Court reins in Blue Sky case, vacates trial date

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This judgment addressed case management issues in a securities class action against Blue Sky Alternative Investments Ltd (in liq) and other respondents, including former officers of Blue Sky and its auditors Ernst & Young. The applicants, R&B Investments Pty Ltd and David Furniss, allege contraventions of continuous disclosure obligations under section 674 of the Corporations Act 2001 (Cth) and prohibitions against misleading conduct under sections 1041E (false or misleading statements) and 1041H (misleading or deceptive conduct). Related claims are also made under section 18 of the Australian Consumer Law and section 12DB of the Australian Securities and Investments Commission Act 2001 (Cth). In essence, the broad allegation is that there was conduct, either through positive representations or through other conduct, that was false or misleading, leading to an inflated market for the price of securities.

The principal issues addressed in the judgment concern the separation of issues for trial and the vacation of the hearing date originally scheduled for August 2026. Justice Lee proposed separating the issue of contravention from causation of loss, noting that proceedings under Part IVA of the Federal Court of Australia Act 1976 (Cth) necessarily involve bifurcation of issues. As his Honour observed in a previous case, what is evident about the class action procedure is that it “already has built into it the bifurcation of issues”, and the real question is how all the issues should be bifurcated. Thus, practitioners should not “unthinkingly adopt procedures by way of reflex” without considering whether improvement or greater efficiency is possible. His Honour said (at [10]):

As is often the case when the Court proposes an unanticipated course to facilitate the efficient resolution of the dispute, the applicant forcefully opposed such a course and referred to several authorities concerning the need for caution in splitting issues for determination. Those principles, as is well known, urge the Court to tread warily in determining separate issues; but as I observed during oral argument, although these cautions are well understood, they have much less force in the context of Part IVA proceedings which, if experience is any guide, almost always involve a staged hearing between common issues (or issues of commonality) and individual issues. As I noted in McNickle (at [9]), what is evident about the class action procedure is that it “... already has built into it the bifurcation of issues”.

His Honour distinguished between the ex-ante analysis required to determine contravention (a forward-looking assessment of whether information would be likely to have a material effect on share price, assessed by reference to commercial common sense) and the ex-post analysis relevant to causation of loss. His Honour observed that in his experience, expert evidence on the question of materiality has often been of “very limited significance”, amounting to “voluminous and expensive material which over-intellectualises something which is supposed to be a matter of judgment assessed by reference to the realities of the business world”. His Honour noted that time and again he had seen huge sums spent on opinions which were no more insightful than applied common sense, and that the vice was compounded in that so-called materiality expert evidence often pays insufficient attention to the reality that when a company needs to make the materiality assessment, it is in the hurly-burly of real-time business decision-making. His Honour also said:

[50] The potential difficulty in parties commissioning event studies prior to the Court deciding on the precise nature of the contravening conduct is the need for the event study expert to envisage every possible permutation and combination of alleged contraventions for the regression analysis to be calibrated to every eventual possibility. This necessarily adds to the length and complexity of such event studies. Further, as has been seen in some recent cases, even where contravening conduct has been proven, the applicant has nonetheless failed to discharge its evidentiary and persuasive burden of proving the market effect of the contravening conduct because of a failure to anticipate the precise nature of the contravening conduct found…

[54] It seems to me that it may be a real benefit in some cases in separating out the issue of contravention. Not only does this allow for both the parties and the Court to be focused on the correct ex-ante analysis, but it also serves to prevent unnecessary or unnecessarily long and complex event studies, or other materiality evidence, dealing with conduct which may never be proven.

The applicants, however, had proposed a different approach to issue separation which would have the Court determine whether there was a “distortion of information” that “looks potentially like a contravention”, without actually finding whether contravening conduct occurred. His Honour rejected this approach, finding it “the worst of all possible worlds” as it risked the Court engaging in impermissible hypothetical speculation about conduct without attending to the judicial task of determining whether such conduct exists. If there is to be a split between contravention and causation of loss, it must be “a clean split”. His Honour therefore declined to make the somewhat vague and potentially ambiguous orders proposed by the applicants.

The judgment also addressed the proceeding's extensive discovery history. Investigations commenced as early as 2018, with Mr Furniss obtaining access to approximately 329 documents (over 9,000 pages) through a section 247A application in the Supreme Court of Queensland. The documents obtained included board packs, papers, minutes and agendas; audit committee materials; reports from KPMG on fund valuations; audit plans and closing reports from Ernst & Young; and relevant insurance policies. In February 2024, the applicants received over 8,000 documents produced to ASIC. Subsequently, non-party discovery from the receiver of Blue Sky was ordered, with a Discovery Referee appointed to determine the methodology. The applicants had initially sought orders requiring the receiver to give discovery of the entirety of Blue Sky's file server and ‘Office 365 environment’. This resulted in identification of over 269,000 additional documents following refined search terms, though his Honour expressed concerns about whether this extensive additional discovery was truly necessary given the material already provided. His Honour noted he had real concerns that the applicants' desire to chase down every potentially discoverable document may mean they were in danger of spending a good deal of unnecessary time and money.

Ultimately, his Honour vacated the trial date, noting that the applicants’ proposed timetable (which would not identify their final case until 17 April 2026) was wholly unrealistic in allowing the respondents sufficient time to respond. He emphasised that a person is entitled to their day in court, but not to another person's day in court—the applicants could not proceed at the pace they had travelled and just expect the Court to continue to allow them to ‘reserve’ a lengthy hearing date, as the efficient use of court time transcends the interests of the parties. He observed that the matter had been set down for hearing with the applicants’ active encouragement at a case management hearing in November 2024, when the Court was assured that “12 months from go to woe on evidence before a trial is plenty of time”. His Honour noted that nothing the respondents had done in relation to the provision of documents had caused the applicants not to be in a position of putting cogent material before the Court. He therefore ordered the applicants to pay the costs thrown away by reason of the vacation. Orders were also made for the parties to prepare expert questions and proposed amended pleadings by December 2025, with conferral between counsel in person to agree on expert questions. His Honour also required that if a substantive amendment application was made in December, it should be accompanied by an affidavit explaining why the newly discovered documents had caused a need to amend the pleading. A further case management hearing was listed for 15 December 2025, with a view to relisting the trial in late 2026.

R&B Investments Pty Ltd v Blue Sky Alternative Investments Ltd (in liq) (Separation of Issues) [2025] FCA 1097

Federal Court of Australia | Lee J | 2 September 2025
Applicants’ Solicitors: Banton Group & Shine Lawyers
Respondents’ Solicitors: Gilbert + Tobin; Mullins Lawyers; Arnold Bloch Leibler; Clifford Chance
Applicants’ Funder: N/A

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