Tuesday, September 3, 2019

Is EnergyAustralia's Wallerawang a case of a fraud on the electricity market: could Wallerawang be the basis of a class action against Energy Australia and its directors

by Ganesh Sahathevan

The Honourable Sir Michael Kadoorie

Sir Michael Kadoori's

CLP owns Energy Australia

This is an excerpt from a story sure to warm the cockles of any climate scientists' (and fellow travellers') heart:

EnergyAustralia's Wallerawang power station in Lithgow, NSW shut down in 2014, citing an oversupplied energy market. Even though recent reports point to energy supply issues in the market, there are no plans to re-open the site. EnergyAustralia plans to turn the power station into an "eco-industrial" park with industrial waste recycling business Bettergrow.

"We're really excited by the potential to transform Wallerawang into an industrial hub, as Bettergrow has done with disused mines and industrial sites in the past," EnergyAustralia's Mt Piper power station head, Greg McIntyre, said. "Handing over the keys is a complex transaction and we are all working hard to make it a reality.

"Everything we've done behind the scenes with deconstruction and salvaging work to get the old Wallerawang plant ready for new industry is beginning to pay off."

EnergyAustralia and Bettergrow are in discussions for the development of the site.

"Wallerawang has terrific potential as a 'green-spot' eco-industrial park that Lithgow and the broader region can benefit from financially," Bettergrow managing director Neil Schembri said. "For this to work, we will retain the majority of the plant's ... infrastructure ..."

Mr Schembri said the new industrial park could create between 200 and 300 jobs in the future.

(Cole Latimer, The Age,Film sets to art centres: life after dirty power1 June 2019)

However, as the first line suggests, the closure, " citing an oversupplied energy market" may have been premature; indeed given the state of the market today (just 5 years later) it might be argued that the closure was intended to cause an undersupply, in a market that was likely to experience growing demand.

If yes, then the question arises as to whether Energy Australia is liable for the losses caused by a fraud on the Australian energy market.

Since the Supreme Court of the United States inBasic Inc v Levinson 485 US 224 (1988), United States courts have embraced the ‘fraud on the market theory’ in relation to transaction causation, which essentially does away with the need for members of a class to prove actual reliance on the companies misleading representations on the basis that there is a presumption that an efficient market exists where share prices fluctuate according to publicly available information about the company. A defendant may rebut the presumption showing: „ that the market price of the shares was not influenced by the non-disclosure; the aggrieved investors would have purchased the shares at the same price notwithstanding the non-disclosure; and „ the aggrieved investors knew the information that was not disclosed.

The fraud on the market theory has not been accepted by Australian courts but this writer suggests that the position can easily change if and when a matter in which fraud on the market is pleaded comes before a judge who understands finance theory.

Additionally, while the theory has yet to be extended to electricity markets the fact that electricity markets have begun to draw the participation of hedge funds suggests that it is only a matter of time.

Meanwhile, there is nothing to say that litigants cannot launch a class action against Energy Australia for disrupting the electricity supply market by carefully working through the issue of causation.


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