Curly Worley – Continuous Disclosure and Earnings Guidance in the Full Federal Court

Crowley v Worley [2022] FCAFC 33

Continuous disclosure remains topical: on Friday the Full Federal Court handed down its decision in Crowley v Worley [2022] FCAFC 33.  Against the run of recent cases, the applicant/appellant had a win, although not conclusively; the matter is to be remitted to a single judge for a rehearing on certain matters.

The essence of the decision was that the Full Court found on the facts that Worley may not have had reasonable grounds for the forecasts in question (being earnings guidance) and the reasoning of the judge at first instance was in error.  The case shows that an appeal court can and will re-examine the factual inferences drawn at trial.  It also indicates that Worley paid a high price for not calling an executive as a witness to explain a particular document that was, in the view of the Full Court, highly relevant to the reasonableness of the earnings guidance.

The Full Court made statements that the reasonableness or otherwise of the conduct of the board was not the issue; it was simply a question of the existence (or not) of reasonable grounds.  It was that question that the Full Court said should be remitted to a single judge having regard to the errors discovered by the Full Court in the first instance reasoning.

In relation to the Chapter 6CA aspect of the case, the Full Court has adopted the view that an unformed opinion that should have been formed is "information" that must be disclosed under the continuous disclosure provisions.  It reached that view by applying the ASX Listing Rules definitions of “information” and “aware” to section 674. 

While views may differ on this point, the preferable view is that there is no basis for interpreting the expression “has information” in section 674 to include something as information that would not be information but for an extension in words of the ASX Listing Rules that does not appear in the Corporations Act. Similarly, a constructive knowledge extension in “aware” in the ASX Listing Rules cannot deem an entity to “have” information for the purpose of section 674 that it does not in fact have. It is a basic principle that the meaning of a statute cannot be altered by the language of a subsidiary instrument (and in this case not even a legislative instrument).  Section 674 can only require the disclosure of “information” within the meaning of section 674.  The ASX Listing Rules may require the disclosure of something that is not information (although deemed to be) but section 674 cannot.  The section does not say that an entity must disclose "information” as defined by the ASX Listing Rules of which is “aware” as defined by the ASX Listing Rules.

To say (as the Full Court did) that there is no rational basis to distinguish opinions which ought reasonably to be held from information is, with respect, simply and plainly wrong. Information must have content.  While information is not real in the sense of being tangible, it cannot be imaginary.

All that said, Crowley v Worley now stands as clear authority for the disturbing proposition that one can be liable for not disclosing something that does not exist; that is, an opinion that has not been formed.

Some of us have previously expressed the view that no decided case would have been different had the new (old) fault requirements (re-)introduced last August applied. Crowley v Worley may be a very important exception.  After August 2021, Crowley v Worley would probably only be decided the same way if there was evidence or inference that the failure to form the unformed opinion was intentional, reckless or negligent.  Hence, the reasonableness that the Full Court said was essentially irrelevant (see above) may now be absolutely central to a determination on liability, so the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) has some important work to do after all.

Finally, to the objection that a failure to disclose an opinion which ought reasonably to have been held requires some regulatory response, the riposte is this: a failure to form an opinion that should have been formed by a reasonable and diligent officer or director may well give rise to liability under section 180 of the Corporations Act. There is no regulatory lacuna that needs to be filled by inventing some kind of “non-thought crime” under Chapter 6CA.