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Masters v Lombe (liquidator), in the matter of Babcock & Brown Limited (in liq) [2021] FCAFC 161

  • Legal Development 21 December 2021 21 December 2021
  • Asia Pacific

  • Insurance & Reinsurance

On 3 September 2021, the Full Federal Court dismissed the appeals by Babcock & Brown Ltd (BBL) shareholders alleging BBL breached its continuous disclosure obligations under s 674 of the Corporations Act 2001 (Cth) (the Act)

The shareholders' claim effectively was akin to a shareholder class action in which the shareholders alleged they were creditors of BBL by reason of its breaches of its continuous disclosure obligations.

It was alleged that on five separate occasions, BBL failed to disclose material information that its expected NPAT was in fact lower than $643 million (and increasingly so across the Relevant Period).

The Full Court agreed with the trial judge that there was no contravention of s 674 of the Act concerning the alleged first, second and third breaches of the continuous disclosure obligations, however (contrary to Foster J’s finding) held that the material in the fourth and fifth allegations of breach of the continuous disclosure regime was of such materiality that it ought to have been disclosed to the market[1]. Despite finding in favour of the appellants on breach, as in Myer, the Full Court held that no causation or loss was established and consequently dismissed the appeals.


The claim was by BBL shareholders who purchased shares in the period between 12 August 2008 and 12 March 2009 (Relevant Period), in the midst of the Global Financial Crisis. They appealed against the rejection by the liquidator of BBL of proofs of debt that they were creditors by reason of being entitled to compensation because of BBL’s breaches of its continuous disclosure obligations.

On 17 April 2008, BBL published its 2007 annual report which referred to an expected NPAT for FY 2008 of at least $750 million and, at its AGM on 30 May 2008, reaffirmed its expected earnings. On 11 August 2008, BBL announced its NPAT for FY 2008 was not expected to exceed the 2007 group net profit of $643 million. By this time, BBL’s share price had collapsed from a high of $34.63 in June 2007 to $6.80 and continued to decline thereafter.

At first instance, Forster J rejected the claim and held no contraventions of s 674 occurred on any of the five occasions alleged. His Honour also went on to say that even if the plaintiffs’ case on liability was made out, they had not suffered any loss as a result of BBL’s breaches. The reason being that the plaintiffs had not established that the BBL share price during the Relevant Period was higher than it would have been had the disclosures been made.


In respect of the five alleged breaches of the continuous disclosure obligations, the Full Court held:

  1. In relation to the BBL CFO memorandum to the Board dated 13 August 2008 – which contained information that FY08 earnings were expected to be “materially lower” (in the range between $400 to $600 million) than previous guidance – the Full Court agreed in substance with Foster J that it did not comprise information that a reasonable person would expect to have a material effect on the price or value of BBL shares[2]. Their Honours also held that the ASX Listing Rule 3.1A exception to the disclosure obligation would have applied in any event[3].

  2. The second contravention was in relation to an email dated 20 August 2008 sent on behalf of BBL CFO to BBL’s deputy chairman and others, proposing new guidance of full-year NPAT of $400 million and a related memorandum from BBL CFO to the Board noting “significant limitations and qualifications” to the $400 million estimate. Foster J held this non-disclosure to be of uncertain information, with significant limitations and qualifications, and thus subject to the listing rule exemption. The Full Court saw no error in his Honour’s finding[4].

  3. The third contravention was alleged to have occurred with a board meeting held on 8 October 2008. There was some uncertainty as to what was tabled at the board meeting, however the Full Court concluded that there were various conflicting forecasts before the Board, including a forecasted NPAT for the full year of $243 million, a forecasted loss of $64.78 million and figures in higher forecasts referred to by Foster J. Whilst their Honours “were inclined to the view that one or more of these forecasts constituted material information” they ultimately concluded that the 3.1A exception applied[5].

  4. The fourth contravention concerned a “FLASH” document dated 8 November 2008, which was presented to the Board and which contained a current NPAT of $58.2 million. Contrary to Forster J’s finding – that the document was subject to the listing rule exemption on the basis that it was prepared for the purposes of internal management – the Full Court found that the information was material and that the liquidator could not make out the exemption that a reasonable person would not expect disclosure and therefore, found that it ought to have been disclosed[6].

  5. Similarly, in respect of the fifth alleged contravention, the Full Court accepted the appellant's contention that, as at the date of a further board meeting on 8 December 2008, BBL forecasted of a loss of $352.8 million (excluding impairments) and approximately $2 billion (with impairments). The Full Court held that the relevant information (the Fanning Finance Report and a draft forecast “for review and discussion”) was material, and the liquidators could not satisfy the “no reasonable expectation of disclosure” condition of the Listing Rules 3.1A exception.

Despite the Full Court’s findings of breaches on two of the five alleged contraventions “the difficulty for the appellants [was] in showing causation and loss”. The appellants argued that the trial judge erred by:

  1. Finding that relevant investors purchased shares for reasons entirely unconnected to likely earnings and by finding that those investors would not have been influenced by being provided with any of the material the subject of the alleged disclosure breaches; and
  2. Suggesting that market based causation theory (based on the market) was unsatisfactory.

The Full Court rejected the Appellants’ arguments and expressed the view (in reference to analysts’ reports published in August 2008) that “the market did not take BBL’s forecasts seriously[7], and could find no error in the trial judge’s acceptance of the defendant’s expert’s evidence that from mid-September 2008, BBL’s share price reflected speculation that it might survive the Global Financial Crisis and its share price would recover, and was not based on any view about earnings guidance from BBL[8]. Their Honours concluded that something other than the forecasted NPAT was driving BBL’s share price and that, in the absence of any evidence as to what that cause was and how it may have been affected by the market disclosure of the revised NPAT information, it was open to their Honours to conclude that the release to the market of the revised NPAT information would have had no effect[9].

While the Full Court made helpful observations concerning causation generally, they did not express any views on the suitability or appropriateness of market-based causation, about which Foster J had expressed reservations.

This is an important judgement in the shareholder class action space. After being devoid of any judicial determination for 20 years, insurers and their insureds now have 3 very helpful decisions in Myer, Worley Parsons and this BBL judgment. As in Myer, the court has held that it is not all about the breach and that causation is a prerequisite of any claim, establishing which is no forgone conclusion. In doing so, the Court of Appeal also provided useful commentary on the Listing Rule exception 3.1A, such that the exception has an important part to play in determining whether any relevant information has to be disclosed.

[1] [241]

[2] [141]

[3] [146]

[4] [178]

[5] [217]

[6] [234] – [236]

[7] [104]

[8] [219]

[9] [312]


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