FEDERAL COURT OF AUSTRALIA

Southernwood v Brambles Limited (No 3) [2026] FCA 418

TABLE OF CONTENTS

REASONS FOR JUDGMENT

MURPHY J

1.    INTRODUCTION

1    The first applicant, Holly Southernwood, and the second applicant, William Vincent Kidd and Mary Agnes Collum as Trustees for the Magness-Bennett Superannuation Fund, bring this securities class action on their own behalf and on behalf of all persons who acquired an interest in the ordinary shares of the respondent, Brambles Limited (ACN 118 896 021) (Brambles or the Group), between 18 August 2016 and 17 February 2017 inclusive (Relevant Period) and who suffered loss or damage caused by, or which resulted from, Brambles’ alleged conduct (group members).

2    The proceeding concerns statements made by Brambles by way of earnings guidance to the market regarding expected sales revenue and Underlying Profit growth in the 2016/17 financial year (FY17 Guidance) and medium-term targets for sales revenue and Underlying Profit growth to FY19 (Medium-Term Targets) and 20% return on capital invested by FY19 (FY19 ROCI Target) (together, the FY19 Targets). The applicants allege that Brambles announced those forecasts to the Australian Securities Exchange (ASX or the market) on 18 August 2016, and reiterated, reaffirmed or maintained them on 20 October 2016 and 16 November 2016. Brambles was unable to achieve its FY17 Guidance and withdrew it on 23 January 2017, and then withdrew the FY19 Targets on 20 February 2017. A significant drop in the price of Brambles shares followed each withdrawal.

3    The applicants allege that Brambles’ earnings guidance announcements to the market were representations in respect of future matters for which there were not reasonable grounds. They allege that on and from each of 18 August, 20 October and 16 November 2016 Brambles contravened the prohibition on misleading or deceptive conduct in trade or commerce in s 1041H(1) of the Corporations Act 2001 (Cth) and its statutory analogues, and that they purchased Brambles shares during the Relevant Period at prices which were inflated as a result of Brambles’ misconduct. They further alleged that, on and from those dates, Brambles was “aware” within the meaning of ASX Listing Rule 3.1 that it was likely that it would not achieve the FY17 Guidance, and that by not immediately disclosing that to the ASX Brambles contravened the continuous disclosure regime under s 674(2) of the Corporations Act.

4    At all material times, Brambles was a huge and successful multinational corporation with a portfolio of businesses and operations around the globe. In the 2015/16 financial year, it earned Underlying Profit (defined as profit from continuous operations before finance costs, tax and significant items) of US$970 million, and in the 2016/17 financial year (FY17) it was budgeted to achieve Underlying Profit of US$1,063 million. For FY17, Brambles’ management set an aggressive budget for one of its largest country business units, CHEP North America (CHEP NA) including CHEP NA’s largest business division, US Pooled, as components of the much greater overall Group budget. There was nothing wrong with that; aggressive budgets are a part of commercial life. However, Brambles’ senior management and the Board unwisely set and announced the FY17 Guidance to the market of investors and potential investors in Brambles shares, which guidance left Brambles with little room for any underperformance.

5    The evidence does not show why Brambles set itself such a high bar, and it does not matter in the case. But it I infer that it did so for its own purposes; to optimise its share price. Brambles was, of course, entitled to seek to optimise its share price, but I am satisfied that its earnings guidance announcements were likely to be relied on by investors in deciding whether to buy or dispose of Brambles shares. The problem for Brambles was that a miss to the Underlying Profit budget of less than 1% would mean that it would not achieve the FY17 Guidance.

6    That is what happened. Brambles was forced to withdraw the earnings guidance, which it took too long to do; and when Brambles finally did so it led to two significant share price declines. In the class action the applicants seek to recover their losses suffered by the drop in the price or value of the Brambles share they bought in the Relevant Period; i.e., the amount of the inflation in Brambles’ share price caused by the alleged misleading earnings guidance and failure to disclose that it was, in fact, likely not to achieve its FY17 Guidance.

7    The applicants did not establish their claims on and from 18 August 2016 or on and from 20 October 2016. But by 16 November 2016, US Pooled had been unable to achieve its sales revenue budget in any of the first four months of FY17, and because of that and four months of over-budget direct costs, it was unable to achieve its Underlying Profit budget in three out of the first four months of FY17. In September and October FY17, US Pooled and CHEP NA materially missed their respective budgets, and also two reforecasts that had been made to plot a path for their recovery. Upon receipt of the October FY17 results in early November 2016, US Pooled had run up a $(15.9) million sales revenue deficit to budget and a $(25.3) million Underlying Profit deficit to budget year-to-date (or YTD), and largely as a result Brambles had run up a $(15) million sales revenue deficit to budget and an $(18) million Underlying Profit deficit to budget YTD.

8    A reforecast made in September FY17 projected that Brambles would recover to meet its Underlying Profit budget for the full-year largely through a remarkable six months of over-budget performance by US Pooled in the second half of FY17. That reforecast and a revision of it in October FY17 were relied on by Brambles’ management to project that US Pooled and Brambles would recover to achieve budget and the FY17 Guidance for the full year, but US Pooled missed the first months of each of those reforecasts almost immediately after they were made. As it eventuated, US Pooled did not achieve its sales revenue budget in any month from July to December FY17 inclusive, or its Underlying Profit budget in July or any month from September to December FY17 inclusive.

9    Having regard to the aggressive and stretched US Pooled and CHEP NA budgets, months of US Pooled underperformance against budget, the likelihood of continuing US Pooled underperformance against budget, and the unrealistic nature and extent of the projected US Pooled recovery in the second half of FY17, I have found that:

(a)    as at and from 16 November 2016 until 23 January 2017 there were not reasonable grounds for the FY17 Guidance in respect of Brambles’ Underlying Profit growth in FY17; and

(b)    as at and from 21 December 2016 until 23 January 2017 there were not reasonable grounds for the FY17 Guidance in respect of Brambles’ sales revenue and Underlying Profit growth in FY17.

Brambles thereby engaged in misleading or deceptive conduct as it had made representations in respect of future matters for which lacked reasonable grounds. For similar reasons I have found that, in the same periods, Brambles breached its obligations of timely disclosure to the ASX under the continuous disclosure regime in the Corporations Act.

10    The sales revenue and Underlying Profit performance by US Pooled against budget did not improve in December 2016. The December results, received in early January 2017, showed it had again materially missed budget and reforecasts. Those results continued to translate into materially under-budget results for Brambles overall. In the event that I am later found to have been wrong in the decisions as at 16 November 2016 and 21 December 2016, I find that on and from 5 January 2017 until 23 January 2017 there were not reasonable grounds for the FY17 Guidance in respect of Brambles’ sales revenue and Underlying Profit growth in FY17, and so it had contravened the prohibition against misleading or deceptive conduct. Brambles did not withdraw its FY17 Guidance until 23 January 2017. Again, for similar reasons, I find that over the same period Brambles contravened the continuous disclosure regime.

11    The applicants did not establish their claims in relation the FY19 Targets.

12    The applicants established that they suffered loss and damage as a result of Brambles’ contraventions.

13    The trial ran for five weeks. The case involved a detailed consideration of the budget-setting process for CHEP NA and US Pooled in the first half of calendar year 2016, and the operations of those businesses in the second half of 2016 (being the first half of FY17) with particular emphasis on the reasons for and extent of the sales revenue underperformance and the direct costs overruns. As above, the exercise of determining whether there were reasonable grounds for the earnings guidance to the market are required to be determined as at 20 October 2016, 16 November 2016, 21 December 2016 and 5 January 2017 (and in respect of the FY19 Targets, also as at 23 January 2017). The affidavit evidence on liability ran to more than 1,050 pages, the experts’ reports ran to more than 1,320 pages, the electronic tender bundle comprised around 2,600 documents and the core bundle of documents comprised approximately 500 documents taking up seven lever arch folders. All issues were in dispute, and the parties’ closing submissions totalled 780 pages. As a result, these reasons are necessarily lengthy. No doubt they could be shortened but that would take even longer.

1.1    Notes as to terminology and other matters

14    FY17 refers to the financial year from 1 July 2016 to 30 June 2017, and the same applies, mutatis mutandis, to FY15, FY16, etc. Similarly:

(a)    1H17 and 2H17 refer to the first and second halves (six-month periods) of FY17 respectively and the same notation applies in relation to earlier years;

(b)    1Q17, 2Q17, etc., or Q1, Q2, etc., refer to the corresponding quarters (three-month periods) of FY17, and the same notation applies in relation to earlier years; and

(c)    P1, P2, etc., refer to the corresponding monthly reporting periods of FY17 (e.g., P1 of FY17 is the month of July 2016), and the same notation applies in relation to earlier years.

15    I have generally not noted grammatical and spelling errors in emails, in part because English is not the first language of some of the authors.

16    All figures relating to Brambles’ financial results are in US dollars. All figures relating to Brambles’ share price on the ASX are in Australian dollars.

2.    BRAMBLES

17    I commence by explaining Brambles’ organisational structure, some relevant Brambles business metrics and the pallets business.

18    Brambles’ business structure and pallets business were not in dispute. I have largely drawn this section of the reasons from the parties’ submissions.

2.1    Brambles’ structure

19    At all material times Brambles’ business was divided into three core business divisions:

(a)    The global pallet business, which operated under the Commonwealth Handling Equipment Pool (CHEP) brand and was the dominant pallet pooling business in the world. In FY16, the global pallets business (CHEP Global) accounted for approximately 74% of Brambles’ annual revenue. From 2010, CHEP Global also included a pallet recycling business in North America;

(b)    The reusable plastic crates (RPC) pooling business (IFCO), which in FY16 accounted for approximately 18% of Brambles’ annual revenue; and

(c)    The containers pooling business (Containers), which in FY16 accounted for approximately 8% of Brambles’ annual revenue. This included an oil and gas business which was deconsolidated and equity accounted upon the creation of the HFG Oil & Gas joint venture (HFG Joint Venture) in FY17 (explained below).

20    CHEP Global was divided into regional “country business units” (CBUs), for operational and reporting purposes. In the Relevant Period, CHEP Global comprised the following five CBUs:

(a)    CHEP North America (CHEP NA);

(b)    CHEP Europe;

(c)    CHEP Latin America (CHEP LATAM);

(d)    CHEP Africa, India and the Middle East (CHEP AIME); and

(e)    CHEP Asia-Pacific (CHEP APAC).

21    It also included a business called CHEP Aerospace, which was subsequently divested by Brambles on 2 November 2016.

22    Each of those CBUs operated in what were classified within Brambles as either a mature market or an emerging market, based on the saturation of pallet pooling within that region. CHEP NA was a mature market business. CHEP Europe and CHEP APAC were predominantly mature market businesses. CHEP LATAM and CHEP AIME were emerging market businesses.

23    In FY16, within CHEP Global:

(a)    CHEP Americas (which included CHEP NA and CHEP LATAM, but of which CHEP NA made up by far the largest percentage of revenue) accounted for approximately 44% of Brambles’ total sales revenue;

(b)    CHEP Europe, Middle East and Africa (CHEP EMEA) (which included CHEP Europe and CHEP AIME) accounted for approximately 24% of Brambles’ total sales revenue; and

(c)    CHEP APAC accounted for approximately 6% of Brambles’ total sales revenue.

2.2    CHEP North America

24    The applicants’ case focused on the financial performance of CHEP NA, and more particularly on US Pooled, the largest division within CHEP NA. Brambles estimated that there were over 300 million pooled pallets in North America in 2014, approximately 260 million (84%) of which were in the US Pooled pool. In FY16, CHEP NA earned $2,224.8 million in sales revenue and made $398.1 million in Underlying Profit (defined in section 2.4 below). In FY16 it accounted for approximately 39% of Brambles’ total revenue and 39% of Brambles’ Underlying Profit. In FY17 it was expected to generate approximately 41% of Group Underlying Profit.

25    At all material times CHEP NA comprised the following business units:

(a)    US Pooled;

(b)    CHEP Canada;

(c)    US Recycled; and

(d)    Paramount.

26    US Pooled. This business specialised in leasing pallets to manufacturers in the United States for use and return through a pooling model, and it was the largest business unit in CHEP NA. It predominantly issued pallets to manufacturers in the fast-moving consumer goods industry, for which grocery retailers or distributors (such as Walmart, Kroger and Safeway) represented the largest group. Those distributors tended to “turn” their inventories of goods once every 30 to 40 days, which meant that on average a pallet would become available for return to US Pooled after about a month in a distributor’s warehouse.

27    In submissions, Brambles tried to downplay the importance of US Pooled to its achievement of its FY17 earnings guidance. In my view, US Pooled was one of Brambles’ most important CBUs and the performance of US Pooled against its FY17 budget was objectively significant to Brambles achieving its budget for FY17 (Group FY17 budget) and achieving the FY17 earnings guidance.

28    In FY16 US Pooled accounted for:

(a)    approximately 67.9% of CHEP NA revenue and approximately 79.1% of CHEP NA Underlying Profit; and

(b)    approximately 26.5% of Brambles’ total revenue and approximately 30.1% of Group Underlying Profit.

The Group FY17 budget projected that in FY17 US Pooled would account for:

(a)    approximately 68.1% of forecast CHEP NA revenue and 79.2% of forecast CHEP NA Underlying Profit; and

(b)    approximately 27.6% of forecast Group revenue; and approximately 34.2% of forecast Group Underlying Profit.

29    That is not to suggest that US Pooled was the only important business unit within Brambles. In FY16, CHEP Europe earned sales revenue of $1,228.2 million compared to US Pooled which earned $1,510.5 million. In that year, CHEP Europe made Underlying Profit of $322.3 million which slightly exceeded US Pooled Underlying Profit of $315 million.

30    CHEP Canada. This business leased pooled pallets to manufacturers in Canada for use and return to the business. It accounted for approximately 8% of Brambles’ total revenue in FY16.

31    US Recycled and Paramount. These businesses were not pallet pooling businesses, and instead were trading businesses that purchased various grades of single use whitewood pallets or cores from retailers and other vendors, repaired them to convert them into pallets of merchantable quality, and then sold the recycled whitewood pallets to customers in the United States and Canada.

32    Together US Recycled and Paramount accounted for approximately 4% of Brambles’ total revenue in FY16.

33    Although US Recycled contributed to CHEP NA’s revenue, due to its lower margins and lower return on capital invested it did not make a material contribution to Underlying Profit. For example, in FY16, annual revenue in US Recycled was $460 million and its Underlying Profit was a loss of $(4.2) million.

2.3    The pallets business

34    A pallet is a flat object that goods are stored on, primarily for the purpose of transportation. They are designed to enable stock to be readily moved by a forklift or hand truck, and their consistent size standardises unit loads for transportation and storage purposes. Pallets typically travel through the supply chain from a product manufacturer to a distributor (either wholesaler or retailer). Most pallets are made from wood. Most CHEP pallets are block pallets, a durable design that can be accessed by a forklift or hand truck from all four directions.

35    A pallet pool is a system by which a “pallet pooler” (such as Brambles) rents pallets to manufacturers of products, which products are then stored and transported on the pallet. The pallet takes a one-way trip “downstream” through the product manufacturer’s supply chain to distributors and retailers. Once emptied of the product, the pallet is returned to the pallet pooler (with different methods applying between different distributors and retailers) for inspection, any necessary repairs and maintenance and then redeployment by the pallet pooler to the next manufacturer.

36    It is useful to understand the typical cycle of a pallet, from its construction, to its delivery to a customer, and then through the pooling cycle until it returns to the pallet pooler; as well as the points in the cycle at which the pallet pooler earns revenue, and incurs capital expenditure and operating costs:

(a)    in the event that the pallet pooler purchases a new pallet (as opposed to re-issues an existing pallet):

(i)    a pallet is ordered and constructed (often by a third party). The pallet pooler recognises the cost of construction of the pallet (including the cost of delivering the pallet to the manufacturer) as a capital expense;

(ii)    the new pallet is delivered either to the pallet pooler or, more commonly, directly to the manufacturer who is the customer of the pooler. If the pallet is delivered to the pallet pooler, and the pooler is required to store the pallet for any period before it is delivered to the manufacturer, the pooler will incur storage costs. If the pallet is not stored before being issued to a manufacturer, then the pallet pooler will not incur any operating costs in relation to that pallet until it goes through the distribution network and returns to the pooler;

(b)    when the pallet pooler issues a pallet to a manufacturer (either a new pallet, or more commonly a re-issued pallet previously returned to the pool), the pooler charges the manufacturer an “issue fee”, along with any surcharges, which the pooler recognises as revenue at the time the pallet is issued to the manufacturer;

(c)    the manufacturer holds the pallet while it produces its goods, and builds a pallet load for shipment to one of its customers. For each day between issue and the day that the manufacturer transfers the pallet to a distributor, the pallet pooler charges the manufacturer a daily hire fee. CHEP Global commonly refers to this fee as a “Daily Hire Fee”, or more commonly Pallet Days or P-Days;

(d)    once the manufacturer has assembled a pallet load of goods, it ships the loaded pallet (under load of those goods) to the manufacturer’s customer (a retailer or distributor). At that point, the pallet pooler takes the pallet off the manufacturer’s account, the pallet is transferred to the distributor’s account, and the pooler charges the manufacturer a “transfer fee”. CHEP Global classified the retailer or distributor to whom the manufacturer transfers the pallet as a “Non-Participating Distributor” (NPD) (explained below). Such manufacturers can be required to pay an “NPD Upcharge”. After the manufacturer transfers the pallet to a retailer or distributor, CHEP Global stops charging the manufacturer a daily hire fee for the pallet;

(e)    a retailer or distributor keeps the pallet for as long as it takes to empty the pallet of its load, at which point it is set aside to be returned to the pallet pooler’s Service Centre. The pallet pooler does not generally charge the retailer or distributor a hire fee. Sometimes the pallet pooler may enter an arrangement allowing the retailer or distributor to re-use the pallet while it remains there, which may result in the pallet suffering a higher level of damage; and

(f)    the pallet is either returned to the pallet pooler by the retailer or distributor, or collected by the pooler or a third-party contractor. At this point, the end of the pallet cycle, the pallet pooler incurs the bulk of its operating costs in relation to that pallet, namely the cost of transporting, inspecting, washing, repairing and storing the pallet. The cost of repairing damaged pallets can be a material part of operating expenditure.

This describes the cycle of a single pallet, and it should be kept in mind that CHEP Global issued many millions of pallets each year.

37    CHEP Global’s paying customers are the product manufacturers. Manufacturers sign a rental agreement pursuant to which they receive pallets that they are authorised to ship to distributors. In return, manufacturers pay fees to CHEP Global. The delivery of a pooled pallet to a manufacturer is known as an “issue”.

38    In the Relevant Period, the main fees paid to CHEP Global by manufacturers using pooled pallets were:

(a)    an issue / delivery charge (for each pallet delivered to the manufacturer);

(b)    a daily hire charge (for each day that the pallet was held by the manufacturer);

(c)    a transfer fee (for each pallet sent onward to a distributor);

(d)    a surcharge for transfer of a pallet to an NPD; and

(e)    other surcharges (fuel, lumber, or non-standard delivery costs).

39    Retailers and distributors who receive goods from manufacturers using pooled pallets issued by the pallet pooler to the manufacturer do not typically pay fees to the pooler, but are critical to the pooler’s business model. The efficient recovery of pallets at the end of the supply chain is critical to the success of the pallet pool. Because the manufacturer ceases to pay daily hire fees at the point at which it transfers a pallet to a retailer or distributor, the longer the retailer or distributor holds a pallet, the longer it remains in the cycle without the pallet pooler earning revenue. Moreover, the longer a pallet remains in circulation, the higher the prospect that it will return to the pallet pooler in need of repair or greater repairs, and consequently the greater the operating costs incurred by the pooler.

40    CHEP Global categorised distributors in the following manner:

(a)    a Participating Distributor (PD) is a distributor that has signed a “Participating Distributor Agreement” (PDA) or had another arrangement with CHEP Global covering its use of pooled pallets;

(b)    a Non-Participating Distributor (NPD) is a distributor authorised to receive pallets from a manufacturer, but which does not have an agreement or contractual relationship governing the return of its pallets after use. Within this group, US Pooled had two specific sub-categories, defined with reference to their “Flow-Through Ratio” (FTR), being the volume of pallets flowing to a distributor compared with the volume recovered from that distributor:

(i)    a Semi-Cooperating Distributor (SCD), being an NPD with a flow-through ratio of 70% or higher. Some cooperation from the SCD is likely to occur for a FTR of this level; and

(ii)    a Non-Cooperating Distributor (NCD), being an NPD with a flow-through ratio of less than 70%.

In other words, SCDs were easier to recover pallets from than NCDs.

41    The cost to CHEP Global for recovering pallets from a PD was typically lower than from an NPD. The likelihood that a pallet returned to CHEP Global in a damaged state was also lower with a PD than an NPD. As a result, operating expenses associated with pallets that end their journey with a PD were usually lower than with an NPD, particularly an NCD. Pallets were also far more likely to be lost altogether when shipped to an NPD.

42    CHEP NA had another type of pallets business named US Recycled (also known as CHEP Recycled) which involved the construction and sale, or recycling and sale, of different grades of Single Use Whitewood Pallets (whitewood pallets or cores) to manufacturers. The business of recycling whitewood pallets involves purchasing used cores from retailers and other vendors, repairing those cores to convert them into pallets of merchantable quality, and then selling the recycled whitewood pallets to manufacturers. Whitewood pallets are of lower quality than standardised pooled pallets, cheaper to make and less durable than block pallets, and often only accessible by lifting equipment from two of the four directions. For product manufacturers, purchasing whitewood pallets was an alternative to renting a pooled pallet, but such pallets were intended only for a single use. Where products are shipped on a whitewood pallet, ownership of the pallet passes with the product. As a consequence, distributors at the end of the supply chain accumulated used cores that were then typically either sold to or collected by pallet recyclers.

2.4    Brambles’ business terms, metrics and programs

43    The business terms that Brambles used and the metrics that it tracked included the following.

(a)    Control ratio: the number of pallets recovered (returned or found) in a given time period as against the number issued (expressed as a percentage). This provides primary information on how effectively the pool is operating - the extent to which the control ratio falls below 100% indicates the degree to which pallets are not being returned to CHEP Global.

(b)    Components per Repair or CPR: the average expense for consumption of lumber used to repair a CHEP pooled pallet.

(c)    Conversion rate: being the value of customer ‘wins’ as a percentage of the total value of the sales funnel or pipeline.

(d)    Cycle time: the average number of days taken for a pallet to return to CHEP Global having been dispatched to the manufacturer. A lower cycle time indicates a more efficient pallet pool, which reduces the need for capital expenditure on new pallets.

(e)    Damage ratio: the percentage of pallets returned to the pool that require conditioning or repair, adjusted for movement in pallets between business units, which includes the following metrics:

(i)    the network damage rate: the consolidated US Pooled damage rate;

(ii)    the Service Centre damage rate: in FY16, this metric made up the majority (54%) of the contribution to the network damage rate increase that financial year;

(iii)    the Walmart damage rate: Walmart pallets had a higher average damage rate than Service Centre and Non-Walmart Total Pallet Management pallets (TPM), due to Walmart's practice of holding on to usable pallets and only returning damaged pallets; and

(iv)     the Non-Walmart damage rate: in FY16, TPMs at non-Walmart retailers contributed only a small amount (4%) to the network damage rate increase.

(f)    Durability Program: this included two initiatives to increase the durability of pallets within the US Pooled pallet pool which were progressively incorporated across the division:

(i)    adding clinched nails to the construction of new pallets and the repair of pallets returned to Service Centres; and

(ii)    using nail plates in the construction of new pallets.

The Durability Program also impacted other cost metrics, such as a lower CPR resulting from the pallets needing less repairs.

(g)    Durability Study: a pallet durability study conducted at the Pallet Test Track in Orlando, USA which reported in February 2015. The study was intended to simulate the real-world pallet environment, and its results informed the introduction of the Durability Program.

(h)    IPEP: Brambles had a policy for managing and appropriately accounting for lost or irrecoverable pallets and other pooled equipment, known as the Irrecoverable Pooling Equipment Provision or IPEP policy. The IPEP was a provision held by Brambles to account for pooling equipment that could not be economically recovered and for which there was no reasonable expectation of receiving compensation, and was reflected on the balance sheet within accumulated depreciation.

(i)    OneBetter Program: this program was introduced in around April 2014 for the purpose of reducing overhead costs across the Brambles Group, with its main focus being to centralise functions globally. The program included a dedicated project team who reported to Zlatko Todorcevski on issues including finance, IT, human resources and procurement. At the time the OneBetter Program was introduced, the program was expected to generate a total benefit of approximately $100 million across the Brambles Group by 2020.

(j)    NPD upcharge (or surcharge): To account for the risk of higher costs associated with NPD channels, CHEP Global generally charged customers who distributed to NPDs an upcharge fee or surcharge. The NPD upcharge (or surcharge) was priced to accommodate the poor pallet visibility, higher risk of damage and loss, more complexity in collection, and higher costs associated with operating in these channels.

(k)    Revenue Per Issue or RPI: the average revenue earned from each pallet issued, calculated as total sales revenue divided by number of pallets issued.

(l)    Sales funnel or sales pipeline: the mechanism used by Brambles to organise and track potential new customers. US Pooled did not ‘sell’ pallets but rather leased pallets to customers to use to transport their goods. But US Pooled referred to ‘sales’ because that was the relevant discipline or skillset required to negotiate and enter into leasing contracts with customers.

(m)    Sales revenue: what constitutes sales revenue depends upon the nature of the business in the relevant business unit. In US Pooled, sales revenue represented the totality of all fees received from issued pallets.

(n)    Stretch: requests for enhanced performance from one level of management of the business to another, so as to enhance or optimise performance, were often referred to as ‘stretch’. The terms ‘go-get’ or ‘white space’ were also used to refer to stretch items within a budget which were not allocated to a specific action item, project or opportunity.

(o)    Underlying Profit (also referred to as ULP within Brambles and EBIT (earnings before interest and tax) by some experts and market analysts): calculated by reference to statutory earnings, excluding acquisitions and related costs, restructuring and integration costs, impairment of goodwill and acquisition gains.

(p)    Unidentified wins or volume stretch: referred to the total amount of new business Brambles expected to win in a financial year but which was not yet allocated to a specific or potential customer.

(q)    Volume growth: referred to as positive or negative revenue growth of pallet volumes (i.e., not changes in price). Brambles recognised two types of volume growth:

(i)    New wins: also referred to as new business, comprised of:

(A)    Current year wins or CY wins: there are two types of CY wins: New customer contracts: contracts that are entered into in the current financial year; and Lane expansion: refers to securing additional volume in the current financial year under a new agreement with an existing customer, to expand to different products or to provide pallets in additional geographical regions; and

(B)    Rollover wins: a contract was considered a rollover win for the portion of the initial 12 months of the contract that fell within the financial year after the year in which the contract was commenced. For example, if a customer signed a 12-month contract in October 2015, that contract would be considered a rollover win for July, August and September of 2016 (the last three months of the contract rollover into FY17); and

(ii)    Organic growth: growth from an existing customer under an existing contract (i.e., issuing more pallets to a customer under a contract already in place).

(r)    Rollover loss: the opposite of a rollover win, where the portion of the first 12 months of a customer contract loss fell within the financial year following the one in which the loss occurred.

2.5    Dramatis personae

44    The following Brambles officers and executives feature prominently in the case:

(a)    Mr Stephen Johns was a non-executive director of Brambles from August 2004 to 30 June 2020. He was the Chair of the Board from 30 September 2014 to 30 June 2020.

(b)    Mr Brian Long was a non-executive director of Brambles from 1 July 2014 to 8 October 2020. During that time, he was also a member of the Audit Committee. He was Chair of the Audit Committee from 30 September 2014 to 8 October 2020.

(c)    Mr Tom Gorman was the Chief Executive Officer (CEO) of Brambles. He retired from his role as CEO on 20 February 2017.

(d)    Mr Graham Chipchase was the CEO-Designate of Brambles from 1 January 2017 to the end of the Relevant Period. He became the CEO of Brambles on 20 February 2017.

(e)    Mr Zlatko Todorcevski was the Chief Financial Officer (CFO) of Brambles from October 2012 to 17 November 2016. He retired from his role as CFO on 17 November 2016 but remained available to assist the new CFO until February 2017.

(f)    Ms Nessa O’Sullivan was the CFO-Designate of Brambles from 10 October 2016 to 17 November 2016. She took over from Todorcevski as CFO of Brambles from 17 November 2016 to the end of the Relevant Period.

(g)    Mr Peter Mackie was the Group President of CHEP Global, a role he held since March 2013. He reported to Gorman.

(h)    Mr Philip “Buster” Kennett was the CFO and Senior Vice President of CHEP Global from 6 January 2014 to around the end of the Relevant Period. He reported directly to Mackie and had a functional “dotted-line” reporting structure to Todorcevski (until 16 November 2016) and then to O’Sullivan (from 17 November 2016).

(i)    Mr Carmelo Alonso-Bernaola Ruiz was Senior Vice President, Supply Chain, for CHEP Global from September 2013 to the end of the Relevant Period. He reported directly to Mackie and, from early 2017, following a business restructure and realignment of the executive leadership team he reported to Chipchase.

(j)    Ms Kim Rumph was the President of CHEP NA until 8 March 2017. She reported to Mackie.

(k)    Mr Matthew Lallatin was the CFO of CHEP NA until around 7 October 2016. He reported directly to Rumph.

(l)    Mr Bret Hill was the interim CFO of CHEP NA from 18 November 2016 until the end of the Relevant Period. He reported to Rumph.

(m)    Ms Laura Nador was the Senior Vice President and General Manager of US Pooled from 1 July 2016 until the end of the Relevant Period. She reported to Rumph.

(n)    Mr Daniel Martin (Martin) was the Senior Vice President, Sales and Customer Operations for CHEP NA from around July 2013 until the end of the Relevant Period. He reported to Nador.

2.6    The reporting and monitoring structures

45    The following account of the salient reporting and monitoring structures is drawn almost entirely from Brambles’ submissions:

(a)    CHEP weekly volumes report: this report showed a comparison of issues of pallets in the month-to-date (MTD) against the budget or forecast volumes, and level of growth compared to the previous year. The pallet issues were reported on a regional basis within CHEP Global.

(b)    ‘Pre-flash’ reports: in the third or fourth week of each reporting period, the Financial Planning and Analysis (FP&A) teams of each CHEP Global CBU prepared a ‘pre-flash’ report based on the data extracted from Brambles Reporting and Consolidation System (BRACS), being the central financial reporting system used by all the business units within Brambles. That report incorporated analysis of the financial results for the first two to three weeks of the reporting period and projections for the balance of the reporting period of each CHEP Global CBU. In FY17, the pre-flash report was due on the third Thursday of each month.

Once settled by the CHEP Global CBUs, the pre-flash reports were sent to the CHEP Global FP&A team. The usual process was then that the CHEP Global FP&A team:

(i)    reviewed the pre-flash reports for each CBU and prepared a consolidated CHEP Global pre-flash report; and

(ii)    circulated the consolidated pre-flash report to Mackie, Alonso and Kennett, among others.

Due to the time required to prepare the pre-flash report, it being based on an estimate rather than results following close of the month, and the cadence of other financial reporting by CHEP Global, this report was stopped in October 2016.

(c)    Submission of monthly results: the final submission of monthly results for each business unit within each CBU was due to be loaded within BRACS four business days after the period end.2327

(d)    ‘Flash’ reports: the FP&A team of each CHEP Global CBU usually prepared a flash report of the financial results for the business units of each CBU and sent the data via BRACS to the CHEP FP&A team around four business days following month end. A consolidated flash report for CHEP Global would then be produced and circulated by the CHEP Global FP&A team to Mackie and Kennett, among others.

The flash report provided a preliminary, high-level overview of the financial performance of the Group for the month (broken down into each business division), typically providing details of the revenue and Underlying Profit results from the preceding month and some breakdown of costs. It was prepared shortly after the results for the relevant reporting period became available in BRACS, so they were unaudited and unverified. It did not provide detailed commentary or explanations on the results for the relevant reporting period.

(e)    Pallets Performance Review (PPR) reports and meetings: the PPR submission from each CHEP Global CBU was due six days after the period end. The PPR was a template presentation detailing the monthly performance of each CBU and was prepared by the FP&A and management teams of the CBU. Following the submission of the PPRs, around two weeks into each month, a PPR meeting was held with the President and CFO of each CBU and attended by Mackie, Alonso and Kennett to discuss their results for the prior month, including the status of customer negotiations, the competitive landscape and analysis of current and future projected performance.

With respect to the status of customer negotiations, the PPRs set out ‘highlights’ of customer and market opportunities. The purpose of the PPR was not to exhaustively list all wins or prospects.

(f)    Business Performance Review (BPR) reports and meetings: each month, two performance review meetings were held for each business division (relevantly, CHEP Global). There was both a CFO BPR meeting and a CEO BPR meeting:

(i)    CFO BPRs were held around 10 business days into the month (or around one week after the flash reports were produced). The CFO from the business division (for CHEP Global, being Kennett) would attend and present the results of their division, including data on sales revenue, Underlying Profit and costs for the month and year-to-date (or YTD) to Brambles’ CEO and CFO, Mackie, Alonso and members of the Group FP&A team. The CFO BPR included a discussion of market conditions, including competition, monthly financial results and projections for the balance of the year. Ordinarily, the CFOs (including Kennett) would provide this data one or two days prior to the meeting in the form of a slide deck (CFO BPR Report), prepared following receipt of the PPRs from each CBU.

(ii)    CEO BPRs took place around the third week of each month, after the CFO BPRs. These reviews were attended by both the Group President (for CHEP Global, being Mackie) and CFO of the business division, and by Brambles’ CEO and CFO, Kennett, Alonso and members of the Group FP&A team. The purpose of the CEO BPRs was to discuss the safety, financial performance, customers and competition of CHEP Global, as well as strategy and business initiatives, including the outlook for the balance of the financial year. It was usual practice for a slide deck or pack of materials to be circulated in advance of the CEO BPR meetings by members of the business division (CEO BPR Report).

(g)    Quarterly reforecasts: in order to monitor its performance against the budget and five-year plan (5YP), Brambles also undertook a quarterly forecast or ‘reforecast’ process in or around September, December and February each year, which assessed current and projected financial results against budget and earnings guidance. The quarterly forecast considered the risks and opportunities known to the business at the time each quarterly forecast was developed. The quarterly forecast involved each CBU again adopting a ‘bottom-up’ approach with ‘top-down’ review by the business division (e.g., CHEP Global). The two reforecasts relevant to this proceeding were prepared by Brambles in September and October 2016 (September Reforecast) and in December 2016 (December Reforecast).

46    Other structured reports and meetings included:

(a)    Brambles’ Executive Leadership Team (Brambles’ ELT): Brambles’ ELT comprised the CEO, CFO, the Presidents of each business division, Jean Holley (Group Senior Vice President and Chief Information Officer) and Nicholas Smith (Group Senior Vice President (Human Resources)). On a monthly basis, the ELT (and generally members of the Group FP&A team) met to discuss the financial performance across the Group (including any areas of shortfall in performance), market consensus updates, strategic updates and group governance issues.

(b)    At the CHEP Global level:

(i)    PLT meetings: on a quarterly basis, the Pallets Leadership Team (CHEP Global PLT) met to discuss the global business performance and strategic direction of CHEP Global; and

(ii)    Brambles Strategy Review (BSR) meetings: on a quarterly basis, members of the ELT met to discuss CHEP Global’s progress on the strategic initiatives behind the five-year plan and the long-term strategy for the business division as part of the Group's overall strategic goals.

(c)    At the CHEP NA and US Pooled levels:

(i)    CHEP NA Executive Leadership Team (CHEP NA ELT): comprised Lallatin, Chris Young (Senior Vice President, Supply Chain, CHEP NA), Daniel Gormley (Vice President, Asset Management, US Pooled), Steve Nebeker (Vice President, Strategic Planning, CHEP NA) and Vishal Patell (Vice President, Retail Solutions, US Pooled).

(ii)    US Pooled Executive Leadership Team (US Pooled ELT): comprised Nador (Senior Vice President and General Manager of US Pooled), Martin (Senior Vice President Sales and Customer Operations), Patell, Gormley and Ana Baltasar (Senior Finance Director of US Pooled);

(iii)    Monthly Business Review (MBR): the MBR report was a month-in-progress business review of the results for the first two to three weeks of each reporting period, sales pipeline review (of new and existing business) and Risk and Opportunities analysis (R&O schedule). The MBR meeting was generally held during the third week of each reporting period, attended by the CHEP NA leadership team, as well as the key functional leaders of the CHEP NA businesses (including US Pooled) and the business partners in the FP&A team;

(iv)    Monthly close deck: the US Pooled close deck was a monthly review of the results for US Pooled for each reporting period. The US Pooled close meeting was held approximately one week after the close of the reporting period, and was where the US Pooled team, together with senior members of the CHEP NA team, discussed the US Pooled close deck;

(v)    Monthly Sales Funnel Reports: US Pooled generated monthly Sales Funnel Reports, which set out in significant detail and updated on a rolling basis the opportunities in the sales funnel that were being pursued by US Pooled that underpinned the unidentified new wins assumptions, including annual volumes and the proportion new issues that may be secured in the current year.2345 The Sales Funnel Reports were extracted from the Bluesheet App, a software program that US Pooled used to store, navigate, monitor and update each sales opportunity in the sales funnel, with each opportunity being referred to as a ‘bluesheet’; and

(vi)    Monthly Sales and Operations Planning (S&OP) Demand Consensus Reports (Demand Consensus Reports): These were prepared by the US Pooled S&OP team and constituted a demand projection and assessment of individual customer accounts from the sales pipeline, as well as an assessment of organic growth. It also factored in feedback from customers.

(d)    Brambles’ Board of Directors (Board): Brambles’ Board met on a monthly basis other than in July. The Board meetings followed a regular cycle which included six in-person meetings and five conference call meetings throughout each financial year. In-person Board meetings were typically scheduled in:

(i)    February, when the Board discussed the results for the first half of the financial year and related market disclosures (in Sydney);

(ii)    April, when the Board discussed the company’s five-year plan;

(iii)    June, when the annual budget was presented to the Board for approval;

(iv)    August, when the Board discussed the full-year financial results and related market disclosures (in Sydney);

(v)    October, when the Board participated in an annual strategy day; and

(vi)    November, shortly before the AGM (in Sydney).

(e)    Reporting to the Board generally included the following:

(i)    the presentation of a Financial Update at the monthly Board meeting by the CFO. The Financial Update was in the form of a slide deck and was based on the monthly discussions during the CFO BPR and CEO BPR meetings. It included a report on the revenue, Underlying Profit and cash flow results across the Group for the preceding month and the YTD compared against budget and the most recent forecast (if applicable);

(ii)    Board packs were provided to the Board in advance of Board meetings, which contained the agenda and Board papers for the relevant meeting, including any slide deck for the Financial Update, and any additional papers for consideration during the relevant Board meeting depending on the time of year (for example, the budget and five-year plan papers for the following financial year would be provided in advance of the June Board meeting); and

(iii)    a detailed, monthly Board Report, which was prepared and circulated after the Board meeting (often the following month). It was prepared in a pro-forma template setting out, among other matters, commentary on the Group’s financial results and business performance including developments in geographic markets relating to competition.

3.    OVERVIEW OF CLAIMS

47    On 18 August 2016, Brambles published three announcements to the ASX. The applicants alleged that in those announcements, Brambles stated the following earnings guidance to the market:

(a)    sales revenue growth for FY17 at constant currency of between 7% and 9%; and

(b)    Underlying Profit growth in FY17 of between 9% to 11%, equating to a range of between $1,055 million and $1,075 million, at 30 June 2016 foreign exchange rates.

(together, the FY17 Guidance).

48    The applicants also alleged that in those announcements Brambles reaffirmed its target for return on capital invested (ROCI) of 20% by the end of FY19 (excluding foreign exchange impacts and acquisitions made since December 2013 when this target was set) (which I previously identified as the FY19 ROCI Target), and its FY19 targets of constant currency sales revenue growth in the high-single digits, with Underlying Profit growth exceeding sales revenue growth (which I previously identified as the Medium-Term Targets).

49    The Amended Consolidated Statement of Claim (ACSOC) alleged two broad categories of claim.

50    First, that Brambles published its earnings guidance to the market of investors and potential investors in Brambles shares on 18 August 2016, and reaffirmed or maintained that guidance on 20 October and 16 November 2016. On each occasion, Brambles is alleged to have made, reaffirmed or maintained the representations as to each constituent part of the guidance. The representations are alleged to be continuing representations throughout the Relevant Period. The applicants alleged that those representations were misleading and deceptive because they lacked reasonable grounds, having been based on the Group FY17 budget, prepared in substance between February and June 2016, which, among other things, relied on unreasonable assumptions, failed to take adequate account of the predictable negative effects that decisions taken by Brambles in FY16 would have on revenue and costs for US Pooled in FY17, and was infected with unreasonable stretch.

51    The claim of misleading or deceptive conduct does not only turn on Brambles making the representations on 18 August 2016, but also upon Brambles not having revised or corrected those representations during the Relevant Period. The applicants relied upon the totality of Brambles’ conduct, including its reaffirmation of the express representations and its silence in relation to those representations thereafter, as Brambles’ financial performance deteriorated. The applicants also relied on Brambles’ silence in the context that it was bound to comply with the continuous disclosure regime under ASX Listing Rule 3.1 and s 674(2) of the Corporations Act. It is alleged that in that context the market of investors and potential investors in Brambles shares had a reasonable expectation that Brambles would immediately inform the ASX if the representations did not have reasonable grounds.

52    The representations are alleged to be misleading or deceptive or likely to mislead or deceive in contravention of s 1041H(1) of the Corporations Act, s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and s 18(1) of the Australian Consumer Law (the ACL) in sch 2 of the Competition and Consumer Act 2010 (Cth) (the CCA), because they were representations as to future matters and Brambles did not have reasonable grounds for making them.

53    Second, that Brambles contravened the obligation of continuous disclosure under ASX Listing Rule 3.1 and s 674(2) of the Corporations Act because it was aware, or ought reasonably to have been aware, on and from 18 August, 20 October or 16 November 2016, that it was likely, or there was at least a material risk, that it would not achieve the FY17 Guidance, FY19 ROCI Target and / or the Medium-Term Targets. That is alleged to be “information” which a reasonable person would expect, if it were generally available, to have a material effect on the price or value of Brambles shares on the ASX, and Brambles was obligated to immediately tell the ASX that information.

54    It is uncontroversial that Brambles did not inform the ASX that it would not achieve the FY17 Guidance until 23 January 2017, and it did not withdraw the FY19 ROCI Target until 20 February 2017.

3.1    The alleged August 2016 contraventions

55    As noted above, the ACSOC alleged that on or about 18 August 2016, Brambles stated to the market that, or to the effect that:

(a)    for FY17 Brambles forecast that it would achieve year-on-year growth in sales revenue of between 7% and 9% (defined as the August Sales Revenue Forecast);

(b)    for FY17 Brambles forecast that it would achieve year-on-year growth in Underlying Profit of between 9% and 11% (defined as the August Underlying Profit Forecast); and

(c)    Brambles reiterated a target for ROCI of 20% by FY19 (defined as the August ROCI Forecast)

(which I collectively call the August Express Representations).

56    The ACSOC further alleged that Brambles made other express representations on 18 August 2016, namely the August Price Representation, and the Medium-Term Targets. However:

(a)    the alleged August Price Representation and August Costs Representations were not the subject of detailed submissions by the applicants independent of the August Underlying Profit Forecast. The applicants gave little or no attention to these representations in cross-examination of Brambles’ witnesses or in closing submissions; and

(b)    the alleged Medium-Term Targets were not concerned solely with FY17 financial results. It concerned the position in which Brambles expected to be by the end of FY19 (30 June 2020). They alleged that Brambles reaffirmed its FY19 targets of constant currency sales revenue growth in the high-single digits and its FY19 targets of Underlying Profit growth exceeding sales revenue growth. The applicants gave little attention to the Medium-Term Targets in cross-examination of Brambles’ witnesses or in closing submissions. Nor did the applicants take the Court to evidence to rebut Brambles’ contention that there was almost three years between the time the Group FY17 budget was set and when the Medium-Term Targets were due to be met, and that even if Brambles did not meet the FY17 Guidance there was time for Brambles to meet the Medium-Term Targets.

57    In large part, the way in which the applicants’ submissions addressed the August Costs Representations, the August Price Representation, and the Medium-Term Targets representation was just to tack them on to arguments which centrally related to the FY17 Guidance.

58    In a case this large, with so many contested issues, it was inappropriate for the applicants to continue to formally advance those representations but to put on little or nothing by way of evidence or submissions to make them out. If it was not sufficiently important for the applicants to give proper attention to those allegations, then the Court should not be required to deal with them. In my view, given the applicants’ approach to these representations, it is unnecessary to deal with them.

59    I am confirmed in that view because little turns on those alleged representations. If the applicants’ misleading and deceptive conduct claims succeed in relation to the August Sales Revenue Forecast and the August Underlying Profit Forecast, little is added by the August Costs Representations, the August Price Representation, and the Medium-Term Targets. And if the applicants’ claims in relation to the August Sales Revenue Forecast and August Underlying Profit Forecast do not succeed, the applicants are likely to fail on the other pleaded representations.

60    My approach in this regard is not limited to the position as at 18 August 2016. I take the same approach to:

(a)    analogous representations to the August Costs Representation such as the October Costs Representation alleged as at 20 October 2016, and the alleged reiteration of the August Costs Representation as at 16 November 2016; and

(b)    the Medium-Term Targets representation when picked up as at 20 October 2016 by the October Medium-Term Outlook Representation (as defined later in these reasons) and the alleged reiteration of the Medium-Term Targets representation as at 16 November 2016.

The same applies to the extent that the Medium-Term Targets are integrated into the 23 January Representations as defined later in these reasons, as well as the way they are integrated into the August Information, October Information, and November Information (defined below) in respect of the alleged continuous disclosure contraventions.

61    It is alleged that, by making the express August Sales Revenue Forecast, the August Underlying Profit Forecast and the August ROCI Forecast, Brambles impliedly represented to the market that:

(a)    it had undertaken all necessary and reasonable investigations before making any statement or representation as to the state of its business and accounts and had satisfied itself on reasonable grounds following those investigations that the public statements were substantially accurate and not misleading or deceptive in any respect (August All Reasonable Investigations Implied Representation); and

(b)    no information had come to the attention of Brambles that meant that there was any material risk that Brambles would not achieve the FY17 Guidance, FY19 ROCI Target or the other alleged representations (August No Material Risk Implied Representation)

(together, the August Implied Representations). The ACSOC pleaded the same implied representations as at 20 October and 16 November 2016.

62    The ACSOC alleged that the alleged express and implied representations (together, the August Representations) were continuing representations. That is, they continued to operate until they were qualified or withdrawn by Brambles. It is alleged that they were not wholly corrected by Brambles until either 23 January 2017 or 20 February 2017.

63    The August Representations are alleged to be:

(a)    conduct in trade or commerce;

(b)    in relation to a “financial product” and a “financial service” within the meaning of the relevant subsections of the Corporations Act and the ASIC Act;

(c)    as to the August Sales Revenue Forecast, August Underlying Profit Forecast and August ROCI Forecast, made in relation to future matters within the meaning of s 769C of the Corporations Act, s 12BB of the ASIC Act, or s 4 of the ACL. On that basis it is alleged the representations are taken to be misleading or deceptive unless there existed reasonable grounds for those representations at the time Brambles made them; and

(d)    information that a reasonable person would expect to have a material effect on the price or value of Brambles shares.

64    Then, a plethora of matters are alleged in relation to what is said to be the true state of Brambles’ business as at 18 August 2016, referring to features of Brambles’ performance in FY16 (all in US Pooled and CHEP NA) which are alleged to have meant that Brambles’ growth in sales revenue and Underlying Profit in FY16 was unlikely to be repeated in FY17. I will not set out those allegations. I cover them when dealing with the facts.

65    Then, by reference to a variety of matters, it is alleged that the budget-setting process for the CHEP NA FY17 budget (including the US Pooled FY17 budget), and as a result the CHEP Global FY17 budget and the Group FY17 budget (for Brambles overall), was flawed including because it involved unreasonable assumptions, failed to adequately take account of known or identified risks, and was infected by significant “top-down” pressure from management to impose stretch targets in CHEP NA, and in particular US Pooled. I will not set out those allegations here.

66    Brambles’ Board approved the Group FY17 budget on or about 28 June 2016. The ACSOC alleged that the actual US Pooled and CHEP NA trading results for July 2016 showed below-budget performance in terms of sales revenue and Underlying Profit growth in that month. It is alleged that as at 18 August 2016 (which took into account the actual July 2016 results) a variety of matters including sales revenue, average RPI, the damage rate, direct costs and other metrics meant that it was likely, or alternatively there was a material risk, that in FY17 Brambles would experience a material increase in the costs incurred in US Pooled, and that the revenue earned by Brambles from US Pooled and from CHEP Recycled would decrease, or alternatively would not be sufficient to offset the increase in costs.

67    It is alleged that as at 18 August 2016, it was likely, or alternatively there was a material risk, that Brambles would not achieve, among other alleged representations, the August Sales Revenue Forecast, the August Underlying Profit Forecast and the August ROCI Forecast.

68    The following “information” is alleged to have existed as at and from 18 August 2016:

(a)    in respect of sales revenue, it was likely or there was at least a material risk that in Brambles would not achieve year-on-year sales revenue growth of between 7% and 9% in FY17, or its medium term target of constant currency sales revenue growth in the high single digits; and an integral reason for this was that revenue in US Pooled would likely not meet budget in FY17; and

(b)    in respect of Underlying Profit, it was likely or there was at least a material risk that Brambles would not achieve year-on-year Underlying Profit growth of between 9% and 11% in FY17, its medium term target of Underlying Profit growth exceeding sales revenue growth or its ROCI target of 20% by FY19; and integral reasons for this were that revenue in US Pooled would likely not meet budget in FY17 and direct costs were going up.

(defined as the August Information). When referred to together with the same information in October and November, this is the Primary Information.

69    It is alleged that (within the meaning of s 674(2) of the Corporations Act):

(a)    Brambles had the August Information by no later than 18 August 2016;

(b)    the August Information was not generally available; and

(c)    a reasonable person would expect the August Information, if it were generally available, to have a material effect on the price or value of Brambles shares.

70    The applicants alleged that Brambles was required by operation of ASX Listing Rule 3.1 to notify that information to the ASX by no later than 18 August 2016, and it did not tell the ASX that information at any time prior to 23 January 2017 or alternatively prior to 20 February 2017. It thereby contravened its continuous disclosure obligation under s 674(2) as at 18 August 2016, and on each day between 18 August 2016 and 23 January 2017 when the August Information was alleged to be partially disclosed, or alternatively at any time prior to 20 February 2017 when it was alleged to be fully disclosed (together with the previous disclosure in January), defined as the August Continuous Disclosure Contraventions.

71    In the alternative, the ACSOC alleged that, as at and from 18 August 2016, Brambles breached its continuous disclosure obligation by failing to disclose certain specified pieces of information (described as Alternative Information) which were available at that time, defined as the Alternative August Continuous Disclosure Contraventions. Brambles also alleged similar contraventions, although based on different pieces of Alternative Information, at and from both 20 October 2016 and 16 November 2016. The applicants, however, abandoned the “Alternative Information” claims during the trial and it is unnecessary to summarise them. Having regard to the applicants’ abandonment of this alternative case I will not further refer to it.

72    Based on the same factual matters that are alleged to underpin the August Continuous Disclosure Contraventions, it is alleged that Brambles:

(a)    did not, by 18 August 2016, have reasonable grounds for making the August Sales Revenue Forecast, the August Underlying Profit Forecast or the August ROCI Forecast;

(b)    by reason of the matters in (a) did not have reasonable grounds for the representations with respect to future matters in (a) within the meaning of s 769C of the Corporations Act and/or its analogues; and

(c)    in the premises, by making the August Representations, engaged in conduct that was misleading or deceptive or that was likely to mislead or deceive in contravention of s 1041H of the Corporations Act and/or its analogues

(the August Misleading Conduct Contraventions).

73    In the period from 18 August 2016 to the end of the Relevant Period, the applicants alleged that the August Continuous Disclosure Contraventions and August Misleading Conduct Contraventions (the August Contravening Conduct) caused the traded price for Brambles shares to be materially higher than their true value or the price that would have existed if the August Contravening Conduct had not occurred.

3.2    The alleged October 2016 contraventions

74    In relation to the alleged contraventions on and from 20 October 2016 the ACSOC adopted the same pleading structure as the alleged August 2016 contraventions.

75    The ACSOC alleged that on 20 October 2016, when Brambles published its First Quarter Trading Update (Q1 Trading Update) to the ASX it stated that, or to the effect that (among other things):

(a)    it expected to earn sufficient revenue from new business in US Pooled in 2H17 to achieve the August Underlying Profit Forecast, defined as the October Revenue Representation; and

(b)    repeated and thereby reaffirmed the August Underlying Profit Forecast, defined as the October Underlying Profit Representation

(together, the October Express Representations).

76    Again, the ACSOC alleged that Brambles made some other express representations at that time, namely the October Costs Representation and the October Medium-Term Outlook Representation. For the reasons I expressed earlier it is unnecessary to set those representations out when at trial the applicants said little or nothing about them independent of the October Revenue Representation and the October Underlying Profit Representation, and they add little. As earlier noted, having regard to the applicants’ approach to these representations I consider it unnecessary to deal with them.

77    The alleged express representations are alleged to have carried the same implied representations to those conveyed in August (defined as the October Implied Representations). The ACSOC alleged that the alleged express and implied representations (together, the October Representations) were continuing representations. That is, that they continued to operate until they were qualified or withdrawn by Brambles. It is alleged that they were not wholly corrected by Brambles until either 23 January 2017 or 20 February 2017.

78    As with the August Express Representations, the October Express Representations are alleged to be:

(a)    conduct in trade or commerce;

(b)    in relation to a “financial product” and a “financial service” within the meaning of the relevant subsections of the Corporations Act and the ASIC Act;

(c)    made in relation to future matters within the meaning of s 769C of the Corporations Act and/or its analogues. Again, on that basis it is alleged the representations are taken to be misleading or deceptive unless there existed reasonable grounds for those representations at the time Brambles made them; and

(d)    information that a reasonable person would expect to have a material effect on the price or value of Brambles shares.

79    Again, a large number of factual matters are alleged regarding the true state of Brambles’ business as at 20 October 2016, including that the indicators as to Brambles’ financial situation, performance and prospects in FY17 had not improved since August 2016, and had in fact worsened. I will not set out those allegations here.

80    By reason of those matters, it is alleged that as at 20 October 2016, Brambles’ performance in US Pooled and US Recycled in 1Q17 meant that it was likely, or alternatively there was a material risk, that Brambles would:

(a)    not achieve its August Sales Revenue Forecast;

(b)    would achieve FY17 Underlying Profit growth materially less than the August Underlying Profit Forecast and / or the October Underlying Profit Representation; and

(c)    would not achieve its August ROCI Forecast.

81    It is alleged that the following “information” existed as at and from 20 October 2016:

(a)    in respect of sales revenue, Brambles’ performance in CHEP NA since 1 July 2016 meant it was likely or there was at least a material risk that Brambles would not achieve year-on-year sales revenue growth of between 7% and 9% in FY17, or its medium-term target of constant currency sales revenue growth in the high single digits; and an integral reason for this was that revenue in US Pooled would likely not meet budget in FY17; and

(b)    in respect of Underlying Profit, Brambles’ performance in CHEP NA since 1 July 2016 meant it was likely or there was at least a material risk that Brambles would not achieve year-on-year Underlying Profit growth of between 9% and 11% in FY17, its medium term target of Underlying Profit growth exceeding sales revenue growth or its ROCI target of 20% by FY19; and integral reasons for this were that revenue in US Pooled would likely not meet budget in FY17 and direct costs were going up.

(defined as the October Information).

82    The applicants alleged (within the meaning of s 674(2) of the Corporations Act):

(a)    Brambles had the October Information by no later than 20 October 2016;

(b)    the October Information was not generally available; and

(c)    a reasonable person would expect the October Information, if it were generally available, to have a material effect on the price or value of Brambles shares.

83    Thus the applicants alleged Brambles was required by operation of ASX Listing Rule 3.1 to tell the ASX the October Information (in addition to the August Information to the extent there was any difference between them) by no later than 20 October 2016, and it did not tell the ASX the October Information (or the August Information) at any time prior to 23 January 2017 or alternatively prior to 20 February 2017. Brambles is alleged to have thereby contravened its continuous disclosure obligation under s 674(2) as at 20 October 2016, and on each day between 20 October 2016 and 23 January 2017 when it was partially disclosed, or alternatively at any time prior to 20 February 2017 when it was fully disclosed (together with the previous disclosure in January), defined as the October Continuous Disclosure Contraventions.

84    Based upon the same factual matters that underpin the alleged October Continuous Disclosure Contraventions, the ACSOC alleged that Brambles:

(a)    did not, by 20 October 2016, have reasonable grounds for making or maintaining (as the case may be) the August Sales Revenue Forecast, the August Underlying Profit Forecast, the August ROCI Forecast, the October Revenue Representation or the October Underlying Profit Representation;

(b)    by reason of the matters in (a) did not have reasonable grounds for the representations in (a) within the meaning of s 769C of the Corporations Act and/or its analogues; and

(c)    in the premises by making the October Representations, further or alternatively by not correcting the August Representations, Brambles engaged in conduct that was misleading or deceptive or that was likely to mislead or deceive,

(the October Misleading Conduct Contraventions).

85    In the period from 20 October 2016 to the end of the Relevant Period, the applicants alleged that the October Continuous Disclosure Contraventions and October Misleading Conduct Contraventions (the October Contravening Conduct) caused the traded price for Brambles shares to be materially higher than their true value, or the price that would have existed if the October Contravening Conduct had not occurred.

3.3    The alleged November 2016 contraventions

86    In relation to the alleged contraventions as at and from 16 November 2016 the pleading continued with the same structure as the alleged August and October 2016 contraventions.

87    The ACSOC alleged that on 16 November 2016, at the time of Brambles’ Annual General Meeting (AGM), Brambles repeated and thereby reaffirmed the August Underlying Profit Forecast, the August Sales Revenue Forecast, and the August ROCI Forecast, (together with the August Costs Representations and the Medium-Term Targets) defined as the November AGM Representations. Those representations are alleged to have carried the same implied representations to those conveyed in August and October 2016, defined as the November Implied Representations. As earlier noted given the applicants’ approach to the August Costs Representations and the Medium-Term Targets I consider it unnecessary to deal with them.

88    It is alleged that the November AGM Representations and November Implied Representations (together, the November Representations), were continuing representations. That is, that they continued to operate until they were qualified or withdrawn by Brambles. It is alleged that they were not wholly corrected by Brambles until either 23 January 2017 or 20 February 2017.

89    The November Representations are alleged to be:

(a)    conduct in trade or commerce;

(b)    in relation to a “financial product” and a “financial service” within the meaning of the relevant subsections of the Corporations Act and the ASIC Act;

(c)    as to the November AGM Representations, made in relation to future matters within the meaning of s 769C of the Corporations Act and/or its analogues; and

(d)    information that a reasonable person would expect to have a material effect on the price or value of Brambles shares.

90    Again, a variety of factual matters are alleged regarding the true state of Brambles’ business as at 16 November 2016, including that the indicators as to Brambles’ financial situation, performance and prospects in FY17 had not improved since August 2016. I will not set out those allegations.

91    It is alleged that as at 16 November 2016, Brambles’ performance in US Pooled and US Recycled since 1 July 2016 meant that it was likely, or alternatively a material risk, that Brambles would:

(a)    not achieve its August Sales Revenue Forecast including the October Revenue Representation, and to the extent they concerned Brambles’ revenue, the November AGM Representations;

(b)    achieve Underlying Profit growth in FY17 materially less than its August Underlying Profit Forecast, October Underlying Profit Representation and November AGM Representations; and

(c)    not achieve its August ROCI Forecast.

92    Again, it is alleged that “information” (the same information as in August and October but with a different asserted factual basis) existed on and from 16 November 2016, being that:

(a)    in respect of sales revenue, Brambles’ performance in CHEP NA since 1 July 2016 meant it was likely or there was at least a material risk that Brambles would not achieve year-on-year sales revenue growth of between 7% and 9% in FY17; and an integral reason for this was that sales revenue in US Pooled would likely not meet budget in FY17; and

(b)    in respect of Underlying Profit, Brambles’ performance in CHEP NA since 1 July 2016 meant it was likely or there was at least a material risk that Brambles would not achieve year-on-year Underlying Profit growth of between 9% and 11% in FY17, or its ROCI target of 20% by FY19; and integral reasons for this were that sales revenue in US Pooled would likely not meet budget in FY17 and direct costs were going up,

(the November Information).

93    As with the earlier alleged continuous disclosure contraventions it is alleged that:

(a)    Brambles had the November Information as at 16 November 2016;

(b)    the November Information was not generally available; and

(c)    a reasonable person would expect the November Information, if it were generally available, to have a material effect on the price or value of Brambles shares.

94    The applicants alleged that Brambles was required by ASX Listing Rule 3.1 to immediately tell the ASX the November Information (in addition to the August Information and the October Information to the extent there was any difference between them) and it did not do so at any time prior to either 23 January 2017 or 20 February 2017. It is alleged to have thereby contravened its continuous disclosure obligation under s 674(2) as at 16 November 2016, and on each day between 16 November 2016 and 23 January 2017 when it was partially disclosed, or alternatively at any time prior to 20 February 2017 when it was fully disclosed (together with the previous disclosure in January), defined as the November Continuous Disclosure Contraventions.

95    Based on the same factual matters that underpin the alleged November Continuous Disclosure Contraventions, it is alleged that Brambles:

(a)    did not, by 16 November 2016, have reasonable grounds for making or maintaining (as the case may be) the August Sales Revenue Forecast, the August Underlying Profit Forecast, the August ROCI Forecast, the October Revenue Representation, the October Underlying Profit Representation or the November AGM Representations;

(b)    by reason of the matters in (a) did not have reasonable grounds for the representations in (a) within the meaning of s 769C of the Corporations Act and/or its analogues; and

(c)    in the premises, by making the November Representations, not correcting the October Representations, further or alternatively by not correcting the August Representations, Brambles engaged in conduct that was misleading or deceptive or that was likely to mislead or deceive,

(the November Misleading Conduct Contraventions).

96    In the period from 16 November 2016 to the end of the Relevant Period, the applicants alleged that the November Continuous Disclosure Contraventions and November Misleading Conduct Contraventions (the November Contravening Conduct) caused the traded price for Brambles shares to be materially higher during the Relevant Period than their true value, or the price that would otherwise have existed had the November Contravening Conduct not occurred.

3.4    The alleged January 2017 contraventions and corrective disclosure

97    The ACSOC alleged that on 23 January 2017, Brambles stated to the market, among other things, that, or to the effect that:

(a)    in 1H17 it expected:

(i)    sales revenue growth of approximately 5%; and

(ii)    Underlying Profit growth of approximately 3%;

(b)    in FY17 it expected year-on-year growth in:

(i)    sales revenue to be below the August Sales Revenue Forecast; and

(ii)    Underlying Profit to be below the August Underlying Profit Forecast; and

(c)    Brambles had delivered sales revenue growth in every operating segment and Underlying Profit growth in every operating segment other than CHEP NA.

98    Brambles also stated to the market that it had experienced revenue and cost pressures in CHEP NA during the back end of the first half, which were partly due to US retailer destocking which impacted volumes and resulted in increased transport and plant costs associated with higher than expected pallet returns (Customer Destocking Issues), and had continued to see a deferral of potential customer conversions to pooling in US Pooled (Ongoing Customer Deferral Issue) and pricing pressures across CHEP NA’s whitewood pallets business. Brambles also provided some further detail as to the Customer Destocking Issues and the Ongoing Customer Deferral Issue, defined as the January Disclosure.

99    The applicants alleged that the information the subject of the January Disclosure:

(a)    related to the subject matter of the August Contravening Conduct, the October Contravening Conduct and the November Contravening Conduct;

(b)    was information that a reasonable person would expect to have a material effect on the price or value of Brambles shares;

(c)    operated to qualify, supplement or partly correct the information available to the market about the August Contravening Conduct, the October Contravening Conduct and the November Contravening Conduct; and

(d)    to the extent it did so it caused persons considering acquiring and selling Brambles shares to lower the price at which they were willing to do so.

100    By reason of the qualification, supplementation or correction of the information previously available to the market it is alleged that the price at which Brambles shares traded declined from a closing price of $12.28 on 20 January 2017 to a closing price of $10.34 on 23 January 2017, being a decline of approximately 15.8%. That is alleged to have partially corrected the inflation introduced into the price at which Brambles shares traded as a result of Brambles’ contravening conduct on and from 18 August, 20 October and 16 November 2016.

101    The ACSOC also alleged that Brambles’ announcement to the market on 23 January 2017 conveyed the following two further representations:

(a)    that the Customer Destocking Issue was a reason that Brambles would not achieve its FY17 Guidance; and

(b)    notwithstanding that Brambles would not achieve its FY17 Guidance for sales revenue and Underlying Profit growth in FY17, and that there was a risk that Brambles would not achieve its Medium-Term Targets for sales revenue and Underlying Profit growth:

(i)    the Customer Destocking Issues and Ongoing Customer Deferral Issue were not necessarily likely to affect Brambles’ ability to substantially achieve the Medium-Term Targets (Revised Medium-Term Outlook Representations); and

(ii)    US Pooled remained able to achieve sufficient growth to drive Brambles to substantially achieve the Medium-Term Targets (Revised US Pooled Performance Representation),

defined as the 23 January Representations. For the reasons earlier canvassed it is unnecessary to deal with the representations relating to the Medium-Term Targets.

102    It is also alleged that Brambles’ announcement conveyed implied representations:

(a)    relating to the Medium-Term Targets, which I will not deal with; and

(b)    that there was no information known to Brambles which it had not disclosed on 23 January 2017 which created a material risk that the January Disclosure was unreliable (the January No Material Risk Representation)

(the January Implied Representations).

103    It is alleged that Brambles did not wholly correct the 23 January Representations or the January Implied Representations (together the January Representations). It is further alleged that the January Representations were continuing representations. That is, that they continued to operate until they were qualified or withdrawn by Brambles. It is alleged that they were not wholly corrected until 20 February 2017.

104    The January Representations are alleged to be:

(a)    conduct in trade or commerce;

(b)    in relation to a “financial product” and a “financial service” within the meaning of the relevant subsections of the Corporations Act and the ASIC Act;

(c)    as to the case of the 23 January Representations, made in relation to future matters within the meaning of s 769C of the Corporations Act and/or its analogues; and

(d)    information that a reasonable person would expect to have a material effect on the price or value of Brambles shares.

105    By reason of the same factual matters it is alleged that Brambles:

(a)    did not, by 23 January 2017, have reasonable grounds for making the 23 January Representations;

(b)    by reason of the matters in (a) did not have reasonable grounds for making the 23 January Representations within the meaning of s 769C of the Corporations Act and/or its analogues; and

(c)    in the premises, by making the January Representations, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 1041H of the Corporations Act and/or its analogues,

(the January Misleading Conduct Contraventions).

106    No allegation of breach of the continuous disclosure regime is made in relation to the 23 January 2017 announcement.

3.5    The alleged February 2017 partial disclosure

107    It is alleged that on 20 February 2017, at the time of releasing its 1H17 interim financial report, Brambles:

(a)    stated to the market that in 1H17 it had earned:

(i)    sales revenue of approximately $2,744.7 million being a 5% increase in revenue compared with 1H16; and

(ii)    Underlying Profit of approximately $468.9 million, being a 3% increase in Underlying Profit compared with 1H16;

(b)    stated that or to the effect that for FY17 it anticipated:

(i)    sales revenue growth in line with 1H17 (which equated to 5% growth); and

(ii)    no growth in Underlying Profit when compared with FY16; and

(c)    withdrew the August ROCI Forecast

(the February Disclosure).

108    The applicants alleged that the information the subject of the February Disclosure:

(a)    related to the subject matter of the August Contravening Conduct, the October Contravening Conduct and the November Contravening Conduct;

(b)    was information that a reasonable person would expect to have a material effect on the price or value of Brambles shares;

(c)    operated to further qualify, supplement or partly correct the information available to the market about the August Contravening Conduct, the October Contravening Conduct and/or the November Contravening Conduct; and

(d)    to the extent it did so it caused persons considering acquiring and selling Brambles shares to lower the price at which they were willing to do so.

109    By reason of those matters it is alleged that the price at which Brambles shares traded declined from a closing price of $10.51 on 17 February 2017 to a closing price of $9.28 on 21 February 2017, being a decline of approximately 11.8%. That is alleged to have corrected the residual inflation introduced into the price at which Brambles shares traded as a result of Brambles’ contravening conduct on 18 August, 20 October and 16 November 2016.

3.6    Loss and damage

3.6.1    Market based causation

110    The ACSOC alleged that the applicants and group members entered into contracts for the acquisition of interests in Brambles shares during the Relevant Period (Period Shares) and on either 23 January or 20 February 2017 still held those shares.

111    It is alleged that the applicants and group members acquired and thereafter retained their Period Shares in a market regulated by the ASX Listing Rules and ss 674(2) and 1041H of the Corporations Act, in which Brambles was a “listed disclosing entity” bound by the Listing Rules, and in which market the price at which Brambles shares were trading rapidly adjusted to reflect all material information concerning the shares that was disclosed by Brambles in accordance with the Listing Rules, and in which the various pleaded contraventions had occurred.

112    It is alleged that by reason of the August, October and November Continuous Disclosure Contraventions, information that a reasonable person would expect to have a material effect on the price or value of Brambles shares had not been disclosed to the market, and by reason of the August, October, November and January Misleading Conduct Contraventions, information had been released to the market that was misleading or deceptive or likely to mislead or deceive and that a reasonable person would expect to have an effect on the price or value of Brambles shares.

113    It is alleged that as a result the applicants and group members:

(a)    paid an inflated purchase price for their Period Shares; and

(b)    by still holding Period Shares on either of 23 January or 20 February 2017, suffered loss or damage as the January Disclosure and/or the February Disclosure (as the case may be) caused the removal of inflation from the ASX trading price of the Period Shares.

114    Further or alternatively, it is also alleged that the applicants and some or all of the group members acquired an interest in the Period Shares as a result of holding and acting upon the assumption that the price at which they acquired the Period Shares represented the market price in a market that had been informed of all material information relating to Brambles, and all such material information was reflected in the price of the Period Shares as at the time of acquisition (the Price Integrity Assumption).

115    Further or alternatively to acquiring Period Shares while acting under the Price Integrity Assumption, it is alleged that some group members acquired and thereafter retained their Period Shares in reliance upon one or more of the August Representations, the October Representations, the November Representations and/or the January Representations.

3.7    Entitlement to relief

116    The applicants and group members seek compensation from Brambles:

(a)    under s 1317HA of the Corporations Act for the loss or damage that resulted from the breach of the continuous disclosure obligation; and

(b)    further or alternatively, under s 1041I of the Corporations Act, s 12GF of the ASIC Act or s 236 of the ACL for the loss or damage that resulted from its misleading or deceptive conduct.

4.    LEGAL FRAMEWORK – MISLEADING OR DECEPTIVE CONDUCT

4.1    The provisions prohibiting misleading or deceptive conduct

117    At all material times s 1041H of the Corporations Act, s 12DA of the ASIC Act and s 18 of the ACL contained similar prohibitions on conduct which is misleading or deceptive or likely to mislead or deceive. The only difference of substance relates to the conduct to which the prohibition applies. The applicants rely on each of the provisions.

4.1.1    Section 1041H of the Corporations Act

118    Section 1041H(1) of the Corporations Act proscribed misleading or deceptive conduct in relation to a “financial product or a financial service” as follows:

1041H    Misleading or deceptive conduct (civil liability only)

(1)    A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.

119    Section 1041H(2) defined “engaging in conduct in relation to a financial product” as including but not limited to “issuing a financial product” (s 1041H(2)(b)(i)) or “publishing a notice in relation to a financial product” (s 1041H(2)(b)(ii)).

120    Brambles admitted that at all material times it was a person within the meaning of s 1041H, and that its shares were “financial products” within the meaning of the Corporations Act. That admission was appropriate. “Financial product” is defined in the Act to include “a security”, which is in turn defined to include “a share in a body” (ss 761A and s 764A(1)(a)) which includes shares in a corporation: RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd (No 4) [2019] FCA 686 at [67] (White J).

121    The expression “in relation to” refers to a relationship or connection between two subject matters. In the phrase “engaging in conduct in relation to a financial product” the requisite relationship is between conduct which is alleged to be misleading or deceptive on the one hand, and a “financial product” on the other. The phrase “in relation to” has a broad meaning, but it will depend upon the context whether it is necessary that the relationship be direct or substantial, or whether an indirect or less than substantial connection will suffice: Joye v Beach Petroleum NL (1996) 67 FCR 275 at 285 (Beaumont and Lehane JJ).

122    In ASIC v Narain [2008] FCAFC 120; 169 FCR 211 the Full Court considered the requisite relationship contemplated by s 1041H(1). The case concerned a release to the ASX prepared and caused to be sent by Mr Narain, the managing director of a public company, Citrofresh International Ltd. The release announced what was said to be “landmark” laboratory test results regarding the efficacy of a Citrofresh product in providing protection against several deadly viruses. ASIC brought a proceeding against Mr Narain alleging, among other things, that the release constituted misleading or deceptive conduct under s 1041H. The release did not directly refer to the company’s shares or the price at which they traded on the ASX, and the primary judge held that the release was not “in relation to a financial product”.

123    On appeal, the Full Court overturned that finding. The Full Court held (per Finkelstein J at [9]-[12] and per Jacobson and Gordon JJ at [75]-[87]) that the requisite connection under s 1041H(1) between the alleged misleading conduct and a company’s shares need not necessarily be immediate or direct, and an indirect or less than substantial connection is sufficient. The Full Court held that it was not necessary for the release to specifically refer to a company’s shares for it to be “in relation to a financial product” under s 1041H(1). Finkelstein J explained (at [12]) that the statements in the release “related to” the company’s shares (and thus to a “financial product”) because a reasonable person would expect the release to have a material effect on the price at which the company’s shares traded on the ASX.

124    Here, the position is the same. Brambles published statements to the ASX on 18 August, 20 October and 16 November 2016 as to its expected growth in sales revenue and Underlying Profit in FY17, and as to its ROCI target by FY19. Those statements, and the representations which in my view they conveyed, were plainly relevant to the price at which Brambles shares traded on the ASX. Indeed, that was the very reason why Brambles made the statements. I am satisfied that in doing so Brambles was engaging “in conduct, in relation to a financial product” within the scope of s 1041H. Brambles did not contend otherwise.

4.1.2    Section 12DA of the ASIC Act

125    Section 12DA(1) of the ASIC Act proscribed misleading or deceptive conduct, in trade or commerce, “in relation to financial services”, as follows:

12DA    Misleading or deceptive conduct

(1)    A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

Brambles admitted that it was at all material times a person within the meaning of s 12DA and a trading corporation within the meaning of the ASIC Act.

126    As I have said, the expression “in relation to” has a broad meaning but it depends upon the context as to whether the requisite relationship between the alleged misleading or deceptive conduct and the “financial product” must be direct or substantial, or whether an indirect or less than substantial connection will suffice: Beach Petroleum at 285. The reasoning in Narain also applies in relation to the requisite connection between the alleged misleading or deceptive conduct and a “financial service”. Having regard to my reasoning above, provided Brambles’ conduct in publishing statements to the ASX on 18 August, 20 October and 16 November 2016 as to its expected growth in sales revenue and Underlying Profit in FY17, and its ROCI target by FY19 can properly be seen as concerning a “financial service”, then the applicants’ claim will be within the scope of s 12DA.

127    Section 5 of the ASIC Act provided that “financial service” has the meaning given by s 12BAB. Section 12BAB(1)(a) and (b) provided that, among other things, “a person provides a financial service if they: (a) provide financial product advice … or (b) deal in a financial product”. Section 12BAB(7)(a) and (b) defined “dealing in a financial product” to include “applying for or acquiring a financial product” and “issuing a financial product”.

128    At the relevant time s 12BAA(1) defined “financial product” in general terms, which included “a facility through which, or through the acquisition of which, a person … makes a financial investment” (s 12BAA(1)(a)), and s 12BAA(7)(a) provided that “financial products” include “a security”. Section 12BAB(1AA) provided that for the purpose of Div 2 of Pt 2 of the ASIC Act, in which s 12BAA is located, “a financial product is a financial service”. However, this provision was inserted by way of an amendment in 2018 and only applies in relation to acts or omissions on or after 26 October 2018.

129    The question is whether Brambles’ conduct in publishing statements to the ASX on 18 August, 20 October and 16 November 2016 as to its expected growth in sales revenue and Underlying Profit in FY17, and as to its ROCI target by FY19, was conduct in relation to dealing in a financial product (namely, Brambles shares). In my view it was. Brambles’ statements, and the representations which in my view they conveyed, were plainly relevant to the price at which Brambles shares were acquired and sold on the ASX. Indeed, that was the very reason why Brambles made the statements. They were statements in relation to dealing in financial products and thus in relation to the provision of a financial service under s 12BAB(1): see ASIC v GetSwift Limited (Liability Hearing) [2021] FCA 1384 at [2137], [2142] (Lee J), citing Ambergate Ltd v CMA Corp Ltd (Administrators Appointed) [2016] FCA 94; 110 ACSR 642 at [56] (Buchanan J), ASIC v Cycclone Magnetic Engines Inc [2009] QSC 58; 71 ACSR 1 at [151]-[153] (Martin J), in turn citing the remarks of Hayne J in Sons of Gwalia Ltd v Margaretic; ING Investment Management LLC v Margaretic [2007] HCA 1; 231 CLR 160 at [135]. Alternatively, it was conduct intended to influence persons in making a decision in relation to a particular financial product (namely, Brambles shares) or could reasonably be regarded as being intended to have such an influence and was therefore the provision of “financial product advice”: see s 12BAB(1)(a) and (5). Brambles did not contend otherwise.

4.1.3    Section 18 of the ACL

130    Section 18 of the ACL in Sch 2 of the CCA proscribed misleading or deceptive conduct, as follows:

18    Misleading or deceptive conduct

(1)    A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Unlike s 1041H of the Corporations Act and s 12DA of the ASIC Act, the scope of s 18 was not, on its face, restricted to conduct in respect of either financial products or financial services.

131    However, at all material times:

(a)    s 131A(1) of the CCA provided that that Division of the CCA does not apply to “the supply, or possible supply, of services that are financial services, or of financial products”; and

(b)    s 131A(2)(a) provided that, without limiting s 131A(1), Pt 2-1 of the ACL does not apply to “conduct engaged in in relation to financial services”, subject to some exceptions in s 131A(2)(b) and (c) which are not relevant here.

Section 2 of the ACL defined the terms “financial product” and “financial service” by reference to the definitions of “financial product” and “financial service” in ss 12BAA and 12BAB of the ASIC Act.

132    To my mind there is a question as to whether the carveout in s 131A applies here, but both parties proceeded on the basis that s 18 was applicable in the circumstances of this case. In circumstances where it makes no difference to the outcome, I proceed on that basis.

4.2    The provisions regarding representations with respect to future matters

133    A representation may be as to a present state of affairs, or it may be as to a future matter. The applicants allege that Brambles’ statements on 18 August, 20 October or 16 November 2016 conveyed representations with respect to future matters.

134    At all material times s 769C(1) of the Corporations Act, s 12BB(1) of the ASIC Act and s 4(1) of the ACL provided that unless the representor has reasonable grounds for making a representation with respect to a future matter the representation is taken to be misleading.

4.2.1    Section 769C of the Corporations Act

135    Section 769C of the Corporations Act relevantly provided:

769C    Representations about future matters taken to be misleading if made without reasonable grounds

(1)    For the purposes of this Chapter, or of a proceeding under this Chapter, if:

(a)    a person makes a representation with respect to any future matter (including the doing of, or refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken to be misleading.

(2)    Subsection (1) does not limit the circumstances in which a representation may be misleading.

4.2.2    Section 12BB of the ASIC Act

136    Sections 12BB(1) and (2) of the ASIC Act provided:

12BB    Misleading representations with respect to future matters

(1)    If:

(a)    a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading.

(2)    For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a)    a party to the proceeding; or

(b)    any other person;

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

137    Section 12BB(2), for which there was no equivalent in s 769C of the Corporations Act, operated as a deeming provision. It provided that a representor is taken not to have reasonable grounds for making such a representation “unless evidence is adduced to the contrary”.

138    Sections 12BB(3) and (4) clarified the operation of subs (1) and (2), as follows:

…

(3)    To avoid doubt, subsection (2) does not:

(a)    have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or

(b)    have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.

(4)    Subsection (1) does not by implication limit the meaning of a reference in this Division to:

(a)    a misleading representation; or

(b)    a representation that is misleading in a material particular; or

(c)    conduct that is misleading or is likely or liable to mislead;

and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.

4.2.3    Section 4 of the ACL

139    Sections 4(1) and (2) of the ACL were in materially the same terms as ss 12BB(1) and (2), as follows:

4    Misleading representations with respect to future matters

(1)    If:

(a)    a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

(2)    For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a)    a party to the proceeding; or

(b)    any other person;

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

140    Section 4(2) of the ACL operated as a deeming provision in the same way as s 12BB(2) of the ASIC Act. Sections 4(3) and (4) of the ACL clarified the operation of ss 4(1) and (2) in the same way as ss 12BB(3) and (4) of the ASIC Act.

141    It is necessary to understand that the deeming provisions in s 12BB(2) of the ASIC Act and s 4(2) of the ACL did not reverse the onus of proof in relation to whether there are reasonable grounds for a representation in respect of a future matter. They imposed an evidential burden upon the respondent to adduce some evidence that the representor had reasonable grounds for making the representation, and upon that having occurred the deeming provision no longer operates. An evidential burden does no more than oblige a party to show that there is sufficient evidence to raise an issue as to the existence or non-existence of a fact: Momcilovic v The Queen [2011] HCA 34; 245 CLR 1 at [665]. Once the respondent discharges that evidential burden the applicant has the dispositive burden to establish that the representor did not have reasonable grounds for making the representation and thus that the conduct is misleading or deceptive: Australian Competition and Consumer Commission v Woolworths Limited [2019] FCA 1039 at [113].

4.3    Relevant principles

142    To succeed in establishing misleading or deceptive conduct under one or other of s 1041H of the Corporations Act, s 12DA of the ASIC Act and s 18 of the ACL, the applicants must prove that one or more of the representations alleged (or the maintenance of, or failure to qualify, a continuing representation) was misleading or deceptive or likely to mislead or deceive.

143    In Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904; 244 ALR 470 at [14]-[15] Gordon J explained as follows:

[14]     …A two-step analysis is required. First, it is necessary to ask whether each or any of the pleaded representations is conveyed by the particular events complained of: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677; 46 IPR 481; [2000] HCA 12 at [105]; National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369; 61 IPR 420; [2004] ATPR 42-000; [2004] FCAFC 90 at [18] per Dowsett J (with whom Jacobson and Bennett JJ agreed); Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd [2006] ATPR 42-106; [2006] FCAFC 22 at [37] ...

[15]    Second, it is necessary to ask whether the representations conveyed are false, misleading or deceptive or likely to mislead or deceive. This is a ‘quintessential question of fact’: Australian Competition and Consumer Commission v Telstra (2004) 208 ALR 459; [2004] FCA 987 at [49].

144    There is no real difference between the parties as to the relevant principles in deciding whether conduct is misleading or deceptive or likely to mislead or deceive, only as to their application. In the context of this case the following principles are relevant.

(a)    Whether conduct is misleading or deceptive or likely to mislead or deceive is a question of fact to be determined in light of all relevant surrounding facts and circumstances; and by having regard to the conduct as a whole. The central question is whether the impugned conduct, viewed as a whole, has a sufficient tendency or is apt to lead a person exposed to the conduct into error, that is, to form an erroneous assumption or conclusion about some fact or matter. The test is objective and a court must determine the question for itself: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; 149 CLR 191 at 198; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 199-200, 202; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 at [109]; Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [102]; Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 at [39].

(b)    One consequence of the need to consider the conduct in light of all relevant circumstances is that a representation which is alleged to be misleading or deceptive or likely to mislead or deceive must be considered having regard to any qualifications or disclaimers to the impugned statement: Campbell at [29]-[30]. To be effective the qualification or disclaimer must have the effect of erasing or neutralising whatever is alleged to be misleading or likely to mislead in the conduct: Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 at [83] (Keane JA, with whom Williams and Atkinson JJA agreed); Benlist Pty Ltd v Olivetti Australia Pty Ltd [1990] FCA 416; ATPR 41-043 at 51,590 (Burchett J). Relevant considerations in that regard will include the prominence and clarity of the disclaimer and its placement in relation to the alleged misleading statement. Ultimately, the question is one of the overall assessment of the publication or communication in the context it was made: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2020] FCAFC 130; 278 FCR 450 (ACCC v TPG (FC)) at [25] (Wigney, O’Bryan and Jackson JJ); Australian Competition and Consumer Commission v Valve Corp (No 3) [2016] FCA 196; 337 ALR 647 (ACCC v Valve Corp) at [214]. The party alleging that a disclaimer has the effect of erasing or neutralising the alleged misleading conduct ordinarily has the onus to establish that: Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd [2019] FCA 676; 371 ALR 396 at [33(3)] (Bromwich J) citing Hutchence v South Seas Bubble Co Pty Ltd (1986) 64 ALR 330 at 338 (Wilcox J).

(c)    The words “likely to mislead or deceive” in the relevant provisions make it clear that it is not necessary to demonstrate actual deception to establish a contravention: Taco Bell at 202; Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; 249 CLR 435 at [6] (French CJ, Crennan and Kiefel JJ). Conduct is “likely to mislead or deceive” if there is a real, not remote, chance or possibility that relevant persons will be misled or deceived regardless of whether or not it is greater than 50%: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87.

(d)    To show misleading or deceptive conduct it is not necessary prove that the representor intended to mislead or deceive: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; 140 CLR 216 at 228 (Stephen J, Jacobs J agreeing); 234 (Murphy J).

(e)    In the case of an alleged non-disclosure it is not necessary to show that the representor knew of the facts not disclosed. If by reason of what was said and what was left unsaid, the conduct of a corporation is misleading or deceptive or likely to mislead or deceive, a contravention would occur even if the corporation, through its directors and officers, did not have knowledge of the undisclosed facts which rendered the conduct in breach of the relevant statutory proscription. A contravention may occur without knowledge or fault on the part of the corporation, and notwithstanding the exercise of reasonable care: Johnson Tiles Pty Limited v Esso Australia Pty Ltd [2000] FCA 1572; 104 FCR 564 at [66] (French J, with Beaumont and Finkelstein JJ agreeing), quoting Fraser v NRMA Holdings Limited (1995) 55 FCR 452 at 465 (Black CJ, von Doussa and Cooper JJ).

(f)    Where the impugned conduct is directed to the public generally, or to a section of it, the question as to what, if any, representation was conveyed by the conduct, and whether the conduct is likely to mislead or deceive, must be approached at a level of abstraction where the Court must consider the relevant class to whom the conduct is directed and consider the likely effect of the conduct on ordinary or reasonable members of the class, disregarding reactions that might be regarded as extreme or fanciful. Although the class may be expected to include a wide range of persons, in isolating an ordinary or reasonable member of that class, certain characteristics may be objectively attributed to that hypothetical person: Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; 202 CLR 45 at [101]-[105]; Google Inc at [7].

(g)    In the case of representations to the ASX concerning a company’s performance or prospects, the conduct is directed to the investing public generally rather than to a specific individual. The intended audience for such a statement is sufficiently identified as “investors (both present and possible future investors) and, perhaps, as some wider section of the commercial or business community”: Forrest v Australian Securities and Investments Commission [2012] HCA 39; 247 CLR 486 at [36]. That is a broad class which includes large and small, frequent and infrequent, sophisticated and unsophisticated investors, but does not extend to the irrational investor: James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; 274 ALR 85 at [79]-[80].

(h)    Mere silence without more is unlikely to constitute misleading or deceptive conduct, but remaining silent will be misleading or deceptive if the circumstances are such as to give rise to a reasonable expectation that if some relevant fact does exist, it will be disclosed. The existence or otherwise of such a reasonable expectation is to be determined objectively: Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 at [16]-[21], citing Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at [41]; Addenbrooke Pty Ltd v Duncan (No 2) [2017] FCAFC 76; 348 ALR 1 at [482].

(i)    Where the alleged misleading or deceptive conduct involves a failure by a listed company to disclose information to the ASX, the circumstances give rise to a reasonable expectation that the company will not be silent where it has an obligation to make disclosure under s 674(2) of the Corporations Act and the ASX Listing Rules. Market participants have a reasonable expectation that a listed company will act lawfully in complying with its obligation to make any material disclosures to the market, including by correcting information that is no longer accurate, if it is material and not generally available: TPT Patrol Pty Ltd (as trustee for Amies Superannuation Fund) v Myer Holdings Ltd [2019] FCA 1747; 293 FCR 29 at [1482]-[1488]; GetSwift at [2118].

(j)    A representation with respect to a future matter is taken to be misleading if the representor did not have reasonable grounds for making that representation: s 769C(1) of the Corporations Act, s 12BB(1) of the ASIC Act and s 4(1) of the ACL. In the context of a financial forecast by a company, the question is whether the company had reasonable grounds for the representation, not whether the Board of the company acted reasonably or unreasonably given the information made available to it by the company’s officers: Crowley v Worley Limited [2022] FCAFC 33; 293 FCR 438 (Crowley (FC)) at [54].

(k)    The phrase “representation with respect to any future matter” refers to a representation that expressly or by implication makes a prediction, forecast or projection, or otherwise conveys something about what may (or may not) happen in the future, but which cannot be proven to be true or false at the time it is made: Australian Competition and Consumer Commission v Woolworths Group Ltd [2020] FCAFC 162; 281 FCR 108 (Woolworths (FC)) at [121]. Whether a statement is with respect to a future matter depends upon the words used and the context in which they were used: Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; 62 IPR 184 at [99]-[101]; Woolworths (FC) at [125]. Having said that, the phrase “with respect to” is an expression of the widest possible scope, and a representation may be a representation with respect to a future matter even if it is also impliedly a representation as to the existing state of mind of the representor: Digi-Tech at [100]-[101] citing Ting v Blanche (1993) 118 ALR 543 at 553 and Sykes v Reserve Bank of Australia (1989) 88 FCR 511 at 514, 520-521.

(l)    A continuing representation in respect of a future matter may not be misleading or deceptive at the time that it was made, but can be falsified by subsequent events at any point in time during which the representation is continuing, such that it becomes misleading or deceptive or likely to mislead or deceive at that time: McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; 165 FCR 230 at [146]-[149] (Allsop J (as his Honour then was), with Stone J agreeing); Stone v Chappel [2017] SASCFC 72; 128 SASR 165 at [325].

(m)    Whether a representor has reasonable grounds for a representation is to be assessed objectively: Australian Competition and Consumer Commission v Dateline Imports [2015] FCAFC 114 at [97] (Gilmour, McKerracher and Gleeson JJ); Australian Competition and Consumer Commission v Mazda Australia [2023] FCAFC 45 at [108] (Mortimer, Lee and Halley JJ). There will be an absence of reasonable grounds for making a representation if, at the time of making it, the representor did not have facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation: Dateline at [100] citing Australian Competition and Consumer Commission v Jones (No 5) [2011] FCA 49 at [32]-[33]; George v Rockett (1990) 170 CLR 104 at 112; Mazda at [108]. Thus, while the representor’s subjective views as to the existence of reasonable grounds for a representation are relevant, they are not determinative: James Hardie at [349], [454] (Spigelman CJ, Beazley and Giles JJA) and the authorities there cited. The frame of analysis is not subjective, but the assessment of reasonable grounds must be from the vantage point of the representor based on the facts that were either actually known by the representor or ought to have been known. City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 at [83]-[85]; Davis v Wilson [2025] FCA 108 at [1233]-[1235]

(n)    Whether or not reasonable grounds for a representation in respect of a future matter exist is a question of fact which is to be judged objectively as at the date of the representation. But it is permissible to examine evidence of later events which may throw light upon the overall probability that the representation was reasonable, indeed the overall probabilities and circumstances may offer the most reliable guidance. It is, though, vital to guard against hindsight illusion: Jazabas at [83].

5.    LEGAL FRAMEWORK - CONTINUOUS DISCLOSURE

5.1    Background and rationale

145    The background and rationale for the continuous disclosure regime in the Listing Rules, enforced through s 674(2) of the Corporations Act, was usefully summarised by Lee J in GetSwift at [1065]-[1071] and I need not reiterate it here. It is enough to note that the requirement for a publicly listed company to take steps to prevent a false market from being created in relation to its shares has a long genesis in Australia, which dates back to the late 19th century. In James Hardie at [355] the NSW Court of Appeal held that the purpose of the continuous disclosure regime is:

…to enhance the integrity and efficiency of Australian capital markets by ensuring that the market is fully informed. The timely disclosure of market sensitive information is essential to maintaining and increasing the confidence of investors in Australian markets, and to improving the accountability of company management. It is also integral to minimising incidences of insider trading and other market distortions.

5.2    Section 674 of the Corporations Act and ASX Listing Rule 3.1

146    It is uncontentious that at all material times:

(a)    Brambles was a company incorporated under the Corporations Act, and:

(i)    was listed on a financial market operated by the ASX;

(ii)    had issued shares which were traded on the ASX, being ED securities (short for “enhanced disclosure securities”) within the meaning of s 111AE of the Corporations Act;

(iii)    was a “listed disclosing entity” within the meaning of s 111AL(1) of the Corporations Act;

(iv)    was subject to and bound by the Listing Rules; and

(v)    was by reason of the above matters and ss 111AP(1) and / or 674(1) of the Corporations Act, an entity to which s 674(2) of that Act applied;

(b)    the ASX was a market operator of a listed market, namely the ASX’s financial market, in relation to Brambles shares, for the purposes of s 674(1) of the Corporations Act; and

(c)    there existed a market of investors and potential investors in Brambles shares on the ASX.

147    At all material times, ASX Listing Rule 3.1 provided:

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 ASX that information.

Brambles admitted that it was subject to and bound by the Listing Rules.

148    At all material times, s 674 of the Corporations Act gave statutory force to the disclosure requirements of the Listing Rules. It provided:

674    Continuous disclosure—listed disclosing entity bound by a disclosure requirement in market listing rules

Obligation to disclose in accordance with listing rules

(1)    Subsection (2) applies to a listed disclosing entity if provisions of the listing rules of a listing market in relation to that entity require the entity to notify the market operator of information about specified events or matters as they arise for the purpose of the operator making that information available to participants in the market.

(2)    If:

(a)    this subsection applies to a listed disclosing entity; and

(b)    the entity has information that those provisions require the entity to notify to the market operator; and

(c)    that information:

(i)    is not generally available; and

(ii)    is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity;

the entity must notify the market operator of that information in accordance with those provisions.

[…]

Brambles admitted that it was an entity to which s 674(2) of that Act applied.

149    As observed by Lee J in Australia and New Zealand Banking Group Limited v Australian Securities and Investments Commission [2024] FCAFC 128; 305 FCR 383 (ANZ v ASIC) at [29], it follows from the terms of Listing Rule 3.1 that to establish a contravention of s 674(2), a claimant is required to demonstrate facts that make out five elements or “requirements”:

(a)    First, that there is in existence “information” concerning the company.

(b)    Second, that the entity had the “information”, in the sense that it was “aware” of it (Listing Rule 3.1 and s 674(2)(b)).

(c)    Third, that the “information” was not “generally available” (s 674(2)(c)(i)).

(d)    Fourth, that a reasonable person would have expected that “information”, if it were generally available, to have a “material effect” on the price or value of the company’s shares (s 674(2)(c)(ii)).

(e)    Fifth, that the entity failed to notify the ASX of that “information” (s 674(2)(c)).

5.3    The existence of “information”

150    First, there must be something that constitutes “information” within the meaning of s 674(2) of the Corporations Act. Relevantly, s 674(2) operates by reference to the information the Listing Rules require a listed company to notify to ASX. The company’s obligation is to make whatever disclosure the Listing Rules require.

151    The term “information” is not defined for the purposes of s 674. Section 674(1) refers to “information about specified events or matters” but that is just a reference back to the Listing Rules. Section 674(2)(b) refers to “information” that the entity has but does not define the “information” other than by reference back to the Listing Rules.

152    Listing Rule 3.1 is key. It provides that the “information” is “any information concerning [the entity] that a reasonable person would expect to have a material effect on the price or value of the entity’s securities”. It refers to “any information”. Other than requiring that the “information” be information concerning the company, it does not limit the type of matters that might constitute such “information” by reference to source, character, category or otherwise. For example, “information” is not limited to information that is financial in character or that is measurable in financial terms.

153    At all material times, Listing Rule 19.12 provided that for the purpose of Listing Rule 3.1 “information” included “matters of supposition and other matters that are insufficiently definite to warrant disclosure to the market” and “matters relating to the intentions, or likely intentions, of a person”. What constitutes “information” extends beyond pure matters of fact and includes matters of opinion and intention. It extends to opinions that an officer ought reasonably to have formed on the facts known to the officer, regardless of whether the officer did or did not in fact form that opinion, and to opinions which an entity ought reasonably to have formed on the facts known to it regardless of whether it did or did not in fact form that opinion: Crowley (FC) at [5] (Perram J) and [160] (Jagot and Murphy JJ).

154    The ASX Notes to Listing Rule 3.1 provide a non-exhaustive list of the types of information that could comprise such “information” which, as one could expect, includes “the fact that the entity’s earnings will be materially different from market expectations”. The requirement to notify “information” to the ASX pursuant to Listing Rule 3.1 is subject to the exceptions set out in Listing Rule 3.1A (which at all material times operated as a carve-out from Listing Rule 3.1). It provides that information is not notifiable if:

(a)    one or more of the following five situations applies:

(i)    it would be a breach of a law to disclose the information;

(ii)    the information concerns an incomplete proposal or negotiation;

(iii)    the information comprises matters of supposition or is insufficiently definite to warrant disclosure;

(iv)    the information is generated for the internal management purposes of the entity; or

(v)    the information is a trade secret;

(b)    the information is confidential and ASX has not formed the view that the information has ceased to be confidential; and

(c)    a reasonable person would not expect the information to be disclosed.

155    Of course, whether “information” exists which a reasonable person would expect, if it were generally available, to have a material effect on the price or value of the company’s shares, is inevitably fact and context dependent. A decision as to whether at any particular time such information exists “will, invariably, be assisted by analysis against specific factual circumstances”: Grant-Taylor v Babcock & Brown Limited (in liq) [2016] FCAFC 60; 245 FCR 402 (Grant-Taylor (FC)) at [94] (Allsop CJ, Gilmour and Beach JJ).

5.4    Whether the company ‘had’ the information?

156    Second, it must be established that that company had the “information”, in the sense that it was “aware” of it (Listing Rule 3.1 and s 674(2)(b)). Whether at any particular time the company had the relevant “information” falls to be determined by reference to Listing Rule 3.1 which provides that an entity had the information “[o]nce an entity is or becomes aware of” the “information” (emphasis added).

157    At all material times Listing Rule 19.12 defined “aware”, as follows:

[A]n entity becomes aware of information if, and as soon as, an officer of the entity … has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as an officer of that entity.

Thus ‘awareness’ contemplates an officer’s or an entity’s actual or constructive knowledge of the relevant “information”: Masters v Lombe (Liquidator); in the matter of Babcock & Brown Limited (In Liq) [2019] FCA 1720 at [274] citing Grant-Taylor (FC) at [185].

158    In terms of actual knowledge, an officer comes into possession of information when the officer either ascertains it themselves or receives it from someone else.

159    In terms of constructive knowledge, an officer “ought reasonably to have come into possession of the information” when, viewed objectively in light of the officer’s role and the surrounding circumstances (including the information to which they have access) the “information” is information that a reasonable person would expect the officer to have: Zonia Holdings Pty Ltd v Commonwealth Bank of Australia [2025] FCAFC 63 (Zonia (FC)) at [225] (Murphy, Moshinsky and Button JJ).

160    In Crowley (FC) (at [160]), Jagot and Murphy JJ explained as follows:

(1)    s 674(2) operates by reference to the material information the Listing Rules requires the listed corporation to notify to the ASX. The obligation is to do whatever the Listing Rules requires. If a listing rule deems a corporation to have information which it ought to have, and establishes an obligation to disclose that information, then the obligation applies by operation of the Corporations Act;

(2)    the material information the Listing Rules requires the corporation to notify includes information that an officer of the entity has, or ought reasonably to have - as that is the information of which the corporation is “aware” pursuant to Listing Rule 19.12;

(3)    the information required to be disclosed extends to opinions of officers of the corporation. If, for example, officers hold opinions about market sensitive matters which are not generally available then, subject to the other requirements and exceptions in the Listing Rules, these are required to be disclosed to the market. WOR did not contend otherwise; and

(4)    the information that a corporation has or ought reasonably to have is not confined to information (including opinions) that an employee of the company has and ought to have informed the corporation about. Contrary to obiter dicta in Grant-Taylor and Myer, in our view the information that a corporation ought reasonably to have includes opinions that an officer ought to have held by reason of facts known to the officer.

(Emphasis added.)

161    Justices Jagot and Murphy held that the continuous disclosure provisions deem a company to have the information where:

(a) the information in fact existed, (b) reasonable information systems or management procedures ought to have brought the information to the attention of a relevant company officer, and (c) acting reasonably the company officer ought to have discerned the significance of the information, then s 674 and the Listing Rules deem the company to have had the information.

162    As Perram J put it in Crowley (FC) at [5] the constructive knowledge limb of the definition of “aware” in Listing Rule 19.12 means that a company is ““aware” of an opinion which it ought reasonably to have formed on the facts known to it regardless of whether it did or did not in fact form that opinion”.

163    The practical purpose of the constructive knowledge limb is obvious. Without it, an entity could simply avoid or delay its continuous obligations by failing to bring information to its officers in a timely manner.

164    A forecast or prediction as to a company’s future financial performance is necessarily an opinion or judgement: Myer at [1167] (Beach J). It follows that if a company ought, by reason of the information available to officers of the company, to have formed the opinion that it was likely that it would not achieve the forecasts that the company made to the market, then the company will have been “aware” of that “information” and to have constructively had that “information” for the purpose of s 674(2)(b) of the Corporations Act.

5.5    Whether the information was “generally available”?

165    Third, s 674(2)(c)(i) of the Corporations Act requires that for the “information” to be notifiable to the ASX, it must not be “generally available”. At all material times, s 676 of the Corporations Act provided that for the purposes of s 674 the “information” is “generally available” if it consists of a “readily observable matter”; has been made known in a manner likely to bring it to the attention of those who commonly invest in the relevant securities; and a reasonable period for the information to be disseminated to such people has elapsed; or it consists of deductions, conclusions or inferences from such information.

166    The concept of a “readily observable matter” was elaborated on by Judd J in Woodcroft-Brown v Timbercorp Securities Ltd [2011] VSC 427; 85 ACSR 354 at [164]:

Whether information is readily observable matter is a question of fact to be determined objectively and hypothetically. It does not matter how many people actually observe the relevant information; information may be readily observable even if no one observed it. It is not a question whether the particular matter was in fact observed, but whether it could have been. Ready observability is also not limited to perceptibility by the unaided human senses. In considering the factual question involved, modern means of communication such as telephone, telex, facsimile, television and the internet should be taken into account.

(Emphasis in original.)

As well as the Full Court in Grant-Taylor (FC) at [118]-[121]:

The first limb of the test in s 676(2)(a) stands as an independent basis upon which information may be found to be “generally available”. It does not involve a consideration of whether the market has had a reasonable time to absorb the information.

The term “readily observable matter” is not defined in the Act. Extrinsic material relating to the enactment of the analogous provisions proscribing insider trading explained the expression “readily observable matter” as “facts directly observable in the public arena” (explanatory memorandum to the Corporations Legislation Amendment Bill 1991 (Cth) [328]: see R v Firns [2001] NSWCCA 191; 51 NSWLR 548 at [56]). Whether information is “readily observable matter” is a question of fact to be determined objectively and hypothetically. It does not matter how many people actually observe the relevant information; information may be readily observable even if no one has observed it (ASIC v Citigroup (supra) at [546] and [551] per Jacobson J and Woodcroft-Brown v Timbercorp Securities Ltd [2011] VSC 427; 253 FLR 240 at [167] per Judd J (affirmed on appeal but with no additional discussion on relevant aspects ([2013] VSCA 284; 96 ACSR 307))). The test of whether material is readily observable is not whether the particular matter was actually observed but whether it could have been observed readily, meaning easily or without difficulty.

Further, s 676(2)(a) does not define the class of persons by whom the matter is to be “readily observable” (cf s 676(2)(b)(i)).

Generally, material notified to the ASX becomes generally available on the basis that it is readily observable matter. Further, material stated in a financial report released by a company is readily observable matter: James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; 274 ALR 85 at [541] to [545]. In that case, ASIC accepted, and the Court also appeared to accept, that the information contained in the 4th quarter financial report released by the defendant was readily observable, but the omission from the report of one important aspect of the information requiring disclosure meant that the defendant breached its obligation. ASIC also accepted that when the omitted information was included in the annual report released subsequently, that was sufficient disclosure: [433] and [545].

5.6    Materiality

167    Fourth, it must be established that a reasonable person would expect the “information”, if it were generally available, to have had a material effect on the price or value of the company’s shares.

168    The requirement for a “material effect”, commonly referred to as a requirement for ‘materiality’ arises from the text of Listing Rule 3.1 and s 674(2) of the Corporations Act. At all material times:

(a)    Listing Rule 3.1 provided that a company is required to immediately tell the ASX any “information” that a reasonable person would expect to have a “material effect” on the price or value of the company’s shares; and

(b)    s 674(2)(c)(ii) stated that, provided the “information” is not generally available, if it is information that a reasonable person would expect, if it were generally available, to have a “material effect” on the price or value of a company’s shares, the company must notify the “information” in accordance with the Listing Rules.

169    Listing Rule 3.1 does not elaborate on the requirement for ‘materiality’, but at all material times s 677 of the Corporations Act operated as a deeming provision. It provided as follows:

677    Sections 674 and 675—material effect on price or value

For the purposes of sections 674 and 675, a reasonable person would be taken to expect information to have a material effect on the price or value of ED securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities.

170    Listing Rule 3.1 does not use the phrase “commonly invest in securities” found in s 677, but it is to be construed to “implicitly embrace the elaboration in s 677”: Grant-Taylor (FC) at [95].

171    The expression “persons who commonly invest in securities” refers to a notional class of rational investors. In Grant-Taylor (FC) at [115]-[116] the Full Court explained, as follows:

We are of the view that the expression ‘persons who commonly invest in securities’ is a class description. First, the plural ‘persons’ is used in contradistinction to the singular ‘a reasonable person’ in s 677. Secondly, to treat this as a class description avoids distinctions dealing with large or small, frequent or infrequent, sophisticated or unsophisticated individual investors. Such idiosyncratic distinctions are made irrelevant if one is looking at a class of investors. There is no reason to confine ‘likely to influence persons’ to the sophisticated. The unsophisticated also need protection. Likewise the small investor and likewise the infrequent investor. But not the irrational investor. Thirdly, in the context of s 676, the question is whether the information has been made known to the relevant class, albeit that the class may be narrower than for s 677. We accept that the phrase does not use the express language of ‘class’, but in using the plural ‘persons’, the legislature appears to be generalising to a group description.

The word ‘commonly’ in s 677 has been employed to underline that the objective question of materiality posed by ss 674 and 675 by reference to the hypothetical reasonable person in turn has regard to what information would or would be likely to influence a hypothetical class of persons namely ‘persons who commonly invest in securities’.

(Emphasis in original.)

172    The Full Court said (at [96]) that to satisfy the materiality requirement imposed by s 674(2)(c)(ii), the information must be “non-trivial” and rise beyond information which “may” or “might” influence a decision by investors and it must be shown that the information “would” or “would be likely” to influence a decision.

173    That can be accepted, but it must be kept in mind that the legislature did not qualify the word “influence” by reference to any requisite degree or extent. For example, s 677 does not require that the “information” would or would be likely to “influence to a significant extent” persons who commonly invest in shares in deciding whether to acquire or dispose of the shares, and it would be impermissible to read those words into the section. As the applicants submitted, by its reference to “non-trivial” information the Full Court must have meant that information which is no more than trivial could not exert any influence on a decision to acquire or dispose of shares, such that s 677 would not be satisfied.

174    It should also be kept in mind that the continuous disclosure provisions are remedial; and are intended to enhance the public interest and to protect individual investors. Sections 674 to 677 must therefore be construed beneficially so as to give the fullest relief which the fair meaning of their language will allow: James Hardie at [356].

175    In my view the test in s 677 is satisfied if the “information” “would or would be likely” to influence persons who commonly invest in shares to some measurable extent.

176    Section 677 poses an objective test which is to be applied at the time it is alleged that disclosure should have occurred, and ‘materiality’ is to be determined on an ex ante basis. It involves an evaluative assessment of all the relevant facts, including the views of the company or its officers and of investors regarding materiality, although those views cannot by themselves be determinative: Grant-Taylor v Babcock & Brown Ltd (in liq) [2015] FCA 149; 322 ALR 723 at [64] (Perram J).

177    Even so, it is permissible for a court to also consider how the market in fact reacted when the “information” was disclosed, at least as a cross-check on the Court’s conclusion on materiality, which involves an ex post assessment: see Rivkin Financial Services Ltd v Sofcom Ltd [2004] FCA 1538 at [113]-[116] (Emmett J); Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) [2009] FCA 1586; 264 ALR 201 at [474]-[477] (Gilmour J); Australian Securities and Investments Commission v MacDonald (No 11) [2009] NSWSC 287; 256 ALR 199 at [1063]-[1067] (Gzell J); James Hardie at [534]-[537]; Grant-Taylor at [64].

178    In MacDonald (No 11) at [1067], Gzell J explained the basis for permitting an ex post assessment, in stating “[w]here likelihood of the occurrence of an event is in issue and relevant facts are available, they are to be preferred to prophecies”. A similar approach can be seen in Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 27 ALR 367 (Bowen CJ, Evatt and Deane JJ), albeit in a different context. That was a case under s 45D of the Trade Practices Act 1974 (Cth) concerning alleged secondary boycotts. To establish the alleged contravention, it was necessary to show that the impugned conduct was engaged in for the purpose, and “would have or be likely to have” the effect, of causing substantial loss or damage to the business of the relevant corporation. Consideration was given to whether, on an ex post assessment, the required effect on the business of the corporation had occurred. Deane J (at 381-382) citing Dixon J in Willis v Commonwealth [1946] ALR 349; 73 CLR 105 at 116 explained:

…if conduct had run its ordinary course and had not had the specified effect, it would be but rarely that a court would feel justified in disregarding the lesson of the event and finding that while the conduct did not have the specified effect it had been more likely than not that it would have that effect.

179    In the present case it is important that the test in relation to ‘materiality’, and thus the obligation to disclose, is objective. In James Hardie at [454] the NSW Court of Appeal explained:

…the statutory obligation to disclose involves an objective test ... Therefore, the views of a company’s senior management or its directors cannot determine whether disclosure of any given information is required. That is not to say that the views of those who make the decision as to disclosure may not be relevant. For example, if there was particular information that informed the decision-making of management, such information may be relevant to the determination of whether or not, objectively determined, disclosure was required. However, the ultimate decision of management or the directors to the disclosure or not of information is not determinative.

180    During the Relevant Period the ASX published Guidance Notes to assist listed companies to understand and comply with their obligations under the Listing Rules. Guidance Note 8 discussed thresholds at which listed companies should treat earnings-related information as material. Where a company had published earnings guidance for the current reporting period, Guidance Note 8 recommended companies apply the guidance on materiality that formally appeared in the Australian Accounting Standards, and “suggested” that companies treat an expected variation in earnings compared to its published earnings guidance:

(a)    of equal to or greater than 10% as material; and

(b)    of equal to or less than 5% as not being material,

“unless, in either case, there is evidence or convincing argument to the contrary”. The Guidance Note guided very large companies like Brambles (which was in the ASX300) and companies with very stable or predictable earnings to a threshold of materiality of more than 5%: ASX Guidance Note 8, 17 August 2015, 47-48.

181    The Court has applied or referred to the thresholds in Guidance Note 8 in previous forecast cases. In Myer at [1166] Beach J held that, in the context of that case, “materially lower” meant at least 5% lower than the forecast, and that 5% was “the relevant standard in the present context”. In Crowley (FC) at [114] the Full Court referred to assumptions of either a 5% or 10% materiality threshold.

182    There are sound reasons for treating the magnitude of an expected shortfall to a forecast or earnings guidance as informing the assessment of whether the expected shortfall is likely to have a material effect on the company’s share price, such that a company has an obligation to notify the market of the expected variation. I do not, however, accept Brambles’ contention that, if it is found to have been “aware” of “information” that it was unlikely to achieve its FY17 Underlying Profit forecast at any point in the Relevant Period prior to 23 January 2017, that such “information” could not be “material” because the applicants could not establish that any expected decline in its Underlying Profit would reach the materiality threshold of 5% of the bottom end of the range of Brambles’ earnings guidance.

183    Guidance Note 8 makes it sufficiently clear that the proposed materiality thresholds are only a “rule of thumb”. Of course, such a rule of thumb will often be of assistance for companies seeking to comply with their obligations under the continuous disclosure regime, and it serves a useful purpose. But whether “information” exists which a reasonable person would expect, if it were generally available, to have a material effect on the price or value of the company’s shares, is inevitably fact and context dependent. Sometimes the application of such a rule of thumb will assist, and other times the statutory test will not be answered simply by applying a rule of thumb.

184    ASX Guidance Note 8 makes that clear in stating that the recommended 5% or 10% materiality thresholds were “purely a suggestion to assist entities in determining if and when they should update their published earnings guidance”, and that the ASX “recommended” or “suggested” those materiality thresholds “unless, in either case, there is evidence or convincing argument to the contrary”. Here, as I later turn to explain, I consider there is evidence and convincing argument to conclude that during the Relevant Period, at least until 23 January 2017, the “information” that Brambles was unlikely to achieve its FY17 Guidance or FY19 ROCI Target by the amounts in question in this case “would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of” Brambles’ securities. That is, a reasonable person would expect that “information”, if it were generally available, to have a material effect on the price or value of Brambles shares.

5.7    Failure to notify the “information” to the ASX

185    Fifth, it must be established that the company failed to immediately disclose the “information” to the ASX. Here, there is no dispute that Brambles did not notify the ASX that it withdrew its FY17 Guidance until 23 January 2017, nor that Brambles did not notify the ASX that it withdrew its FY19 ROCI Target until 20 February 2017.

6.    PREPARATION OF THESE REASONS

186    Given the regrettable delay in the provision of these reasons, it is appropriate that I provide some explanation, not in an attempt to justify the delay, but to explain that I do not consider that it reduced my ability to make the factual findings that I have. I again apologise to the parties for my delay. I doubt that anyone who knows me would think the delay arose out of indolence. The truth is that I worked uncommonly hard throughout those years, but I wrongly let other work get in the way of completing the reasons.

187    The trial in this matter ran for five weeks, from 8 August to 8 September 2022, and 26 to 27 October 2022. The applicants did not call any lay evidence on liability. They put on a documentary case based on discovered Brambles documents, contemporaneous emails and management accounts, supported by the expert evidence of Mr David Lee and Mr Tony Samuel. Brambles relied on the evidence of seven of its executives, and two members of the Board, being the Chair of the Board and the head of the Audit Committee during the Relevant Period, each of whom made detailed and lengthy affidavits and were cross-examined.The documentary evidence was voluminous, some 2,600 documents including 500 key documents The loss and damage case involved four experts and lengthy evidence..

188    There was no material disagreement between the parties as to the numbers in Brambles’ management accounts, internal presentations and emails but there was a gulf between them as to what those (uncontentious) numbers meant in relation to the existence of reasonable grounds for the alleged representations. The contemporaneous emails of Brambles’ executives and officers and the accounts often speak for themselves, but Brambles’ witnesses sometimes sought to explain what they said in emails or presentations at the time in a way which differed from the applicants’ contentions as to what those documents meant.

189    I made notes of the evidence each day during the trial, and after Court each day, on hard copies of the documents and on pages interposed into the hard copy lay witness affidavits. I flagged and annotated the documents referred to and noted my views regarding that evidence as the witnesses gave their evidence and at the end of each day.

190    Immediately following the trial, my associate and I began the lengthy task of having my handwritten notes and document annotations into a chronology which broke the evidence down into monthly periods. The parties filed written closing submissions totalling 780 pages on 21 October 2022, and I heard oral closing submissions on 26 and 27 October 2022. My associate and I continued the work of typing my handwritten notes and document annotations into a chronology until 30 October 2022.

191    Following hearing closing submissions, I had reached conclusions on the appropriate determinations of the central questions in the case. I was persuaded that the applicants had failed to establish their claims of misleading or deceptive conduct and breach of the continuous disclosure regime at and from 16 August 2016 and 20 October 2016, but that they had made out their case for the period at and from 16 November 2016, after which the performance of US Pooled, CHEP NA, CHEP Global and the Group had only further deteriorated. Brambles withdrew the FY17 Guidance on 23 January 2017.

192    For the rest of that year I was engaged in preparing for and hearing two other lengthy matters, a class action and a native title determination application ‘on country’. After Christmas I returned to work in mid-January 2023. From then until the end of August 2023, with substantial interruptions due to other cases, my associate and I continued the work of typing my handwritten notes and document annotations into the chronology, and at the same time building in the detailed references to the evidence from the parties’ written submissions. By the end of August 2023, the chronology was largely complete, as was a 15-page executive summary of the judgment that formed a template for these reasons.

193    Unfortunately, other work then kept me away from these reasons and I did not return to them until after around April 2025. I and my associates have worked on it from then, interrupted by other work but much less. That gap in time created substantial inefficiency as I felt it was necessary to revisit the voluminous witness statements, the parties’ submissions, and the salient parts of the transcript. On revisiting the materials and returning to the preparation of these reasons my view of the facts was unchanged from those earlier recorded in the lengthy chronology and in the case summary and template earlier prepared. I relied on the chronology, although rechecking every document referred to.

194    I again note that nothing significant in the decision turns on my impressions of witnesses. I have rejected entirely Mr Lee’s evidence and I have given little weight to or not accepted large parts of the evidence of Brambles’ lay witnesses. But that was not because of impressions in relation to their testimony, or because of concerns they were not endeavouring to give a truthful account. As I will explain, it was centrally because I found their testimony to be inconsistent with or to jar with contemporaneous documents or with other evidence which I prefer. In a case like this I consider the contemporaneous documentary record is by far the most reliable evidence, particularly when the witnesses were giving evidence about otherwise mundane business matters, around six years after those events.

7.    THE WITNESSES

7.1    The applicants’ liability witnesses

195    The applicants did not call any lay evidence on liability. They put on a documentary case based on Brambles’ management accounts and contemporaneous emails, supported by two expert witnesses who prepared reports, and also upon cross-examination of Brambles’ lay witnesses who were senior executives and officers of Brambles during the Relevant Period.

196    The applicants relied upon the expert evidence of:

(a)    Mr David Lee, a person with lengthy experience in the pallets industry, who provided reports dated 2 March 2022 (First Lee Report), 11 July 2022 (Second Lee Report), and 4 August 2022 which is a short addendum to the First Lee Report (Third Lee Report); and

(b)    Mr Tony Samuel, an expert valuer and forensic accountant, who provided reports dated 2 March 2022 (First Samuel Report) and 11 July 2022 (Second Samuel Report).

Both experts were cross-examined.

7.2    Brambles’ liability witnesses

197    Brambles relied on the evidence of the following nine lay witnesses, being seven of its senior executives and two Board members - the chair of Brambles’ Board and a non-Executive Director who was also head of the Audit Committee during the Relevant Period - each of whom made detailed affidavits. Each was cross-examined.

Brambles

(a)    Johns is an accountant by profession and he held a number of senior executive positions in the Westfield Group from 1985 to 2002. He was a non-executive director of the Westfield Group from 2003 to 2013. From August 2004 to 30 June 2020 he was a non-executive director of Brambles, including as Chair of the Audit Committee from 2005 to 2014, and Chair of the Board from 30 September 2014 to 30 June 2020. Brambles relied upon his affidavit affirmed 13 December 2021 (Johns Affidavit).

(b)    Long is an accountant by profession and was a partner of Ernst & Young (EY) from 1981 to 2010. He served as Chair of EY’s Global Advisory Council from 2007 to 2010, and Chair of EY’s Australian practice and then the Oceania Area Advisory Council from 2000 to 2010. Following his retirement from EY he was a director of several publicly listed companies including Ten Network Holdings Ltd from July 2010 to July 2016 including as the Chair from December 2010 to February 2012, and Commonwealth Bank of Australia from September 2010 to December 2018 including being Chair of the Audit Committee from November 2011 to September 2018. He was a non-executive director of Brambles from 1 July 2014 to 8 October 2020, during which period he was also Chair of the Audit Committee from 30 September 2014 to 8 October 2020. Brambles relied upon his affidavit sworn 11 November 2021 (Long Affidavit).

(c)    Todorcevski is an accountant by profession and worked at BHP Billiton Ltd for almost 24 years from 1986 in various finance roles. From May 2005 to December 2008 he was CFO of the BHP petroleum division. From June 2009 for three years he was CFO of Oil Search Ltd until he left to take up employment with Brambles. He was CFO of Brambles from October 2012 until his resignation on 17 November 2016, after which he remained available to assist the incoming CFO until February 2017. Brambles relied upon his affidavits sworn 8 October 2021 (First Todorcevski Affidavit) and 3 June 2022 (Second Todorcevski Affidavit).

(d)    O’Sullivan is an accountant by profession and from 1985 to 1990 she worked as an auditor and consultant at Price Waterhouse & Co in Dublin and in Sydney. From November 1990 to July 1993 she was the Regional Financial Controller (Asia Pacific) at Grinnell Corporation, a subsidiary of Tyco International (US) Inc. From July 1993 to April 2005 she worked at Tricon Global Restaurants Inc, a subsidiary of PepsiCo, in various roles at Pizza Hut South Pacific Region (and later KFC) initially as a Finance Manager, then as Financial Controller, then as Director IT and Finance. From June 2005 to June 2015 she worked as CFO of Coca-Cola Amatil Ltd for the Australia and New Zealand region. She was the CFO-Designate of Brambles from 10 October 2016 to 17 November 2016, when she took over as CFO from Todorcevski and held that position throughout the balance of the Relevant Period. Brambles relied upon her affidavit affirmed on 29 September 2021 (O’Sullivan Affidavit).

CHEP Global

(e)    Peter Mackie was the Vice President of Marketing for CHEP Europe from 2001 to 2003, General Manager of CHEP United Kingdom and Ireland from 2003 to 2005, Vice President (Strategy) of CHEP Europe from 2005 to 2006, Senior Vice President (Customer Service) of CHEP Europe from 2006 to 2008, President of CHEP Europe from 2008 to 2010, Group President of CHEP Asia-Pacific from 2010 to 2011, Group President of CHEP Americas from 2011 to 2013 in which role he was responsible for managing CHEP’s operations in the USA, Canada and Latin America, and Group President of CHEP Global from March 2013 to March 2017 reporting to Gorman. Brambles relied upon his affidavits affirmed 28 October 2021 (First Mackie Affidavit) and 6 June 2022 (Second Mackie Affidavit).

(f)    Kennett is a management accountant by profession. From 1989 to 1993 he worked as an auditor and management accountant at KPMG in the UK, from 1993 until 1995 he worked as a management accountant with British Bakeries, from 1995 until 2005 he had various roles in the Household and Body Care division of the Sarah Lee Corporation including as a Factory Controller, a Sales and Marketing Analyst, a Supply Chain Accountant, then from September 1998 to October 2000 he was Assistant to the Segment CFO at Sarah Lee, from October 2000 to August 2003 he was Finance Director, Canada, and from August 2003 to January 2006 he was Finance Director, Germany and Austria, from January 2006 until June 2012 he was CFO of the Coffee and Tea division of Sarah Lee which has expanded to include the International Bakery Division. He was the CFO and Senior Vice President of CHEP Global from 6 January 2014 until March 2017 when the CHEP Global structure was eliminated in a company restructure. From March 2017 until September 2017 he worked in various project roles for Brambles’ CFO and from October 2017 until April 2019 he was Group Vice President of Risk and Internal Audit. He reported directly to Mackie and had a functional “dotted-line” reporting structure to Todorcevski (until 16 November 2016) and then to O’Sullivan (from 17 November 2016). Brambles relied upon his affidavits sworn 14 October 2021 (First Kennett Affidavit) and 7 June 2022 (Second Kennett Affidavit).

(g)    Alonso is an agro-industrial engineer by training. He joined CHEP Spain in 1992 following the completion of his engineering degree and over the course of his employment with Brambles has held a range of supply chain roles including Quality Manager in Iberia, Logistics Director for South Europe, Vice President, Logistics for Europe, Senior Vice President, Supply Chain for Europe, Senior Vice President, Operations & Planning for CHEP. From September 2013 and through the Relevant Period he was the Senior Vice President, Supply Chain of CHEP Global. He reported directly to Mackie and, from early 2017, following a business restructure and realignment of the executive leadership team he reported to Chipchase. Brambles relied upon his affidavits affirmed 14 October 2021 (First Alonso Affidavit) and 3 June 2022 (Second Alonso Affidavit).

CHEP NA

(h)    Martin holds a bachelors degree from the School of Business at the University of Maine. From 1988 until 2001 he worked for Ryder Systems Inc, a transportation and logistics business, and associated businesses in roles including Location Manager / Regional Operations Manager, Director and General Manager / Regional Vice President and General Manager, Vice President Commercial Sales US and Area Vice President. From 2001 to 2013 he worked for IFCO Systems initially in the role of Senior Vice President and General Manager - Packaging and Logistics Services and then as Vice President - US Sales and Marketing. IFCO was acquired by Brambles in 2011. He was Senior Vice President, Sales and Customer Operations of CHEP NA from July 2013 and through the Relevant Period. Brambles relied upon his affidavits affirmed 18 November 2021 (First Martin Affidavit) and 7 June 2022 (Second Martin Affidavit).

US Pooled

(i)    Laura Nador is an industrial engineer by training and also holds an MBA. From 1996 to 2001 she held various roles at Ryder Systems Inc, a transportation and logistics business, including from September 1996 to January 1999 as a Logistics Engineer, and from January 1999 to July 2002 as Business Development Manager. Relevantly, since 2003 she has worked for Brambles. From 2003 to 2008 she worked in CHEP UK as a Program Management Office Manager and as Director of Distributor Sales, Europe, from July 2006 she was Vice President of the Returnable Plastic Containers Business Unit in Europe, from July 2008 until June 2013 she was the Vice President and Country General Manager of CHEP Iberia (covering Spain and Portugal), and from July 2013 until June 2016 she was Vice President Supply Chain, CHEP Latin America. From July 2016 and through the Relevant Period she was Senior Vice President and General Manager of US Pooled. Brambles relied upon her affidavit affirmed 21 October 2021 (Nador Affidavit).

Other relevant personnel

198    The following were the other main relevant Brambles personnel during the Relevant Period. They were not called to give evidence.

(a)    Gorman, the CEO of Brambles from before the beginning of the Relevant Period until 20 February 2017.

(b)    Graham Chipchase, the CEO-Designate of Brambles from 1 January 2017 to the end of the Relevant Period. He became the CEO of Brambles on 20 February 2017.

(c)    Rumph, the President of CHEP NA from before the beginning of the Relevant Period until 8 March 2017. She reported directly to Mackie.

(d)    Lallatin, the CFO of CHEP NA from before the beginning of the Relevant Period until around 7 October 2016. He reported directly to Rumph.

7.3    Assessment of the liability witnesses

199    I now turn to make some observations about the evidence of the parties’ liability witnesses.

7.3.1    Mr Lee

200    The applicants adduced expert evidence from Mr Lee on the basis that he is a pallets industry expert with more than 30 years’ experience in the preparation of budgets for pallet pooling operations. His relevant experience included working as Senior Vice President of US Pooled from 1989 to 1995 as part of the team which launched US Pooled onto the US market in 1990, and working as President and CEO of PECO Pallets, a competitor of US Pooled, from 2005 to 2016. His curriculum vitae showed that he had firsthand experience in strategic planning, business modelling, budgeting, and the pricing and selling of pooled pallet services. His formal qualifications include a Master of Science: Economics from the University of London.

201    Mr Lee focused on the US Pooled FY17 budget and concluded that from the outset it was unlikely that US Pooled would achieve the budget. He identified six assumptions which he said underpinned the budget and forecast in relation to sales revenue and Underlying Profit, which in his opinion did not have a reasonable basis. In his view those assumptions lacked reasonable grounds as at 18 August 2016 when the budget was approved, and the reasonableness of those assumptions only deteriorated further over 1H17 as US Pooled performed poorly against the budget and forecast.

202    He summarised the asserted unreasonable assumptions in the following terms:

(a)    In respect of revenue growth, the [US Pooled] FY17 Budget:

(i)    depended on $89.5m in customer wins, including $53 million in ‘unidentified wins’, being customers not yet in Brambles’ customer book, without adequate justification and without appropriately accounting for the time required to formalize contracts and begin issuing pallets to any large new customer;

(ii)    assumed a material increase in revenue per pallet issued, without clear plans for pricing increases and despite Brambles’ concerns regarding competition and the current run rate being below the budget assumptions;

(b)    In respect of direct costs, the [US Pooled] FY17 Budget:

(i)    assumed an unreasonable decrease in damage rates [for pallets], despite the fact that decisions made by Brambles in FY16 were likely to increase those rates and despite a well-established trend which suggested such a decrease would not occur;

(ii)    built in a top-down reduction in control ratio, which reduced expected costs, despite the very large number of pallets that had been issued into the market in prior years;

(iii)    failed to properly account for the recovery costs that would be associated with Brambles’ expansion in NPD issues in FY16; and

(iv)    failed to properly account for depreciation that would need to be recorded in FY17 on account of new pallet acquisitions.

At different points of his reports, he described each of those assumptions as “overly ambitious”, “unreasonable” or “aggressive”.

203    He commenced his first report with the following brief summary of his opinion (at [10]):

My view, based on the evidence provided, is that, having enjoyed a particularly successful FY16, Brambles was overly ambitious in formulating the budget for CHEP USA and made assumptions, covering both demand growth and direct cost control, which were unreasonable. Budgeted revenue growth was unduly ‘stretched’ by (a) optimism generated from the FY16 performance, which [had] benefited from a number of one-off events or circumstances and (b) determination to remain in line with the 2019 Five Year Plan. Budgeted control and reductions in direct costs were excessive given performance over recent years and unwarranted confidence in unproven control programs.

204    In his first report he provided a more fulsome summary of his opinion as to the likelihood that US Pooled would achieve the sales revenue and Underlying Profit forecasts in the US Pooled FY17 budget (at [220]-[226]) as follows:     

[220]    In my view, and for the reasons set out in this report, Brambles was unlikely to achieve the revenue or earnings forecasts set out in its US Pooled Pallets (CHEP USA) budgets for the 2017 financial year, as at 18 August 2016, 13 October 2016, 20 December 2016 or otherwise throughout the ‘relevant period’ (which I understand to be 18 August 2016 - 17 February 2017).

[221]    CHEP USA’s budgets relied on overly ambitious assumptions and, as a consequence, the FY17 budgets for US Pooled Pallets were unreasonable. The sales revenue and direct cost assumptions seem to me to have been more optimistic than was justified given the prevailing circumstances including the state of the sales pipeline and the continued challenges created by pallet damage, lengthening cycle times and the retrieval and handling costs. As the monthly Pallet Performance Reviews show, forecasts were continually missed as the year unfolded.

[222]    Ultimately, even though CHEP management did succeed in raising prices and securing some significant new business, the FY17 sales revenue growth forecast was missed. Given the challenging market conditions at the time and the threats from the competition, the actual result of just under 2% was commendable but it fell short of the budgeted objective by $75.7 million. As illustrated by the comparison of budgeted and actual results for FY17 with the actual results for FY16 (estimated from the company’s monthly results summary) in the table below, the assumptions turned out to be too optimistic:

*a positive cost delta indicates a result worse than budget.

[223]    The other significant shortfalls against the FY17 Budget were in respect of direct costs. Although sales revenue fell below budget by around $75.7 million, direct costs ended up some $31 million above Budget i.e., over 7.5% higher than had been planned.

[224]    The ULP result for US Pooled was $98.3 million below budget. Given that revenue and costs are the base components of ULP, the table above would suggest that the ULP shortfall may be split approximately 70/30 sales revenue to direct costs.

[225]    Publicly, in its 1H17 results, Brambles management attributed the failure to meet their US Pooled budgets to the following factors:

a.    Competitive pressure was responsible for 40 - 45%;

b.    Network costs were responsible for 40%; and

c.     Customer destocking was responsible for 15 - 20%.

[226]    The first two explanations (competitive pressure and network costs), to me, suggest forecasting errors at the time the budget was put together. This conclusion is not only apparent in hindsight but, as set out in the following sections of my report, follows from an analysis of the information available to Brambles at the time. The decline in the sales growth rate, given the time it takes to convert and start new customers to pallet pooling, suggests that the sales pipeline was insufficiently well qualified. And the higher than expected network costs, including the reference to only ‘minor’ benefits from the durability programme in 1H17, suggest, again, overly ambitious assumptions at the start of FY17. The important point in my mind is that these developments were visible from the start of FY17.

205    Then, in cross-examination, Mr Lee’s opinions completely changed. Without seeking to take anything away from the careful and thorough cross-examination by senior counsel for Brambles, Mr Borsky KC, it was apparent from relatively early on that Mr Lee was a highly suggestible witness. Before any substantial application of the cross-examiner’s blowtorch, he showed a surprising readiness to accept the propositions put to him by Mr Borsky, even though they were at odds with the opinions he had expressed in writing. It did not take very long before Mr Lee had almost completely collapsed and seemed to become prepared to concede almost anything that was put to him by Mr Borsky.

206    I commented on that tendency at the time. At one point in cross-examination I referred to Mr Lee as “such an agreeable witness”, and at another point I remarked that I was “trying to understand how the witness could say one thing in his report and then so easily concede that that was not correct without any debate about it or - but he has done it again”. At a later point in the hearing I described Mr Lee’s change of position as a “spectacular witness collapse”. I assume that he had given careful consideration to the opinions he provided in his reports, and I found the readiness with which he gave up those opinions, and his calmness in doing so, quite remarkable.

207    Ultimately Mr Lee’s testimony in cross-examination completely departed from the opinions he had expressed in his reports. He accepted that insofar as his oral evidence was inconsistent with his reports (which it was in most important respects) his oral evidence was to be preferred. It is unnecessary to go to every example, and I use the following only to show how Mr Lee completely backtracked on the opinions he had expressed in writing:

(a)    Contrary to his report in which he said that the US Pooled FY17 budget was unduly stretched through top-down pressure from senior management which led to an “overly ambitious” budget and forecast, Mr Lee conceded that Brambles’ budgeting process was an entirely orthodox and appropriate process. He accepted that his opinion that the US Pooled FY17 budget was “unduly aggressive” and “became progressively more aggressive” was “untenable in light of the extremely modest increase from the initial budget submission to the final submission” and should be withdrawn. He also accepted that the “top-down” guidance from senior management in relation to the December Reforecast was reasonable and that there was never any pressure on US Pooled to maintain forecasts that its executives did not believe were achievable.

(b)    In relation to each of the six assumptions which underpinned the US Pooled FY17 budget, which he had opined lacked reasonable grounds when the budget was approved on 18 August 2016, and in relation to which he opined that the reasonableness of those assumptions deteriorated further over 1H17 as US Pooled performed poorly against its budget, he either withdrew that assertion or contradicted the position he took in his report. In relation to some of the assumptions underpinning the US Pooled FY17 budget he accepted that they were positively reasonable. For example:

(i)    contrary to the opinion in his first report in which he said that it was unreasonable for the US Pooled FY17 budget to assume approximately $53 million in unidentified wins, in cross-examination Mr Lee said that, having regard to the detailed sales reports for US Pooled at the time the budget was prepared, the foundation for his view that the budget was unreasonable in this respect fell away. He accepted that the S&OP Demand Consensus projections and pallet volume numbers were extremely accurate and were therefore a reasonable basis for assuming the sales revenue projections in the September Reforecast would be met. He conceded, at least in relation to Martin, that it was reasonable for him to think that the new wins assumption in the September Reforecast was something US Pooled could “bank on”. He accepted that Brambles had good evidence upon which to base the sales revenue budget and forecast in the December Reforecast. He also accepted that it was reasonable for the December Reforecast to include some volume from expected customer wins even though sales negotiations were still ongoing;

(ii)    contrary to his first report in which he opined that it was unreasonable for Brambles to assume an increase in the RPI to an average of $5.28 in US Pooled FY17 budget, Mr Lee conceded that in circumstances where the assumed increase was 1.15% and less than the expected rate of inflation at the time, it was a reasonable assumption. He accepted that, in light of his acceptance of the reasonableness of the RPI assumption when the US Pooled FY17 budget was approved, the RPI assumptions in the September Reforecast and in the December Reforecast were also reasonable;

(iii)    Mr Lee did not completely disavow the opinion he expressed in his first report that Brambles should not have assumed a decrease in damage rate over FY17 because of the projected effect of the US Pooled durability program aimed at improving pallet durability. Rather, he changed his position to state that it would have been prudent for Brambles to assume that the damage rate would be constant, rather than to assume it would decrease. But he agreed that he was in a “significantly inferior” position to Alonso (who said the damage rate assumption in the US Pooled FY17 budget, explained below, was reasonable) to assess the reasonableness of the damage rate assumptions, and that he was a pessimist in relation to such matters. Further, contrary to his written opinion that the reasonableness of Brambles’ damage rate assumption deteriorated further over 1H17, he conceded that as at 21 October 2016, when Brambles had produced a revised version of the September Reforecast, the actual damage rate aligned with the damage rate assumption; and conceded that his opinion was one upon which reasonable minds could differ. He conceded that on the basis of information available to US Pooled at the time of the December Reforecast the damage rate assumption was reasonable in the circumstances;

(iv)    contrary to his opinion in his first report, Mr Lee conceded that the assumed reduction in the control ratio in the US Pooled FY17 budget when it was approved was reasonable given the growth rates that US Pooled was predicting. He accepted that the assumed control ratio in the September Reforecast and the December Reforecast were reasonable in the circumstances;

(v)    contrary to his opinion in his first report, he withdrew his evidence that the US Pooled FY17 budget did not properly account for increased pallet recovery costs because of the level of NPD issues in FY16. He accepted that the asset recovery assumptions in the September Reforecast and the December Reforecast were reasonable; and

(vi)    contrary to the opinion in his first report that Brambles lacked a reasonable basis for the 20% ROCI Forecast, he accepted that because that forecast applied to the performance of the Brambles Group, rather than just to US Pooled which was the focus of his consideration, his opinion lacked a reasonable basis and could not be relied upon.

208    Mr Lee recanting the central planks of his reports was, of course, a very good result for Brambles as it was plain that the applicants relied on his reports in preparing their case. But Brambles sought to go further. In closing submissions Brambles submitted that Mr Lee, an industry expert outside Brambles’ camp, saw things in very similar terms to Brambles’ lay witnesses, and his evidence supported its position that the US Pooled FY17 budget was not unreasonably stretched and that the budget and the September and December Reforecasts of the budget had a reasonable basis. Essentially, Brambles argued that Mr Lee’s oral evidence contradicted the applicants’ case, and that it should be accepted.

209    The applicants opposed that contention. They submitted:

Mr Lee was bizarrely agreeable in cross examination. The unanticipated disconnect between Mr Lee’s opinions in his reports and evidence under cross examination could not have been more extreme. In cross examination, Mr Lee conceded in effect every proposition that was put to him with respect to questions 6 and 7, at the end of which he had effectively abandoned almost entirely his answers to those questions. That abandonment was without any resistance whatsoever. Beyond simply being suggestable, Mr Lee abandoned his opinions under cross examination that was (with respect) far from rigorous or exacting (because it did not need to be), and that in many instances sought only Mr Lee’s agreement with a simple and undeveloped proposition contrary to that in his report. Agreement was frequently (indeed almost invariably) and freely given without hesitation, with the points being tested little beyond the mere assertion by the cross examiner.

The result is that the Court can place little weight on the evidence that Mr Lee gave with respect to questions 6 or 7, either in his written reports, or in the witness box. …

210    Mr Lee recanted the central opinions in his reports and, as Brambles submitted, his evidence provides no support for the applicants’ case. Indeed, as Brambles contended, if accepted, his evidence contradicts the applicants’ case. But what is the appropriate approach to his evidence?

211    Mr Lee produced detailed and comprehensive reports in which he expressed firm opinions and in evidence-in-chief he said his reports were true and correct. It is appropriate to infer that Mr Lee genuinely held the opinions he expressed in those reports, and that cognisant of his obligations to the Court he took care before expressing those opinions in writing. Brambles did not contend to the contrary.

212    Then, in cross-examination, he reversed his opinions without those concessions being dragged from him as one sometimes sees. I cannot know what was going on in Mr Lee’s head when he wrote the opinions in his reports, nor when he swiftly recanted those opinions in his oral testimony. Yet, Mr Lee completely contradicted his earlier opinions in almost every important respect. I have spent around 48 years working in litigation both as a lawyer and as a judge and the manner of his change in opinion was remarkable. The fact and extent of his reversal of opinion, and the manner in which he gave his evidence, led me to conclude that I have no confidence whatsoever in any opinions he expressed. I give no weight to his evidence.

213    For that reason, notwithstanding that Brambles’ submissions are liberally sprinkled with references to and reliance on Mr Lee’s revised opinions, I do not refer to his evidence. Sometimes Mr Lee’s revised opinions coincided with other evidence which I accept, and other times it did not. In each case I saw little point in setting out those parts of Mr Lee’s evidence which Brambles sought to rely on, only to then state that I give no weight to it. The fact that I do not refer to Mr Lee’s revised opinions should not be misunderstood as meaning that I do not understand his evidence. By the end his evidence was almost entirely favourable to Brambles, but for the reasons I explained, I can give no weight to it.

7.3.2    Mr Samuel

214    The applicants adduced expert evidence from Mr Samuel, a forensic accountant and valuer, and he provided opinions going to, among other things, whether the information available to Brambles at the time it prepared its Group FY17 budget provided a reasonable basis for Brambles’ forecast year-on-year growth in US Pooled and CHEP NA in FY17 in sales revenue and Underlying Profit.

215    Mr Samuel is an experienced and well credentialled forensic accountant and valuer. He graduated from the University of Western Australia with a Bachelor of Commerce in 1983 and has practised as a chartered accountant since February 1987. He was not challenged on his evidence that his training, study and experience includes: (a) over 20 years’ experience as an accountant with Price Waterhouse and PwC including over five years in audit and business advisory services, over four years in corporate finance and recovery services and 11 years as a forensic accountant, and that during that period his training included numerous courses in audit, accounting, forensic and valuation issues; (b) in 2014 he was recognised as a Chartered Accountant Business Valuation Specialist; (c) more than 30 years of experience in the valuation of shares, businesses and intangible assets in the context of acquisition, sales, IPOs and disputes, and he has been instructed as an expert valuer in dozens of disputes; (d) he has been involved in the investigation of accounting records for the purposes of audit, due diligence, valuation or disputes over 30 years; (e) the consideration of solvency issues in the context of receiverships, liquidations, administrations, valuations and disputes on a regular basis since 1990; and (f) he has been instructed as an independent expert accountant and / or valuer for the purpose of providing an opinion as to damages, valuation issues or accounting issues on hundreds of occasions, which engagements often required the preparation of or consideration of forecasts.

216    Brambles objected to the admissibility of Mr Samuel’s opinions on grounds including that valuation is not a field of specialised knowledge that equipped Mr Samuel to opine on the reasonableness of Brambles’ budgets or internal forecasts, and that his opinions were not wholly or substantially based on his specialised knowledge as a valuer. On Brambles’ argument, “valuation” is not a field of specialised knowledge that equipped Samuel to opine on the reasonableness of Brambles’ budgets or internal forecasts less still to descend to the specifics of quantifying risks and opportunities and opining as to how such risks and opportunities ought to be applied in near-term business forecasting.

217    Brambles contended that the skill set of a valuer - determining a point in time value of a business or an asset - is not apt to determining the reasonableness of a company’s budgeting process and outcome. It argued that valuation is a fundamentally different exercise to the preparation of annual budgets and quarterly forecasts by a business and that Samuel “strayed outside his lane” by venturing an opinion outside of his specialised knowledge. For the reasons I explained in Southernwood v Brambles Limited (Ruling No 1) [2022] FCA 1036 at [10]-[25], I did not accept that Samuel’s opinions were inadmissible. In my view Brambles’ objections went to the weight properly to be attributed to his evidence rather than to admissibility.

218    In closing submissions Brambles made no suggestion that Mr Samuel was being untruthful in expressing the opinions he provided. It accepted that he was careful and well prepared in his evidence. I consider he gave thoughtful and considered evidence, and that he made appropriate concessions. Brambles however submitted that, while Mr Samuel’s evidence had survived the admissibility challenge, it should be given no or minimal weight. I do not accept that submission, but I will deal with it when dealing with Mr Samuel’s evidence. Overall, I found him to be a thoughtful and careful witness who sought to avoid overreaching in his testimony, and who gave reliable evidence. I found Brambles’ submissions regarding weight to be overstated. His evidence was of assistance and I accept some but not all of his opinions.

7.3.3    Brambles’ lay witnesses

219    As previously outlined, each of Brambles’ nine lay witnesses had substantial business experience before joining Brambles, and except for O’Sullivan, each of the senior executives and Board members had appreciable experience within Brambles prior to the Relevant Period.

220    Without descending far into the specifics, their evidence included that the budget-setting process for the US Pooled, CHEP NA, CHEP Global and Group FY17 budgets was sophisticated, rigorous and robust; that Brambles had an unblemished track record for achieving the earnings guidance it gave to the market; that the company was on a growth trajectory and had substantial momentum coming out of FY16, and that at all material times, until Brambles withdrew the FY17 Guidance and FY19 ROCI Target, they had reasonable grounds for their confidence that the Group FY17 budget was realistic and achievable, and provided reasonable grounds for that guidance.

221    I accept much of the evidence of Brambles’ lay witnesses, and a large part of Brambles’ case. But I give little weight to many important aspects of their testimony. I do not conclude that any of Brambles’ lay witnesses gave knowingly false evidence. In the main they gave apparently candid evidence, although that was not always the case. But even where their evidence was apparently candid that does not mean that it must be uncritically accepted. And a judge may decide not to accept or to give little weight to part of a witness’ evidence without reaching a conclusion that the witness was being disingenuous. As O’Loughlin J explained in Cubillo v Commonwealth of Australia (No 2) [2000] FCA 1084; 103 FCR 1 at [118], there is no difficulty, in appropriate circumstances, with accepting part of the evidence of a witness but not accepting or giving little weight to other parts. His Honour’s observations were cited with approval in CCL Secure Pty Ltd v Berry [2019] FCAFC 81 at [94] (McKerracher, Robertson and Lee JJ), in which although the result was overturned on appeal to the High Court there was no criticism of the Full Court’s statements of principle; R v Myer [2023] QCA 144 at [108] (McMurdo, Bond and Dalton JJA); Allen v The Queen [2014] VSCA 180 at [65] (Maxwell P, Neave and Kyrou JJA).

222    My approach to the lay evidence is informed by the following matters:

223    First, I started from a general premise (but not a rule) that when determining contested factual issues in commercial litigation such as this, what matters most is usually “the proper construction of such contemporaneous notes and documents as may exist, and the probabilities that can be derived from those notes and any other objective facts”: Mealey v Power [2015] NSWSC 1678 at [4] (Pembroke J). There is force in the observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) at [22] (cited with approval by the UK Supreme Court in R (on the application of Bancoult No 3) v Secretary of State for Foreign and Commonwealth Affairs [2018] UKSC 3 at [103]), where his Lordship said:

… the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.

224    Second, over the course of the hearing I reached the view that the lay witness affidavits did not manifest each witness’ unassisted recollection of the relevant events. I concluded that they were the product of significant drafting, refinement and polishing in lawyers’ offices. For example, Mackie said as much in relation to his affidavits. He described the process that he went through with Brambles’ lawyers as “they sent me all the documents. They asked me to review the documents. I reviewed all the documents, and they used my words to build the affidavit, which I reviewed and signed off”.

225    In another example, Alonso said in relation to an email exchange he had with Nador on 6 October 2016 that, “I think she was coming as well with the views, looking at these emails, that potentially she could receive additional stretches” (emphasis added). Earlier in the same exchange he said, “[t]hat was how I’m reading this [email] years later”. That is, he was reconstructing his view from the emails rather than his having a full recollection. Alonso was pressed on a difference between what he said in his affidavit and an email exchange he had with Rumph on 6 and 7 October 2016. Senior counsel for the applicants suggested to him that he had left some nuance out of his affidavit. He responded:

I don’t know. So it’s - at the end of the day, this is - this is a long process of something that happened six years ago. I don’t know what were the emotions at the time, what were the context on the different emails. In my affidavit, I was trying to reflect to the best of my knowledge what I thought was relevant for the case.

At another point, Alonso said:

In the way we were doing emails, this is more a gossiping email than anything else. We were - I was not picking up my response on the specifics of the words, saying, “Yes, yes, you are right. This is very stretched.” That was how I’m reading this years later.

(Emphasis added.)

226    I concluded that the affidavits were largely reconstructions after the witness had pored over the emails and management accounts from FY16 and FY17, and then worked closely with lawyers, with the lawyers putting the affidavits together. I have real doubts as to whether they are an authentic account of the witnesses’ recollections and I am not confident of the reliability of their contents. The heavy involvement of lawyers is readily apparent in the language in which the affidavits are expressed and the similarity in expression between affidavits. For example, the affidavits of Johns and Long contain numerous similarities of expression.

227    It is also relevant that, notwithstanding their length and comprehensiveness, the affidavits were not complete. They regularly did not set out particular emails or parts of emails which might have tended to throw a different light on the witness’ narrative. There are too many examples of that to recount them. I did not conclude that the affidavits were deliberately misleading, but I found they had so much of the lawyers’ inputs that I was left with little confidence that they reflected the genuine uncoloured recollections of the witnesses as distinct from the witness’ story as crafted by lawyers.

228    I agree with the remarks of Lee J in Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; 377 ALR 234 at [111]-[112] where his Honour said:

In making this point, two observations referred to by Pembroke J in Thomas v SMP (International) Pty Ltd [2010] NSWSC 822 at [24]-[26] have resonance. The first is by Lord Woolf contained in the Access to Justice Report, Final Report (HMSO), 1996 at [55] that:

Witness statements have ceased to be the authentic account of the lay witness; instead they have become an elaborate, costly branch of legal drafting.

The second is the more colourful aphorism attributed to Lord Buckmaster (repeated often by the Hon T E F Hughes AO QC), that ‘the truth sometimes leaks out of an affidavit - like water from the bottom of a well’.

Those remarks were cited with apparent approval in Queensland v Masson [2020] HCA 28; 94 ALJR 785 at [112] (Nettle and Gordon JJ). To the remarks of Lee J, I would add that, in my experience, once a witness has signed off on a detailed witness statement or affidavit most of them endeavour to stick to that in their oral testimony. The reconstructed account becomes, in their mind, the truthful account.

229    Third, the lay evidence centrally concerned an otherwise mundane budget-setting process in the last six months of FY16, and the performance of US Pooled against that budget in the first seven months of FY17. The relevant witnesses had been involved in numerous budget-setting processes over the years; they offered no particular reason as to why they could remember the details of the FY17 budget-setting process; they made their first affidavits around five years after the relevant events; and they did not give evidence until around six years after the relevant events. As I heard their evidence I developed concerns about how much each of them was genuinely able to recall about unremarkable business events from so long ago. Some witnesses accepted that. For example, Mackie said “it’s a long time ago now for me to recall all of the specific items that I was thinking about at the time”. At points in the testimony of each of them, although to different extents, it appeared that their recall of the detail of the relevant events was not as good as their affidavits indicated, and for some witnesses their account (even when steadfastly maintained) was in my view incorrect having regard to the contemporaneous documentary record or other evidence.

230    For example, Johns appeared to have little independent recollection of events in the relevant period. His recollection was particularly poor, and I consider his evidence was almost entirely reconstructed from his review of the documents. The following examples will suffice:

(a)    when asked by the applicants whether he was concerned about lower than forecast ROCI growth in FY17, Johns stated he did not recall;

(b)    when taken to a presentation titled “Budget and 5 year plan Board presentation” dated 28 June 2016, Johns could not recall:

(i)    whether he received the paper in advance of the June Board Meeting; or

(ii)    whether it was the document Todorcevski spoke to at the June Board Meeting;

(c)    Johns could not recall whether Brambles’ budget contained a contingency each year he was a director;

(d)    Johns was taken to the June Board Meeting minutes, and specifically to a request that the assumptions behind the 5YP be reviewed in detail by management at the October Board Meeting on 18, 19 and 20 October 2016. Johns could not recollect:

(i)    why this request was made; and

(ii)    whether it was made due to concerns from Brambles’ director Tahira Hassan;

(e)    when taken to a document titled “Brambles Financial Update July 2016”, Johns could not recall:

(i)    without assistance from the applicants’ counsel, the slide titled “Underlying profit guidance range”; and

(ii)    any specifics with respect to the way Brambles dealt with the budget contingency that year;

(f)    Johns could not recall a discussion at the September Board Meeting regarding a concern about high direct costs in US Pooled;

(g)    when taken to his own affidavit evidence relating to Todorcevski’s explanation of “the factors factoring in September FY17 results and the steps being taken in response to those factors”, Johns admitted he had no recollection of what those steps were; and

(h)    when taken to the December Board Meeting minutes, Johns could not recall then CEO-Designate Chipchase pushing hard for a guidance downgrade at that meeting. His recollection was not assisted by the applicants’ counsel taking him to an email dated 22 December 2016 from Todorcevski to Gorman, which contained an account of the exchange.

231    By the conclusion of the evidence, I was left with diminished faith in each of the lay witnesses’ recollections of the relevant events.

232    Fourth, it is material to my view that some important parts of the evidence of Brambles’ lay witnesses were essentially inconsistent with, or at least jarred with, the contemporaneous documentary record, including (sometimes) the witnesses’ own emails. Contrary to Brambles’ submissions, this is not a case where the applicants cherry-picked some internal emails regarding the achievability of the relevant budgets and misconstrued or took those communications out of context, in an effort to undermine the testimony of Brambles’ lay witnesses. Here, a number of contemporaneous emails or memos ran counter to some important aspects of the lay witness evidence. In the main I concluded that the contemporaneous emails and documents were the most reliable evidence of what a witness thought, or what the true position was, at that point in time. At the least it was more reliable than their testimony, largely a reconstruction, about otherwise ordinary business events, given around six years after those events.

233    Mackie’s evidence included the proposition that his emails should not be understood according to their plain words or as expressing his true views about the CHEP Global FY17 budget, and instead should be understood as Mackie deliberately exaggerating the level of stretch and risk to his more senior management colleagues. For the reasons I explain, I found that evidence to be inherently unlikely, and I give it little weight. In relation to Mackie’s evidence it was particularly clear that his contemporaneous emails were the most reliable evidence of what he thought, or what the true position was, at that point in time. I give substantially greater weight to the account that can be drawn from the contemporaneous emails, including his own, than to his other evidence.

234    There was a substantial gap between the picture Alonso painted in his affidavits and what he said in contemporaneous emails about the aggressiveness of the assumptions and level of stretch (and hence risk to achievability) in the supply chain aspects of US Pooled, CHEP NA and CHEP Global budgets (and the forecast Underlying Profit in the US Pooled budget). In broad terms, he deposed in his affidavits that at the time they were set and at various later points in time he considered the budget assumptions and budgets to be “realistic” or “reasonable” and “achievable”. His emails told a different story, and in cross-examination a different picture emerged.

235    For example, on 22 April 2016 Alonso attended the presentation of the CHEP Global budget to Gorman and Todorcevski, and he deposed that, for various reasons, he was “comfortable” that the budget presented “was realistic and achievable from a supply chain perspective”. Yet in an email exchange with Rumph and Lallatin on 12 and 13 April 2016 in relation to CHEP NA’s second revised budget submission which was produced on or around 13 April 2016 (the CHEP NA Second Revised Budget Submission) he agreed that the proposed budget was a “huge stretch” and said, “we have enough stretch and hence risk already”, and “I do not see any more opportunity for further initiatives”. He was so concerned about that level of stretch that his email said that he was prepared to speak at the CHEP Global PLT meeting the following day to reinforce any message Rumph would like “on how stretch[ed] this budget is already”.

236    In cross-examination, Alonso agreed that at that time Rumph was “pretty concerned actually” about the level of stretch, and that he was concerned too. He testified that he understood Rumph to be saying that the CHEP NA budget “was close to the limit of what was achievable”, and he agreed with that view. He said that he thought the CHEP NA budget was “a stretched budget but still achievable” but that CHEP NA “could not go beyond that”, and that if any additional stretch was imposed, it would put US Pooled “in a very difficult position to achieve any target”.

237    And in an email to Mackie on 14 April 2016 about the CHEP Global budget after the CHEP NA Second Revised Budget Submission (which I have called the Alonso Risks Email), Alonso said the US Pooled budget had “the most aggressive and stretched [Underlying Profit]” with “risks in all line items, sales, direct cost, overheads and [capital expenditure (capex)]”; that the initiatives in the CHEP Global budget for cutting direct costs involved a “huge stretch” with “no margin for error at all”; and that overall the CHEP Global budget was “full of risks and I do not see any major opportunity that could help us”. His emails and his evidence in cross-examination were in my view incompatible with his description of the supply chain aspects of the CHEP Global FY17 budget as realistic and achievable.

238    In another example, as at 13 October 2016 US Pooled had been over-budget on direct costs in July and August, and the September results were terrible, which had sparked an investigation into the drivers of the substantial miss to budget on revenue, direct costs and Underlying Profit. Alonso deposed at that point that:

…while the miss was significant enough to justify such an investigation, it was only an increase of 2.4% on budget expectations over one quarter, so it was not a particularly large miss. It was also only the first quarter of FY17, so we still had three quarters in hand to make up for the miss. My main concern therefore was to make sure we understood the key drivers of the miss so we could put in place mitigation plans if necessary and recoup the miss to date.

239    Yet in an email exchange between Nador and Alonso on 6 October 2016, just after the US Pooled September results came in (and after Kennett sought to impose a $15 million cash flow stretch on CHEP NA), Nador said that the US Pooled budget was “already impossible going in, and with everything else on top, it is going to be a disaster!!” Alonso responded “Absolutely!” In cross-examination he denied that he considered the US Pooled budget was not achievable from the outset, but he described the budget at that point as “super stretch[ed]”, “very stretched”, or “very, very stretched”. He testified, “I thought it was still possible for the supply chain part. I don’t want to comment on the sales part. That was [Nador’s] responsibility. But on the supply chain part, I still believed it was possible” (emphasis added). Then he said that his view as to the deliverability of the supply chain initiatives at that time was that “I thought they were possible still, with significant risk” (emphasis added). Again, his email and his evidence in cross-examination jarred with his apparent confidence that the budget miss could be readily recouped through “mitigation plans if necessary”.

240    Further, in cross-examination Alonso said that he considered the US Pooled and CHEP NA budgets after the CHEP NA Second Revised Budget Submission on 13 April 2016 to be stretched and close to the limit of what was achievable, and that CHEP NA “could not go beyond that”. He said that if any additional stretch was imposed, it would put US Pooled “in a very difficult position to achieve any target”. Then, the US Pooled and CHEP NA budgets were stretched further in the CHEP Global budget review process, yet Alonso’s evidence as at 22 April 2016 was that the US Pooled, CHEP NA and CHEP Global budgets for FY17 were achievable. Then, following seriously under-budget performance in US Pooled and CHEP NA over the first four months of FY17, which meant that the only way they could meet their budgets was to substantially over-perform against budget for the remainder of FY17, the thrust of Alonso’s evidence continued to be that the CHEP Global FY17 budget was achievable, notwithstanding that the US Pooled and CHEP NA budgets were “super stretch[ed]”, “very stretched”, or “very, very stretched”. As US Pooled and CHEP NA suffered further budget stretches, and as their performance against budget worsened in over 1H17, I found Alonso’s statements of confidence in the budgets increasingly unlikely.

241    In relation to Alonso’s evidence, it was particularly clear that his contemporaneous emails were the most reliable evidence of what he thought, or what the true position was, at particular points in time. I give substantially greater weight to the account that can be drawn from Alonso’s contemporaneous emails than to his testimony.

242    Fifth, some of Brambles’ lay witnesses seemed to approach the achievability of the US Pooled and Group FY17 budgets by reference to the possibility that US Pooled would recover from its under-budget performance, or recover sufficiently such that the Group FY17 budget continued to have reasonable grounds. The evidence of Nador, Alonso and Martin suffered from this deficiency. The evidence showed that as the underperformance against budget by US Pooled and CHEP NA worsened over the first four months of FY17, the prospect of CHEP Global returning to alignment with budget depended upon US Pooled achieving an increasingly steep recovery trajectory in the second half of FY17. Nador and Alonso described the projected recovery by US Pooled by terms such as “challenging”, “very challenging”, “extremely challenging”, “much more aggressive, so much more difficult” and Martin described the recovery as “incrementally more difficult to rationalize”. But the question is not whether it was possible for US Pooled and CHEP NA to recover to meet budget in FY17 in the sense that there was a possible pathway for that to occur, or more fundamentally whether it was possible for them to recover sufficiently that the Group FY17 budget had reasonable grounds, and provided reasonable grounds for the FY17 Guidance. The question is whether, viewed objectively, it was more likely than not that they would do so.

243    In relation to Kennett’s testimony, unsurprisingly there were many things that Kennett could not recall about specific elements of the US Pooled, CHEP NA and CHEP Global FY17 budget-setting processes, and the subsequent underperformance by US Pooled. But I found him reluctant to concede matters which he thought ran against Brambles’ case. For example, he denied that he was “shocked” about the level of stretch Todorcevski sought to impose in the CHEP Global budget in May 2016, but he was forced to concede that when he was taken to another email he sent. And then, having repeatedly said that he was “surprised” rather than “shocked”, he tried to explain away the email on the basis that there was not much difference between the two. He also steadfastly denied that he and Mackie imposed specific targets on CHEP CBUs, for the reason that they were concerned to maintain the bottom-up nature of the budget-setting process. But when taken to an email from Lallatin on 1 April 2016 he was drawn to accept that Mackie had indeed done so in the budget review meeting with CHEP NA management on 31 March 2016.

244    Kennett was taken to an email Lallatin sent to Kennett on 12 August 2016 in relation to US Pooled’s July 2016 results. Among other things, Lallatin said “[t]here are some concerning trends. Damage rate is 62%, as high as I can remember it ever being”. In cross-examination Kennett said that he agreed with Lallatin’s observations, and that the damage rate of 62% was as high as he could remember it being. But he made an uninvited additional observation in Brambles’ favour by stating that the damage rate was “on budget...or virtually on budget. So it’s where they planned it to be”. He was pressed by senior counsel for the applicants on his recollection, and told that he should be very careful in his evidence. In the face of that caution Kennett maintained that he had a recollection about the damage rate in July 2017 “because of the BPR presentations that I make to Tom Gorman each month”. That evidence was wrong. Senior counsel then took Kennett to a document that shows that the US Pooled FY17 budget provided for a damage rate in July 2016 of 61.3%. It should be understood that, when it comes to the damage rate, the difference between 61.3% and 62% is a significant one.

245    I found it unsurprising that Kennett could not accurately recall the damage rate for US Pooled in July 2016. After all, that was just one of a number of otherwise mundane business integers relevant to the financial performance of US Pooled in July 2016, and he was not called on to give evidence until six years after the event. But his willingness to assert that he had a good recollection about it and its relationship to the budget, when he did not, contributed to my concerns about the reliability of his recall.

246    It is relevant to my view of Kennett’s evidence that, notwithstanding that his first affidavit ran to more than 200 pages with more than 400 exhibits, he was sometimes selective in what he referred to. For example, he did not refer to:

(a)    his email to Richard Thompsen (Senior Director, Finance, CHEP Global FP&A) on 9 May 2016, where he wrote that he was “a little in shock when [he] saw these numbers (understatement)”;

(b)    Alonso’s email to Mackie on 14 April 2016, which was provided to Kennett when Mackie copied Kennett into his response. That is an important document in which Alonso expressed serious concern about the level of stretch in the proposed CHEP NA budget at that point, and said that “[a]t profit levels, the US Pooled is the most aggressive and stretched UPL. It comes with risks in all line items, sales, direct cost, overheads and capex”. In relation to the proposed CHEP Global FY17 budget at that point he said, “I really think next year [sic] budget is full of risks and I do not see any major opportunity that could help us”. In cross-examination, Kennett was asked why this email was not included in his affidavit, to which he responded “I think it’s because most of this is included in the …budget presentation that comes on 21 April”. I found that explanation unpersuasive; and

(c)    an email he sent to Todorcevski on 23 November 2016 or Todorcevski’s response to that email. Kennett attached a report by Mr Andres Moreno (FP&A Director, CHEP Global) analysing the high costs in US Pooled’s supply chain which had been an ongoing cause of concern since the beginning of FY17. In his response Todorcevski said:

… I’m not sure where to start. There’s so much in here that needs work it’s not funny….the US processes are not up to scratch and have been ineffective in identifying trends and issues.…How we weren’t all over the higher third party fees on day one of FY17 is beyond me, why we’re paying so much more for storage yet maintaining a high level of capex with much lower volume growth, etc. This is not a good read.

That was an important email which showed that, notwithstanding that costs overruns were a substantial part of US Pooled’s under-budget performance in the first four months of FY17, which Brambles had been trying to contain, Brambles was only then coming to understand the problem. In cross-examination, Kennett said he did not recall sharing Moreno’s analysis with Todorcevski until it was put to him.

247    In relation to Martin’s evidence, his affidavit largely went to emails he had sent or received, and occasionally meetings he had attended, and he rarely referred to telephone conversations he had, notwithstanding that (as I infer) much of his work is likely to have been conducted by telephone. He deposed that “[o]ther than as outlined in this affidavit, I do not recall the exact conversations that were held during the preparation of the FY17 Sales Budget” (at [40]) and at several other points flagged discussions that he could not then recall, instead giving evidence of his usual practice or any contemporaneous documents (e.g., at [75], [77], [242], [260], [319], [332], [341], [349], [382]). That together with his responses in cross-examination led me to conclude that his actual recall of what were otherwise ordinary business events that took place around six years earlier was poor, and that his evidence was a reconstruction from contemporaneous emails and management accounts. At other points his evidence was inconsistent or implausible. One example of that is his evidence in relation to ‘sandbagging’. I will explain the deficiencies in his evidence on that topic when dealing with it.

7.4    Whether Jones v Dunkel inferences are appropriate?

248    Brambles did not call three former senior executives to give evidence, being:

(a)    Gorman, Brambles’ CEO from October 2009 and throughout the Relevant Period. He left Brambles on 20 February 2017;

(b)    Rumph, President of CHEP NA throughout the Relevant Period. She left Brambles on 8 March 2017; and

(c)    Lallatin, CFO of CHEP NA during the Relevant Period until around 7 October 2016.

The applicants sought a Jones v Dunkel inference in respect of Brambles’ allegedly unexplained failure to call those executives to give evidence.

7.4.1    Relevant principles

249    Under the rule in Jones v Dunkel [1959] HCA 8; 101 CLR 298 the unexplained failure by a party to call a witness may, in appropriate circumstances, lead to the inference that the uncalled evidence would not have assisted that party’s case. The following conditions must be established for the rule in Jones v Dunkel to apply:

(a)    the uncalled witness would be expected to be called by one party rather than the other; that is, the witness is in the party’s ‘camp’;

(b)    the evidence would elucidate a particular matter; and

(c)    their absence is unexplained.

(Jones v Dunkel at 308, 312 and 320-321; Australian Securities and Investments Commission v Big Star Energy Ltd (No 3) [2020] FCA 1442; 389 ALR 17 at [34], citing Payne v Parker [1976] 1 NSWLR 191 at 201-202).

250    As Brambles submitted, in relation to the first condition, the mere fact that a potential witness is a former employee of the party may not, in and of itself, mean that the witness is in the party’s camp: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 at [87]; Cape Byron Power I Pty Ltd v HSB Engineering Insurance Ltd [2017] NSWSC 1081 at [58]. As time passes, the justification for an inference degrades (Cape Byron Power at [57]-[58]) and where the initial relationship between the party and the witness has been severed, and there is no apparent ongoing relationship, there may be no reason to conclude that the witness is in the party’s camp: Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 4) [2017] FCA 1590; 353 ALR 460 at [579] citing Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43; 213 FCR 380 at [153]; Claremont Petroleum NL v Cummings [1992] FCA 446; 110 ALR 239 at 259.

251    In relation to the second condition, an inference drawn to make a finding of fact must be one that is reasonably available on the evidence and capable of being expressed with clarity: Wotton v Queensland (No 5) [2016] FCA 1457; 157 ALD 14 per Mortimer J (as her Honour then was) at [116], citing Jones v Dunkel at 305, 306; Fuller-Lyons (by his tutor Lyons) v New South Wales [2015] HCA 31; 89 ALJR 824 at [46]; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; 162 FCR 466 at [70]-[71]. While the rule may make certain evidence or the inferences which may be drawn from the evidence more probable, it cannot fill gaps in the evidence, or convert conjecture and suspicion into inference: Bauer Consumer Media Ltd v Evergreen Television Pty Ltd [2017] FCA 507; 349 ALR 679 per Perry J at [57] citing Jones v Dunkel; Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; 200 CLR 121 at [53]. Additionally, the rule does not operate to require a party to call unnecessary witnesses to give merely cumulative evidence: Cubillo at [360] (O’Loughlin J); Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [85] (Nettle JA). The inference is not mandatory and, “generally speaking, these inferences only become material where the balance of the evidentiary record is equivocal”: Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [79] (Besanko, Perram and Katzmann JJ).

252    In relation to the third condition, the rule in Jones v Dunkel has no application if the failure to call the witness is satisfactorily explained or readily understood: Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 343. The authorities show that a satisfactory explanation may include:

(a)    that the witness is suffering from an illness, overseas, or by reason of some other unavailability, unable to attend to give evidence: Payne v Parker [1976] 1 NSWLR 191 at 202; Smith v Samuels (1976) 12 SASR 573 at 581; Li v Chief of Army (2012) 261 FLR 226 at [128], [135]; and

(b)    the trouble and expense involved in having to call the witness outweighs the value of any evidence that would be elicited: Packer v Cameron (1989) 54 SASR 246 at 254.

253    In Fabre v Arenales (1992) 27 NSWLR 437 at 450-451, Mahoney JA (with whom Sheller JA and Priestly JA agreed at 454) held that a Jones v Dunkel inference was not available where a witness was only available to be called if a subpoena was issued and that “[a] party is not, under pain of a detrimental inference, required to call a witness blind”.

7.4.2    Gorman

254    In my view Gorman’s evidence is likely to have elucidated the issues in the proceeding, but having regard to the first and third conditions above I am not prepared to draw an inference under the rule in Jones v Dunkel. The applicants did not establish that Gorman is in Brambles’ camp, nor that Brambles’ failure to call him was not readily understandable.

255    Brambles relied upon the affidavit of Mr Paul Nicols (Nicols), a partner with Allens, Brambles’ solicitors, affirmed 26 April 2022. Brambles submitted that Nicols’ evidence explained the absence of Gorman. It contended that the evidence demonstrates that Gorman was not willing to provide assistance to Brambles in the proceeding, and submitted that Brambles was not required to call him blind or subpoena him or take other steps somehow to try to compel him to give evidence from the United States. It submitted that this is sufficient to preclude a Jones v Dunkel inference being drawn.

256    Nicols deposed that:

(a)    Gorman’s employment with Brambles terminated on 20 February 2017;

(b)    he was informed by Mr Robert Gerrard (Gerrard), Brambles’ Chief Legal Officer and Company Secretary, that Gorman was resident in the United States;

(c)    he spoke with Gorman by telephone on 31 October 2019 and asked Gorman whether he would be willing to provide assistance to Brambles by providing a written statement for Brambles’ use in this proceeding. In response, Gorman said words to the effect of “I am not actually compelled to collaborate or cooperate with Brambles”;

(d)    he caused a letter to be sent to Gorman via email on 7 October 2021 in which he said that he understood from their telephone discussion on 31 October 2019 that Gorman was unwilling to provide assistance to Brambles in relation to this proceeding, and asked Gorman to confirm whether that remained the case;

(e)    when he did not receive a response to that letter, he caused it to be re-sent to Gorman via email on 8 November 2021; and

(f)    on 8 November 2021 he received an email from Gorman confirming that Nicols’ understanding was correct.

257    The applicants did not cross-examine Nicols. His affidavit was admitted into evidence subject to a ruling under s 136 of the Evidence Act 1995 (Cth) that it could only be used to show what Nicols was told by Gorman in the conversation on 31 October 2019 and in the email on 8 November 2021: Southernwood v Brambles Limited (Ruling No 2) [2022] FCA 973. His evidence cannot be used for the hearsay purpose of establishing that, in truth, Gorman was not contractually obligated to assist Brambles by providing a witness statement or giving evidence or that, in truth, Gorman was not willing to assist Brambles in the proceeding by providing a witness statement or giving evidence.

258    Brambles does not, however, seek to use Nicols’ evidence for those hearsay purposes. Rather, it relied upon his evidence to show that Gorman emailed Nicols and told him that he was correct in understanding that Gorman was unwilling to provide assistance to Brambles in the proceeding. It is appropriate to infer that Nicols understood that Gorman was unwilling to assist. In those circumstances Brambles’ decision not to call Gorman is readily understandable.

259    Nicols’ evidence shows that Gorman resigned his employment with Brambles approximately five and a half years before the trial of the proceeding commenced, and there is no evidence of any ongoing contact between him and Brambles. His evidence was that Gorman told him that he was correct in understanding that Gorman was unwilling to provide assistance to Brambles in the proceeding. Gorman’s conduct in doing so, in addition to the fact that his employment ended five and a half years before the trial, tends to show that the relationship between Gorman and Brambles has been severed, and there is no apparent ongoing relationship between them. In my view the applicants did not establish that Gorman is in Brambles’ camp: Doppstadt at [87]; Cape Byron Power at [58]; Australian Lending Centre at [153].

260    It is also relevant that Nicols’ evidence indicates that Gorman lives in the United States. Given Nicols’ likely understanding from what he was told by Gorman, it is appropriate to infer that he thought Gorman would only give evidence if he was compelled to do so.

261    As Brambles submitted, there were only two procedures by which Brambles might have compelled Gorman to give evidence in the proceeding. First, Brambles could have sought leave to issue and serve a subpoena on Gorman in the US, in compliance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters: Ceramic Fuel Cells Limited (in liq) v McGraw-Hill Financial, Inc [2016] FCA 401; 245 FCR 340 at [55] (Wigney J). There is, however, no provision for extradition from the US to Australia in connection to contempt of Court under the Extradition (United States of America) Regulations 1988 (Cth), and it is generally accepted that a subpoena is not enforceable in relation to a person living in a foreign country. Service of a subpoena on a person living overseas constitutes an order, backed by the threat of punishment for contempt of court if the order is not obeyed, in a proceeding in another country to which the person has not submitted. Such a subpoena will not be capable of enforcement without other steps being taken to enlist the support of a relevant foreign court or authority: Stemcor (A/asia) Pty Ltd v Oceanwave Line SA [2004] FCA 391 at [12]-[13] (Allsop J, as his Honour then was); ASIC v Geary and Flugge (Ruling No 5) [2015] VSC 665; 49 VR 606 at [12], [15].

262    Further, the authorities indicate that the requirement to have regard to international law and comity, the need for restraint before granting leave to issue and serve a subpoena on a person living overseas, and the difficulties of enforcing any such subpoena, means that as a practical matter, unless exceptional circumstances exist, it is unlikely that a court will grant leave to issue and serve a subpoena on a person living overseas: see Ceramic Fuel Cells at [34]-[61] (Wigney J) and the cases there cited, including Arhill Pty Ltd v General Terminal Company Pty Ltd (1990) 23 NSWLR 545 at 553F (Rogers CJ Comm D); Stemcor at [12]-[13]; Schneider v Caesarstone Australia Pty Ltd [2012] VSC 126 at [9] (Davies J); Gloucester (Sub-Holdings 1) Pty Ltd v Chief Commissioner of State Revenue [2013] NSWSC 1419 at [29] (White J). There is no evidence to show exceptional circumstances in relation to Gorman.

263    Second, Brambles could have sought an order pursuant to s 7(1) of the Foreign Evidence Act 1994 (Cth) relating to Gorman:

(a)    for his examination at a place outside Australia before a judge of the court, an officer of the court or such other person as the court may appoint (s 7(1)(a));

(b)    for the issue of a commission for his examination at a place outside Australia (s 7(1)(b)); or

(c)    the issue of a letter of request to the judicial authorities of the foreign country to take his evidence or cause it to be taken (s 7(1)(c)).

In exercising the discretion in relation to each of s 7(1)(a)-(c), the Court would be required pursuant to s 7(2) to have regard to, among other things, whether Gorman was willing or able to come to Australia to give evidence.

264    On Nicols’ understanding as to Gorman’s preparedness to assist Brambles, those were the only two courses open to Brambles to compel Gorman to testify. Brambles faced significant obstacles whichever course it chose. It is relevant too that in Fabre at 450-451, the NSW Court of Appeal held that a Jones v Dunkel inference is not available where a witness is only available to be called if a subpoena is issued and the witness would have to be called “blind”. It is appropriate to apply the same reasoning in circumstances where (on Nicols’ understanding) Gorman would only give evidence if compelled to do so under s 7 of the Foreign Evidence Act, and he would have to be called “blind” unless he cooperated with Brambles. In those circumstances it is readily understandable that Brambles did not call Gorman.

7.4.3    Rumph

265    During the Relevant Period Rumph was the President of CHEP NA, and she was directly involved in the initial budget submissions and review meetings and discussions regarding the US Pooled and CHEP NA FY17 budgets. In my view her evidence is likely to have elucidated many issues in the proceeding, including as to whether the “bottom-up” budget submissions for US Pooled and CHEP NA involved “sandbagging” or budget negotiations involving deliberate exaggerations. That is, whether she and other CHEP NA executives proposed easily achievable, underestimated initial budgets to CHEP Global management, perhaps in order to assist them to achieve higher incentive payments, or deliberately exaggerated the stretch and risk in a budget in order to avoid the imposition of further budgetary “stretch”.

266    The application for a Jones v Dunkel inference in relation to Brambles not calling Rumph meets the second condition outlined above, but it fails on the first and third conditions. Again, the applicants did not establish that Rumph is in Brambles’ camp, nor did they establish that Brambles’ decision not to call her was not readily understandable.

267    Brambles again relied on the affidavit of Nicols. It said that his evidence demonstrates that Rumph ignored the first two letters from Brambles asking for her assistance in the case, and then she finally responded to a third letter, this time from Brambles’ solicitors. It submitted that, while her response was not as clear cut as Gorman’s, she said that she was not obliged or compelled to assist Brambles in the proceeding, and on a plain reading of her response she was not agreeing to do so. On its argument, that explanation is sufficient to preclude a Jones v Dunkel inference being drawn.

268    Nicols deposed that:

(a)    Rumph is no longer employed by Brambles;

(b)    he spoke with Gerrard, Brambles’ Chief Legal Officer and Company Secretary, by telephone in around April 2020, and Gerrard told him that he had spoken to Rumph. Gerrard said to him words to the effect of “I have spoken to Kim Rumph. She is not willing to assist with the [p]roceeding”;

(c)    he caused a letter to be sent to Rumph via email on 7 October 2021, in which he sought confirmation that Rumph was unwilling to provide assistance to Brambles in relation to this proceeding;

(d)    on 8 November 2021 he caused the 7 October 2021 letter to be re-sent to Rumph via email, because he had not received a response to the earlier letter;

(e)    on 7 December 2021 he caused the 7 October 2021 letter and email to be again re-sent to Rumph via email, because he had not received a response to either of his earlier emails; and

(f)    he received an email from Rumph dated 7 December 2021 stating:

The communications I have had with Robert Gerrard indicated I am not legally or contractually obligated to respond or provide support to Brambles at this time. I have copied Robert here to clarify my obligations.

269    The applicants did not cross-examine Nicols. In Ruling No 2, I made the same ruling under s 136 of the Evidence Act in relation to Rumph as I did in relation to Gorman. The effect of the ruling is that Nicols’ evidence can only be used to show what Nicols was told by Gerrard in their conversation about Rumph in April 2020, and what he was told by Rumph in her email on 7 December 2021. It cannot be used for the hearsay purpose of establishing that, in truth, Rumph was not contractually obligated to assist Brambles in the proceeding or that she was unwilling to assist.

270    Brambles does not seek to use Nicols’ evidence for those hearsay purposes. Rather, it relies upon his evidence to show that Gerrard told Nicols that he had spoken to Rumph and she was unwilling to assist Brambles, and that Rumph had emailed Nicols and said that she was not obligated to assist Brambles in the proceeding. From that it is appropriate to infer that Nicols understood that Rumph was unwilling to assist. In those circumstances Brambles’ decision not to call Rumph is readily understandable.

271    It is relevant too that Nicols’ evidence shows that Rumph’s employment with Brambles finished on 8 March 2017, approaching five and a half years before the trial began, and there is no evidence of any contact between her and Brambles in the intervening period. His evidence shows that Rumph told him by email that she had been informed that she was not contractually obligated to assist Brambles in the proceeding. Her conduct in doing so, in addition to the fact that her employment ended almost five and a half years before the trial, tends to show that the relationship between her and Brambles has been severed, and there is no apparent ongoing relationship between them. The applicants did not establish that Rumph is in Brambles’ camp.

272    It is also relevant that the evidence indicates that Rumph lived in the US while she was employed by Brambles, and it seems likely that she still did so when contacted in relation to the trial in this proceeding. Given Nicols’ likely understanding from what he was told by Gerrard and Rumph, it is appropriate to infer that he thought Rumph would only give evidence if she was compelled to do so. On the basis of Nicols’ understanding as to Rumph’s unwillingness to assist Brambles, as outlined above, there were only two courses open to Brambles to compel her to testify, and Brambles faced significant obstacles whichever course it chose.

273    Further, it is appropriate to apply the reasoning in Fabre at 450-451 in circumstances where (on Nicols’ understanding) Rumph would only give evidence if compelled to do so under s 7 of the Foreign Evidence Act, and she would have to be called “blind” unless she cooperated with Brambles. Again, in such circumstances it is readily understandable that Brambles did not call Rumph.

7.4.4    Lallatin

274    Lallatin was the CFO of CHEP NA during the Relevant Period, until 7 October 2016, and he was also directly involved in the US Pooled and CHEP NA initial budget submissions and the review meetings and discussions for their FY17 budgets. His evidence too is likely to have elucidated the issue as to whether the ‘bottom-up’ budget submissions for CHEP NA involved ‘sandbagging’. That is, whether he deliberately proposed easily achievable, underestimated budgets so that the CHEP NA could more easily achieve its FY17 budget (and he would be more likely to receive any applicable bonuses or incentives).

275    Again, the application for a Jones v Dunkel inference therefore meets the second condition for an inference under the rule, but it fails on the first and third conditions. For similar reasons, the applicants did not establish that Lallatin is in Brambles’ camp, nor did they establish that Brambles’ decision not to call him was not readily understandable.

276    The evidence shows that during the Relevant Period, Lallatin was based in Atlanta in the US. His employment came to an end approaching six years before the trial began; there is no evidence of any contact between him and Brambles in the intervening period, and the applicants did not establish that he is in Brambles’ camp. Further, Brambles submitted that his evidence would be merely cumulative given that evidence of the day-to-day management of the CHEP North America budget was given by Mackie, Kennett, Alonso, Nador and Martin. That, and the fact that he was only employed by Brambles for part of the Relevant Period may explain his absence.

A.    ALLEGED AUGUST 2016 CONTRAVENTIONS

8.    THE AUGUST FACTS

8.1    The budget-setting process

277    From 2013 Brambles had an annual process in which it developed: (a) a 5YP for each of its business units which were then consolidated into a 5YP for the Brambles Group; and (b) a budget for each of its business units which was then consolidated into a budget for the Group. The Group 5YP, Group budget and the budgets for the business units were internal to Brambles. They were not published to the market, but Brambles relied upon the Group and business unit budgets in providing earnings guidance to the market from time to time.

278    Preparation of the Group 5YP and Group budget for the forthcoming financial year (being the initial year of the 5YP) and for each of its business units was progressed concurrently and commenced in around December / January each year. The two processes were linked in that the 5YP was prepared and approved before the budgets. Then, when the business unit budgets had been approved by management, and the Group budget had been approved by top-level management and then the Board, those figures were substituted for the first year of the 5YP at the Group and business unit levels. The processes for preparing the 5YPs and budgets were broadly similar.

279    Brambles’ purpose in having the business units prepare a 5YP before preparing a budget for that financial year was to have them focus on the long-term goals of the business before looking at their short-term plan (i.e., the budget for that financial year), and setting a budget aligned with the longer-term objectives of the Group.

280    Prior to the business units preparing their draft 5YPs and budgets, Brambles’ ELT provided the business units with ‘top-down’ guidance regarding Brambles’ expectations for financial performance for the forthcoming financial year and the following five years. Then, relevantly to CHEP Global, in what Brambles claimed was a ‘bottom-up’ process, management of each CHEP CBU prepared a draft 5YP, and submitted it to CHEP Global management for review and approval. The review process involved analysis, testing and sometimes proposed revisions (or ‘stretches’) by CHEP Global management, and some push-back against the proposed stretches by CBU management. Upon approval of the business unit 5YPs by CHEP Global management, the consolidated (or ‘rolled-up’) 5YPs were compiled into a draft 5YP for CHEP Global and submitted to Brambles’ top-level management (principally the CEO and CFO) for review and approval.

281    In a continuation of what Brambles claimed was a ‘bottom-up’ process, management of each CHEP CBU prepared a budget submission for the coming financial year (being the initial year of the 5YP), and submitted it to CHEP Global management for review and approval. Again, the review process involved analysis, testing and sometimes proposed revisions (or ‘stretches’) by CHEP Global management, and some push-back by business unit management. Upon approval by CHEP Global management, the consolidated (or ‘rolled-up’) CBU budgets were compiled into a draft budget for CHEP Global for the forthcoming financial year and submitted to Brambles’ CEO and CFO for review and approval. That review process also sometimes involved analysis, testing and proposed revisions or stretches by Brambles’ CEO and CFO, and some push-back against the stretches by CHEP Global management. Upon approval, the rolled-up budgets for all Brambles’ divisions and business units were compiled into a Group budget for that financial year, and provided to the Board for review and approval. Upon approval by the Board, that budget became the Group budget for the forthcoming financial year, and its constituent parts for each business unit became the budget for that business unit.

282    Brambles’ budget-setting process was of long standing, and Brambles relied upon its past success in achieving the earnings guidance it provided to the market which was based upon the budgets it had prepared. I accept that, broadly speaking, the process Brambles followed in setting the US Pooled, CHEP NA and Group FY17 budgets was the same as in previous years.

283    At the time Brambles made the impugned FY17 earnings guidance announcements to the market it had a perfect record of meeting the earnings guidance it provided. From FY12 (when Brambles first provided earnings guidance to the market) through to FY16, Brambles had always achieved its earnings guidance, including in years where the earnings guidance had upgraded during the year (such as in FY16); and also in years where underperformance in one segment of the Group was offset by overperformance in another segment. For example:

(a)    in FY12, the impact of reduced profitability in CHEP Europe and CHEP AIME was offset by improved margins in CHEP Americas (and sales growth throughout the business) and Brambles met guidance;

(b)    in FY13, sales mix and operational efficiency improvements in the CHEP Global and RPC businesses offset higher direct costs in other businesses and Brambles met guidance where the Underlying Profit guidance range was narrowed part-way through the year;

(c)    in FY14, despite CHEP APAC, IFCO and Corporate (which I infer to mean Brambles HQ) all suffering declines in Underlying Profit compared to the prior year, Brambles met guidance; and

(d)    in FY15, direct cost increases in CHEP NA were more than offset by efficiencies and price benefits in CHEP Europe, and Brambles’ results for sales and Underlying Profit were at the top of guidance.

8.2    The target of 20% ROCI by FY19

284    Brambles’ target of achieving 20% ROCI by FY19 was not a new target in FY17. On 9 December 2013 Brambles published an Investment Market Briefing Presentation (December 2013 IMB) to the ASX, in which it said that its “five-year plan targets sustained delivery of our investment proposition” and that its plan was for:

(a)    “Annual percentage sales revenue growth in the high single digits”; and

(b)    “Consistent incremental improvement in Group ROCI to at least 20% by FY19” (emphasis added).

In a note below these statements, Brambles made the statements regarding its 5YP “on an ‘organic’ constant-currency basis, exclusive of the impact of merger, acquisition or divestment activity” and subject to a disclaimer.

285    The December 2013 IMB reflected an internal five-year plan (FY13 5YP) which was recorded in an email from Nick Scaiff (Senior Director, FP&A) to Todorcevski on 10 December 2013. Scaiff was responding to an enquiry from Todorcevski about the planned ROCI growth from 16% in FY13 to 20% by FY19, and he said:

The 5 year plan includes ROCI improvement to 21.6% by FY19. In the below and attached I have reduced ULP margin improvement to reduce the improvement to the guided 20% ROCI by FY18.

You will see that the 4 [percentage point] improvement in ROCI that we are guiding is driven 50/50 between margin improvement and capital efficiency improvement. The majority of the margin improvement is driven by direct cost savings in pallets, but there is a small contribution from overheads not growing as fast as sales. The capital efficiencies are coming from all business units.

286    A chart was embedded in the email which showed that the FY13 5YP was a plan that included the following growth targets:

(a)    incremental ROCI growth of approximately one percentage point (pp) per year from FY14 to FY16, so that by FY16 Brambles’ ROCI would have improved by 2.2 percentage points to 18.3%;

(b)    year-on-year sales growth of between 6.4% and 7% per annum (pa) from FY14 to FY16; and

(c)    an improvement in the Underlying Profit margin of around one percentage point per year from FY14 to FY16, so that by FY16 its margin would have improved by 1.9 percentage points to 19.8%.

287    By the time the Group FY17 budget was approved by the Board on 29 June 2016 it must have been plain that the planned ROCI growth had not eventuated. The FY16 Investor Presentation published to the ASX on 18 August 2016 shows that ROCI for FY16 was 17.2%, rather than the planned 18.3%, and had been up and down rather than incrementally improving.

8.3    The top-down guidance for the FY21 5YP and FY17 budget

288    The evidence shows that the first stage of Brambles’ process for setting the FY17-FY21 5YP (FY21 5YP) and the FY17 budgets involved Brambles’ top-level management providing top-down guidance to the business units.

289    On 9 December 2015 Mackie emailed the CHEP Global PLT, attaching a draft note titled “Note from the Executive Leadership Team”, with a subject line ‘FY17-21 Strategic & Financial Planning Process Guidance’ (December 2015 Guidance Note). The email said that the note from Brambles’ ELT would go on wider circulation that day.

290    The December 2015 Guidance Note advised of some changes from the previous year to the process for setting the 5YP and the FY17 budget, including by “improving upfront expectation setting”. It said:

1)    Improving upfront expectation setting. Based upon the FY16-20 five-year plan, commitments made to our shareholders and our year-to-date FY16 performance, the ELT already has a view of its expectations for each business unit’s contribution for the balance of FY16, the FY17 budget and the FY17-21 five-year plan. These top-down expectations will be clearly communicated during December so your teams know the targets the ELT assumes they are working towards. This will allow you to flag any potential variances (positive or negative) early in the process.

…

3)    Improved feedback in April budget reviews. As a result of using top-down targets as guidance and addressing any material plan exceptions early in the third quarter of FY16, we expect a smoother review and revision process during the April business review sessions. The expectation is that the FY17 budget will be roughly in line with the expectations set out in the FY16-20 five-year plan, meaning relatively minor Group feedback should be required during the formal reviews in April.

(Emphasis added.)

291    The highlighted passages said, in terms, that Brambles’ top-level management already had a view of its expectations for each business unit’s 5YP and FY17 budget and expected their 5YP and FY17 budget submissions to be “roughly in line” with those expectations, such that Brambles’ ELT expected “relatively minor” feedback from the business units during the April review of their budget submissions. The note was a clear statement from Brambles’ ELT to operational management that its expectations for FY17 financial performance were already set, and that it expected any deviation from those forecasts to be relatively minor.

292    Then, on 18 January 2016, Brambles’ ELT provided the leaders of the various divisions, including CHEP Global, a document titled “5 year plan and budget guidance” (ELT Guidance Note).

293    In relation to the proposed 5YP, the ELT Guidance Note stated the following “medium term commitments” for the Group:

Our medium-term commitments remain the same as last year continuing through to FY19. In this year’s 5 year plan it is important that we show momentum towards these commitments in FY17 and onwards after FY19.

Our company’s medium-term commitments are:

•    Revenue growth of 7% to 9% per annum

•    Overheads as a percentage of sales to decrease from 15.5% to 13.5% by FY19

•    Average Capital Invested growth of slightly over 5% per annum - includes $1.5bn of growth capital expenditure in the four years to FY19

•    ROCI (ex acquisitions) of 20% by FY19

(Emphasis added.)

294    It stated the following “Business Unit expectations” for CHEP Global under the 5YP:

(a)    sales revenue growth of “[a]t least 7% pa growth driven by 4-8% growth in mature markets… and ~15% growth in emerging markets”;

(b)    “[i]mprovement in margin to 25% by FY21 through direct cost efficiencies (Durability and asset efficiency in USA pooled driving most of this ~ 500 [basis points] improvement in USA gross margins), overhead savings and improved asset control. Overheads to grow at half the rate of revenue growth (~3% pa)”;

(c)    Average Capital Invested (ACI) growth “below revenue growth (~5%pa), reflecting asset productivity gains and improvements in control”; and

(d)    ROCI growth “to 28% by FY21 and improving Underlying profit to cash conversion throughout the 5 years”.

295    The ELT Guidance Note stated the following in relation to the proposed Group FY17 budget:

FY17 Expectations

It has been challenging to present adequate progress against the ROCI targets during FY15 and FY16 with headwinds in costs particularly in our North American businesses and additional capital expenditure needs required across the Group to support our customers and investments for future growth. It is therefore critical that we demonstrate improvements towards these targets in FY17.

Our expectations based on last year’s 5 year plan and the strong start to FY16 are for over 50bps improvement in the Group Underlying profit margin in FY17 driven by efficient growth and benefits from many of the initiatives currently underway across all business units. This, combined with tight balance sheet management resulting in Capital Invested growing at a slower rate than sales, will drive a higher ROCI improvement of almost 100bps.

Cost and growth challenges experienced in some business over the last few years have resulted in shortfalls in the achievement of Long Term Incentive Plans financial. The FY14-16 Plan maturing this financial year is likely to be similarly challenged. However, with the achievement of the expectations below, we will remain on track to achieve the targets for the FY15-17 and FY16-18 [long-term incentive] plans.

(Emphasis added.)

296    It stated the following “Business Unit expectations” in relation to the proposed CHEP Global FY17 budget:

(a)    sales revenue growth of “[o]ver 7% driven by 4-8% growth in mature markets… and ~ 15% growth in emerging markets”;

(b)    “[i]mprovement in margin to >22% driven by direct cost efficiencies, overhead savings. Overheads to grow at half the rate of revenue growth (~ 3%)”;

(c)    growth in ACI of approximately 6% “partially to support investments for growth in FY18 onwards”; and

(d)    ROCI growth “[i]mprovement to >23.5% driven by profit improvement and asset efficiency”.

297    That guidance for the preparation of the CHEP Global FY21 5YP and Group FY17 budget was included in a slide deck for the CHEP Global PLT meeting on 21 January 2016, and the top-down figures for FY17 derived from the ELT Guidance Note were presented at the Brambles Board Meeting on 18-19 February 2016.

298    Kennett deposed in his first affidavit:

In relation to the 5YP, the planning and development process was complete each year and included, at a high level: Brambles providing ‘top down’ guidance to the leaders of the business segments (e.g., CHEP Global). While the guidance was not required to be delivered by the CBUs in their budget submissions (which were prepared through a bottom-up process), CHEP Global shared the Group guidance with the PLT to provide an indication of Brambles’ expectations for the CHEP Global budget and 5YP. The Group guidance… was for CHEP Global in total, and was not specific to the CBUs within CHEP Global. We (the CHEP Global team) did not give any of the CBUs guidance for their region. If we had done so, I would have been concerned that it would unduly influence the CBU’s ‘bottom-up’ budget and 5YP preparation. It was for that reason that I did not give specific targets to the CBUs nor give guidance per CBU. Instead, segment management (Mackie, Alonso-Bernaola and I) would review, provide feedback and challenge the budget and 5YP submissions based on their initial submissions. I considered it was the responsibility of each CBU to build their own ‘bottom up’ 5YP and budget and it was my role to review, assess and challenge their plans, to ensure I was driving the performance of the business. It was my usual practice to present a budget that I thought was reasonable and achievable, even if it was not in line with Brambles’ expectations. This practice, which I followed in the preparation of the FY17 to FY21 5YP (FY21 5YP) and FY17 budget planning, was intended to ensure that the CBUs would prepare and build a ‘bottom up’ 5YP and budget without being influenced by any targets from CHEP Global or the ‘top down’ guidance provided by Brambles. I wanted to ensure that the submissions from the CBUs were based on a true ‘bottom up’ view developed by each business.

(Emphasis added.)

299    The thrust of Brambles’ lay evidence was that the ELT Guidance Note was not binding, or compulsory, and was intended merely to provide an “indication” of what Gorman and Todorcevski “would like” each business unit to deliver to ensure the Group was trending on course towards its long-term objectives. Brambles submitted that the expectations provided in the ELT Guidance Note were expectations for the CHEP, IFCO and Containers business divisions as a whole, based on a portfolio approach, and were not targets set for each business within the group (such as, for example, US Pooled). It relied on Kennett’s evidence that CHEP Global management did not share any CBU breakdown of the ELT Guidance Note with CBU management teams, nor did CHEP Global management provide any targets “specific to CBUs” so that it would not unduly influence the bottom-up budget and 5YP preparation.

300    I do not accept those submissions. In my view the tone and terms of the December 2015 Guidance Note, the ELT Guidance Note and many of the contemporaneous emails show that the guidance in the ELT Guidance Note was more prescriptive than a mere indication of what Gorman and Todorcevski “would like” each business unit to achieve. Among other things:

(a)    the December 2015 Guidance Note told CHEP Global and CHEP NA management that the ELT was “improving up front expectation setting” and that it already held “a view of its expectations for each business unit’s contribution” for the FY21 5YP which would be “clearly communicated”; that it expected the FY17 budget to be “roughly in line” with the 5YP and therefore expected only “relatively minor” feedback from the business units. It said in clear terms that Brambles’ top-level management expected any deviation from Brambles’ ELT’s expectations to be relatively minor;

(b)    the ELT Guidance Note was prescriptive, albeit at a high level, about Brambles’ ELT’s expectations for the CBU 5YPs. It indicated Brambles’ requirements by referring to the components of the 5YP as “medium term commitments”, and in stating that “it is important that we show momentum towards these commitments in FY17 and onwards after FY19”. It described it as “critical” that the FY17 budget show improvement towards the FY19 ROCI Target and said that the ELT’s “expectation” was that an improvement in profit margin, and capital invested growing at a slower rate than sales, would “drive” improvement of ROCI from FY16 of “almost” 1%;

(c)    as the applicants submitted, Brambles’ ELT’s stated concern in relation to achieving momentum towards the FY19 ROCI Target was entirely understandable because, by reference to an email sent by Scaiff to Todorcevski on 10 December 2013, ROCI results had not always met projections. The following table is a reproduction of the forecasts and results in Scaiff’s email:

(although after excluding the impact of acquisitions and foreign exchange movements since December 2013, ROCI in FY16 was 17.2%);

By stating that the medium-term commitments (such as the FY19 ROCI target) “remain the same as last year continuing through to FY19”, Brambles’ ELT told lower-level management that there would be no change to the target, even though Brambles had been behind target for the previous two financial years;

(d)    contemporaneous emails show that in practice the ELT Guidance Note was relied on by Mackie and Kennett in the CHEP NA budget review process. As I will explain, in my view their primary focus was achieving, as near as possible, alignment of the CHEP Global budget with the ELT Guidance Note. Gorman and Todorcevski had a similar focus when they reviewed the draft CHEP Global budget. I do not consider it appropriate to describe the US Pooled or CHEP NA FY17 budgets as resulting from a bottom-up process when the process was informed by management expectations set at the outset, and later stretched as near as possible into alignment with those expectations; and

(e)    Kennett was drawn to accept that he was wrong in stating that CHEP Global did not provide any specific targets to CHEP NA so as not to unduly influence the bottom-up nature of the budget it proposed. Kennett initially denied this, but the evidence shows that following a budget review meeting on 31 March 2016 Mackie instructed Rumph and Lallatin that CHEP NA should get “as close as possible” to 20.4% ROCI, notwithstanding that Rumph and Lallatin told him in a later email that that would be a “major stretch”.

8.4    Setting the FY21 5YP

301    The process for setting the FY21 5YP for the CBUs and then the Group was similar to previous years. In summary, the planning for the FY21 5YP commenced in December 2015 and included the following steps:

(a)    Brambles’ ELT providing top-down “guidance” as to its expectations for the 5YP in December 2015 / January 2016; and

(b)    relevantly to CHEP Global, the CHEP CBUs preparing a draft FY21 5YP between December 2015 and February 2016, and submitting that to CHEP Global management for review, testing and any proposed revisions.

302    On 17 December 2015 Thompsen emailed the CFOs of each CBU attaching final 5YP and FY17 budget template files and instructions, which included a timetable for steps.

303    Relevantly to CHEP Global, from around 18 January to 2 February 2016 each CHEP CBU prepared its draft FY21 5YP with the assistance of the CHEP FP&A team. A presentation titled “Brambles 5 year plan US Pooled presentation FY17-FY21” dated 25 January 2016 (25 January 2016 5YP presentation) included the following summary:

304    Brambles highlighted that:

(a)    the presentation acknowledged that US Pooled’s sales revenue had been high in FY16 in part because of a high-priced whitewood pallet market, and with the price in whitewood pallet markets levelling off, expectations for future price increases were reduced;

(b)    in around late-January 2016, the supply chain teams of US Pooled, CHEP NA and CHEP Global agreed to reduce the control ratio for US Pooled from 97.5% to 96.5% in the FY17 year of the CHEP NA 5YP. US Pooled was growing and had been issuing more pallets in FY16. It was therefore projected that more pallets would flow out to customers than the business would recover, leading to a lower control ratio. Alonso testified that the reduction brought the control ratio in line with FY16, and Brambles submitted that the sales pipeline as at January 2016 also supported the reduced control ratio assumption;

(c)    in its FY21 5YP US Pooled adopted a reduced damage rate assumption linked to the Durability Study and forecast a drop in the damage rate of 3.8% between FY16 and FY17 (from 61.3% in FY16 to 57.5% in FY17). However, US Pooled then took a more conservative approach by assuming that the damage rate would only drop by 7.2 pps from FY16 to FY20 (from 61.3% in FY16 to 54.1% in FY20), which was half the drop forecast in the Durability Study; and

(d)    that the ‘roll-up’ of the 5YP submissions by the CHEP CBUs indicated that the FY19 ROCI Target would be over-delivered, with a forecast ROCI of 23.9% by FY17 and 26.3% by FY19. Kennett testified that those numbers were reasonable and achievable.

The thrust of those submissions was that there were reasonable grounds for the US Pooled 5YP, and that the ‘roll-up’ of the 5YP submissions for CHEP Global indicated that the FY19 ROCI Target would be met, indeed over-delivered.

305    There is little evidence of objection by CHEP NA management to the growth forecast in the US Pooled FY21 5YP.

306    On around 1 February 2016 the businesses in each CHEP CBU submitted their draft 5YPs to the President and CFO of that CBU. Relevantly, US Pooled submitted its 5YP to the President and CFO of CHEP NA, Rumph and Lallatin, with an accompanying slide deck presentation.

307    Kennett’s practice was to review the 5YP submissions and slide deck presentations in advance of the 5YP review meetings and to provide the CFO of each CBU with a list of key topics for discussion during the 5YP review, together with any questions he had about the submissions or slide decks. From around 4 until 10 February 2016 Kennett engaged with Lallatin about the draft CHEP NA FY21 5YP and raised a number of queries, to which Lallatin responded.

308    Between 1 and 4 February 2016, the CHEP FP&A team under Kennett’s supervision prepared an initial ‘roll-up’ or consolidation of the CHEP Global FY21 5YP. In an email to Mackie and Alonso on 4 February 2016 Kennett noted that the ‘roll-up’ indicated CHEP Global FY19 ROCI of 26.3%. This was on target with the ELT Guidance Note projection of “>26.2%”. Kennett gave evidence that that level of ROCI growth was reasonable and achievable.

309    From around 9 to 10 February 2016, Kennett and others conducted 5YP review meetings with the President and CFO of each CBU. Relevantly to CHEP NA, on 10 February 2016 they met with Rumph, Lallatin, Mackie and Alonso and others in the CHEP NA 5YP review meeting. The CHEP NA FY21 5YP (including the US Pooled 5YP) was agreed at or shortly after that meeting.

310    The CHEP NA FY21 5YP was consistent with the “medium-term commitments” stated in the ELT Guidance Note of sales revenue growth of 7-9% pa, and ROCI of 20% by FY19.

311    Between 8 and 15 February 2016 Kennett prepared several drafts of the consolidated 5YPs for the CHEP CBUs. On 14 February 2016 he produced a draft presentation with the self-explanatory title “Pallets First Cut 5YP” and sent it to Gorman, Todorcevski, Scaiff and others, and copied it to Mackie and Alonso.

312    On 15 February 2016 Mackie, Kennett, Alonso and others presented the proposed CHEP Global 5YP to Gorman and Todorcevski at a CHEP Global 5YP review meeting. The executive summary of the presentation included the following:

•    CHEP Pallets 5 Year Plan FY17-FY21 is expected to deliver beyond guidance on all key dimensions

•    Overall shape is on track with prior year and over-delivering on FY19 ROCI (even after forex impact);

•    Boosted by a strong FY16F above budget

•    First year of the plan to be worked on in the Budget process

…

•    Growth driven primarily by white wood conversion across all CBUs

Kennett gave evidence that the expectation that CHEP Global would deliver beyond guidance on all key dimensions was based on the financials he had considered, analysed and reviewed with Mackie, Alonso and others, although he said that there was more work to do on the FY17 numbers. The thrust of Kennett and Mackie’s evidence on affidavit and in cross-examination was that they considered the numbers in the CHEP Global 5YP to be reasonable and achievable.

313    The evidence shows some later versions of the CHEP Global 5YP but the changes were not material. The final version titled “Pallets 5YP BSR” was presented at the Business Strategy Review on 3 March 2016, at which the attendees included Gorman, Todorcevski, Kennett, Mackie and Alonso. The revisions to the numbers in the “Pallets First Cut 5YP” were relatively minor.

314    The Pallets 5YP BSR presentation projected that CHEP would achieve or exceed the “medium-term commitments” stated in the ELT Guidance Note. In relation to the numbers for FY17, it said that the “[f]irst year of the plan [is] to be worked on in the Budget process” but provided for the following:

(a)    in sales revenue, greater than 7% growth;

(b)    in Underlying Profit, improvement to Return on Sales (ROS) to greater than 22%. (Return on Sales is a metric showing Underlying Profit growth over time, calculated by dividing Underlying Profit by sales); and

(c)    ROCI growth, improvement to greater than 23.5%.

Those numbers reflected the ELT Guidance Note.

8.5    Setting the FY17 budgets

8.5.1    The timetable

315    The process and timetable for setting the FY17 budgets for the CHEP CBUs, consolidating them into the CHEP Global budget, and then consolidating them into the Group FY17 budget was broadly the same as in previous years. Relevantly to CHEP Global, Kennett and the FP&A team undertook preparations from September to October 2015, out of which came the FY21 5YP and FY17 budget instructions and template documents, which set out the timelines, key dates, and assumptions to be adopted in the FY21 5YPs and FY17 budgets for the business units and for CHEP Global. The process for the FY17 budgets in CHEP Global CBUs thus commenced in around November 2015.

316    On 17 December 2015 Thompsen emailed the CFOs of each CHEP CBU, attaching final FY21 5YP and FY17 budget templates, files and instructions. The key steps, dates and budget planning milestones included:

(a)    21 March 2016: the initial FY17 budget submissions of each CHEP CBU were to be loaded into BRACS;

(b)    23 March 2016: management of each CBU was to submit its initial FY17 budget presentation to CHEP Global management for review and approval, including any revisions;

(c)    30 to 31 March 2016: CHEP Global management to review the initial CBU budget submissions;

(d)    8 April 2016: CBU management to load any revisions to the CBU budget submissions resulting from the CHEP Global management reviews into BRACS;

(e)    13 April 2016: CHEP Global management were to submit the CHEP Global FY17 budget presentation to Brambles’ CEO and CFO;

(f)    22 to 25 April 2016: CHEP Global management were to present the CHEP Global FY17 budget to Brambles’ CEO and CFO, for review and approval, including any revisions;

(g)    20 May 2016: following approval, including any revisions by the CEO and CFO, CBU management teams were to load their final FY17 budgets into BRACS; and

(h)    5 August 2016: the final “flexed” Group and CBU FY17 budgets (explained below) were to be finalised in BRACS.

317    As it eventuated the FY17 budget-setting process was broadly compliant with that timetable. On 29 June 2016 the Board approved the Group FY17 budget, (which necessarily included approval of the budgets for CHEP Global and its constituent business units). Upon that occurring the CHEP NA FY17 budget (including US Pooled) replaced the first year of the existing FY21 5YP.

8.5.2    ‘Stretch’

318    Within Brambles, requests for enhanced performance from one level of management of the business to another, so as to enhance or optimise performance, were referred to as ‘stretch’. The terms ‘go-get’ or ‘white space’ were also used to refer to stretch items within a budget which were not allocated to a specific action item, project or opportunity. It was usual practice to include elements of go-get or white space in each budget, which were used to achieve budgetary goals.

319    Brambles’ lay evidence was to the effect that budget stretching was appropriate to achieve what they described as “challenging but achievable” budgets. For example, Todorcevski deposed:

Throughout the budget preparation process, it was always my focus to drive the business divisions to set budgets that reflected the potential of those businesses in the market context they operated in, while remaining achievable. The process of seeking to optimise performance from the initial budget submissions was known within Brambles as ‘stretching’ the budget. During each year that I set a budget while CFO of Brambles I stretched the business divisions to improve their initial budget submissions to a level I thought they were capable of achieving. This process of stretching the budget submissions, included multiple rounds of discussions with the Group FP&A Team and the President and CFO of each business division, with the business divisions consistently seeking to emphasise that their budgets were ‘stretched’ in circumstances where, in my experience, there was invariably room to enhance performance. …

(Emphasis added.)

320    How the stretching worked in practice in US Pooled in FY17 is disputed. The applicants contended, among other things, that performance expectations were set from the top through the ELT Guidance Note and then unreasonable top-down pressure was applied to bring the CHEP NA and US Pooled FY17 budgets into line with those predetermined goals. That was alleged to have resulted in US Pooled and CHEP NA FY17 budgets (and as a result a Group FY17 budget) which lacked reasonable grounds and did not provide reasonable grounds for the impugned FY17 Guidance and FY19 ROCI Target that Brambles announced to the market on 16 August 2016 and reiterated on subsequent dates.

321    On the other hand, Brambles contended that the formal top-down guidance provided through the ELT Guidance Note did not impose unreasonable top-down pressure. It submitted that top-down guidance was not compulsory nor required to be met and that the process of testing, analysing and challenging the bottom-up budget submissions made by the CBUs through the FY17 budget review process, which resulted in budget stretches, did not constitute unreasonable top-down pressure. Nor did it mean that the CHEP NA, CHEP Global or Group budgets lacked reasonable grounds or were unlikely to be achieved.

322    Brambles’ lay evidence was to the effect that in their respective budget review processes it was reasonable and appropriate for both CHEP Global management (principally Mackie and Kennett) to stretch the CHEP NA FY17 budget; and for Brambles’ CEO and CFO (Gorman and Todorcevski) to stretch the CHEP Global budget. They said:

(a)    there were often mistakes or errors in the CBUs initial budget submissions, including where costs had been allocated to incorrect buckets, double-counting and misapplication of the budget assumptions; and

(b)    the bottom-up submissions by CBUs tended to be overly conservative, or subject to ‘sandbagging’. Kennett described sandbagging as a practice in which CBU management submitted easily achievable, underestimated budgets in order to more easily achieve or outperform their budgets and therefore more easily receive short-term incentive (STI) benefits under Brambles’ executive remuneration plan. Todorcevski did not use the term ‘sandbagging’ but he described the same practice. They each said that the budget review process was aimed at optimising performance and setting “challenging but achievable” budgets.

323    Relatedly, some of Brambles’ lay witnesses testified that the budget-setting process involved a negotiation between, relevantly CHEP NA management and CHEP Global management; and then between CHEP Global management and Brambles’ CEO and CFO, in which lower-level management exaggerated their concerns regarding the level of stretch and risk in the budget as a positioning tactic in those negotiations.

324    The process of reviewing and stretching the CBU FY17 budgets took place over several months. Relevantly to US Pooled, the main steps in the budget review process were as follows:

(a)    on around 24 March 2016 CHEP NA management (Rumph and Lallatin) submitted the CHEP NA (including US Pooled) FY17 initial budget submission to CHEP Global management (Mackie and Kennett) (the CHEP NA Initial Budget Submission);

(b)    on around 5 April 2016 Rumph and Lallatin proposed a revised CHEP NA FY17 budget (including a revised US Pooled budget) in response to stretches sought by Mackie and Kennett (which I have called the CHEP NA First Revised Budget Submission);

(c)    on around 13 April 2016 Rumph and Lallatin proposed a further revised CHEP NA FY17 budget (including a revised US Pooled budget) in response to stretches sought by Mackie and Kennett (which I have previously called the CHEP NA Second Revised Budget Submission);

(d)    on around 22 April 2016 Mackie and Kennett proposed a consolidated CHEP Global FY17 budget encompassing the stretched budgets of each of the CHEP CBUs; and

(e)    on around 20 May 2016 Mackie proposed a revised CHEP Global FY17 budget in response to stretches sought by Todorcevski. Those further stretches had an impact on the US Pooled FY17 budget (which I have called the CHEP Global Revised Budget Submission).

8.5.3    The role of the ELT Guidance Note

325    The parties characterised the effect of the ELT Guidance Note on the budget stretches sought and achieved in relation to the US Pooled and CHEP NA FY17 budgets in completely different ways.

326    Principally in reliance on the evidence of Mackie, Kennett and Todorcevski, Brambles characterised the ELT Guidance Note as merely setting out what Brambles ELT “would like” each CBU to deliver, and was not binding, compulsory or required to be delivered. Brambles noted that the FY21 5YP for each CBU (the first year of which being FY17) was agreed with that CBU before the FY17 budget was set. It contended that the CHEP NA (including US Pooled) Initial Budget Submissions were the result of a bottom-up process, and that the revisions resulted from a process in which CHEP Global management (including Mackie, Kennett, Martin and Alonso) analysed, tested and challenged the budget and the budget assumptions, and proposed budget improvements, until an agreed budget was reached.

327    Mackie, Kennett and Todorcevski described their involvement in the budget review process as being directed to optimising performance by setting “challenging but achievable” budgets, including by getting any pessimism, conservatism or sandbagging out of the budget. They said that they did not seek to set budgets which were not achievable, noting that that would be entirely counter-productive. Mackie described his role in the budget-setting process as managing the tension between “driving the performance of the business units to achieve growth, staying ahead of the competition”, and “managing requests for ‘stretch’ or enhanced performance from Brambles to make sure the targets ultimately set by the budget were achievable”. He said that he “anticipated needing to have multiple rounds of discussions with the business units about aspects of their proposed FY17 budgets which could be stretched to deliver more optimal and achievable levels of performance”. Brambles emphasised that the process it used to set the US Pooled, CHEP NA, CHEP Global and Group FY17 budgets was the same as in previous years, and it had a perfect record of meeting the earnings guidance it provided to the market.

328    By contrast, the applicants submitted that the evidence shows that the ELT Guidance Note set top-down expectations within CHEP NA about the expected growth in sales revenue, Underlying Profit and ROCI in FY17, which became the touchstone for Mackie’s and Kennett’s determination of the adequacy of the CHEP NA (including US Pooled) Initial and Revised Budget Submissions, and for Gorman’s and Todorcevski’s determination of the adequacy of the draft CHEP Global FY17 budget.

329    On their argument the ELT Guidance Note (and the 5YP which followed from it) operated as an anchor point for the preparation of the CHEP NA (including US Pooled) FY17 budget towards which Mackie and Kennett, and later Todorcevski and Gorman, then stretched the budgets. They contended that the evidence shows that the budget-setting process for the US Pooled and CHEP NA FY17 budgets “involved aggressive and unreasonable top-down pressure to improve budgets submitted by the business units”, that Mackie and Kennett ignored or downplayed the concerns of CHEP NA management about the level of stretch in the CHEP NA budget, and then that Gorman and Todorcevski ignored or downplayed Mackie’s concerns about the level of stretch in the CHEP Global budget.

330    Contrary to the thrust of Brambles’ lay evidence the contemporaneous email exchanges within CHEP NA management, between CHEP NA management and CHEP Global management, and between CHEP Global management and Brambles’ CEO and CFO indicated that the budget review process for the CHEP NA and CHEP Global FY17 budgets was not, in practice, centrally directed to dragging conservatism or pessimism out of the budget whether arising from sandbagging or otherwise. I consider the account that can be drawn from contemporaneous emails to be substantially more reliable than the lay evidence, largely a reconstruction put together five years after the relevant events, as to what the witness thought at the time about otherwise mundane business matters which there was no particular reason for them to recall or to have taken particular note of.

331    It is appropriate to infer that the primary focus of Mackie and Kennett in reviewing the draft budget submitted by CHEP NA, and later Gorman and Todorcevski in reviewing the draft budget submitted by CHEP Global, was to end up with a budget at a Group and CBU level which was, as near as possible, aligned with the expectations set in the ELT Guidance Note. Their primary focus was on bringing the business units into line with those predetermined targets.

332    That is not, though, to find that getting conservatism or pessimism out of the CHEP NA and CHEP Global budgets so as to optimise performance, rooting out any sandbagging and finding further growth opportunities were not motivating factors for the budget stretching that occurred. They were. But there were numerous contemporaneous emails and documents which support an inference that the primary focus of Mackie, Kennett, Gorman and Todorcevski was achieving alignment with the ELT Guidance Note (and the 5YP which followed it). That inference also finds support in the fact that the budget stretching went beyond getting conservatism or pessimism out of the budgets and ultimately resulted in a CHEP NA budget which involved what CHEP NA management considered to be a “huge stretch” and hence to carry real risks to achievability.

333    It is also not to find that Mackie or Kennett deliberately sought to set a budget for CHEP NA (or that Gorman or Todorcevski deliberately sought to set a budget for CHEP Global) that they did not consider to be achievable. It would be counter-productive for them to deliberately take that course. Rather, I infer that in FY17 their primary focus on achieving alignment with the predetermined goals of Brambles’ top-level management led them into error in relation to the reasonable achievability of those budgets.

8.6    The CHEP NA Initial Budget Submission - February to 24 March 2016

334    Over January and February 2016, each of the CHEP CBUs worked to draft their FY17 initial budget submissions. That work included obtaining and assessing estimates provided by Alonso regarding the effect of supply chain savings initiatives on the FY17 budgets and obtaining guidance about the budget assumptions from Kennett.

335    Relevantly to US Pooled, on 30 January 2016, Young (Senior Vice President, Supply Chain, CHEP NA) emailed Alonso, attaching a document titled “5 year plan Key Comparison Summary - US Pooled”, which set out the reduced damage rate assumption in the US Pooled FY21 5YP. It forecast damage rates of 61.3% in FY16, 57.5% in FY17, 56.2% in FY18, 55% in FY19, 54.1% in FY20 and 54.8% in FY21.

336    As earlier explained, the ‘damage rate’ represents the percentage of returning pallets which require conditioning or repair. At the time the US Pooled FY17 budget was prepared, a one pp change in the damage rate in the US Pooled business equated to a change in direct costs of approximately $5-6 million. The assumed reduction in the damage rates in the US Pooled FY21 5YP were linked to the Durability Program rolled out on 1 July 2015, which was based on the Durability Study. Over the five years from FY16 to FY20 the program was expected to deliver a total net cumulative benefit to CHEP Global of approximately $91.3 million in gross savings ($112 million of total cumulative gross savings at a total investment cost of $20.7 million), or $35 million in annual benefits when fully implemented at year five of the program.

337    There were three iterations of the initial budget submission by US Pooled:

(a)    the first draft, produced on or around 26 February 2016;

(b)    a revised draft, produced on or around 15 March 2016; and

(c)    the finalised initial budget submission loaded into BRACS on 24 March 2016.

338    On 26 February 2016, the CHEP NA ELT met and reviewed a presentation titled “FY17 Budget CHEP USA Pooled” (26 February US Pooled budget presentation), which included a comparison of the key financial metrics between: (i) the US Pooled FY16 budget; (ii) the FY16 February forecast for US Pooled; (iii) the first year of the US Pooled FY21 5YP which had recently been completed; and (iv) the draft US Pooled FY17 budget at that point. In February 2016 CHEP NA (including US Pooled) had (upwardly) reforecast its FY16 sales revenue and Underlying Profit (FY16 February Forecast), and that was the most recent FY16 budget for CHEP NA and CHEP Global.

339    As Brambles submitted, the metrics in that early draft budget show:

(a)    the US Pooled FY17 budget at that point was more conservative than the first year of the recently completed 5YP, in that it budgeted for lower sales revenue, lower RPI, higher overheads, lower profit and higher capital expenditure;

(b)    the initial control ratio was 96.5%, the same as the final control ratio adopted in the first year of the FY21 5YP; and

(c)    the damage rate was forecast to be 3.8% lower than in FY16 (being the difference between 61.3% and 57.5%).

340    The draft US Pooled FY17 budget included a summary of projected sales revenue which showed:

(a)    a baseline of $1,506 million for sales already secured from existing customer contracts;

(b)    sales volume growth of $72.8 million from a combination of organic growth and growth from new wins, and $13.5 million from price / mix, totalling $1,592.3 million; and

(c)    in relation to the new wins it provided (in a table prepared and produced by Brambles):

341    By contrast, the FY16 February Forecast had projected new wins of $76 million, losses of $(17.1) million, and net new wins of $58.9 million. Where in these reasons I rely on any table produced by either of the parties, unless I say otherwise, I do not understand there to be any dispute about the material accuracy of the table.

342    Over late-February and early March 2016, CHEP NA management (principally Rumph and Lallatin) reviewed the draft initial budget submissions from its constituent business units including US Pooled and asked them to identify further opportunities for budget improvements. Alonso said, and I accept, that the goal of that exercise was for each team to review the suggestions made by CHEP NA management and provide feedback on whether they were realistic and achievable.

343    During this period Alonso pushed for a more conservative view of the US Pooled damage rate and to reduce the forecast full-year drop in the damage rate between FY16 and FY17 from 3.8% to around 2% (which was required to get the forecast FY16 aggregate damage rate of 61.3% to the forecast FY17 damage rate of 57.5%) due to:

(a)    the Durability Study’s assumption that the cycle time was fixed where a more conservative assumption was that new and improved pallets would stay longer in the supply chain; and

(b)    the practice of Walmart of only returning damaged pallets pursuant to its specific contractual arrangement with US Pooled (which had been a factor adversely impacting the CHEP NA damage rate for more than eight years).

344    On 15 March 2016, the CHEP NA ELT held a follow-up meeting and reviewed a presentation titled “FY17 Budget, CHEP USA Pooled, March 15th Leadership Meeting” (15 March US Pooled budget presentation), which adjusted the 26 February 2016 draft US Pooled FY17 budget. The presentation provided for:

(a)    a reduction in the damage rate to 59.3%, which represented a 2% drop from 61.3% in the FY16 February Forecast (the damage rate assumption); and

(b)    a revenue stretch of the initial draft US Pooled FY17 budget of $13.7 million, which Martin (Senior Vice President, Sales and Customer Operations, CHEP NA) testified was to be achieved through volume growth (one million additional pallet issues) and RPI. The revenue stretch included an increase in unidentified wins from $41.9 million to $43.2 million, and a reduction in “losses” from $(21.1) million to $(18.5) million. The increased revenue included the following in relation to customer ‘wins’ which involved a $3.9 million increase in ‘net new wins’:

The presentation also involved other changes Brambles described as “mixed”. For example, while RPI and Underlying Profit increased, so too did overheads and capital expenditure.

345    The assumed 59.3% damage rate (which was 2% lower than the 61.3% in the FY16 February Forecast and which, as it eventuated, approximated the actual damage rate in FY16) remained constant throughout later iterations of the CHEP NA FY17 budget.

346    The 15 March US Pooled budget presentation included a schedule of “Risk and Opportunities”, which identified the risks and opportunities faced, the probability of their occurrence, and the potential quantum impact on sales revenue, Underlying Profit and cash flow if each risk or opportunity transpired. The R&O schedule said that there was a 25% risk that the budgeted stretch in sales volume would not be achieved. Martin testified that that translated to approximately $7.8 million in revenue terms or $1.5 million in Underlying Profit.

347    Todorcevski described the purpose of such R&O schedules as follows:

…to itemise issues which may impact business performance and allow for a discussion to plan the ways in which risks may be managed or mitigated, and opportunities may be captured. Accurate quantification of risks and opportunities is a complex and nuanced process that requires industry experience and deep market knowledge. Throughout my career, I have used risk and opportunity schedules to frame how budgets and forecasts are positioned, not to derive a risk weighted financial outcome incorporating those risks and opportunities.

348    Brambles submitted, and I accept, that such R&O schedules involved a management judgement, and were an approximation of identified risks and opportunities rather than a “mathematical science”. Management judged whether it was more or less probable that something was likely to happen, and the probabilities were listed as multiples of 25 pps.

349    Todorcevski, Mackie, Kennett and Martin gave evidence to the effect that risks tended to be highlighted or emphasised more than opportunities in R&O schedules in initial budget submissions. Todorcevski, Mackie and Kennett said it was common for initial budget submissions to be skewed towards risks, in part due to sandbagging. Martin said that from his perspective in order to “cover our bases” it was important to highlight all potential risks and to have a low threshold for identifying potential risks, to ensure that the final budget was realistic and achievable. He said that it was less important to focus on potential opportunities because if an unexpected or unidentified opportunity materialised, “it would not negatively impact our ability to meet budget”.

350    As noted above, on or around 24 March 2016 each of the CHEP CBUs loaded their initial budget submissions into BRACS. Between 24 March and 31 March 2016, Kennett worked with the FP&A team, along with Mackie, Alonso and Scaiff to analyse the budget submissions of the CHEP CBUs, identify key topics for discussions during the budget reviews with each CBU, and to begin developing a consolidated CHEP Global FY17 budget presentation.

351    The initial budget submissions took the form of slide decks. As Brambles submitted, the US Pooled initial budget submission included the following metrics: