The Use of Expert Evidence in Continuous Disclosure Class Actions

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This post finishes our recent series on emerging issues and trends in Australian Class Action Litigation. In Australia, there is a steady increase in major class action claims[1] owing to the increased prevalence of third party funding and a stable legislative environment. With this comes the need to ensure that plaintiffs and defendants alike are qualifying and selecting the most appropriate experts to resolve the issues in dispute. This is particularly so with “continuous disclosure” cases.

Continuous Disclosure

In part, the steady increase in major claims is thanks to an increase in continuous disclosure cases. These are cases where a plaintiff sues a publicly listed company alleging that the company was aware of material information affecting the company’s share price that they ought to have, but didn’t, disclose to the market. Recent examples of this kind include the Slater & Gordon class action and the QBE class action, where the plaintiffs argue that material matters were not properly reported to the Australian Stock Exchange (ASX) and that if they were properly reported then the plaintiffs would not have bought the shares at all or if they did, would have paid far less for them[2].

Put another way, Directors and Officers of a company must ensure that the publicly listed entity continuously discloses those matters that are relevant. The principal statutory provision relating to this is s 674 of the Corporations Act 2001 (Cth) which provides:

“(paraphrased) If a listed disclosing entity has information that is not generally available and is informative to the extent that a reasonable person would expect, if it were generally available, to have a material effect on the share price then the entity must notify the ASX of that information”.

Examining the section closely reveals three elements. First, there has to be information that is not generally available. Second, it has to be objectively relevant (a reasonable person test) and third, the information must be material to the movement of the share price.

Section 674 should be read in conjunction with the ASX listing rules, particularly rule 3.1, which provides:

“Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities the entity must immediately tell the ASX that information”.

The continuous disclosure obligations in both the Corporations Act and the ASX listing rules are usually coupled with misleading and deceptive conduct claims which focus on ASX announcements or annual reports that contain misleading statements or are misleading by silence (failure to say anything at all).

As a result, in shareholder continuous disclosure cases, the corporate defendant is faced with multiple actions that they have to meet. Expert evidence is therefore crucial to the prosecution or defence of these claims.

Expert Evidence

Of the three elements identified above, the expert’s job is to consider the third element of ‘materiality’. That is, whether the conduct was material to the share price movement. Justice Beach of the Federal Court describes materiality in this way:

“did the non-disclosure of adverse information produce share price inflation or did the non-disclosure of favourable information produce share price deflation?”

In answering these questions, expert evidence can be gathered from:

– Large institutional (or wholesale) investors and their previous experience with materiality and expectations of what is or is not material;

– Brokers;

– Analysts;

– Investment Bankers; and

– Capital Market Researchers.

These experts will usually have regard to the listing rules and their own experience in resolving the materiality question. An example is the 2008 shareholder class action in Aristocrat Leisure. There, the shareholders argued that Aristocrat, a publicly listed company, engaged in misleading and deceptive conduct by including revenue in their accounts which was not permissible revenue under the accounting standards. The plaintiffs relied on an expert forensic accountant to comment on the standards and an independent economist to deal with the question of materiality.

Generally, experts briefed to provide opinions in continuous disclosure cases will start by outlining why it is that they have the requisite knowledge to comment on these issues. This is especially important because, unlike other areas of litigation, the question of ‘materiality’ and continuous disclosure obligations are not tangible areas of expertise. For example, a surgeon is able to state with accuracy why they are able to comment with expertise on surgical issues. However, the same concrete connection is less obvious when dealing with financial obligations, especially in the context of financial markets.

Expert evidence is also relevant to the question of damages. That is, what would the share price have been but for the contravening conduct? Accountants, analysts, and economists are very relevant in this regard.

Finally, the success or otherwise of a case can, and often does, depend on the qualifications and report of your expert witness. Getting it right from the beginning is crucial to having these complex questions answered in your favour.


[1] Allens Linklaters, Class Actions in Australia, February 2017.

[2] There is a distinction between cases where somebody would not have bought shares at all and somebody who would have paid a lesser price. It effects damages and more information is available on our blog here:

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