Australia's third judgment for a shareholder class action gives another win to listed entities

On 7 February 2022, Australia's third judgment in a shareholder class action was delivered: Bonham v Iluka Resources Ltd [2022] FCA 71 (Bonham v Iluka). The previous two judgments were delivered in October 2019 (TPT Patrol v Myer) and October 2020 (Crowley v Worley Limited). The latter is currently subject to an appeal. All three judgments have been defeats for the applicants but by different means. In TPT Patrol v Myer, the applicant established contraventions but did not prove any loss while in Crowley v Worley Limited and Bonham v Iluka, the applicants did not establish contraventions. The fact that all three judgments were in favour of the respondents suggests that defence counsel know when to hold them and know when to fold them.

What happened in Bonham v Iluka?

Like all shareholder class actions to date, Bonham v Iluka is factually complex. Justice Jagot's judgment runs to 215 pages, so any summary will naturally be at a very high level. Iluka Resources Ltd (Iluka) is an ASX listed miner and global supplier of mineral sand products, including zircon, rutile and synthetic rutile. In April and May 2012, Iluka gave guidance concerning expected sales. The lead applicant (Mr Bonham) alleged that in doing so Iluka engaged in misleading or deceptive conduct and breached its continuous disclosure obligations. As a side note, many readers will know that significant changes were made to the continuous disclosure provisions in August 2021 following temporary changes that were made during the COVID-19 Pandemic. The changes made in August 2021 introduced a fault element to the continuous disclosure provisions where that fault element applies to ASIC penalty proceedings and shareholder class actions. The amended continuous disclosure provisions were not considered in Bonham v Iluka. At the time of writing, no judgment has considered the amended provisions.

Justice Jagot rejected Mr Bonham's claim of misleading or deceptive conduct on the basis that Iluka did not make the alleged representations. Mr Bonham alleged that Iluka represented via written statements released to the market that it expected certain sales levels for zircon, rutile and synthetic rutile. Her Honour did not accept this. Due to qualifications and disclaimers in the statements, her Honour concluded that an ordinary and reasonable reader would have appreciated that the statements did not provide a prediction or expectation of sales levels and that the statements represented that no prediction or expectation could be provided. Even if the alleged representations were made, her Honour found that Mr Bonham did not rely on them.

Justice Jagot also rejected Mr Bonham's continuous disclosure case. Mr Bonham presented evidence of what he contended was a reasonable forecast of Iluka's expected sales and further, alleged that this information should have been disclosed under the continuous disclosure provisions. Her Honour did not accept Mr Bonham's evidence of what was a reasonable forecast for reasons including that one of the witnesses, whom Mr Bonham called as an expert, did not have the relevant expertise. Mr Bonham also alleged that the continuous disclosure provisions required Iluka to disclose that it knew (a) the sales forecasts that it made in April and May 2021 did not have reasonable grounds; (b) there was a material risk that these forecasts were no longer reliable; (c) it could not provide reliable forecasts of sales; and (d) it did not have a reasonable basis for providing point estimates of sales instead of a broad range. Her Honour did not accept that Iluka knew any of these matters at any relevant time.

The overall outcome was that Mr Bonham did not establish any contraventions. Consequently, Justice Jagot did not need to consider causation or quantification of loss in detail. Both of these issues were considered in detail in TPT Patrol v Myer.

Some legal points of broader application were made in Bonham v Iluka. First, Justice Jagot considered the effect of a disclaimer on an allegedly misleading statement. Her Honour noted that: (a) there may be occasions where an otherwise misleading statement is neutralised by an appropriate disclaimer; (b) a person engaging in misleading conduct cannot easily use a disclaimer to evade responsibility unless that disclaimer erases the misleading effect; (c) carelessness on the part of readers in how they view a representation, including any disclaimers, may be relevant; and (d) a disclaimer must be very clear when there is a substantial disparity between the primary representation and the truth.

Second, Justice Jagot considered what constitutes reasonable grounds for a statement in respect of a future matter. A representation in respect of a future matter is deemed to be misleading if a person makes it without reasonable grounds. Iluka argued that the issue of whether it had reasonable grounds is to be answered by posing the question of whether Iluka applied a reasonable process when preparing the representation. Her Honour did not accept this argument, saying that the existence of a reasonable process is relevant but not determinative.

Third, her Honour addressed when the continuous disclosure laws apply to an opinion. Iluka argued that the continuous disclosure laws only apply to an opinion if the opinion is actually held by directors of the listed entity or if the opinion is held by someone else and should have become known to the directors. Justice Jagot did not accept this argument. Her Honour said that the continuous disclosure laws apply to an opinion that an officer of a disclosing entity should have reasonably formed based on information that was available to them even if they did not actually form that opinion. This broadens the interpretation of the word "aware" as defined in the ASX Listing Rules. Rule 19.12 says "an entity becomes aware of information if … 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". Her Honour's approach appears to treat "com[ing] into possession of" an opinion or conclusion as including reasonable deductions from other information that lead to that opinion or conclusion.

Where to from here?

Bonham v Iluka is not the first shareholder class action judgment and is unlikely to be the last. At the time of writing, an appellate decision in Crowley v Worley could be delivered at any time, while other shareholder class actions are currently before the courts or being considered. The next development of interest is likely to be a judgment (whether it be part of a shareholder class action or ASIC penalty proceeding) that considers the fault element that was introduced to the continuous disclosure provisions in August 2021. This new fault element does not assist claimants in shareholder class actions but it remains to be seen whether it will be much of an obstacle. Although it is currently three-nil in favour of respondents for shareholder class action judgments, it is important to note that many shareholder class actions (far more than three) have been settled with significant sums paid out by respondents. Given this fact, it is too soon to say that respondents are in the lead.