Worley Limited v Crowley [2022] HCATrans 182 (21 October 2022)

Last Updated: 28 October 2022

[2022] HCATrans 182

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S47 of 2022

B e t w e e n -

WORLEY LIMITED (ACN 096 090 158)

Applicant

and

LARRY CROWLEY

Respondent

Application for special leave to appeal

KIEFEL CJ
GORDON J
STEWARD J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 21 OCTOBER 2022, AT 9.30 AM

Copyright in the High Court of Australia
KIEFEL CJ: In accordance with the protocol for remote hearings, I will announce the appearances for the parties.

MS W.A. HARRIS, KC appears with MS J.A. FINDLAY for the applicant. (instructed by Herbert Smith Freehills)

MR J.C. SHEAHAN, KC appears with MR D.R. SULAN, SC and MR G.A. DONNELLAN for the respondent. (instructed by ACA Lawyers)

KIEFEL CJ: Yes, Ms Harris.

MS HARRIS: If the Court pleases. Your Honours, this was a case about a forecast; a forecast made by a company through its human agents, and it was undisputed that the forecast was made by and disclosed on the authority of the board. That forecast was that Worley would in FY14 exceed its FY13 net profit after tax, it being $322 million. The terms of that representation, importantly, were pleaded by the respondent and admitted by the applicant. The terms of the representation were simple; namely, that Worley would achieve NPAT in excess of $322 million in FY14. Not materially in excess of, not $354 million, not $352 million as proposed by the Full Court, but ‑ ‑ ‑

KIEFEL CJ: Excuse me, Ms Harris, I think Mr Sheahan might be having some difficulties. Mr Sheahan? Mr Sheahan, are you able to hear us?

MR SHEAHAN: Your Honour, I am now. I am sorry.

KIEFEL CJ: Right. It is working now?

MR SHEAHAN: It is working now.

KIEFEL CJ: Yes, thank you. Yes, Ms Harris.

MS HARRIS: If your Honour pleases. The learned primary judge found that Worley had reasonable grounds for that representation and those reasonable grounds existed because, as was again undisputed, the board based its prediction on the budget which it had adopted on the recommendation of senior management. That budget number was – the NPAT budget number was $352 million, that is, $30 million in excess of the FY13 figure which was the subject of a representation. The board therefore acted conservatively in giving itself some headroom over the previous year.

Now, the appeal against the learned primary judge’s holding succeeded for several foundational and interrelated reasons which involved, we submit, clear appellable error that warrant the intervention of this Court. First, the Full Court recast representation in terms which differed from the pleaded case in order to falsify it. That is our ground 1(c). Secondly ‑ ‑ ‑

GORDON J: Ms Harris, is that in relation to the word “materially”?

MS HARRIS: Not just in relation to the word “materially”, your Honour. The Full Court went further, and your Honour will see this at paragraph 114. The Full Court said that what was in truth represented was NPAT not just materially in excess of $322 million, but if one applied a materiality threshold of 10 per cent, then one was looking at a representation in the order of $354 million. In the same paragraph the Court said:

it was open to conclude that WOR represented that NPAT would be around $352 million.

Now, of course, that differed significantly from the representation as pleaded and as admitted by the respondent.

KIEFEL CJ: Ms Harris, is that your question 3 point? That is the pleading point?

MS HARRIS: It is, your Honour, that is right. And it interrelates, as your Honours will see, to the other grounds because the Full Court in effect recast the representation in order to falsify it by departing again from principle, and that is where we come to our first ground, ground (1)(a), to the effect that the Full Court departed from established appellate‑level authority in its identification of what can and should be looked at in order to determine what the representator had before it and whether those grounds were reasonable. Thirdly, we say ‑ ‑ ‑

GORDON J: Can I ask about that question?

MS HARRIS: Yes, your Honour.

GORDON J: Do you contend that, at least in relation to your proposed ground – what I will call your first question is that you arguably conflate who the representor is? You accept, do you not, that the representor is the company?

MS HARRIS: We accept that the representor is the company, your Honour. The Full Court’s chain of reasoning starts from an undisputed premise, that the representor is certainly the company, but the company can only act through its human agents, and its human agents were the board in this case.

The board published a prediction by – sorry, the company published a prediction of its governing body – and no one else – to the market. So, the mess that – we say the material before the board employing that view is necessarily the accurate and reasonable grounds analysis. Now, what the Full Court then did was apply a different standard to what Worley had to do in order to discharge its obligation under section 4 of the ACL and its equivalents. Your Honours will find section 4 at page 400 of the book. Section 4(1) provides that:

If:

(a) a person makes a representation with respect to any future matter –

Then, if the person who “makes a representation”:

does not have reasonable grounds for making the representation;

the representation is taken . . . to be misleading.

And then there is a deeming provision in paragraph (2) that says that:

For the purposes of applying subsection (1) –

the person, the representor:

is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

So, Worley’s burden was to adduce evidence to the contrary. There is a significant line of appellant-level authorities starting with Sykes v Reserve Bank of Australia in 1988, City of Botany Bay v Jazabas, and a number of other cases that we have referred to in our submissions at paragraph 10.

STEWARD J: Ms Harris, could I ask you a question? I am sorry, is your case that for these purposes, a company can only really have one mind? And usually, that is the board – it is not always the board, because there may be cases where it is an agent or indeed a subordinate officer. But it is your case, I take it, that on this occasion, it really is the board, no one else.

MS HARRIS: It had to be, your Honour. That was accepted; it was accepted and not challenged by the respondent at trial. But the company acted through the board on this occasion in formulating the guidance and publishing it to the market. Only the board had that authority. Only the board had the authority to determine that guidance would be given and the form in which it would be given. And your Honour is right, in another case – in the case of some other representation – the mind of the company might be constituted by someone else.

The human actors of the company might be someone else, but in this case, it was the governing body. And so, that is where it is important to understand what Sykes and Jazabas, and the cases which have followed them have said, when we are looking at the universe of facts which might constitute reasonable grounds, that universe is constituted by looking at grounds that existed at the time of representation and which were actually before the the decision‑maker and taken into account by the decision‑maker.

GORDON J: But the decision‑maker is the board in the sense that it approved that which is being given. It is not the onus – the Full Court said it is an odd situation that the board is taken in the circumstances, able to adduce evidence that it was not told of certain matters, and therefore it had reasonable grounds. That is the question and that was what addressed by the Full Court.

MS HARRIS: Your Honour, there was no evidence that it was not told anything, that there was anything relevant that the board was not told, that is not the case. Your Honour ‑ ‑ ‑

GORDON J: Is that right in the sense of the findings that were made about the memoranda that went between all of the relevant or arguably‑relevant members of management referable to these issues?

MS HARRIS: That memoranda did not come into existence until four or five months after the earnings guidance was published to the market. That was an ex post memorandum, and it did not identify, your Honour, anything particular about this budget. What your Honour needs to do, with respect, is to differentiate between two very different things.

The first thing is the budget. The budget postulated an impact number of 352 million. That number was not published to the market. The budget number was never published to the market. The only thing that was published to the market was guidance. That guidance was in general terms; it was not in specific terms, it was simply in terms that there would be increased earnings in FY14.

STEWARD J: Ms Harris, is it your case, in its essence, that this is a case where, as at the time at the statement was made, there were various views expressed by officers of the company for the purposes of formulating what would be the ultimate position of the company, and that ultimately, Holt as CFO must have taken the view that he disagreed with his subordinates in presenting the budget to the board over that two‑day period. Is that it?

MS HARRIS: Your Honour, there was in fact no disagreement. So, in presenting to the board over that two-day agreement, every member of management who appeared before the board – and this is reflected in remitters – appeared to support the budget. So, there was no overt disagreement. It rises no higher than speculation that there was ‑ ‑ ‑

STEWARD J: So, the inference from the minutes, you would say, is that whilst these officers may have had severe misgivings, by the time they presented to the board, they had either changed their mind, or decided to keep quiet. Is that ‑ ‑ ‑

MS HARRIS: They had accepted that a budget of 352 million in the NPAT was appropriate. And then, that becomes not the number that is released to the market, but that becomes something upon which the board cogitates in determining what to guide the market to in terms of the increased earnings.

So, the thing that was before the decision‑maker – and your Honours will see this from paragraphs 117 to 118 of the Full Court’s judgment – the Full Court, for the purpose of looking at what Worley was permitted to adduce in discharging its evidentiary burden under section 4(2), confined Worley – quite rightly, in line with Jazabas, Sykes, and the cases have followed – to the universe of facts issued before the decision‑maker. So, what were the materials ‑ ‑ ‑

KIEFEL CJ: Ms Harris, is the essential question in relation to question 1 whose knowledge is relevantly that of the company for the purpose of the making of the representation?

MS HARRIS: That goes, centrally, your Honour, to the ground of appeal. Because there was, in effect ‑ ‑ ‑

KIEFEL CJ: The question I have for you from that is this – and you have half-answered it, I think, by saying it is a question of the inferences drawn from the facts. This is a question of fact and evidence, is not it?

MS HARRIS: Your Honour, it was not a question of fact and inference by the Full Court, because the Full Court did not draw any facts or inferences.

KIEFEL CJ: But their Honours pointed to the error of the primary judge being that, having found the essential facts about the information available and views held, her Honour failed to draw relevant inferences about the knowledge of the company by focusing on the board and not upon the officers of the company.

MS HARRIS: And in doing so committed a significant legal error, your Honour; and departed from appellate‑level authority, because it applied a different test. And this is very significant, your Honour; that it applied a different test under section 4(2) to the one it applied under section 4(1).

The universe of facts to which the Full Court said “regard should be had” differed according to section 4(1) and section 4(2). That cannot be right, because all section 4(2) is, is a deeming provision. In other words, your Honour, facts outside the universe of information – which was before the decision‑maker and which was taken into account by it – could not, in a principled way, be held against it under section 4(1). And yet, that is exactly what the Full Court purported to do. And it purported to do that in a manner which departed very significantly from the appellate‑level authority.

It is not just a question of inference, your Honour, it is a question of what the parties are entitled to rely on. That is a legal question. The Full Court differed from the learned primary judge by departing from the received wisdom, and saying: anything within the company that could be attributable to the company in that broader sense, even if not known to, and impossibly known to the decision‑maker, can be taken into account to falsify reasonable grounds, and so ‑ ‑ ‑

GORDON J: Is that right, Ms Harris? I wonder whether if you even put your application too high. I notice that your proposed ground of appeal says “all knowledge”. What the Full Court criticised you for was to say you had, in effect, ignored the first question. That was, what the board ought to have known, which was reflected – it starts at 119 on application book page 361, and flows through to paragraph 122.

Then, the second question is what employees knew or must have been inferred to have known, which is the relevant issue. It is not all employees. It is as the Chief Justice says, it is a question about what the board ought to have known, what relevant employees – not all employees, not all management – knew or must have been known, which can then be inferred, relevant to the issue before you, which is the subject of the future representation for the purposes of the inquiry.

MS HARRIS: Your Honour, there is no suggestion that matters that ought to have been known by the board were not taken into account by it. If your Honour looks at the end of paragraph 118, for example, their Honours said:

this question is to be answered by reference to the knowledge properly attributable to WOR according to orthodox principles, not merely knowledge of the board of WOR.

That picks up what they say about seven lines or eight lines from the bottom, in paragraph 117, that anything that could be attributable to the company in according with principles of agency is allowable, and that includes constructed knowledge. That again is a departure from that of appellate‑level authority, your Honour, because section 4 looks to information that the representor had, not ought to have had, but that it had. So, your Honour the Chief Justice, I think you are speaking to me but you are on mute.

KIEFEL CJ: Thank you. Ms Harris, I think you said that the question is what the parties are entitled to rely upon. That is the central question. Is that another way of saying which evidence is relevant?

MS HARRIS: It is not just what evidence is relevant; of course, that is the first question, and that is part of the injustice that we see here, but the second question is, what is the judge entitled to take into account? So, the courts below, guided by those cases, had been very clear that the Court is not entitled to look to material that was not before the decision-maker, either to fortify or to falsify a representation. So, there was a very significant departure in the Full Court’s decision from that principal guidance and, correlatively, from the terms of section 4 itself, because the Full Court did not just look at what the representor, human agent of the board, had before it in terms of reasonable grounds, it looked at ‑ ‑ ‑

STEWARD J: Ms Harris, is your point really that once it was accepted that the board was the mind of the company, that, as a matter of law and principle, the expressions of doubt and disagreement of subordinate officers was wholly irrelevant to the question of reasonable grounds?

MS HARRIS: If there were any, they were not communicated to the board; they were not known to the board, nor was it suggested that they ought to have been known to the board, your Honour. So, for that reason, yes, in this case. If they were ‑ ‑ ‑

STEWARD J: They are not part of the universe of facts, to use your expression?

MS HARRIS: Indeed, your Honour.

STEWARD J: All right.

MS HARRIS: Your Honours, is that my 20 minutes? I was not sure whether that was my 17 up?

KIEFEL CJ: No, it was not, Ms Harris.

MS HARRIS: Thank you, your Honours. So, I should briefly address your Honours on two additional substantive grounds.

KIEFEL CJ: I am sorry, Ms Harris. I think it was ‑ ‑ ‑

FIRE ALARM WARNING

KIEFEL CJ: We have got some alarms happening here; I will have to adjourn briefly.

MS HARRIS: If your Honour pleases.

AT 9.49 AM SHORT ADJOURNMENT

UPON RESUMING AT 9.50 AM:

KIEFEL CJ: I am sorry for that interruption, we had all forgotten about the weekly testing. Ms Harris, I think you have some time. Is your continuous disclosure case dependent upon your success on the first question?

MS HARRIS: No, your Honour, it is a different question, and it turns on whether a company which does not actually form an opinion can be required to disclose it under the continuous disclosure provisions, whether section 674 embraces not only things which a company knows, information that a company has, but which, so it is said, it ought to have had. Now, again, the Full Court departed from pre‑existing authority but also significantly from the terms of section 674 and it failed to analyse the terms of section 674. That section requires that a company has information – that appears at application book 401 – requires that a company has information which is material.

If a company does not have the information it cannot disclosure it, and that is contrary to what the Full Court here – the Full Court said that if on the facts before a company an opinion was not only open but something
that the company ought to have formed, then it was obliged, by section 674, to form the opinion and then to disclose it. It was also obliged to disclose contrary opinions to those which might have been held by the board if those opinions were held by persons within the company who might have been officers but who were not responsible for taking the decision. Your Honours will see that ‑ ‑ ‑

STEWARD J: Ms Harris, is it your case that 674 is a narrower test than the Listing Rules?

MS HARRIS: Not, your Honour – the provision of the Listing Rules that was focussed upon by the Full Court addresses a different subject within the universe of section 674 and the Listing Rules . . . . . The starting point is that the Listing Rules and section 674 require the disclosure of information which the company has. But what the company cannot do is say, well, the board never came to know of this very important piece of information which ought to have been escalated to the board and so Listing Rule 19.12 will deem officers of the company to have knowledge of that very important piece of information. What the Full Court did was take it another step and say, even if the information does not exist within the company, it still must be disclosed.

If your Honours please.

KIEFEL CJ: Thank you, Ms Harris. Yes, Mr Sheahan.

MR SHEAHAN: Your Honours, the applicant’s case on its principal point relies, we think, with respect, on a misconception. The grounds that Worley relied upon in publishing its guidance were its FY14 budget process and the output of that process. The applicant’s case or its argument is that that material satisfies the first three elements in Justice Heerey’s formula in Sykes v Reserve Bank. We can see that formula in their written outline at paragraph 11, page 389, and it is worth looking at it briefly. So, the board’s reliance on the budget and its output satisfies the identification of some facts or circumstances existing at the time of the representation on which the representor in fact relied.

Now, to the extent that those matters are involved in the exercise, it is plain that there is a subjective element in the inquiry, but the entire dispute before the Full Court – the entire dispute – was about the next two points. Are those matters objectively reasonable and do they support the representation made? Are they objectively reasonable? Our learned friend’s argument is that in determing those issues, issues 4 and 5, objective reasonableness, the court is for some reason confined to an examination of matters subjectively appreciated by the board of the company. That is, with respect, plainly wrong. The inquiry is, in terms, an objective one. Misleading and deceptive conduct cases, as your Honours know – it is not a deceit case. There is no mental element. Fault is irrelevant. The question is simply whether the company’s conduct conveys something that is misleading.

The applicants point to no authority for the proposition that they have to advance or have to win on. They misapprehend the authorities they refer to and it can be demonstrated simply by reference to the one they rely on most, we think, the decision of Justice Mortimer in Woolworths. They describe what Justice Mortimer decided in paragraph 7 of their reply submissions at page 433, and it neatly makes the point. What they say was that the issue in that case:

was whether the reasonable grounds asserted by the respondent were in fact relied on by the respondent.

That is, Sykes steps 1 to 3, not Sykes steps 4 and 5, which are the questions that we are concerned with and that the Full Court was concerned with. The whole case before the Full Court was that the budget and its outcome was not an objectively reasonable basis for the statements made by the company and did not support the statements made by the company and that in addressing those questions the trial judge’s treatment of those factual matters had miscarried.

The trial judge had many findings of primary fact, which the Full Court summarises at paragraphs 39 to 46, which tended – we would say powerfully – to a conclusion in favour of Mr Crowley on those questions. They included an unchallenged finding that the outcome of the budget process had a reliability level of less than P50 – that is to say, there was a less than 50/50 chance that the outcome of the budget would be achieved in fact. Nevertheless, that became the basis for the guidance.

All the discussion in the judgment of the Full Court is directed to the question of whether, objectively, the budget provided a reasonable basis for what had been said. In addressing that question, the Full Court was entirely correct, in our respectful submission, in bringing into account the knowledge, the demonstrated knowledge, and the knowledge which might be inferred to have been had by senior executives at the organisation, including, relevantly, its Chief Financial Officer, a person who was intimately involved in the preparation of the budget.

Section 4(2) of the Act to which our learned friends referred, if we understand it correctly, has no relevance to this appeal and that is because its operation disappears as soon as evidence is adduced in support of a finding of reasonable grounds. That evidence was adduced.

Finally, your Honours will appreciate that the results of the appeal was not a judgment in favour of my client, the matter was remitted to a trial judge for further hearing and determination of all issues. The Full Court had been satisfied that the trial judge’s fact‑finding process had miscarried on the question of the objective reasonableness of the representations of the justification for the representations, but for reasons their Honours explained at paragraph 96 of their judgment at page 353 of the application book, the Full Court was not in a position to redo that exercise itself, as it were, by way of rehearing. That meant that the matter had to be remitted, so that someone could go through the exercise before a trial judge while justifying all the inferences that were said to be appropriate to bear upon the question of objective reasonableness.

Now, what that means for this application is that it is premature. There is, first, not a stable set of factual findings that is available to this Court to inform the considerations of the questions the applicant wishes to agitate. If those questions remain live after further proceedings on the remitter, they can be raised then, of course, but it is possible that they will never arise. It is possible that the inferences we ask the Court to draw will not be drawn. It is possible that Mr Crowley might fail to establish causation or damages. So, all of this may turn out to be moot.

That last point is also relevant to the second suggested special leave ground, which relates to the proper construction of section 674 of the Corporations Act – it might never arise for consideration. The claim may fail for a number of reasons on remitter, or it might succeed on the misleading and deceptive conduct claim, in which case the additional basis of liability under section 674 would be immaterial. If I could just say something briefly about the merits of that point. What the applicant proposes is an entirely novel construction of section 674 that has never been accepted by any court. Indeed, it has not even been considered by any court, including the trial judge or the Full Court in these proceedings.

Now, it is a construction which, if it were accepted, would create – as I think your Honour Justice Steward was hinting at – would create a cleavage between the operation of the listing rules and section 674. A cleavage that, in our respectful submission, section 674 had as one of its objects to avoid. The way that the applicants go about this point is to focus on the phrase – one can see the intersection at page 401 of the record, in the phrase:

has information that those provisions require the entity to notify to the market operator –

they focus on the word “has”, and they say that this means, unequivocally, that the information is known to the entity. The reason that creates a
cleavage with the operation of the Listing Rules is that they operate by reference to an expression “aware”, and “aware” is defined to include – and one sees this on the opposite page, page 400 – information:

an entity . . . ought reasonably to have, come into possession of –

Now, there are two fundamental problems with this. The first is that the construction would undermine the object of section 674 so far as that is to give statutory force to the Listing Rules, which we think is clear, and one of its objects was to permit public enforcement by ASIC, not merely private enforcement by the Australian Securities Exchange, and . . . . . for that matter, of these important market governance principles.

The second is that the language on which our learned friends rely does not require the narrow construction for which they contend. The general law, as your Honours appreciate, embraces a wide range of circumstances in which one might be said to have information, and the five categories in Baden are the paradigm example. But there is no reason at all to treat the word “has information” in section 674 as mandating that only one of those five categories of information can be relevant to section 674 no matter what the Listing Rules provide for.

Now, your Honours, the third suggested special leave ground is merely a pleading point, we deal with it in writing. Its resolution could not affect the outcome and it is based on a misapprehension as to what the Full Court actually did. The fourth suggested special leave point deals with the application of Blatch v Archer and Jones v Dunkel. There is an attempt in the way the grant of appeal is defined to try and make it look like a point of general importance. In the way it is expressed it does not in fact reflect what the Full Court did, and one can see that by comparing the ground of appeal with paragraphs 80 and 81 of the Full Court’s judgment, and so no issue of general significance arises there.

For those reasons, special leave should be refused, in our respectful submission.

KIEFEL CJ: Yes, thank you, Mr Sheahan. Yes, Ms Harris.

MS HARRIS: Your Honours, my learned friend is, with respect, in error when he says that the only issue before the Full Court was the objective reasonableness of accepted universal facts. Where we differ is in the third element of Sykes, which requires identification of the matters on which the representor rely. Then, it is just as President Mason said in Jazabas: the section requires the representor to identify those facts and circumstances, and then turn it over to the trier of fact to determine whether they were objectively reasonable. What happened in this case – what the Full Court contemplates in this case is that a broader universe of information may be adduced by Mr Crowley in order to determine that last question of reasonableness of grounds.

STEWARD J: Ms Harris, what do you say about what Mr Sheahan said, that if you accept that the budget was the thing relied upon, and he is at liberty to rely on any evidence to demonstrate that the budget was unreasonable or not reasonable, and for that purpose he is entitled to point to any information that goes to that issue, including observations of subordinates and officers and so on?

MS HARRIS: Your Honour, the example that Mr Sheahan gave in that regard is a telling one, the P50 nature of the budget. That was a matter that was raised only in closing submission, it was not pleaded . . . . . amended statement of claim, and still not a mention of this budget not being a P50 one. The criticisms of the budget were set out in the pleading and they were met by the applicant. It was those criticisms which were said to falsify the budget. But even if there was some error in the budget, what the Full Court did was say that any error in the budget falsified the guidance. That could not be right in circumstances where there was $30 million in headroom between the budget and the guidance. That was a significant error on the part of the Full Court.

Mr Holt – who is said to be the speculative source of these inferences – Mr Holt, according to the trial judge at paragraph 298 and following in her judgment, presented not only the budget but the guidance wording to the board. He embraced it. And so, the speculative possibility that he thought there was some error in it had no basis, and that was not identified.

Now Mr Sheahan says, well, this is all premature. This is not premature because if it is now sent back to another judge, it will either have to be determined on the basis of the existing suite of evidence, but on the basis of different rules to the ones which were applied at trial or we have to have another trial all over again at ten years hence. There is deep injustice in that. And there are matters of principle that this Court, with respect, needs to address. Mr Sheahan has been a . . . . . in both cleavage between
section 674 and the Listing Rules, regard has to be paid to the statutory norm, not just one aspect of what the Listing Rules provide in elevating certain information that is already within the company to disclose of all information on the basis of constructive knowledge on the part of responsible officers.

If your Honours please.

KIEFEL CJ: The Court will adjourn briefly to consider the course that it will take.

AT 10.08 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.13 AM:

KIEFEL CJ: We consider that there are insufficient prospects of success to warrant the grant of special leave, and it seems to us likely that an appeal would be premature. Special leave is refused with costs.

We will now adjourn until 10.30 am.

AT 10.14 AM THE MATTER WAS CONCLUDED