- No shareholder class action in Australia has resulted in a final judgment, as a result of which there is uncertainty about what needs to be proven to establish causation
- In the US, the Supreme Court has recently affirmed the “fraud on the market” theory, which gives rise to a rebuttable presumption of reliance in certain shareholder class actions where (1) alleged misrepresentations are (a) publicly known, (b) material and (c) related to a share that traded in an efficient market, and (2) the plaintiff traded in the shares between the time the misrepresentations were made and the time the truth was revealed
Shareholder class actions are now a common feature of the Australian litigation landscape. Although many millions of dollars have been paid out as a result of shareholder class actions, no Australian proceeding has resulted in a final judgment.
Because there has never been a final judgment, many questions about shareholder class actions remain unanswered. Perhaps the most important of these is what needs to be proven to establish causation.
Shareholder class actions usually involve allegations that the company in question:
- failed to comply with its continuous disclosure obligations (in contravention of s 674 of the Corporations Act 2001 (Cth) (the Act)); and
- engaged in misleading or deceptive conduct (in contravention of provisions such as s1041H of the Act).
Assuming contravention of s 674 and/or s 1041H of the Act, the question is whether, to establish causation (for the purpose of the relevant remedy provisions i.e. ss 1317HA and 1014I):
- it is necessary to prove that each individual shareholder relied on the company’s (deficient) disclosures to the ASX and/or the misleading or deceptive conduct; or
- it is sufficient to establish that the contravening conduct caused the price of the shares in question to be artificially inflated (such that a shareholder may have a claim even if he or she was not directly influenced by the company’s (deficient) ASX disclosures or misleading or deceptive conduct) (see P Dawson Nominees Pty Ltd v Brookfield Multiplex Limited (No 4)  FCA 1029 at ).
In the United States, it is necessary to establish reliance, but plaintiffs in certain shareholder class actions can rely on a rebuttable presumption of reliance.
This presumption arises pursuant to the “fraud on the market” theory, which was recently affirmed by the US Supreme Court in Halliburton Co. v. Erica P. John Fund, Inc. 134 S. Ct. 2398 (2014) (Halliburton No 2). Halliburton No 2 was the second occasion on which the proceeding had been before the US Supreme Court, the first being Erica P. John Fund, Inc. v Halliburton Co. 131 S. Ct. 2179 (2011) (Halliburton No 1).