The outcome could make a key contribution to Australian continuous disclosure law
The Federal Court has dismissed a class action claim against mining magnate and global mineral sands supplier Iluka Resources Limited.
Clyde & Co partner Patrick Boardman, who represented Iluka’s lead primary D&O insurer in the matter, said in a blog post that this result “provides companies, their directors, and insurers with confidence that shareholder class actions are not merely a cheque book writing exercise and that a court will take account of well prepared and relevant defences, with well-prepared witnesses.”
In 2018, an applicant brought a case against Iluka on behalf of persons who purchased ordinary shares in the company between 12 April and 9 July 2012. The applicant alleged that Iluka breached its continuous disclosure obligations and the misleading and deceptive conduct provisions in the Corporations Act, the ASIC Act and the Australian Consumer Law.
The court was tasked with determining whether Iluka had “reasonable grounds” for the sales guidance it provided and whether the company was aware that its forecast sales would be “materially less” than the figures forecasted between April and July 2012.
In Bonham as Trustee for the Aucham Super Fund v Iluka Resources Ltd  FCA 71, the crux of the applicant’s arguments relied on the following ASX announcements regarding the company’s 2012 production and sales:
- 23 February 2012 – Iluka detailed its forecast for the year
- 12 April and 8 May 2012 – Iluka maintained the original forecast, but then made minor amendments
- 9 July 2012 – Iluka cut down its forecasted sales figures significantly, which resulted in the share price falling by 25%
Justice Margaret Jagot found that Iluka’s statements had included strict disclaimers The company had pointed out that there were “material risks that its sales guidance would not be achieved,” and that its guidance “could not be relied on as a predictor of future performance.” Iluka had also indicated that the forecast figures represented “the best guidance it could provide at the time.”
In the 23 February 2012 announcement, the company also flagged the “difficulty of forecasting with uncertain global economic conditions.”
“[The evidence] has not exposed any material from which it should be inferred that Iluka was unreasonably ignoring information that did not suit it. Rather, the evidence has exposed that the relevant Iluka personnel were highly experienced in the markets in which Iluka operated, and were careful, diligent, and continuously exerted themselves to ensure that the information Iluka gave to the market was accurate and timely,” Jagot said in the decision handed down on 7 February.
She concluded that Iluka had in fact had reasonable grounds to make its sales guidance and that the company did not fail to disclose material information to the market.
Boardman explained that the transparency of Iluka’s forecasting process and its recording of “detailed and considered assessment of all relevant information by appropriately qualified and experienced directors/officers” was vital to the company’s legal victory.
“These qualifications are an area in which companies and their D&O insurers could work together in seeking to limit the risks of class actions arising and also potentially limit the nature and extent of forecasts which insurers may be prepared to cover,” he said.
Herbert Smith Freehills class actions practice co-head Jason Betts, who acted for Iluka alongside partner Ante Golem, said he hoped that the company’s successful defence “makes an important contribution to Australian continuous disclosure law.”
The applicant was represented by Shine Lawyers.