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March 03, 2022
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The ruling in the first shareholder class action lawsuit in Australia’s history answered a big question, but leaves the door open elsewhere.
When the CEO of Myer, one of Australia’s largest department stores, told shareholders that company profits in 2015 would exceed those of 2014, he set in motion the first-ever shareholder class-action lawsuit in his country’s history to go to judgment. Known informally as “the Myer Decision”, the ruling was handed down in late 2019. More than two years later, and despite two more recent judgments, the Myer Decision remains the most comprehensive in Australia with respect to causation, loss and damage. After many years of class actions, attorneys and their experts — particularly in Australia, but also in other parts of the world — finally have precedent to draw on in similar matters.
The applicant claimed that Myer’s representations caused losses to its shareholders by artificially inflating the company stock price over a six-month period ending March 19, 2015. Shareholders claimed that Myer should have instead made a series of counterfactual disclosures.
FTI Consulting experts contend that inflation methodology depends on the facts and circumstances of a particular matter; no “one size fits all.”
The court concluded that Myer did indeed breach its continuous disclosure obligation but that the applicant failed to prove that the shareholders suffered any recoverable loss due to the breach. The judge said that shareholders weren’t entitled to compensation because analysts did not believe the CEO’s assertions, and those doubts were factored into the share price. Within this context, U.S. cases related to securities class actions were cited as well.
The detailed reasoning set out in the Myer Decision confirms, generally, that the methodologies for assessing causation and loss used in the U.S. are applicable in Australia. However, of particular interest to lawyers and experts for both plaintiffs and defendants, the methodologies were not “fully” adopted, and the Myer Decision confirms they can be rebutted.
Guidance and Key Learnings
As more class-action lawsuits are anticipated in the post-COVID era, the Myer decision provides helpful guidance for assessing exposure and loss, as well as in defending against such claims.
FTI Consulting’s economic and accounting experts from the U.S. and Australia have teamed up to provide a unique perspective comparing the Australian and American frameworks and methodologies. The whitepaper “Shareholder Class Actions: The Myer Decision” offers key learnings for economists, solicitors and in-house counsel. Among them are:
- It may not be safe to simply assume the market for a security is efficient without an underlying economic analysis. Defendants can rebut the claim of an efficient market.
- Event study methodologies were endorsed, with a caution that there is no “one size fits all” for measuring inflation of share prices caused by deficient disclosures.
- Applicants seeking to claim inflation-based damages should review all publicly available information related to alleged misrepresentations or omissions (and not just the disclosures from the defendants).
- Departing from methodologies applied in the U.S., in Australia the loss per share for a shareholder depends on the “price paid” when the shareholder acquired his or her interests rather than solely on the “corrective disclosure.”
- It is important for in-house counsel to “take stock” during rapid decision-making to create detailed disclosure chains that will withstand a rigorous “forensic audit.”
Determining loss in a complex matter like the Myer Case requires a multipronged approach and expertise. From market efficiency, causation and materiality to inflation measurement and damages, the factors are many, making an in-depth economic analysis invaluable to a positive outcome should a case end up in court.
© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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Published
March 03, 2022
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