And then one did: The first Australian securities class action to succeed

What you need to know

• For the first time, an Australian court has found both liability and loss by shareholders in a securities class action, on the basis of market-based causation.
• In Southernwood v Brambles Limited (No 3) [2026] FCA 418, Murphy J in the Federal Court held that Brambles engaged in misleading or deceptive conduct and breached its continuous disclosure obligations by maintaining earnings guidance to the market without reasonable grounds.¹
• Critically, the decision marks a paradigm shift for class actions in Australia. For plaintiff solicitors and funders, it confirms that securities class actions, grounded in reliance on market-based causation, can succeed at trial. For defendants, it underscores the now-very real risk of adverse outcomes in securities class actions, which – until now – have failed to prove the necessary elements of both liability and loss.

Introduction

The class action was brought on behalf of shareholders who acquired Brambles Limited shares between 18 August 2016 and 17 February 2017.

This is the first shareholder class action in Australia to result in findings of both liability and loss at trial. As such, the theory of market-based causation, long debated in Australian courts, has now been not only upheld in principle but also applied in practice as a valid means of establishing loss. Previous securities class actions have either settled before judgment or failed on loss or liability (notably, TPT Patrol Pty Ltd v Myer Holdings Ltd).²  In that case, while Beach J found no liability, His Honour set out extensive obiter observations on the availability of market-based causation, now crystallised by Murphy J's findings in Brambles. Applicants have previously succeeded on liability in Crowley v Worley Limited (No 2) [2023] FCA 1613 and Zonia Holdings v CBA [2024] FCA 477, but have not recovered damages as they failed to prove the counterfactual required to establish loss.

With the High Court having granted special leave to hear appeals in the Zonia class action,³ and the likelihood of an appeal by Brambles, the next 12 to 18 months could be the most consequential period in the history of Australian securities class actions. With this, jurisprudence on loss and causation in securities class actions is set to further develop, and likely lead to a renewed interest from litigation funders and plaintiff class action firms in securities class actions.

Background

Brambles is a multinational corporation listed on the Australian Securities Exchange. In August 2016, it announced earnings guidance to the market forecasting sales revenue growth of 7-9% and Underlying Profit⁴ growth of 9-11% for FY17 (the FY17 Guidance). This guidance was reaffirmed on 20 October 2016 and, again, at the Annual General Meeting on 16 November 2016.

The applicant shareholders alleged that Brambles did not have reasonable grounds for these representations, primarily due to its aggressive budget assumptions and deteriorating performance of its US Pooled pallet business,⁵  the largest division of CHEP North America (CHEP NA). Critically, the FY17 Guidance left Brambles with less than 1% of headroom to its Underlying Profit budget, allowing no margin for the ordinary vicissitudes of business. The FY17 budget was underpinned by various assumptions, including:

• projected new customer wins of US$53 million (much of which was unidentified);
• a two-percentage-point reduction in pallet damage rates, despite a multi-year upward trend; and
• assumptions of no major customer losses in FY17.

The underlying budget assumptions were proven to be strained and lacking a reasonable basis. US Pooled missed its sales revenue budget in every month from July to December 2016 and its Underlying Profit budget in every month from September to December 2016. When Brambles withdrew both the FY17 Guidance on 23 January 2017 (January Disclosure) and its FY19 Targets on 20 February 2017 (February Disclosure),⁶  the share price fell sharply, by approximately 15.8% and 11.8%, respectively.

Liability – key findings

In short, the Court found that Brambles maintained the FY17 Guidance without reasonable grounds, and that doing so for over two months constituted both misleading conduct and breach of its continuous disclosure obligations. Brambles' separate earnings guidance with regard to the FY19 Targets, however, was not proven to be without a reasonable basis.⁷

The applicant shareholders did not call any lay witnesses on liability, but rather advanced a case on the basis of documents sourced from Brambles' management accounts and contemporaneous emails. Brambles sought to rely on a number of lay witnesses, comprising senior executives and officers of Brambles during the relevant period.

In a lesson for external lawyers preparing lay witness affidavits, the Court was critical of the heavy involvement of lawyers in the affidavits, through significant drafting, refinement, polishing and similarly expressed language.⁸

Murphy J's key findings were:

• FY17 Guidance defensible from August – October: The applicants did not establish the FY17 Guidance lacked reasonable grounds as at 18 August 2016 or 20 October 2016. His Honour was not satisfied, as at those dates, that it was likely that Brambles' projected performance was inconsistent.
• Lack of reasonable grounds for budget targets from November: By 16 November 2016, the Court found that there were not reasonable grounds for the FY17 Guidance in respect of Underlying Profit growth. As at that date:
  • US Pooled had missed its sales revenue budget in each of the first four months of FY17 and was unable to achieve its Underlying Profit budget in three of those months;
  • the group-wide September reforecast "no longer reflected the reality" of the relevant budget positions;⁹  and
  • the projected second-half FY recovery was an overly optimistic (cf. unrealistic) "hockey stick" recovery, considering the budget assumptions.¹⁰
• Total absence of reasonable grounds from December: As at 21 December 2016, there were not reasonable grounds for the FY17 Guidance in respect of both the sales revenue and Underlying Profit growth. The quarterly reforecast prepared in December 2016 was itself found to lack reasonable grounds.
• Breach: Brambles engaged in misleading or deceptive conduct in contravention of section 1041H of the Corporations Act 2001 (Cth) (Corporations Act) (and its statutory analogues) and breached its continuous disclosure obligations under ASX Listing Rule 3.1 and section 674(2) of the Corporations Act, from 16 November 2016 until the withdrawal of the FY17 Guidance on 23 January 2017.
• No statutory relief: His Honour declined to relieve Brambles from liability under section 1317S of the Corporations Act, finding that maintaining the FY17 Guidance became "untenable" as performance deteriorated.¹¹ Section 1317S provides that a person may be excused for contravening a civil penalty provision, having regard to the circumstances of the case.

Loss – key findings

Having determined liability, the Court – for the first time – applied a market-based causation model to quantify and award compensable loss to shareholders. The Court's approach to this exercise is summarised below.

• Market-based causation endorsed: Murphy J endorsed market-based (or "active indirect") causation as a valid model to establish loss, expressly agreeing with Beach J's analysis in Myer, and finding that the model "falls comfortably within the text and furthers the purpose" of the relevant statutory provisions.¹²  In short, market-based causation assumes that the market is efficient, such that every person purchasing shares can be taken to have paid the same "abnormally" inflated price without having to establish individual reliance. Importantly, the Court rejected Brambles' submission that the model of market-based causation is "plainly wrong".¹³
• Expert consensus on abnormal returns: All expert witnesses agreed that the January Disclosure and February Disclosure produced statistically significant abnormal returns, albeit with a minor disagreement on apportionment (discussed below). In "rare and wondrous" agreement, Dr Voetmann for the applicants and Dr Unni for Brambles relevantly calculated identical abnormal returns of $1.85 per share for the January Disclosure, despite their event studies using different methodologies.¹⁴
• Inflation reflected in share price: The Court accepted that the January Disclosure was "substantially economically equivalent" to the information that should have been disclosed, such that the "abnormal" returns reflected the inflation in Brambles' share price.¹⁵
• Apportionment for partial period: For the window from 16 November to 21 December 2016 – where the contravening conduct only related to Underlying Profit growth – the Court attributed 85% of the abnormal returns to that conduct, yielding approximately $1.57 per share.¹⁶

What does this mean for the future of securities class actions in Australia?

The implications of Brambles are set to ripple across the Australian class actions landscape. While market-based causation had been recognised in other cases as a legitimate mechanism for proving loss in a securities class action, it was yet to be successfully applied so as to result in a judgment for plaintiffs. That was largely due to challenges in its application in those cases – the difficulty in proving an equivalency between the "cleansing disclosure" that caused the share price loss, and what the court determined should have actually been disclosed (ie the "counterfactual"). This case demonstrates that it can.

The principles surrounding application of market-based causation (and the extent to which equivalency needs to be proven and the onus surrounding disclosures containing multiple pieces of information) will be further considered by the High Court in Zonia Holdings – the combined outcome of these matters has the potential to significantly impact class action risk in Australia.

The premium on robust corporate governance and disclosure practices – particularly in relation to earnings guidance and forward-looking statements – has never been higher.

Key risk factors to consider include the following.

• Ineffective disclaimers: Despite the disclaimers' stating expressly that risk attended its forward-looking statements,¹⁷ Murphy J found that standard-form, generic disclaimers buried in annual reports or on a penultimate slide of investor presentations were unlikely to "erase or neutralise" the misleading effect of earnings guidance for the hypothetical reasonable investor.¹⁸ Listed entities in particular, relying on boilerplate language to hedge forward-looking statements, should be alive to this caution.
• Adequacy of Board information flows: Murphy J observed that Brambles' Board was not properly informed of a key downgrade to CHEP NA's full-year forecast when deciding to maintain the FY17 Guidance. Although the Board's consideration did not determine the objective question of whether reasonable grounds existed, the failure of information flow was indicative of systemic shortcomings within the business. Corporations should ensure that management reporting to Boards is comprehensive and timely, particularly where such information may call earnings guidance into question.
• Court's refusal to grant Brambles relief: The Court's refusal to afford statutory relief to Brambles under section 1317S of the Corporations Act – while unsurprising – reflects a clear general deterrent. Corporations which maintain earnings guidance to shareholders, on a mere hope that recovery plans will materialise in the face of their deteriorating performance, do so at their own peril.
• Risk environment: Over the past 34 years since Australia's class action regime was introduced, scores of shareholder class actions have settled before judgment. Settlements over the past decade have already factored in the increasing judicial acceptance of market-based causation. But particularly following cases involving success for defendants, Brambles is a reminder of the very real class action risk that exists and the scrutiny of disclosures and appetite from plaintiff lawyers and funders.
• Law reform: Brambles' FY17 Guidance pre-dated the introduction in 2021 of a fault element required in civil liability for breach of Australia's continuous disclosure laws. A 2024 Report found that the amendments have had little (if any) impact on the number and type of continuous disclosure class actions. The Brambles decision may prompt renewed interest in reforms.
• Internal reforecasts must be realistic: The Court undertook a granular review of Brambles' internal reforecasts, finding that rephasing revenue and profit shortfalls into the second half of the financial year – effectively assuming a "hockey stick" recovery – may be viewed as unreliable.¹⁹ Internal forecasting processes should be rigorous, realistic and stress-tested against identified risks.
• Timely withdrawal is essential: Noting the Court's criticism of Brambles for holding onto the FY17 Guidance (despite six consecutive months of underperformance),²⁰  Boards and management must be prepared to withdraw or revise guidance promptly when the evidence no longer supports it, even when doing so is commercially unpalatable.