A Federal Court has ruled that Myer breached its continuous disclosure obligations when for six months it publicly stuck to its forecast of profit growth for FY15, despite knowing internally for at least four months that it did not have grounds to do so.
But in a blow to shareholders, Justice Jonathan Beach found that shareholders didn’t suffer any loss or damage from the deception because market analysts didn’t take the company’s forecast at face value.
The ruling handed down on Thursday marks the first time a shareholder class action in Australia has gone all the way to judgement rather than being settled out of court. And it opens the door for further such lawsuits, according to Jason Betts, a partner at Herbert Smith Freehills.
“[T]he Court has now provided some guidance and certainty on what companies need to do in order to meet their continuous disclosure obligations,” Betts said in an email to Inside Retail.
“For corporate Australia, it confirms that shareholder class actions are here to stay and that Courts are willing to find disclosure breaches (even though in this case it did not result in loss being established).”
The lawsuit revolved around a statement that then-Myer CEO Bernie Brookes made on a call with investors on September 11, 2014, that the company was anticipating profit growth in FY15.
But in a statement to the ASX on on March 19, 2015, the company said it was expecting full-year NPAT of $75 million to $80 million, excluding one-off costs, well below the $98.5 million NPAT it posted in FY14. Myer’s share price declined materially following the announcement.
Former shareholder TPT Patrol as trustee for the Amies Superannuation Fund filed a class action against Myer in December 2016, alleging Brookes did not have grounds to forecast profit growth on the call in September 2014, and that he knew the company couldn’t beat the previous year’s figure on several occasions when he made public statements over the following six months, but did not say so.
Justice Beach found Myer had reasonable grounds to forecast growth in September, but should have issued a corrective statement to the market well before its March 2015 update.
However, he found shareholders did not suffer any loss or damage because “the hard-edged scepticism of market analysts and market makers at the the time of the contravention had already deflated Mr Brookes’ inflated views”.