Davis v Wilson [2025] FCA 108

FEDERAL COURT OF AUSTRALIA Davis v Wilson [2025] FCA 108 File number(s):

Judgment of: SHARIFF J

Date of judgment: 21 February 2025

Date of publication of reasons: 24 February 2025

REPRESENTATIVE PROCEEDINGS – shareholder class action – misleading or deceptive conduct – where applicants alleged they acquired shares in publicly listed company at an inflated price due to misleading or deceptive conduct on part of managing director and auditor of company – where allegedly misleading statements concerned reported value of company's principal cash generating assets, being Indian Sandalwood trees (biological assets) – where company adopted discounted cash flow model (DCF Model) to value biological assets – where applicants alleged that two inputs in DCF Model were unrealistic, namely assumptions as to expected "heartwood yield" from biological assets and costs of processing sandalwood oil – where biological assets required to be measured at fair value in accordance with Australian Accounting Standards (Accounting Standards) – where respondent director alleged to have made representations in company's financial reports that accounts complied with Accounting Standards and gave true and fair view of financial position and performance of company, and as to net assets and post-tax profits of company in relevant financial years – where applicants alleged that those representations carried implied representations that opinions were held on reasonable basis and were product of application of reasonable care and skill – where applicants alleged that those representations were misleading because respondent director did not have reasonable grounds for opinions expressed or because opinions were not product of application of reasonable care and skill – where applicants alleged that this was so because assumptions adopted in DCF Model were not assumptions that reasonable market participant would assume, and that this had effect of materially overstating accounts – where respondent director denied making representations and denied that applicants had made out factual predicates of misleading conduct alleged – where respondent auditor alleged to have made representations in company's financial reports that accounts complied with Corporations Act 2001 (Cth) (Corporations Act), including by giving true and fair view of company's financial position and performance and complying with Accounting Standards – where applicants alleged that by issuing those opinions, respondent auditor made implied representations that opinions were held on reasonable basis and product of application of reasonable care and skill and formed after auditor had conducted audit in accordance with Australian Auditing Standards (Auditing Standards) – where applicants alleged that those representations were misleading because respondent auditor did not have a reasonable basis for opinions expressed or because opinions were not product of application of reasonable care and skill – where applicants alleged that this was so because respondent auditor did not take steps that reasonable auditor in its position would have taken in conducting audits – where respondent auditor denied making implied representations and denied that applicants had made out factual predicates of misleading conduct alleged – where applicants alleged that as a result of allegedly misleading representations, respondents each contravened ss 1041H and 1041E of Corporations Act and s 12DA of Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) – where applicants further alleged that respondent auditor owed and breached common law duty of care owed to current and future shareholders of company CORPORATIONS – s 1041H of Corporations Act – whether conduct "in relation to financial product"– liability established – s 12DA of ASIC Act – whether conduct "in relation to financial services" – whether conduct engaged in in "trade or commerce" – liability established in respect of respondent auditor – s 1041E of Corporations Act – essential elements of contravention – cases not established – interpretation and application of Accounting Standards – interpretation and application of Auditing Standards Catchwords: NEGLIGENCE – duty of care of auditor – no duty owed to non-members at law – duty owed to members but case not established CAUSATION AND DAMAGES – necessity of establishing pleaded counterfactual case and establishing causally-connected loss for purposes of s 1041I of Corporations Act, s 12GF of ASIC Act and at law – where applicants accepted that in order to establish causation for all causes of action, needed to make out pleaded counterfactual case, including as to specific heartwood yield assumption that should have been adopted by company – where counterfactual case based entirely on expert evidence of sandalwood expert and accounting expert relying on sandalwood expert's opinions – pleaded case not established – where applicants alleged that they acquired shares in company in reliance on alleged misrepresentations and would otherwise not have done so (direct reliance case) – not possible to resolve direct reliance case where counterfactual case not established – where applicants also alleged that they (and class members) acquired shares in company in market that was artificially inflated by reason of alleged misrepresentations (indirect market-based causation case) – where indirect market-based causation case based on expert opinions that are not accepted – case not established EVIDENCE – onus – no obligation to accept either party's case – Jones v Dunkel – orthodox approaches to process of fact-finding and drawing of inferences PRACTICE AND PROCEDURE – pleadings and particulars – material facts as opposed to particulars relevant to liability – material facts relevant to establish counterfactual case – multiplicity of causes of action pleaded – critical elements not addressed – efficiency of court resources and time