Shareholder class action – Downgrade of sales volume guidance – Whether respondent had reasonable grounds for initial guidance – Whether respondent breached continuous disclosure obligations – Whether continuous disclosure obligations extend only to opinions which a company actually holds, or include opinions which it ought reasonably to hold.
This was a shareholder class action arising out of a downgrade by the respondent (Iluka) of its sales forecasts for the year ending 31 December 2012. The facts, in short compass, were as follows:
The information is provided to assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance.
The applicant did not allege that the original sales volume guidance contained in the 23 February 2012 announcement lacked a reasonable basis, but did allege, in substance, that Iluka’s guidance (and subsequently revised guidance) lacked a reasonable basis on and from 12 April 2012 until 9 July 2012.
Justice Jagot dismissed the applicant’s claims, concluding, in essence, that Iluka had reasonable grounds for the guidance which it gave, that the actions which it took to revise its guidance were, in the circumstances, reasonable and timely, and the fact that, with hindsight, Iluka was ultimately wrong about the timing or the fact of a second-half rebound in demand for its products did not establish a lack of reasonable grounds. Her Honour’s judgment is lengthy (comprising 723 paragraphs, and in excess of 200 pages), but the vast majority of the judgment is directed to a close analysis of the facts and the evidence, for reasons which her Honour explained:
[56] I have concluded that [the applicant’s] propositions are largely based on a combination of hindsight, a determination to focus only on information which might support [the applicant’s] propositions, and a general theme of Iluka being allegedly concerned to ensure that the market was not informed of its real sales prospects in 2012. To that end, [the applicant’s] submissions include: (a) an extensive day-by-day account of Iluka’s activities throughout the relevant period, including irrelevant and marginally relevant material and allegations outside of the pleaded case, (b) a marked tendency to focus on selected parts of documents which might be thought to support [the applicant’s] case and to ignore other parts which do not appear to do so, and (d) [sic] a determined effort to force every event or statement into a pre-conceived framework consistent with the general theme of Iluka being allegedly focused on ensuring that the market was not informed about its real sales prospects in 2012.
[57] As a result, a document by document, witness by witness and expert by expert analysis is required in order to deal with [the applicant’s] submissions.
Having regard to the length of her Honour’s reasons, it is impossible to provide a comprehensive summary here, but some of the key points which emerge from her Honour’s reasons for dismissing the applicant’s claims were:
As noted above, the vast majority of her Honour’s reasons were devoted to a close analysis of the facts and the evidence, and there was comparatively little discussion of the applicable legal principles, or other matters of more general application. Importantly, however, her Honour did address the following points:
[669] … The issue is ultimately one of substance, not merely process.
[670] As a matter of substance, a statement made as a result of a reasonable process, may be one made without reasonable grounds. Equally, as a matter of substance, a statement made as a result of an unreasonable process, may be one made with reasonable grounds. However, I accept that the character of the process by which a statement has been formulated as reasonable or not will be relevant to the drawing of inferences about the character of the statement as reasonable or not, but it is not determinative of that issue. In short, if the evidence establishes that a reasonable process has been implemented by well-qualified, informed and experienced people who must be inferred to have been doing their best at the time to provide accurate information, then there needs to be something in the evidence before it would be concluded that those people had all reached conclusions lacking reasonable grounds.
… if an officer possesses information from which the officer ought reasonably have drawn a particular conclusion, the entity has become “aware” of the information represented by that conclusion… Accordingly, if I had concluded that at any relevant time Iluka had become aware of information in the form of a conclusion that, acting reasonably, it ought to have formed which required disclosure, then I would have accepted that Iluka contravened its continuous disclosure requirements. Further, in that regard, I would have considered that Iluka could become so “aware” either by its directors or an officer … possessing information for which they reasonably ought to have formed the conclusion requiring disclosure.
Federal Court of Australia, Jagot J,
7 February 2022
Applicant’s Solicitors: Shine Lawyers;
Respondent’s Solicitors: Herbert Smith Freehills;
Applicant’s Funder: N/A
Austlii Link: Available here
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