By , and -


  • Causation is an integral element affecting both liability and the quantum of recoverable loss.
  • Causation can be problematic where a claim is made by shareholders for loss sustained by misleading statements made to the market.
  • In a ground-breaking decision, the Supreme Court found that market-based causation as a species of indirect causation is available in an action by shareholders seeking compensation for misleading statements made to the market by companies resulting in losses to those shareholders.

On 20 April 2016, Brereton J of the Supreme Court of New South Wales delivered judgment in four sets of proceedings (collectively referred to as
In the matter of HIH Insurance Limited (In liquidation) [2016] NSWSC 482) brought by plaintiffs who were shareholders in HIH Insurance Ltd (‘HIH’) and who acquired HIH shares in the period between 26 October 1998 and 15 March 2001.

The proceedings each had their genesis as appeals pursuant to s 1321 of the Corporations Act 2001 from the rejection of proofs of debt and in which orders were sought that the decisions of the liquidators not to admit, or to fail to adjudicate upon the proofs be reversed or modified, and that the claims be admitted.

Background and issues

The plaintiffs contended, and the defendants admitted, that the FY1999 results, the FY2000 interim results and the FY2000 final results that were published and released by HIH contained and conveyed representations which were misleading and deceptive, or likely to mislead or deceive and that by publishing and releasing them, HIH contravened s 52 of the Trade Practices Act 1974 and ss 995 and/or 999 of Corporations Law. Those results overstated the consolidated operating profits by approximately $108,350,000 and consolidated net assets by $192,000,000 subject to consequential adjustments for the effects of taxation and interest income that would have been earned by HIH and its relevant controlled entities from certain deposit arrangements with the re-insurer, Hannover Re.

The principal issues were:

  • whether HIH (and related corporations) were liable to the plaintiffs for loss and damage caused by the admitted contraventions;
  • whether the plaintiffs were entitled to claim damages on the basis of ‘indirect causation’, without proving direct reliance on the contravening conduct; and
  • the basis for quantification of the plaintiffs’ damages.

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