to the anonymous reviewers for their helpful comments..

References

Notes

1. Michael Legg, ‘Shareholder Class Actions in Australia — The Perfect Storm?’ (2008) 31(3) University of New South Wales Law Journal 669.

2. Chris Merritt, ‘Securities Class Actions “Just Blackmail Suits”’ The Australian (Canberra, 6 June 2014) 33.

3. Randall S Thomas and Robert B Thompson, ‘Empirical Studies of Representative Litigation’ in Claire A Hill and Brett H McDonnell (eds), Research Handbook on the Economics of Corporate Law (Elgar, 2012) 152. For a detailed analysis of the benefits of private securities class actions, see Michael Duffy, ‘Australian Private Securities Class Actions and Public Interest: Assessing the ‘Private Attorney-General’ by Reference to the Rationales of Public Enforcement’ (2017) 32(2) Australian Journal of Corporate Law 162.

4. On ASIC’s role as public regulator, see Michelle Welsh, ‘Realising the Public Potential of Corporate Law: Twenty Years of Civil Penalty Enforcement in Australia’ (2014) 42(1) Federal Law Review 217.

5. See Vicky Comino, Australia’s ‘Company Law Watchdog’: ASIC and Corporate Regulation (Lawbook Co, 2015) [9.70].

6. Commonwealth of Australia, ‘Fundraising: Capital Raising Initiatives to Build Enterprise and Employment’, Corporate Law Economic Reform Program, Proposals for Reform: Paper No 2 (1997) 10.

7. The continuous and periodic disclosure requirements, which are important in ensuring the public accountability of corporations, are not considered in detail in this article. See especially Gill North, Company Disclosure in Australia (Lawbook Co, 2013); Gill North, ‘A Call for A Bold and Effective Corporate Disclosure Regulatory Framework’ (2010) 28(5) Company and Securities Law Journal 331.

8. Note that no shareholder class action has proceeded to judgment: Ken Adams, ‘Issues and Challenges in Settling Class Actions’ (2013) 87(8) Australian Law Journal 537, 539.

9. Niamh Moloney, EU Securities and Financial Markets Regulation (Oxford University Press, 3rd ed, 2014) 97.

10. Robert Baxt, Ashley Black and Pamela F Hanrahan, Securities and Financial Services Law (LexisNexis, 8th ed, 2012) [6.6].

11. Corporations Act 2001 (Cth) s 706 (‘Corporations Act’). The exemptions are set out in ss 708–708A.

12. Ibid s 709(1).

13. Ibid s 710(1), item 1. See also s 710(1), item 2 and s 711.

14. Ibid s 710(3).

15. Ibid s 710(1)(a), (b). For an analysis of the ‘reasonable investor’, see Michael J Duffy, ‘Testing Good Securities Disclosures: Tales of the Reasonable Investor’ (2012) 38(2) Monash University Law Review 25.

16. Ibid s 728(1).

17. Section 729(1) sets out six categories of people who may be liable.

18. Corporations Act, above n 11, ss 731(1), (2).

19. Ian M Ramsay and Baljit K Sidhu, ‘Underpricing of Initial Public Offerings and Due Diligence Costs: An Empirical Investigation’ (1995) 13(3) Company and Securities Law Journal 186; ASIC, Due Diligence Practices in Initial Public Offerings, Report No 484 (July 2016); Deborah Chew and Zoe Solomon, ‘Capital Raising Pursuant to a Prospectus — Managing the Process’ (September 2013) Inhouse Counsel 197; Alastair Hood and Dimity Boswell, ‘Due Diligence Reviews for Fund-Raisings Under the Australian Corporations Law’ in Gordon Walker, Brent Fisse and Ian Ramsay (eds), Securities Regulation in Australia and New Zealand (LBC Information Systems, 2nd ed, 1998) 328.

20. Corporations Act, above n 11, s 1041H(1).

21. Ibid s 1041I(1).

22. Australian Securities and Investments Commission Act 2001 (Cth) ss 12DA and 12GF (‘ASIC Act’).

23. ‘Financial product’ is defined in Corporations Act ss 762A–765A.

24. A ‘regulated person’ includes an issuer or seller of a financial product, a financial services licensee and an authorised representative of a financial services licensee: Corporations Act s 1011B (definition of ‘regulated person’).

25. Corporations Act, above n 11, ss 1012B, 1012C.

26. Ibid s 761G.

27. Ibid ss 1012D–1012E.

28. Ibid s 1013D(1).

29. Ibid s 1013E.

30. That is, the information required to be disclosed by ss 1013D and 1013E.

31. Corporations Act, above n 11, s 1013C(2); Revised Explanatory Memorandum, Financial Services Reform Bill 2001 (Cth) [14.74]; Woodcroft-Brown v Timbercorp Securities Ltd (in liq) (2011) 85 ACSR 354, 388 [151]–[156] (‘Timbercorp’).

32. Corporations Act, above n 11, s 1013F(1).

33. Ibid pt 7.9, div 7.

34. Ibid s 1022B.

35. Ibid s 1022A(1).

36. Ibid s 1022B(7)–(7C). Section 1021E(4) also provides a defence in relation to criminal liability where ‘the person took reasonable steps to ensure that the disclosure document or statement would not be defective’.

37. Revised Explanatory Memorandum, Financial Services Reform Bill 2001 (Cth) [14.18].

38. Ibid [14.18]–[14.20].

39. Robert P Austin and Ian M Ramsay, Ford, Austin & Ramsay’s Principles of Corporations Law (LexisNexis, 17th ed, 2018) [22.010].

40. Corporations Act, above n 11, s 710(1), item 1.

41. Ibid s 1013E.

42. Compare the philosophy underlying the continuous disclosure obligations: Jubilee Mines NL v Riley (2009) 40 WAR 299, 322 [87] (Martin CJ); Merav Bloch, James Weatherhead and Jon Webster, ‘The Development and Enforcement of Australia’s Continuous Disclosure Regime’ (2011) 29(5) Company and Securities Law Journal 253, 254.

43. Commonwealth of Australia, above n 6, 11.

44. As articulated in Commonwealth of Australia, Financial System Inquiry Final Report (March 1997) 190–2.

45. See, eg, Tom C W Lin, ‘Reasonable Investor(s)’ (2015) 95(2) Boston University Law Review 461; Ronald J Gilson and Reinier Kraakman, ‘Market Efficiency After the Fall: Where Do We Stand Following the Financial Crisis?’ in Claire A Hill and Brett H McDonnell (eds), Research Handbook on the Economics of Corporate Law (Elgar, 2012) 469–70; Donald C Langevoort, ‘Theories, Assumptions, and Securities Regulation: Market Efficiency Revisited’ (1992) 140 University of Pennsylvania Law Review 851, 912–20; Donald C Langevoort, ‘Taming the Animal Spirits of the Stock Market: A Behavioral Approach to Securities Regulation’ (2002) 97(1) Northwestern University Law Review 135, 135–9; Robert Prentice, ‘Whither Securities Regulation? Some Behavioral Observations Regarding Proposals for its Future’ (2002) 51(5) Duke Law Journal 1397, 1408–12.

46. Klaus Mathis and Ariel David Steffen, ‘From Rational Choice to Behavioural Economics: Theoretical Foundations, Empirical Findings and Legal Implications’ in Klaus Mathis (ed), European Perspectives on Behavioural Law and Economics (Springer, 2015) 31–2; Stephen M Bainbridge, ‘Mandatory Disclosure: A Behavioral Analysis’ (2000) 68(4) University of Cincinnati Law Review 1023, 1024, 1035; Richard A Posner, The Problems of Jurisprudence (Harvard University Press, 1990) 353.

47. Thomas S Ulen, ‘Behavioral Law and Economics: An Introduction’ in Morris Altman (ed), Handbook of Contemporary Behavioral Economics (Taylor and Francis, 2015) 671, 671–2.

48. Troy A Paredes, ‘Blinded by the Light: Information Overload and its Consequences for Securities Regulation’ (2003) 81(2) Washington University Law Quarterly 417, 419.

49. Donna Croker, Prospectus Liability under the Corporations Law (Centre for Corporate Law and Securities Regulation, University of Melbourne, 1998) 10–11.

50. Austin and Ramsay, above n 39, [22.020].

51. Revised Explanatory Memorandum, Financial Services Reform Bill 2001 (Cth) [2.3]. See further Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd (2014) 288 FLR 374, 413–14.

52. National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369. See also Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market (2008) 73 NSWLR 653, 659 [11] (Giles JA) (‘Ingot’).

53. Mark Blair and Ian Ramsay, ‘Mandatory Corporate Disclosure Rules and Securities Regulation’ in Gordon Walker, Brent Fisse and Ian Ramsay (eds), Securities Regulation in Australia and New Zealand (LBC Information Systems, 2nd ed, 1998) 62–78; Joel Seligman, ‘The Historical Need for a Mandatory Corporate Disclosure System’ (1983) 9(1) Journal of Corporation Law 1.

54. George J Stigler, ‘Public Regulation of the Securities Markets’ (1964) 37(2) Journal of Business 117. Stigler’s analysis was critiqued in Irwin Friend and Edward S Herman, ‘The SEC Through a Glass Darkly’ (1964) 37(4) Journal of Business 382 and Sidney Robbins and Walter Werner, ‘Professor Stigler Revisited’ (1964) 37(4) Journal of Business 406. Stigler responded to these criticisms in George J Stigler, ‘Comment’ (1964) 37(4) Journal of Business 414.

55. Frank H Easterbrook and Daniel R Fischel, ‘Mandatory Disclosure and the Protection of Investors’ (1984) 70(4) Virginia Law Review 669, 683.

56. George J Benston, ‘Required Disclosure and the Stock Market: An Evaluation of the Securities Exchange Act of 1934’ (1973) 63(1) American Economic Review 132. See also George J Benston, ‘Required Disclosure and the Stock Market: Rejoinder’ (1975) 65(3) American Economic Review 473; George J Benston, ‘Published Corporate Accounting Data and Stock Prices’ (1967) 5(supplement) Journal of Accounting Research 1; George J Benston, ‘The Value of the SEC’s Accounting Disclosure Requirements’ (1969) 44(3) Accounting Review 515.

57. John C Coffee Jr, ‘Market Failure and the Economic Case for a Mandatory Disclosure System’ (1984) 70(4) Virginia Law Review 717; Paul G Mahoney, ‘Mandatory Disclosure as a Solution to Agency Problems’ (1995) 62(3) University of Chicago Law Review 1047.

58. See, eg, Richard A Posner, Economic Analysis of Law (Wolters Kluwer, 9th ed, 2014).

59. Robert J Shiller, ‘From Efficient Markets Theory to Behavioral Finance’ (2003) 17(1) Journal of Economic Perspectives 83; Lawrence A Cunningham, ‘The Influence of Law and Economics on Law and Accounting: Two Steps Forward, One Step Back’ in Claire A Hill and Brett H McDonnell (eds), Research Handbook on the Economics of Corporate Law (Elgar, 2012) 300; Thomas S Ulen, ‘A Behavioral View of Investor Protection’ (2013) 44(5) Loyola University Chicago Law Journal 1357.

60. Christine Jolls, ‘Behavioral Law and Economics’ (Working Paper No 12879, National Bureau of Economic Research, January 2007) 2; Richard A Posner, ‘Behavioral Finance before Kahneman’ (2013) 44(5) Loyola University Chicago Law Journal 1341, 1343.

61. Herbert A Simon, ‘A Behavioral Model of Rational Choice’ (1955) 69(1) Quarterly Journal of Economics 99; Herbert A Simon, ‘Rational Decision Making in Business Organizations’ (1979) 69(4) American Economic Review 493; Ulen, above n 47, 677.

62. Amos Tversky and Daniel Kahneman, ‘Judgment Under Uncertainty: Heuristics and Biases’ (1974) 185(4157) Science 1124; Mathis and Steffen, above n 46, 38–41.

63. Geneviève Helleringer, ‘Retail Investors and Disclosure Requirements’ in Mathis (ed), European Perspectives on Behavioural Law and Economics (Springer, 2015) 199–200; Christine Jolls, Cass R Sunstein and Richard Thaler, ‘A Behavioral Approach to Law and Economics’ (1998) 59(May) Stanford Law Review 1471, 1476–80; Thomas S Ulen, ‘Rational Choice and the Economic Analysis of Law’ (1994) 19(2) Law & Social Inquiry 487, 488.

64. Langevoort, above n 45; Michael J Duffy, ‘Developments in United States Securities Class Actions: The Status of ‘Fraud on the Market’ Causation and Implications for Australia’ (2011) 40(4) Common Law World Review 345, 359–62.

65. Paredes, above n 48, 454–9; Gilson and Kraakman, above n 45, 470; Pierre Schammo, EU Prospectus Law: New Perspectives on Regulatory Competition in Securities Markets (Cambridge University Press, 2011) 221; Gill North, Effective Company Disclosure in the Digital Age (Kluwer Law International, 2015) 22; Alan R Palmiter, ‘Toward Disclosure Choice in Securities Offerings’ (1999) Columbia Business Law Review 1.

66. Tom C W Lin, ‘A Behavioral Framework for Securities Risk’ (2011) 34(2) Seattle University Law Review 325, 337.

67. Geraint Howells, ‘The Potential and Limits of Consumer Empowerment by Information’ (2005) 32(3) Journal of Law and Society 349; Luca Enriques and Sergio Gilotta, ‘Disclosure and Financial Market Regulation’ in Niamh Moloney, Eilís Ferran and Jennifer Payne (eds), The Oxford Handbook of Financial Regulation (Oxford University Press, 2015).

68. Paredes, above n 48, 435, 441; Simon, above n 61, 101; Herbert A Simon, ‘Rationality as Process and as Product of Thought’ (1978) 68(2) American Economic Review 1, 9–14; Herbert A Simon, ‘Theories of Decision-Making in Economics and Behavioral Science’ (1959) 49(3) American Economic Review 253, 272–3.

69. Graham Mallard, Bounded Rationality and Behavioural Economics (Routledge, 2016) 17; Paredes, above n 48, 440–2.

70. Simon Deakin, ‘The Evolution of Theory and Method in Law and Finance’ in Niamh Moloney, Eilís Ferran and Jennifer Payne (eds), The Oxford Handbook of Financial Regulation (Oxford University Press, 2015) 24.

71. Howard Latin, ‘“Good” Warnings, Bad Products, and Cognitive Limitations’ (1994) 41(5) UCLA Law Review 1193, 1211–15.

72. Eg Oskari Juurikkala, ‘The Behavioral Paradox: Why Investor Irrationality Calls for Lighter and Simpler Financial Regulation’ (2012) 18(1) Fordham Journal of Corporate and Financial Law 33; Paredes, above n 48. For a contrary view, see Lachlan Burn, ‘KISS, But Tell All: Short-Form Disclosure for Retail Investors’ (2010) 5(2) Capital Markets Law Journal 141, 160–5. Note also Jenny Chen and Susan Watson, ‘Investor Psychology Matters: Is a Prescribed Product Disclosure Statement a Supplement for Healthy Investment Decisions?’ (2011) 17 New Zealand Business Law Quarterly 412.

73. Omri Ben-Shahar and Carl E Schneider, ‘The Failure of Mandated Disclosure’ (2011) 159(3) University of Pennsylvania Law Review 647; Kent Greenfield, ‘The End of Contractarianism? Behavioral Economics and the Law of Corporations’ in Eyal Zamir and Doron Teichman (eds), The Oxford Handbook of Behavioral Economics and the Law (Oxford University Press, 2014) 526–7.

74. Niamh Moloney, How to Protect Investors: Lessons From the EC and the UK (Cambridge University Press, 2010) 292.

75. Hal S Scott, ‘Internationalization of Primary Public Securities Markets’ (2000) 63(3) Law and Contemporary Problems 71, 73.

76. ASIC, Prospectus Disclosure: Improving Disclosure for Retail Investors, Consultation Paper No 155 (12 April 2011) 7. See also ASIC, Prospectuses: Effective Disclosure for Retail Investors, Regulatory Guide No 228 (3 November 2016).

77. Ian Ramsay, ‘Use of Prospectuses by Investors and Professional Advisers’, Research Report, Centre for Corporate Law and Securities Regulation, The University of Melbourne (2003) 1–2.

78. See also Roman Tomasic, Stephen Bottomley and Rob McQueen, Corporations Law in Australia (Federation Press, 2nd ed, 2002) 529.

79. Ramsay, above n 77, 4–5.

80. For analysis of issues relating to the collapse of the Timbercorp group, see Michael J Duffy, ‘Barely Managing? Troubles with Agricultural Managed Investment Schemes’ (2012) 27(1) Australian Journal of Corporate Law 91; Andrew J Serpell, ‘A Review of Risk Disclosure Obligations for Complex Unlisted Managed Investment Schemes’ (2013) 28(2) Australian Journal of Corporate Law 181.

81. Woodcroft-Brown v Timbercorp Securities Ltd & Ors (2013) 96 ACSR 307, 310 [6], 353 [228] (‘Woodcroft-Brown’).

82. Ibid 494 [592], 508 [652].

83. Ibid 490 [575].

84. Corporations Act, above n 11, ss 729(1), 1022B and 1041I(1).

85. Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525 (Mason CJ, Dawson, Gaudron and McHugh JJ) (‘Wardley’); Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 513 (McHugh, Hayne and Callinan JJ); I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, 126 [50], 127 [54] (Gaudron, Gummow and Hayne JJ); Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526, 530 (‘Janssen’); Brown v Jam Factory Pty Ltd (1981) 35 ALR 79, 88; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410, 418; McCarthy v McIntyre [1999] FCA 784 [48]–[49] (Hill, Sackville and Katz JJ).

86. Hampic Pty Ltd v Adams [1999] NSWCA 455 [35] (Mason P and Davies AJA); McCarthy v McIntyre [1999] FCA 784 [48]–[49] (Hill, Sackville and Katz JJ).

87. See Corporations Act, above n 11, ss 1317HA(1) and 1325(1).

88. Trade Practices Act 1974 (Cth) s 82(1).

89. See Australian Consumer Law s 236(1).

90. Eg, Wardley, above n 85, 525; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 341 [102] (Gummow, Hayne, Heydon and Kiefel JJ) (‘Campbell’).

91. Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 510 [38] (McHugh, Hayne and Callinan JJ); Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413, 459–61 [126]–[131] (Kirby and Callinan JJ); Henville v Walker (2001) 206 CLR 459, 489–90 [96] (McHugh J).

92. March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, 514 (Mason CJ); Duyvelshaff v Cathcart and Ritchie Ltd (1973) 47 ALJR 410, 417 (Gibbs J); 1 ALR 125, 138; Tubemakers of Australia Ltd v Fernandez (1976) 50 ALJR 720, 724 (Mason J); 10 ALR 303, 310; Bonnington Castings Ltd v Wardlaw [1956] AC 613, 620 (Lord Reid); McGhee v National Coal Board [1972] 1 WLR 1, 4, 6, 8, 12; (1972) 3 All ER 1008, 1010, 1012, 1014, 1017–18.

93. (1991) 171 CLR 506.

94. March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, 515, 516 (Mason CJ, Toohey J agreeing at 524, Gaudron J agreeing at 525), 522 (Deane J, Gaudron J agreeing at 525). McHugh J held that in general the ‘but for’ test should be seen as the test of legal causation: 534.

95. March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, 522 (Deane J), and to similar effect 515 (Mason CJ, Toohey J agreeing at 524, Gaudron J agreeing at 525), quoting Lord Reid in Stapley v Gypsum Mines Ltd [1953] AC 663, 681. See also Fitzgerald v Penn (1954) 91 CLR 268, 278 (Dixon CJ, Fullagar and Kitto JJ).

96. Wardley, above n 85.

97. The Full Federal Court also endorsed a ‘common sense’ approach in McCarthy v McIntyre [1999] FCA 784 [49] (Hill, Sackville and Katz JJ), noting that the test for determining causation for the purposes of s 82(1) may not be reducible to a simple formula.

98. (1991) 171 CLR 506.

99. Wardley, above n 85, 525.

100. See J W Carter, Contract Law in Australia (LexisNexis, 7th ed, 2018) ch 18.

101. San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340, 358 (Gibbs CJ, Mason, Wilson and Dawson JJ), 366 (Brennan J); Gould v Vaggelas (1985) 157 CLR 215, 236; Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488, 528 (Wilcox and Lindgren JJ, Lee J agreeing at 560).

102. It is not necessary that the representation be the sole inducement for the representee entering the contract; it is enough if it plays some part in contributing to creation of the contract: Gould v Vaggelas (1985) 157 CLR 215, 236 (Wilson J).

103. HIH Insurance Ltd (in liq) v Adler [2007] NSWSC 633 [72] (Einstein J).

104. (2005) 221 CLR 568.

105. Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568, 581 (McHugh J), 597 [99] (Gummow, Hayne and Heydon JJ), 605 [126] (Callinan J). See also I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, above n 85, 119 [25]–[26] (Gleeson CJ); cf Director of Public Prosecutions (Cth) v Gay (2015) 295 FLR 91, 95–6 [13], [22], [24] (Estcourt J).

106. (2005) 224 CLR 627.

107. Corporations Act, above n 11, ss 729(1), 1022B and 1041I(1).

108. Caason Investments Pty Ltd v Cao (2015) 236 FCR 322, 333 [68] (Gilmour and Foster JJ) (‘Caason’); Camping Warehouse Australia Pty Ltd v Downer Edi Ltd [2014] VSC 357 [39] (Sifris J) (‘Camping Warehouse’). Contrast Securities Act 1978 (NZ) s 56: see Houghton v Saunders [2017] 2 NZLR 189 [64]–[65].

109. Leah Watterson and Damian Grave, ‘Causation: Establishing the Critical Link Between Misconduct and Loss in Securities Class Actions’ in Damian Grave and Helen Mould (eds), 25 Years of Class Actions in Australia: 1992–2017 (Ross Parsons, 2018) 155.

110. Section 42 of the Fair Trading Act 1987 (Cth) provided: ‘[a] person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’. Section 68 provided: ‘[a] person who suffers loss or damage by conduct of another person that is in contravention of [certain provisions of the Act] may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention’.

111. Campbell, above n 90, 341 [102], quoting Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, 623 [103] (McHugh J).

112. Ibid 341 [102].

113. Ibid 351 [143], approving a statement of Giles JA to this effect in Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359, 371 [44].

114. Colly Cotton Marketing Pty Ltd v Simmons [2006] NSWCA 134 [161] (Giles JA, Spigelman CJ and McColl JA agreeing).

115. [2014] NSWSC 1763.

116. Cahill v Kenna [2014] NSWSC 1763 [276]–[277]. See also HIH Insurance Ltd (in liq) v Adler, above n 103, [70].

117. Janssen, above n 85, 530, referring to Brown v Jam Factory Pty Ltd (1981) 35 ALR 79, 88; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410, 418; Elders Trustee and Executor Company Ltd v E G Reeves Pty Ltd (1988) 20 FCR 164; Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40–950, 50, 378. Cited with approval in ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1, 272 [1376] (Jacobson, Gilmour and Gordon JJ).

118. Janssen, above n 85, 529.

119. Ibid 530–1.

120. Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488, 529 (Wilcox and Lindgren JJ, Lee J agreeing at 560); Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 528–9 [101] (Gummow J); Hampic Pty Ltd v Adams, above n 86, [35] (Mason P and Davies AJA); McCarthy v McIntyre [1999] FCA 784 [48] (Hill, Sackville and Katz JJ); Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84 [27] (Hodgson JA, Sheller JA and Davies AJA agreeing); Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2006] FCAFC 177 [31] (Kiefel, Sundberg and Edmonds JJ); ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1, 272–3 [1376], [1380] (Jacobson, Gilmour and Gordon JJ); De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) (2011) 200 FCR 253, 268 [57] (Stone J); De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28 [63] (Jacobson, Siopis and Nicholas JJ).

121. Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 (Hill, Jacobson and Lander JJ) (‘Ford’).

122. Ibid 538–9 [115], [118], [119].

123. De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq), above n 120, 268 [60] (Stone J). Her Honour’s judgment was upheld on appeal, although the Full Court did not expressly approve this statement: De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq), above n 120, (Jacobson, Siopis and Nicholas JJ). See also ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1, 272 [1375] (Jacobson, Gilmour and Gordon JJ).

124. Ford (2003) 134 FCR 522, 539 [123].

125. Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184 (‘Digi-Tech’).

126. Ibid 212 [156]–[158] (Sheller, Ipp and McColl JJA).

127. Ibid 212 [159].

128. Ingot, above n 52.

129. Ibid 660 [14]–[16] (Giles JA), citing Wardley, above n 85; Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568; Travel Compensation Fund v Tambree, above n 106; Henville v Walker, above n 91; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, above n 85.

130. Corporations Act, above n 11, s 1005, as repealed by Financial Services Reform Act 2001 (Cth) sch item 1. Section 1005 of the Corporations Law relevantly provided: ‘a person who suffers loss or damage by conduct of another person that was engaged in contravention of a provision of this Part or Part 7.12 may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention’.

131. Ingot, above n 52, 662 [21], 663–4 [32], [37] (Giles JA).

132. Ibid 731–2 [617]–[618] (Ipp JA).

133. Ibid 672 [81] (Hodgson JA).

134. Ibid 662 [22], 664 [37] (Giles JA), 671 [79] (Hodgson JA), 731 [613]–[615] (Ipp JA).

135. Manday Investments Pty Ltd v Commonwealth Bank of Australia (No 3) [2012] FCA 751 [28] (McKerracher J); De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq), above n 120, [63] (Jacobson, Siopis and Nicholas JJ). But see Bolitho v Banksia Securities Ltd [2014] VSC 8.

136. See Woodcroft-Brown, above n 81.

137. Ibid 320–1 [68]; Ingot, above n 52.

138. Camping Warehouse, above n 108, [47], [59] (Sifris J).

139. Caason, above n 108.

140. Grant-Taylor v Babcock & Brown Ltd (in liq) (2015) 322 ALR 723 (Perram J) (‘Grant-Taylor’); Caason, above n 108; Re HIH Insurance Ltd (in liq) [2016] NSWSC 482; see also Johnston v McGrath [2007] NSWCA 231 [37]–[38] (Young CJ in Eq, Giles JA and Handley JA agreeing).

141. James Argent, ‘Requiring Proof of Individual Reliance to Establish Causation in Disclosure-Based Shareholder Class Actions: The Role of Principle and Policy’ (2016) 34(2) Company and Securities Law Journal 87, 92.

142. Eugene F Fama, ‘Random Walks in Stock Market Prices’ (1995) 51(1) Financial Analysts Journal 75, 76. See also Andrew W Lo, ‘Efficient Markets Hypothesis’ in Steven N Durlauf and Lawrence E Blume (eds), The New Palgrave Dictionary of Economics (Palgrave, 2nd ed, 2008).

143. See Andrew Watson and Jacob Varghese, ‘The Case for Market-Based Causation’ (2009) 32(3) University of New South Wales Law Journal 948, 960–2.

144. See Halliburton Co v Erica P John Fund, Inc, 573 US ___, 10 (2014) (Roberts CJ, delivering the opinion of the Court).

145. Caason, above n 108, 335 [79] (Gilmour and Foster JJ).

146. Eugene Fama, ‘Efficient Capital Markets: A Review of Theory and Empirical Work’ (1970) 25(2) Journal of Finance 383, 383.

147. P Dawson Nominees Pty Ltd v Brookfield Multiplex Ltd (2007) 242 ALR 111 [11]; Michael Duffy, ‘“Fraud on the Market”: Judicial Approaches to Causation and Loss from Securities Nondisclosure in the United States, Canada and Australia’ (2005) 29(3) Melbourne University Law Review 621.

148. Grant-Taylor, above n 140.

149. Perram J’s judgment was upheld on appeal but the Full Court did not discuss the question of causation: Grant-Taylor v Babcock & Brown Ltd (in liq) (2016) 330 ALR 642 (Allsop CJ, Gilmour and Beach JJ).

150. Grant-Taylor, above n 140, 766 [220] (Perram J).

151. See also Caason, above n 108, 333 [68] (Gilmour and Foster JJ).

152. Grant-Taylor, above n 140, 765–6 [219] (Perram J).

153. Ibid 766 [220] (Perram J). It was, however, not necessary to decide this latter point for the purposes of the decision.

154. Caason, above n 108, 333 [68], 324–5 [3], [5] (Gilmour and Foster JJ).

155. Ibid 333 [68], 335 [77] (Gilmour and Foster JJ).

156. Ibid 334 [71] (Gilmour and Foster JJ).

157. Ibid 335 [79] (Gilmour and Foster JJ).

158. Ibid 352 [153] (Edelman J).

159. Ibid 352 [154] (Edelman J).

160. Ibid 352–3 [156] (Edelman J).

161. Ibid 338 [93], [95], 353 [157] (Edelman J).

162. Ibid 353 [158] (Edelman J).

163. Re HIH Insurance Ltd (in liq), above n 140.

164. Ibid [37] (Brereton J).

165. Ibid [41].

166. Ibid [71].

167. Ibid [71]–[72].

168. Ibid [73].

169. Ibid [77].

170. Ibid [78].

171. Ibid [81].

172. Ingot, above n 52, 671 [80] (Hodgson JA).

173. Grant-Taylor, above n 140, 766 [220] (Perram J).

174. Re HIH Insurance Ltd (in liq), above n 140, [78].

175. De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq), above n 120, 266 [50] (Stone J).

176. Ibid 269–70 [63]–[64] (Stone J); De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq), above n 120, [63] (Jacobson, Siopis and Nicholas JJ); Perpetual Trustee Company Ltd v Kwok [2011] NSWSC 422 [34]–[36] (Einstein J). However, Edelman J blurred the line between the two in Caason, above n 108, 338 [93], [95], 353 [157].

177. Caason, above n 108, 334 [71] (Gilmour and Foster JJ).

178. Ibid 338 [93], [95], 353 [157] (Edelman J).

179. Travel Compensation Fund v Tambree, above n 106, 639 [28]–[30] (Gleeson CJ), 642–3 [45]–[46] (Gummow and Hayne JJ), 653 [78]–[79], 654 [81] (Callinan J). See also I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, above n 85, 119 [25]–[26] (Gleeson CJ).

180. Henville v Walker, above n 91, 491 [98] (McHugh J).

181. Ingot, above n 52, 659 [11] (Giles JA); Caason, above n 108, 335 [79] (Gilmour and Foster JJ).

182. See generally Dennis C Pearce and Robert S Geddes, Statutory Interpretation in Australia (LexisNexis, 8th ed, 2014) 358–61.

183. Ingot, above n 52, 662 [21], see also 663–4 [32], [37] (Giles JA); Woodcroft-Brown, above n 81, 353 [227].

184. Other reform options are, of course, possible. See, eg, Michael Duffy, ‘Investor Loss from Securities Non-Disclosure: A Statutory Presumption of Causation on the Canadian Model?’ (2009) 32(3) University of New South Wales Law Journal 965.

185. Cf Argent, above n 141.

186. Hampic Pty Ltd v Adams, above n 86, [35] (Mason P and Davies AJA); Kenny & Good Pty Ltd v MGICA (1992) Ltd, above n 91.

187. Securities Act 1978 (NZ) s 56: see Houghton v Saunders, above n 108, [64]–[65].

188. Cf Robert A Prentice, ‘Behavioral Economics Applied: Loss Causation’ (2013) 44(5) Loyola University Chicago Law Journal 1509.

189. Cf David A Hoffman, ‘The “Duty” to Be a Rational Shareholder’ (2006) 90(3) Minnesota Law Review 537.

190. HIH Insurance Ltd (in liq) v Adler, above n 103, [72] (Einstein J). See also Earglow Pty Ltd v Newcrest Mining Ltd (2015) 230 FCR 469 (Beach J).

191. Finishing Services Pty Ltd v Lactos Fresh Pty Ltd, above n 120, [31] (Kiefel, Sundberg and Edmonds JJ).

192. See also Croker, above n 49, 17–18.

193. See Ross Geddes, IPOs and Equity Offerings (Butterworth Heinemann, 2003) 153–68.

194. Australian Securities and Investments Commission, Marketing Practices in Initial Public Offerings of Securities (Report No 494, September 2016).