WorleyParsons’ attempt to stop a $50 million class action lawsuit alleging the engineering group breached continuous disclosure obligations in 2013 has failed, with the Federal Court ordering the case to continue.
Justice Foster dismissed WorleyParsons’ interlocutory application on January to halt the case brought by ACA Lawyers and ordered the company to file its defence by February 16 before a further hearing on February 23.
WorleyParsons said Justice Foster’s judgement did not address “the substantive proceedings” of the claim and that it would defend them.
The class action claim, which is being funded by JustKapital , alleges that WorleyParsons engaged in “misleading or deceptive conduct” in 2013. The claim argues the company did not provide a reasonable explanation for why its three main reasons for a November profit downgrade – a fall in professional services revenue, a cost cutting program and the decline of its Australian and Canadian businesses – were “unexpected or unforseen developments”.
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WorleyParsons’ shares tumbled 26 per cent to $16 on November 20, 2013, slashing more than $1 billion off its market value, after chief executive Andrew Wood cut the company’s annual net profits guidance to a new range of $260 million to $300 million.
Investors were shocked by the warning, because the engineering group had told shareholders at its annual results in August and at its annual general meeting in early October to expect net profit of at least $322 million.
‘Reasonable grounds’ for earnings guidance
Investor Larry Crowley, who acquired 423 WorleyParsons shares on October 4, 2013 when they were trading around $22 and still holds them, is the plaintiff in the lawsuit. WorleyParsons’ shares closed at $10.08 on Friday.
Mr Crowley has alleged that one of more of WorleyParsons’ officers was “aware at the time the various forecasts were given that WorleyParsons did not have reasonable grounds for giving those forecasts”.
Justice Foster said Mr Crowley’s case for breaching continuous disclosure laws and breaching the Corporations Act was “curious”, because it depended on the Court accepting that WorleyParsons had “no reasonable grounds” for giving its August earnings guidance.
But the Justice also found that there was “sufficient material” in the lawsuit to allow it to continue.
“The close proximity in time between the giving of the earnings guidance and the November earnings downgrade, in and of itself, is sufficient to require an explanation from WorleyParsons as to the basis upon which the August 2013 and October 2013 earnings guidance was given and the reasons for the change in WorleyParsons’ opinion as to future earnings between those dates and the date when the November earnings downgrade was given,” Justice Foster said.
WorleyParsons has claimed that it provided a satisfactory explanation in its trading update on November 20, 2013.
Justice Foster also asked for an update on a competing class action filed in the Supreme Court of Victoria by litigator Melbourne City Investments, an investment company set up by former Minter Ellison partner Mark Elliott.
JustKapital last week finalised a co-funding agreement with the US’s Longford Capital that will enable the Australian group to invest in more class action claims.
Source: www.afr.com
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