Boardroom Briefing - August 2022

Shareholders Class Action Review: Bonham v Iluka Resources Ltd.

A BRIEF CASE STUDY OF ILUKA’S SUCCESSFUL DEFENCE

As of 2022, only three shareholder class actions have led to a court adjudication: TTPT Patrol Ltd v Myer Holdings Ltd; Crowley v Worley Limited; and Bonham v Iluka Resources Limited. In this paper, we aim to explore in more detail the Bonham v Iluka Resources Ltd case. It was the compelling defence presented by globally respected law firm Clyde & Co (opens a new window), that resulted in favor of the defendant.

Historically, Directors and Officers (D&O) insurance policies have felt the strenuous demands of class actions, with defendants and insurers alike favouring settlements over a resolution through the courts. Consequently, insurers across the market raised premiums substantially as loss ratios in this class of insurance became unsustainable.

The case: Iluka Resources Limited (Iluka) is an Australian mining company that globally provides mineral sand materials and is the largest global provider of zircon and titanium dioxide products. It was alleged that Iluka engaged in misleading and deceptive conduct after investors purchased shares in Iluka pursuant to representations made in their quarterly report and supporting announcements, including the key publication titled “The Key Physical & Financial Parameters” (KPFP).

Specifically, the plaintiff alleged reliance “KPFP” publication of 8th May 2012, in the purchased shares in Iluka. Importantly, the “KPFP”, contained a disclaimer titled “Disclaimer-Forward Looking Statements” that advised the publication must not be used or referred to as a price forecast or for guidance. The publication was not intended to be a precise predictor of the supply and demand dynamics or future performance.

“These forward-looking statements are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the company’s control” – Iluka KPFP, * May 2012 Update

On 9th July 2012, Iluka published an updated forecast noting significantly lower sales than previously estimated and a weakening economic outlook, prompting a sharp 24% fall in the share price.

Justice Jagot of the Federal Court ruled that Iluka had not breached any of their obligations under the respective Acts and remained compliant with their duties to shareholders. Despite the fall in share price, Justice Jagot, favourably addressed the effort of Iluka’s personnel, to keep their shareholders up to date with information, with no reluctance despite the negative news. Furthermore, the information and forecasting that was published in the quarterly report and the KPFP where not beyond Iluka’s capabilities based on their previous capacity.

Impact: The Bonham v Iluka Resources Limited case is significant within the legal space because it’s not only the third ruling on a class action case, but it also exposes certain risks associated with pursuing class action claims to trial. With only three judgements, there is little precedent to review and establish a viable defence. Nonetheless, the case has created future opportunities for both the prosecution and defence when navigating the procedure of a class action.

It is important to consider the role of disclaimers within the Iluka case and the significate impact it had on the judgement. Ensuring that disclaimers are correctly applied, forms part of the Iluka’s corporate governance practices. This practice ensures that the published information is presented as informative rather than predictive.

In brief: Resolutions to maintain corporate governance protocols, specifically for publications are strongly encouraged not only to ensure that they are reflective of current legislation and align with legislative duties, but also to ensure they contain the relevant “terms and conditions” that protect against misunderstandings or misinterpretations of information.

Moreover, having expertly skilled personnel working within the company is not only an asset to reaching output goals but ensuring that any information provided is by industry professionals. It is important to note that, having industry professionals, inclusive of the board members, composing the KPFP, reassured Justice Jagot that Iluka’s intentions were to keep their shareholders aware of the most recent and accurate information possible. This encourages companies to upskill their personnel and invest in new talent for the future.

Overall, the Bonham v Iluka Resources Limited judgement arguably encourages businesses to defend their position against a class action rather than seeking a quick settlement, therefore avoiding a large claim.

George Harding

by  George Harding

National Manager, Global Professional & Financial Risks

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