Bonham v Iluka Resources Limited

Federal Court of Australia|2015-07-15|Before: Mr J, Kerr J

Division: GENERAL DIVISION

Category: Catchwords

Counsel for the Prospective Applicant: Mr MBJ Lee SC with Mr WAD Edwards (1 April 2015) and Mr J Mack (16 April 2015)

Counsel for the Prospective Respondent: Mr C Withers

Solicitor for the Prospective Respondent: Herbert Smith Freehills

25 November 2015 In the first sentence of paragraph 27, "not" has been inserted after "Mr Lee did".

25 November 2015 In the first sentence of paragraph 171, "Mr Wither's" has been replaced with "Mr Withers'".

25 November 2015 In the last sentence of paragraph 172, "webstite" has been replaced with "website".

25 November 2015 In the last sentence of paragraph 175, "respondents" has been replaced with "respondent's".

IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY GENERAL DIVISION TAD 43 of 2014

JUDGE: KERR J DATE OF ORDER: 15 July 2015 WHERE MADE: HOBART

The application for preliminary discovery be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY GENERAL DIVISION TAD 43 of 2014

SUMMARY [1] Background facts [3] the law governing preliminary discovery [25] The issues in dispute [43] REASONABLE BELIEF AND RIGHT TO RELIEF [44] The prospective applicant's submissions [45] The prospective respondent's submissions [58] The prospective applicant's reply [64] Discussion [65] Reasonable belief [65] A side-wind: fraud on the market [69] consideration [77] The implied representation [83] Reasonable grounds [91] ACA Lawyers' 10 November 2014 Letter [95] The prospective applicant's further submissions [107] Paragraph 14 of the Prospective Applicant's Written Submissions [108] Preliminary Draft Statement of Claim [124] ACA Lawyers' 22 December 2014 letter [127] Conclusions regarding reasonable belief [128] IS EVIDENCE OF THE PROSPECTIVE APPLICANT'S OWN BELIEF REQUIRED [138] The prospective respondent's submissions [139] The prospective applicant's submissions [140] Discussion [144] Consequential issues [157] The discretion [157] Professional duties [170] costs [175]

SUMMARY 1 This is an application for preliminary discovery. The prospective applicant's counsel, Mr Lee SC and Mr Edwards, submit that Mr Bonham reasonably believes he may have a right to obtain relief in this Court and that an order for preliminary discovery would likely assist him to decide whether or not to commence an action based on the premise that he purchased shares in the prospective respondent, Iluka Resources Limited (ABN 34 008 675 018) (Iluka or the company), at an inflated price in reliance on misleading or deceptive statements made by the company on 8 May 2012. It is not disputed that the price of those securities fell sharply following an announcement Iluka made to the Australian Securities Exchange (ASX) after he had purchased his shares. 2 For reasons that follow, the Court is not satisfied that there is an objective basis for Mr Bonham to reasonably believe either that the representations upon which he relied were requisitely misleading or deceptive or that Iluka failed to make a subsequently required disclosure to the market. Accordingly, the orders sought by Mr Bonham are refused.

BACKGROUND FACTS 3 Iluka is a major Australian mining company. It is listed on the ASX. It is the world's largest producer of zircon. It is also a significant global supplier of other mineral sands - rutile, synthetic rutile and ilmenite. 4 Iluka provided regular quarterly production reports and half-yearly financial reports to the ASX. In addition, the company adopted the practice of publishing notices from time to time, commonly under the title "Key Physical & Financial Parameters [date]". Such information was published with the disclaimers that it was provided to assist sophisticated investors with the modelling of the company and a number of caveats. The reports that are relevant to these proceedings were stated to be subject to disclaimers and caveats to the effect that Iluka did not provide pricing forecasts and that any guidance was subject to supply and demand dynamics and that the report should not be relied upon as a predictor of future performance. 5 Despite such disclaimers Iluka appears to have been regarded by experienced market analysts as having made "special efforts of disclosure" to help the market understand the "rather opaque" mineral sands sector (RBC Capital Markets - Ratings Revision Comment, 9 July 2012; Exhibit 2, annexure "SL-6", p 741). 6 In 2011 Iluka recorded its strongest financial result in its history. It made a net profit after tax of $541.8 million on revenues of $1.6 billion and ended the year debt free with $156.7 million, net, in cash (Mr John Pizzey, Chairman's address at the Iluka 2012 Annual General Meeting (AGM), 23 May 2012; Exhibit 5, annexure "AG-3", p 48). During 2011 there was "a 70 per cent price appreciation and a dividend of 75 cents" (Mr David Robb, Managing Director's address at the Iluka 2012 AGM, 23 May 2012; Exhibit 5, annexure "AG-3", p 51). 7 Notwithstanding its apparent strength in 2011, because of its position as an established leader in a market with long lead times and no recent new discoveries (Mr David Robb, Managing Director's address at the Iluka 2012 AGM, 23 May 2012; Exhibit 5, annexure "AG-3", p 53), Iluka was not invulnerable to changing market conditions. 8 On 23 February 2012 Iluka published Key Physical & Financial Parameters Iluka 2012 (Exhibit 2, annexure "SL-6", pp 113-115) (Iluka KPFP 23 February 2012 Report). In the Iluka KPFP 23 February 2012 Report Iluka provided "guidance", inter-alia, that its production of zircon would be reduced to approximately (~) 500 thousand metric tonnes, also known as kilotonnes (kt), "in light of potentially lower short term demand" (Exhibit 2, annexure "SL-6", p 114). Iluka stated that its production costs had increased and that it had advised customers of a ~US$100 per tonne (t) first quarter 2012 price increase. In contrast to its earlier disclosure in Zircon Pricing Outcomes - Fourth Quarter 2011 on 12 October 2011 (Exhibit 2, annexure "SL-6", p 61), Iluka provided no guidance as to its expected revenue per tonne from the sale of its mineral sand products into the future (Exhibit 2, annexure "SL-6", p 114). 9 On 8 May 2012 Iluka published two reports - Australian Securities Exchange Notice Key Physical and Financial Parameters - Update (Exhibit 2, annexure "SL-6", pp 422-423) (Iluka ASX Notice 8 May 2012 Update) and Key Physical & Financial Parameters Iluka 2012 - May Update (Exhibit 2, annexure "SL-6", pp 424-426) (Iluka KPFP 8 May 2012 Update) (together, 8 May 2012 Update) in which it further downgraded its guidance. The Iluka ASX Notice 8 May 2012 Update provided a narrative explanation of the Iluka KPFP 8 May 2012 Update, stating at page 422 that: While there is some evidence of improved economic traction in major economies such as the US and China, contra-indicators also exist and large eurozone countries are exhibiting increased weakness in the face of prevailing austerity measures. The global economic therefore remains far from clear. It relevantly went on to say: Accordingly, Iluka has decided to reduce its zircon production in 2012, from the previously advised ~500 thousand tonnes to ~430 thousand tonnes… Iluka now forecasts its zircon sales for the full year to be ~400 tonnes compared with the previously forecast ~450 tonnes… At page 423: There is no change to guidance for titanium dioxide production. Overall, Iluka expects its zircon/rutile/synthetic rutile sales volumes to be approximately one third/two thirds weighted between the first half and second half of 2012... 10 On 16 May 2012 Mr Robb, Managing Director of Iluka, presented at the "Bank of America Merrill Lynch Global Metals, Mining and Steel Conference" (Exhibit 2, annexure "SL-6", pp 554-590) and on 23 May 2012 he and Mr Pizzey, Iluka's Chairman, spoke at Iluka's 2012 AGM in Perth, Western Australia. Although continuing worrying market conditions were referred to in each instance, Iluka did not withdraw its 8 May 2012 Update. The prospective applicant submits, and the Court accepts, that there was an implied representation that Iluka's guidance of 8 May 2012 remained current, subject to the disclaimers and caveats, to 9 July 2012 when Iluka released an update. 11 On 9 July 2012, said to be "in accordance with its continuous disclosure obligations" (Exhibit 2, annexure "SL-6", p 704), Iluka published Australian Securities Exchange Notice Forecast Sales Volumes - Update (Exhibit 2, annexure "SL-6", pp 704-707) (Iluka FSV 9 July 2012 Update). In this further update the company revealed that it now predicted significantly lower sales volumes. Its lower sales volumes forecasts were said, at page 704, to: …reflect second quarter sales below expectations, but also and more significantly, deteriorating economic outlooks, discussions (which in many cases are ongoing) with customers in in relation to second half volume requirements, and completion of the initial stages of the company's usual mid year reforecast process. 12 The Iluka FSV 9 July 2012 Update also revealed that Iluka had sold only 87kt of zircon in the first half of 2012 (at p 706). Further, Iluka stated that a "large scheduled shipment was deferred in June…and current forecasts assume this volume will not be recovered" (at p 706). It advised that on a "year-to-date basis, Iluka's product prices" had remained in line with its previous commentary (Exhibit 2, annexure "SL-6", p 704). However: The volatility in factors which materially influence demand and which are beyond the company's direct control, as well as the company's move in recent years to shorter period sales contracts, have increased the difficulty in providing specific company performance guidance, particularly over extended periods. As a result, and given the incomplete nature of discussions with both zircon and pigment customers for second half volume requirements, this revised guidance incorporates forecast sales volume ranges rather than single point forecasts. In addition, due to the continuing uncertainty associated with economic and business conditions, Iluka's Key Physical and Financial Parameters, 2012 - 2014 guidance (issued in November 2011) in [sic] now redundant. (Exhibit 2, annexure "SL-6", p 704) 13 Iluka's revised 2012 full year sales guidance range for zircon disclosed in the Iluka FSV 9 July 2012 Update was 200-300kt (Exhibit 2, annexure "SL-6", p 705). 14 Iluka's substantially lower sales volumes forecast as advised in the Iluka FSV 9 July 2012 Update was viewed by some analysts as having "shocked the market with the magnitude of the sales volumes downgrades" (RBC Capital Markets - Ratings Revision Comment, 9 July 2012; Exhibit 2, annexure "SL-6", p 740). It is not in dispute that, in the immediate aftermath of the Iluka FSV 9 July 2012 Update, Iluka's stock price fell by 24%. 15 It is not in dispute that Mr Bonham, the prospective applicant in these proceedings, had purchased 2,150 ordinary shares in Iluka on 15 May 2012. 16 On 24 March 2014 ACA Lawyers issued a media release under the title "Shareholder Class Action Against Iluka Resources" (ACA Lawyers' 24 March 2014 Media Release) (Exhibit 5, annexure "AG-6", p 67). The release stated: ACA Lawyers today announced it has obtained funding to commence proceedings in the Federal Court of Australia against Iluka Resources (ASX.ILU) on behalf of shareholders who have sustained losses caused by the company's actions. The class action will allege that Iluka failed to comply with its continuous disclosure obligation and engaged in misleading or deceptive conduct. ACA Lawyers Principal Steven Lewis said that the class action will seek compensation on behalf of Iluka shareholders who acquired their shares between 8 May 2012 and 8 July 2012. 'It will be alleged that Iluka's zircon sales forecast in May 2012 was overly optimistic and not achievable. The company had information prior to July 2012 that it could not achieve its forecast and did not keep the market informed' Mr Lewis said… London-based Harbour Litigation Funding is funding the proposed action… Those wishing to join the class action should register their interest at http//:acalawyers.com.au/iluka-class-action by no later than 9 May 2014. 17 Mr Bonham at that time had already become a client of ACA Lawyers (transcript, p 117, lines 31-43). He was within the class of shareholders who acquired some or all of their Iluka shares between 8 May 2012 and 8 July 2012. 18 Iluka responded to the ACA Lawyers' 24 March 2014 Media Release on the same day. It issued a statement to the ASX (Iluka 24 March 2014 ASX Statement) in the following terms (Exhibit 5, annexure "AG-5", p 65): During 2012, market conditions for mineral sands were extremely volatile and, in the cases of zircon, conditions deteriorated markedly during the year. Iluka's sales arrangements for zircon are also typically shortdated, that is not underpinned by longer term contracts. Market conditions in 2012 led Iluka to make formal disclosures to the ASX on 8 May 2012, updating guidance parameters issued on 23 February 2012 and again on 9 July 2012. In this regard, Iluka is of the view that it has at all times fulfilled its disclosure obligations. 19 No proceedings were immediately instituted. Instead, nearly 8 months later, on 10 November 2014, ACA Lawyers wrote to Iluka's Managing Director, Mr Robb, (Exhibit 1, annexure "SL-1", pp 3-7) (ACA Lawyers' 10 November 2014 Letter) advising "As you are aware, ACA Lawyers is investigating commencing a representative proceeding" (Exhibit 1, annexure "SL-1", p 3, para 2). In that correspondence ACA Lawyers asserted that their client, Mr Bonham was (Exhibit 1, annexure "SL-1", p 5, para 12): …presently in the position of having a reasonable cause to believe that he may have the right to obtain relief in the Federal Court from Iluka, but after making reasonable inquiries of all available material does not have sufficient information to decide whether to start the proposed representative proceeding…to obtain that relief. (Emphasis original) 20 ACA Lawyers asked Mr Robb to provide access to internal Iluka documents that were said to be necessary (Exhibit 1, annexure "SL-1", p 6, para 15): … to enable a decision to be made whether to commence the proposed proceeding. and further: … in order to determine whether the defence said to be available [as indicated in the Iluka 24 March 2014 ASX Statement] is available and the possible strength of that defence and to determine the extent, if any, of Iluka's breach. 21 The documents claimed by ACA Lawyers to be relevant to Mr Bonham's decision as to whether or not to commence proceedings fell into a number of different categories, set out in the ACA Lawyers' 10 November 2014 Letter (at paragraph 16) were as follows: (a) actual sales data for both zircon and titanium dioxide products (rutile and synthetic rutile) received by Iluka during the period from 23 February 2012 to 9 July 2012; (b) forward contracts for sale of mineral sands products during the period from 23 February 2012 to 9 July 2012; (c) All documents received or created by Iluka in the period between 8 May 2012 and 9 July 2012 evidencing a deterioration in the mineral sands market in that period; (d) internal "high level" management or board documents created in the period between 8 May 2012 and 9 July 2012 which refer to Iluka's sales forecasts and Iluka's ability to achieve them; (e) documents specifically considered by Iluka when the 14 March 2014 Announcement was prepared (or any draft announcement to the ASX in relation to the information subsequently contained in the 14 March 2014 Announcement). 22 On 19 November 2014, Iluka's solicitors, Herbert Smith Freehills, wrote to ACA Lawyers declining its "invitation to voluntarily provide documents to assist [their] client to bring a claim against [Iluka]" (Exhibit 1, annexure "SL-3", p 9). That letter gave short reasons setting out Iluka's solicitor's contentions why the company had no obligation to do so. 23 On 22 December 2014, ACA Lawyers wrote a detailed letter to Iluka's legal representatives addressing those contentions and explaining why ACA Lawyers viewed Iluka's response as insufficient to justify refusal to provide the information sought (Exhibit 1, annexure "SL-4", pp 10-15). ACA Lawyers foreshadowed that an application for preliminary discovery would be made unless they received advice by close of business the next day that the documents requested would be provided voluntarily. Herbert Smith Freehills responded on the company's behalf by e-mail on 23 December 2014 that they were not in a position to respond in that timeframe (Exhibit 1, annexure "SL-5", p 16). 24 On 24 December 2014 Mr Bonham filed his application seeking preliminary discovery now before the Court. In written submissions filed by the prospective applicant in the Court on 24 March 2015 (Prospective Applicant's Written Submissions), it was asserted for Mr Bonham that he "… brings the present application primarily to obtain documents which will enable him to assess the strength of the defence which Iluka has publicly stated it will rely upon if a representative proceeding is commenced against it".

THE LAW GOVERNING PRELIMINARY DISCOVERY 25 The relevant law, pursuant to which an application for preliminary discovery may be made, is r 7.23 of the Federal Court Rules 2011 (Cth). Rule 7.23 states: (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and (b) after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and (c) reasonably believes that: (i) the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent's control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and (ii) inspection of the documents by the prospective applicant would assist in making the decision. (2) If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subpara (1)(c)(i). 26 As noted above at [24] the prospective applicant brings this application not only to enable a decision to be made whether to commence the proposed proceeding but also "in order to determine whether the defence said to be available… is available and the possible strength of that defence and to determine the extent, if any, of Iluka's breach" (ACA Lawyers' 10 November 2014 Letter, p 6, para 15). Rule 7.23 has been held to permit a party to find out information as to any available defence (Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500; the unreported version of which was cited in MacDonald v Department of Employment and Workplace Relations [2003] FCA 631 (MacDonald)). 27 However, during two days of oral argument Mr Lee did not expand on the contention originally advanced in the Prospective Applicant's Written Submissions that Mr Bonham's application was "primarily" to enable him to assess the strength of Iluka's "defence". The only significant mention of that contention was initiated by the Court when querying Mr Lee on an entirely unrelated point (transcript, p 71). While the submission put forward in the Prospective Applicant's Written Submissions was not formally abandoned, for the reasons that follow, it has no merit. 28 In the context of the present application, the Iluka 24 March 2014 ASX Statement was the company's response to the ACA Lawyers' 24 March 2014 Media Release which had announced that a class action was to be commenced against the company based on allegations that it "…had failed to comply with its continuous disclosure obligations…" and their assertion that Iluka "…had information prior to July 2012 that it could not achieve its forecast and did not keep the market informed". 29 Understood in that light, the Iluka 24 March 2014 ASX Statement was no more than a short and emphatic denial of those allegations together with a statement that it would vigorously defend its position. 30 The proposition established in MacDonald enables a prospective applicant who otherwise has a proper basis to commence proceedings to obtain discovery prior to doing so in order to permit the prospective applicant to evaluate whether or not a possibly available defence might be made out. It defeats an objection that because a potential cause of action has been clearly identified, preliminary discovery should be refused as not required on the basis that a decision should be taken to commence the proceedings. Properly understood MacDonald does not mean that a prospective applicant avoids the need to establish the precondition in r 7.23(1)(a) that he or she otherwise has a reasonable belief that he or she may have a right to relief (per Finn J at [24]). 31 Mr Lee was therefore correct in conducting the prospective applicant's case on the basis that the prospective applicant could not succeed unless Mr Bonham first could establish that he otherwise had a reasonable belief of his entitlement to relief. 32 I therefore turn to the relevant principles that govern the approach this Court must take to an application made under r 7.23. 33 In Reeve v Aqualast Pty Ltd [2012] FCA 679 (Reeve) at [63], Yates J observed that it is apparent that r 7.23 proceeds "on a tightly structured set of considerations" which must be satisfied before the power to order a prospective respondent to give preliminary discovery is exercised. His Honour set out those considerations as follows at [63]: (a) the existence of a reasonable belief in a right to obtain relief in the court; (b) the making of reasonable inquiries directed to obtaining sufficient information to decide whether to start a proceeding in the court to obtain that relief; (c) an insufficiency of information to enable that decision to be made; (d) the existence of a reasonable belief that the prospective respondent has or had, or is likely to have or have had, documents - (i) that are directly relevant to the question whether the putative right to relief exists; and (ii) whose inspection would assist in making a decision whether to start a proceeding in the court to obtain that relief. 34 On the materials before the Court, the Court is satisfied that considerations (b) and (d) listed have been satisfied by the prospective applicant. There seems little dispute in relation to those matters. 35 As to (b), Mr Withers, counsel for the prospective respondent, gave no attention to any alleged want of reasonableness of Mr Bonham's prior inquiries during the two days of oral argument. To any extent that consideration might be said to remain technically in issue the Court is satisfied by the exhibits adduced on behalf of the prospective applicant (Exhibit 1, annexures "SL-1" and "SL-4") that those acting on his behalf had made reasonable inquiries directed to obtaining information to decide whether or not to commence a proceeding. 36 As to (d), the parties are agreed, subject to Mr Bonham establishing that he has a reasonable belief that he may be entitled to relief, that the documents sought by way of preliminary discovery, with agreed minor amendments (transcript, p 230, lines 1-4), would be directly relevant to the question of whether a putative right exists and a decision, (if not already taken; a subject of separate discussion below), whether or not to commence an action seeking relief. 37 However, in the circumstances specific to this application, the structure posited by Yates J in Reeve otherwise does not neatly conceptualise where the opposing parties came to join issue. 38 As to consideration (a) Mr Withers submitted that r 7.23 identifies not only what must reasonably be believed but also the person who must hold that belief. Mr Withers submitted it is the prospective applicant, not the prospective applicant's lawyers whose belief is relevant and because there was no evidence before the Court to justify a finding that Mr Bonham held any belief, let alone the required belief, about his putative right to obtain relief, his application must fail. 39 As to consideration (c), Mr Withers submitted that any assistance Mr Bonham might obtain by way of preliminary discovery was irrelevant to his decision whether or not to commence an action, because in this case Mr Bonham, through his lawyers as his agent, had earlier announced an intention to commence the substantive proceeding. The statements to that effect made by his solicitors, ACA Lawyers, as his agent bound him. 40 Moreover, if the Court did not find that Mr Bonham had committed himself to commencing the substantive proceeding, the public statements to that effect made by ACA Lawyers, Mr Withers submitted, were matters the Court might properly take into account in declining, in the exercise of its discretion, to make the orders sought. 41 Mr Lee, disputed each, save the last, of those propositions. 42 It is convenient therefore to summarise the issues the Court regards as remaining in dispute and then to deal with each in turn.

THE ISSUES IN DISPUTE 43 The issues in dispute are as follows: (1) Whether or not the prospective applicant reasonably believes that he may have the right to obtain relief in the Court; (2) If that question is answered in favour of the prospective applicant, whether the Court should decline relief because Mr Bonham has in fact already decided to commence the proposed proceedings; (3) Whether the Court should decline relief in any event because Mr Bonham had not adduced evidence of his own belief; (4) Assuming Mr Bonham otherwise is entitled to relief, whether there are discretionary matters that weigh against the making of an order for preliminary discovery, and consequentially; (5) What orders for costs should be made in respect of this application and, if made, the orders for preliminary discovery?

REASONABLE BELIEF AND RIGHT TO RELIEF 44 The parties were agreed that authorities binding on this Court have established that whether a reasonable belief exists, for the purpose of r 7.23, must be assessed objectively. I proceed on that basis (Hooper v Kirella Pty Ltd [1999] FCA 1584).

The prospective applicant's submissions 45 The Prospective Applicant's Written Submissions filed on Mr Bonham's behalf characterised the substantive proceeding which Mr Bonham is contemplating as one (para 3): … on behalf of persons who acquired shares in Iluka between 9 May and 8 July 2012, being a period in which he will allege Iluka breached its continuous disclosure obligations under s 674(2) of the Corporations Act 2001 (Cth)… and engaged in misleading or deceptive conduct by making of future representations without reasonable grounds contrary to the Corporations Act, the Australian Securities and Investments Commission Act 2001 (Cth) and the Australian Consumer Law, which contraventions entitle a person who suffered loss or damage by reason thereof to statutory compensation. 46 Mr Bonham's counsel submitted that the prospective applicant's contemplated action was of a kind which this Court has dealt with frequently over the past 15 years (Prospective Applicant's Written Submissions; para 11). Such cases, they submitted, typically involve (Prospective Applicant's Written Submissions; para 12): (a) A group of shareholders comprising persons who have purchased shares in a listed company during a period of time. (b) Allegations of corporate misconduct arising out of statements made or omitted to be made by the company to the market in contravention of: i. Continuous disclosure obligations (that is, the obligation under s 674(2) of the Corporations Act and ASX Listing Rule 3.1 to disclose to the ASX immediately information which is not generally available that a reasonable person would expect, if it were generally available, to have a material effect on price or value of securities); or ii. Statutory norms proscribing misleading or deceptive conduct, including as to future matters (in which case, under the ASIC Act, the evidentiary onus lies upon the representor to prove it had reasonable grounds for the representation). (c) Allegations of causally connected loss, based on a theory of indirect causation… 47 The Prospective Applicant's Written Submissions urged that the parameters of the case outlined in the ACA Lawyers' 24 March 2014 Media Release and expanded on in ACA Lawyers' 10 November 2014 Letter "disclosed this very kind of case" (Prospective Applicant's Written Submissions; para 13). To understand that submission it is necessary to have regard to those documents. 48 The ACA Lawyers' 24 March 2014 Media Release included the statement, quoting Mr Lewis, that: 'It will be alleged that Iluka's zircon sales forecast in May 2012 was overly optimistic and not achievable. The company had information prior to July 2012 that it could not achieve its forecast and did not keep the market informed'… 49 The ACA Lawyers' 10 November 2014 Letter expanded on that assertion at paragraph 10 which is set out and analysed below at [95]-[106]. 50 Mr Lee and Mr Edwards submitted that the propositions advanced in the ACA Lawyers' 10 November 2014 Letter should be accepted as sufficient in themselves for the Court to find that Mr Bonham had an objectively reasonable belief that Iluka engaged in misleading or deceptive conduct by the making of future representations without reasonable grounds. 51 I note that initially the prospective applicant's application relied exclusively on an affidavit sworn on 24 December 2014 by Mr Lewis, a partner of ACA Lawyers, that merely annexed copies of that correspondence (Exhibit 1). 52 In response to questions from the bench as to whether the matters asserted in the ACA Lawyers' 10 November 2014 Letter could be said to justify the Court forming the view that the prospective applicant held a reasonable belief in, rather than mere speculation about or suspicion of, relevant misconduct on Iluka's part, Mr Lee, on behalf of the prospective applicant, notwithstanding he had closed his case, applied to reopen and was granted leave, without objection, to file additional affidavit material. Annexed to an affidavit which was sworn by Mr Lewis on 13 April 2015 and filed in this Court on the same day is a draft statement of claim referred to in that document as "Statement of Claim [Subject to Investigation]" (Exhibit 9, annexure "SL-10", pp 4-36) (Preliminary Draft Statement of Claim). Mr Lee submitted the matters pleaded in paragraph 26 of the Preliminary Draft Statement of Claim together with the matters as set out in paragraph 14 of the Prospective Applicant's Written Submissions were those he relied upon as relevant to Mr Bonham's reasonable belief (transcript, p 147, lines 14-26). 53 The Prospective Applicant's Written Submissions, paragraph 14, is set out followed by the Court's findings at [108] - [123] below. 54 Paragraph 26 of the Preliminary Draft Statement of Claim is in the following terms: As at 8 May 2012 ILU [Iluka] was aware of each of the following matters (more information needed): (a) the actual sales figures for 1Q 2012 and for April 2012 for Z/R/SR; (b) that demand for zircon had materially decreased during 1Q 2012; (c) the contracts it had going forward for the sales of Z/R/SR; (d) that generally consumer confidence and economic conditions were subdued; (e) that the point estimates of sales provided in the February Earnings Guidance were likely to be unreliable; and, (f) that its marketing strategy of changing sales contract periods from multi-year or annual arrangements to much shorter periods could result, in times of global and regional economic uncertainty and turmoil with weakened confidence levels, in volatility in sales levels from period to period. 55 Mr Lee submitted (transcript, p 155, lines 29-40): … the focus of this case is that, by 8 May [2012], it was plain as a pikestaff…what was happening with demand for zircon and what would likely happen for zircon going forward… …generally, consumer confidence and economic conditions were subdued and plain as a pikestaff, we say, that, relevantly, there could be no confidence that one [Iluka] could continue to give point estimates to the market… 56 Iluka's providing, or failing to withdraw, its 8 May 2012 point estimates/forecasts, which were contained in the Iluka 8 May 2012 Update prior to Mr Bonham buying his shares, had created a false expectation of there being some certainty despite objectively verifiable material to the contrary (transcript, p 155, lines 29-40). 57 It was submitted that Mr Bonham who had purchased his shares relying upon those false expectations should be found to have a reasonable belief that he may have a right to relief and was therefore entitled to information known only to Iluka, the possession of which would allow him to determine whether or not to commence such proceedings.

The prospective respondent's submissions 58 Counsel for the prospective respondent, Mr Withers, made his submissions on the basis that the content of the prospective applicant's Preliminary Draft Statement of Claim had established that Mr Bonham purchased his shares on 15 May 2012. In respect of the question whether Mr Bonham has a reasonable belief that he may have a right to relief, what might or might not be the circumstance of others in the class that he intends to represent, were irrelevant (transcript, p 189, lines 14-16). Nothing beyond that date was relevant to Mr Bonham's potential entitlement to relief. 59 On Iluka's behalf, Mr Withers submitted that the company had not made the asserted express representations alleged that it would achieve FY2012 sales of ~400kt zircon, ~225kt rutile, ~310kt synthetic rutile and 350kt ilmenite. Iluka's 8 May 2012 Update had been provided for the purposes of sophisticated investors with the explicit disclaimer that it was subject to many caveats and should not be relied upon as a predictor of future performance (transcript, p 185, line 1 to p 187, line 45). 60 Moreover nothing in the materials before the Court suggested Iluka's 8 May 2012 Update had been issued without Iluka having a reasonable belief in what it had stated in respect of future matters. The 24% fall in Iluka's share price that had immediately followed the Iluka FSV 9 July 2012 Update did not justify the inference that Iluka had lacked a reasonable basis for its statements in the Iluka 8 May 2012 Update. In part, those two announcements had addressed different subjects. The Iluka FSV 9 July 2012 Update not only withdrew the 8 May 2012 Update, it also predicted deeper and longer term market deterioration (Exhibit 2, annexure "SL-6", p 704): A marked deterioration in major and regional economies, more pessimistic official forward outlooks and commentary and the absence of anticipated or effective policy responses since the company's previous disclosure in early May, have had a flow on impact on mineral sands customer confidence levels and future business performance expectations, which is likely to influence sales volumes materially over the remainder of 2012. 61 It was submitted that instead the evidence pointed to Iluka having kept the market fully informed. Iluka had expressed increasing concerns in the Iluka KPFP 23 February 2012 Report, the Iluka 8 May 2012 Update and the Iluka FSV 9 July 2012 Update regarding deteriorating market conditions. It was wrong to suggest that Iluka must have known at 8 May 2012 what it knew at 9 July 2012. The trigger point for Iluka revising its May 2012 outlook occurred after a large shipment of zircon was deferred in June 2012 and then only after Iluka concluded that the volume it had earlier anticipated could not be recovered and "market conditions…had evolved sufficiently to the point that [it] couldn't maintain the forecast" (transcript, p 195, lines 19-35). It was only then that there had been an evolution of events which had crystallised in a requirement to make the disclosure which it did on 9 July 2012. 62 It was submitted by Mr Withers that even assuming in Mr Bonham's favour his case also included the proposition that there had been a failure on Iluka's part to comply with the continuous disclosure requirements of the ASX Listing Rules (in a breach of s 674(2) of the Corporations Act 2001 (Cth) (the Corporations Act) which would entitle Mr Bonham to relief under s 1317HA of the Corporations Act), there was no evidence pointing to there being an objective basis for his reasonable belief that events altered significantly between 8 May 2012 and 15 May 2012 when Mr Bonham purchased the Iluka shares or at any time prior to 9 July 2012 so as to require Iluka to make a corrective market disclosure. 63 Mr Withers submitted that permitting preliminary discovery in these circumstances would open the floodgates to an application of this nature becoming routine wherever stock prices fell following any amount of unwelcome price sensitive disclosure to the market.

The prospective applicant's reply 64 The above adequately, albeit in summary, sets out where the respective parties ultimately joined issue on the matters in dispute, with one exception. In reply to Mr Withers' submission that the circumstances of others of the class that the prospective applicant intended to represent were irrelevant, Mr Lee submitted as follows (transcript, p 225, lines 13-18): …So it's the [prospective] applicant being entitled to relief in both his personal and representative capacities, and so we say it is proper for your Honour to have regard to all the persons who purchased shares between 8 May and 9 July. And we say that - and so, when one sees relief in the preliminary discovery rule, one has to read relief in the same way it's used in Part IVA [of the Federal Court of Australia Act 1976 (Cth)] which has two components - personal and representative.

Reasonable belief 65 Whether the prospective applicant's belief is or is not reasonable for the purposes of r 7.23(1) must be assessed objectively. The principles with respect to the application of r 7.23 are now well settled. In Higgins v Hancock as Liquidator of 246 Arabella Investment Pty Ltd (in liq) (2011) 199 FCR 393; [2011] FCA 1492 Jacobson J noted: [55] Although there are some differences in the language of r 7.23, it incorporates much of the language of the preliminary discovery rules formerly to be found in O 15A r 6. The same principles therefore apply: EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 at [19] per Flick J. [56] It follows that the test applicable to the first requirement of r 7.23, namely that the person "reasonably believes that he or she may have the right to obtain relief" is much the same as the former test which was whether there is "reasonable cause to believe that the applicant … may have the right to obtain relief". [57] In St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 (Rabo), Hely J set out at [26] the propositions which emerge from the authorities on the proper application of the former rule. [58] His Honour's succinct but comprehensive summary of the principles has been applied on numerous occasions by judges sitting at first instance and has been endorsed by Full Courts: Apache Northwest Pty Ltd v Newcrest Mining Ltd (2009) 182 FCR 124 at [2] (Moore and Gilmore JJ), [26] (Flick J). [59] The fourth proposition stated by Hely J in Rabo is central to the present application: (d) belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action: John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [13], [14], [17] and [73]. 66 In a passage quoted with apparent approval by the Full Court constituted by Dowsett, Davies and Wigney JJ (Sandhurst Trustees Ltd v Clarke [2015] FCAFC 21 (Sandhurst Trustees) at [10]), citing Clarke v Sandhurst Trustees [2014] FCA 580 (Clarke) at [10] Greenwood J summarised the relevant principles as follows: It follows that an applicant must show, apart from any other considerations, that he or she believes that he or she may have a right against the proposed respondent to relief (deriving from an identified and contended cause of action) and the belief is, objectively, reasonably held rather than a "mere" belief or mere assertion or matter of speculation, notwithstanding that r 7.23 is to be construed beneficially so as to give the fullest scope reasonably allowed of the language of the rule (St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360 at [26]) and also recognising that the notion of a "reasonable belief" reflects a threshold to be satisfied by the applicant set at "quite a low level". The evidence must demonstrate that there is some tangible support for the belief that takes the existence of the alleged right beyond mere belief, assertion or speculation (Reeve v Aqualast Pty Ltd at [65]). 67 The Court respectfully adopts Greenwood J's statement of the relevant law. Thus, while r 7.23 is to be construed beneficially and given the fullest scope that its language will reasonably allow (St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360, Hely J at [26]), it will be an error of law to order preliminary discovery unless there is sufficient evidence to establish that the prospective applicant has an objectively reasonable belief that he or she may have a right to obtain relief (Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58 (Echo Tasmania), Black CJ and Sackville and Emmett JJ at [43] concurring in that regard; see also Finn J in MacDonald). As Echo Tasmania makes clear a distinction between facts and circumstances which give rise merely to assertion, suspicion or speculation on the one hand and facts and circumstances which justify a reasonable belief is fundamental. 68 A belief that a person may have a cause of action in this Court can fall short of being objectively reasonable for one of two reasons: the cause of action in contemplation itself may be too doubtful as a matter of law, or the available evidence in support of an otherwise plausible cause of action may not rise to or beyond those which justify mere suspicion or speculation.

A side-wind: fraud on the market 69 Mr Bonham submitted he may be entitled to relief in the nature of damages for the inflated price he paid for his shares as a result of his reliance upon misleading or deceptive, express or implied representations made by Iluka and/or a Iluka's failure to disclose information, relevant to the price or value of those shares, to the market prior to his having purchased them. 70 That is a greatly condensed version of what the Court may reasonably infer is intended to be put forward on Mr Bonham's behalf in any substantive proceeding he may ultimately commence. Accepting for this purpose that his claim will be as set out in the complex 34 page Preliminary Draft Statement of Claim which, "subject to investigation", pleads various overlapping causes of action asserting, inter-alia, that Iluka engaged in conduct contrary to s 1041H(1) of the Corporations Act, s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and/or s 18 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (the Competition and Consumer Act). 71 Paragraphs 57 and 60 of the Preliminary Draft Statement of Claim invoke the doctrine of "fraud on the market" as a basis to satisfy the requirements of causation and proof of loss and damage. The fraud on the market doctrine theory is premised on the "efficient market hypothesis" and the notion that: … shareholders rely on the integrity of the market price in making their investment decisions such that a misleading statement or omission affects all shareholders through the share price, meaning that individual reliance does not need to be proved. (Cashman P and Abbs R, Prospects and problems for investors in class action proceedings in Lindgren KE (ed), Investor Class Actions, Ross Parsons Centre of Commercial Corporate and Taxation Law Monograph 6, (University of Sydney, 2009), 61-100 at 79 citing M Legg, Shareholder Class Actions in Australia - The Perfect Storm? (2008) 31 University of New South Wales Law Journal 669 at 678-680). 72 The doctrine was endorsed by the US Supreme Court in Basic v Levinson 485 US 224 (1988) but there has been resistance to its application in Australia (see for example Black A, "Investor class actions seminar 10 March 2009 - Commentary on all four papers" (pp 101-109) in Lindgren K E (ed), Investor Class Actions, (University of Sydney, 2009)). To date there has been no instance of which the Court is aware, where the doctrine has been given effect in Australia to establish causation. In my view it goes too far to treat the obiter remarks of Perram J in Grant-Taylor v Babcock & Brown (In Liquidation) [2015] FCA 149 at [219]-[220] as doing more than endorsing the efficient market hypothesis as an available mechanism to measure loss. 73 However, in Caason Investments Pty Ltd v Cao [2014] FCA 1410, Farrell J refused to strike out a pleading in a class action that had advanced the doctrine as the element of causation. Her Honour held at [106]: … despite the strength of intermediate appellate court authority which requires reliance to be demonstrated as an element of causation where an investor has entered into a transaction to which the claim of misleading or deceptive conduct is relevant, recent High Court authority on s 82 of the TPA and the fact that market based causation claims relying on ss 1041H and 1041I and their analogues in the ASIC Act in the context of Ch 6CA have not been considered by the High Court suggest that the state of the law cannot be regarded as so settled that an appropriately pleaded claim would have no reasonable prospect of success... 74 Notwithstanding the attention devoted to this issue in submissions, I have concluded that I do not have to decide whether Mr Bonham's contemplated cause of action, in so far as it relies on the fraud on the market doctrine to establish reliance, is so doubtful in law that it cannot give rise to a reasonable belief that he may be entitled to relief in this Court. In this case there is no need for the prospective applicant to rely on the fraud on the market doctrine to establish Mr Bonham's reliance. 75 That is because in the ACA Lawyers' 10 November 2014 Letter (at para 10(h)) Mr Lewis asserted: Our client purchased Iluka shares shortly after the [8] May 2012 Announcement in reliance on the representations conveyed by that announcement, and in the belief that Iluka could give reliable forecasts over an extended period. Mr Lewis, who was required as a witness, was not cross-examined on those instructions. The prospective applicant's Preliminary Draft Statement of Claim pleads reliance, albeit, in the alternative. For the purpose of these interlocutory proceedings whatever might be the position of others in the claims Mr Bonham has in contemplation, including a representative action, in these proceedings the Court is entitled to proceed on the basis that Mr Bonham's claimed reliance on those representations is not in dispute. 76 Accordingly I turn to the question of whether, accepting he relied on the statements made in Iluka's 8 May 2012 Update, the evidence, including available inferences, before the Court is sufficient for an objectively reasonable belief that Mr Bonham may be entitled to obtain that relief on the basis that the statements made in the 8 May 2012 Update were relevantly misleading or deceptive.

CONSIDERATION 77 Iluka is a corporation. Iluka's 8 May 2012 Update was published to the ASX and, through that means, reached the investing public. Iluka's conduct in providing that report and the forecasts it contained was therefore subject to the obligations imposed in s 1041H of the Corporations Act. Its publication was also undoubtedly in trade or commerce and for that reason was also subject to Schedule 2 of the Competition and Consumer Act (the Australian Consumer Law) and the ASIC Act. 78 It is useful first to dispose of two threshold issues. The first is whether the Court is entitled, or must, have regard to the circumstances of persons other than the prospective applicant, Mr Bonham, who, it may be inferred which other persons, purchased shares in Iluka between 8 May 2012 and 9 July 2012. In that respect I accept the submissions put by Mr Withers that the Court cannot. True it is that the materials before the Court would amply justify the Court finding that Mr Bonham and ACA Lawyers on his behalf have in contemplation a class action in which Mr Bonham will be the lead plaintiff. But if, in these proceedings, Mr Bonham cannot establish that he has reasonable belief in his own possible entitlement to relief, for the purposes of r 7.23, he cannot rely on the fact that other, unidentified and unascertained members of the class who purchased shares at a different date and/or in different circumstances might. Mr Lee's submissions to the contrary, referred to at [64] of these reasons, were advanced without reference to authority and, in the Court's opinion, are inconsistent with the plain text of r 7.23. 79 The second threshold issue to dispose of is the prospective applicant's submission that the Iluka KPFP 8 May 2012 Update contained statements which conveyed misleading or deceptive "express representations", to the effect that Iluka would achieve FY2012 sales of ~400kt zircon, ~225kt of rutile, ~310kt of synthetic rutile and ~350kt of ilmenite, in breach of the Corporations Act, the ASIC Act and the Australian Consumer Law. That submission finds no foothold at all in the language of the Iluka KPFP 8 May 2012 Update itself; and for that reason the Court finds that no such express representations were conveyed in that document. To the contrary the Iluka KPFP 8 May 2012 Update began with the following prefatory statements: This document provides an indicative guide to key physical and financial parameters in the Iluka business for the 2012 financial year. The information contained within this document is derived from Iluka's budgetary forecasts and other estimates. It is, as with all such information, developed in the context of: uncertain economic conditions globally; potential changes to supply and demand dynamic dynamics; and potential modifications to the company's plans and should be treated as a guide only. … 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. 80 Under the heading "Disclaimer-Forward Looking Statements" the Iluka KPFP 8 May 2012 Update included the following: This briefing paper contains information which is based on projected and/or estimated expectations, assumptions and outcomes. 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, and which may cause actual results to differ from those expressed in the statements contained in this release. Factors that could cause actual results or performance to differ materially from those expressed or implied in forward-looking statements include, but are not limited to potential changes in: - exchange rate assumptions - product pricing assumptions - mine plans and/or resources - equipment life or capability - current or new technical challenges - market conditions - management decisions While Iluka has prepared this information based on its current knowledge and understanding and in good faith, there are risks and uncertainties involved which could cause results to differ from projections. Iluka shall not be liable for the correctness and/or accuracy of the information nor any differences between the information provided and actual outcomes, and furthermore reserves the right to change projections from time to time. Iluka does not undertake to update the projections provided in this document on a regular basis. 81 I accept Mr Withers submissions (transcript, p 185, line 1 to p 187, line 46) that Iluka did not thereby expressly represent that the company would achieve its "point" sales forecasts. 82 In his reply Mr Lee did not identify any aspect of the text of the 8 May 2012 Update to justify the Court finding an express representation in those terms. Mr Lee's submission that the terms of the document understood as a whole should be so understood is wholly implausible. The proposition is contrary both to the unambiguous and express disclaimers and caveats which were integral to the document and to the sense conveyed by the 8 May 2012 Update when read as a whole.

The implied representation 83 What Mr Lee refers to as Iluka's "implied representation", that Iluka had a reasonable basis for making those projections of future volumes, stands in a different position. A statement relating to future matters, if made without the person making that statement having reasonable grounds for its making is taken, for the purposes of the Australian Consumer Law, the ASIC Act and the Corporations Act, to be misleading. 84 Section 4(1) of the Australian Consumer Law provides as follows: (1) If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of this Schedule, to be misleading. 85 Section 12BB(1) of the ASIC Act provides: (1) If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading. 86 Section 769C(1) of the Corporations Act provides: (1) For the purposes of this Chapter, or of a proceeding under this Chapter, if: (a) a person makes a representation with respect to any future matter (including the doing of, or refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken to be misleading. 87 No doubt in recognition of the burden those statutory provisions cast upon it, Iluka adduced evidence in these interlocutory proceedings relevant to the reasonableness of its grounds for making the representations in the 8 May 2012 Update (see Exhibit 5, annexures "AG-1" to "AG-8", pp 5-75). The evidence adduced on the company's behalf included statements that appear plausibly to explain why, notwithstanding deteriorating market conditions, Iluka continued to stand by its 8 May 2012 forecasts of future volumes for some time thereafter; until well after Mr Bonham had purchased his shares on 15 May 2012. For example, on 23 May 2012, Iluka's Managing Director reported to Iluka's 2012 AGM that there had been some evidence of improved economic traction in the US and China and that, despite subdued European demand, zircon sand stocks there were almost exhausted and would require replenishment (Mr David Robb, Managing Director's address at the Iluka 2012 AGM, 23 May 2012; Exhibit 5, annexure "AG-3", p 55). 88 Once evidence has been adduced by a respondent in discharge of the evidential burden, the applicant must satisfy the dispositive burden of showing that the respondent did not have reasonable grounds for making the representation: North East Equity Pty Ltd v Proud Nominees Pty Ltd [2012] FCAFC 1 at [30]. In my view, Iluka adduced more than sufficient material in discharge of its evidential burden to require the prospective applicant to carry the dispositive burden. 89 The mere fact that events did not turn out as Iluka's 8 May 2012 "representations as to future matters" had revealed were its expectations does not establish grounds for a reasonable belief that Mr Bonham may have a cause of action. In determining whether a person had reasonable grounds for making a representation in respect of a future matter, the question must be judged as at the date of the representation: Sykes v Reserve Bank of Australia [1999] FCA 746. 90 While evidence of later events may throw light on the probability that a representation was reasonable it is vital to guard against "hindsight illusion": City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 at [83].

Reasonable grounds 91 When a statute or a rule of court prescribes that there must be a reasonable basis for a state of mind - including suspicion and belief - it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person. 92 As the High Court held in George v Rockett (1990) 170 CLR 104; [1990] HCA 26 at [13]-[14]: [it is necessary] to bear in mind that suspicion and belief are different states of mind. Suspicion, as Lord Devlin said in Hussien v. Chong Fook Kam [1969] UKPC 26; (1970) AC 942, at p 948, "in its ordinary meaning is a state of conjecture or surmise where proof is lacking: 'I suspect but I cannot prove.'" The facts which can reasonably ground a suspicion may be quite insufficient reasonably to ground a belief, yet some factual basis for the suspicion must be shown …The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof. Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture. 93 While something may be left to conjecture, it misunderstands what the High Court of Australia stated about "belief" to conclude that conjecture alone can ground a reasonable belief. And there is a subtle but important difference between conjecture and inferences. As Lord Macmillan noted in Jones v Great Western Railway Co (1930) 47 TLR 39 (at 45): … the dividing line between conjecture and inference is often a very difficult one to draw. A conjecture may be plausible but is no legal value, for its essence is that it is a mere guess. An inference in the legal sense, on the other hand, is a deduction from the evidence, and if it is a reasonable deduction it may have the validity of legal proof. 94 Having referred to that distinction, it is convenient to address sequentially each of the matters advanced by Mr Lee (see [49], [53] and [54] above) as objectively justifying his client's reasonable belief that Iluka's zircon sales forecast in May 2012 was relevantly misleading or deceptive.

ACA Lawyers' 10 November 2014 Letter 95 I commence with an analysis of the propositions advanced by ACA Lawyers in the ACA Lawyers' 10 November 2014 Letter (at para 10) which Mr Lee and Mr Edwards refer to in the Prospective Applicant's Written Submissions (at para 9) as outlining the context of prospective applicant's application: 96 Paragraph 10(a) (a) On 8 May 2012 Iluka represented to the market that would achieve FY [full year] 2012 zircon sales of ~400kt, rutile sales of ~253kt, synthetic rutile sales of ~257kt and saleable ilmenite sales of ~315kt, which sales it expected would be approximately one third/two thirds weighted between the first and second half of FY2012; At [79] - [82] the Court has stated its reasons for rejecting Mr Bonham's contention that Iluka's 8 May 2012 Update made such express representations. 97 Paragraph 10(b) (b) Iluka also represented to the market that, notwithstanding the market conditions it described in the May 2012 Announcement, it had a reasonable basis for those forecasts, and a reasonable basis of providing reliable forecasts of future sales (including on a point estimate basis); This statement correctly states the law but advances no reason to conclude that there was any want of reasonable basis for the statements it refers to. 98 Paragraph 10(c) (c) On 16 May 2012 and 23 May 2012, Iluka made public statements which did not contradict the express and implied representations it had conveyed by the May 2012 Announcement; The Court has found that the express representations asserted were not made (above [79] - [82]). The Court accepts that the implied representations were not withdrawn by public statements referred to. However that proposition, neither by itself nor by inference, provides any basis to suggest any contrary duty on Iluka's part. Iluka has explained why, notwithstanding deteriorating market conditions, for some time subsequent to their making, it had continued to stand by its 8 May 2012 forecasts (see above at [87]). The statements were made in May 2012, well before a scheduled large shipment, which it can be inferred Iluka was then expecting to add to its first half year sales volumes, did not proceed later in June (see below at [99]). There is nothing in the evidence before the Court to suggest that any problems with the June shipment were known or ought to have been known by Iluka in May. 99 Paragraph 10(d) (d) When Iluka made the July 2012 Announcement, it conveyed to the market not only that it withdrew the specific forecasts made in the May 2012 Announcement, but that Iluka could not make forecasts over extended periods with an appropriate degree of confidence. It thus conveyed to the market that its ability to give reliable forecasts was effectively impaired; Acceptance of that proposition provides no reason to infer Iluka had prior knowledge that its capacity to make reliable forecasts would be impaired before Mr Bonham's share purchase. It provides no basis for any inference that Iluka ought reasonably to have known that those forecasts could not be met at the time they were made. It may be recalled that Mr Withers took the Court to evidence that the trigger point for Iluka revising its 8 May 2012 outlook occurred only after a large shipment of zircon was deferred in June 2012 (transcript, p 195, lines 19-35). 100 Paragraph 10(e) (e) Iluka in the July 2012 Announcement attributed the need to give revised guidance to a number of other macro-economic factors, none of which, in our view, were new information not generally available prior to 9 July 2012. While Iluka referred to it having moved to "shorter period sales contracts", the July 2012 Announcement was first time that Iluka had linked this to the reliability of its sales guidance; Mr Bonham's solicitor, Mr Lewis, in his affidavit of 30 March 2015 (Exhibit 4) at paragraph 32(d) referred to Iluka's marketing strategy (that is changing sales contract periods from multi-year or annual arrangements to shorter periods) as having been in place "for some years" prior to 9 July 2012. The contention advanced in the final sentence of (e) above, whilst true, should be put in context. In the same announcement the company stated that the shift from longer to shorter contract periods had "served the company well, given the level of price increases achieved during periods of strong demand" (Exhibit 5, annexure "AG-4", p 62). No reason was advanced by Mr Lee to doubt the truth of that statement and it will be recalled that 2011 had been a record year for the company. Having been a factor as part of Iluka's success up until only a few months previously, the Court finds it unsurprising that Iluka did not link shorter term contracts previously to the reliability of its sales guidance. Nor, save in retrospect, could it appear unreasonable for it not to have done so. There is no basis for an inference that Iluka knew, or ought reasonably to have known that what had been a source of its recent strength in the market would prove, in changed and deteriorated economic circumstances, to become a liability. That is so particularly given the Court has been referred to materials to explain why, notwithstanding deteriorating market conditions, for some time subsequent to their making, the company thought those deteriorating conditions would not require it to make further downgrades and why it had continued to stand by its 8 May 2012 forecasts (see above at [87]) until further adverse events forced it to re-evaluate and make the Iluka FSV 9 July 2012 Update. 101 Paragraph 10(f) (f) The contemporaneous material establishes the market was surprised, both by the downgrade in guidance, but also by the express withdrawal by Iluka of all guidance in the form of single point forecasts - leading to the substantial fall in the Iluka share price which occurred following the July 2012 Announcement; It is not in dispute that the price of Iluka's shares fell by approximately 24% immediately following the Iluka FSV 9 July 2012 Update. There is also no doubt that the scale of the downgrades announced by the company in July 2012 surprised the market but neither fact provides a logical foundation for the inference that Iluka's earlier advice of 8 May 2012 was known by it, or ought to have been known by it, to be overly optimistic and not achievable or that the company had information prior to 9 July 2012 that it failed to release in breach of its statutory obligations of continuous disclosure. 102 In Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 at [86] Spigelman CJ referred approvingly to the observations of Sir Frederick Jordan in Carr v Baker (1936) 36 SR(NSW) 301 (at 306): The existence of a fact may be inferred from other facts when those facts make it reasonably probable that it exists; if they go no further than to show that it is possible that it may exist then its existence does not go beyond mere conjecture. Conjecture may range from the barely possible to the quite possible. 103 The law requires bad news to be released when a company's continuous disclosure obligations are engaged, not that such bad news cannot cause surprise to the market. Commerce is never free of risk and when unwelcome news is released it often gives rise to price falls. Given that a plausible basis has been illustrated for Iluka's management to have continued to hold the view that their 8 May 2012 guidance remained valid until July 2012 (and certainly well after Mr Bonham had purchased his shares), no adverse inference to the effect that Iluka must have known at 8 May 2012 what it later became aware of and announced on 9 July, can be drawn. 104 Paragraph 10(g) (g) A reliable indicator of the surprise of the market is the approximately 24% drop in the share price of Iluka which occurred immediately following the July 2012 Announcement; The Court is prepared to infer, in the absence of any other explanation having been advanced, that the sharp fall in Iluka's share price immediately following the Iluka FSV 9 July 2012 Update was a product of the market's surprise but that conclusion, for the reasons already given, provides no logical foundation for an inference that Iluka's earlier advice of 8 May 2012 was known, or ought to have been known, by it to be overly optimistic and not achievable or that the company had information prior to 9 July 2012 that it could not achieve its forecast and did not keep the market informed. Legal literature is replete with references to what is commonly referred to as the "hindsight illusion" if an event has happened, it must have been foreseeable. 105 Paragraph 10(h) (h) Our client purchased Iluka shares shortly after the May 2012 Announcement in reliance on the representations conveyed by that announcement, and in the belief that Iluka could give reliable forecasts over an extended period. At [79] - [82] the Court has set out its reasons for rejecting the contention that Iluka's 8 May 2012 Update made express representations as to future sales volumes. 106 Paragraph 10(h) of the ACA Lawyers' 10 November 2014 Letter then goes on to say: Accordingly, in our view, in the event our preliminary conclusions are correct (and the May 2014 Announcement is incorrect), he has potential claims arising from an assertion that Iluka; (i) engaged in misleading or deceptive conduct … by making the representations conveyed by the May 2012 Announcement without reasonable grounds; and/or (ii) contravened its continuous disclosure obligations by failing to inform the market that the forecasts contained in the May 2012 Announcement were not reliable, and that Iluka could not maintain point estimates for sales going forward The conclusions expressed in this paragraph are not independent propositions - they depend on the matters advanced in (a)-(h) being accepted for their foundations. As those propositions have been rejected, conclusions based on them cannot follow.

The prospective applicant's further submissions 107 In response to questions from the bench as to whether the matters set out above could be said to justify a reasonable belief, rather than mere speculation about or suspicion of relevant misconduct on Iluka's part, and to particularise, if so how that was proposed to be established, Mr Lee directed the Court's attention to paragraph 14 of the Prospective Applicant's Written Submissions and the matters pleaded in paragraph 26 of the Preliminary Draft Statement of Claim.

Paragraph 14 of the Prospective Applicant's Written Submissions 108 Paragraph 14 is therefore set out below, similarly followed by the Court's finding in respect of each sub-paragraph. Based on the publicly available documents, Mr Bonham does have a belief that he may have the right to obtain relief. The basis for this reasonable belief is set out comprehensively in correspondence sent by ACA on his behalf to Iluka's solicitors. There is a reasonable basis for believing that Iluka may have made the representations contained in the May 2012 Announcement without reasonable grounds, and in breach of its continuous disclosure obligations. However, in order to assess whether Iluka in fact lacked reasonable grounds, or would be likely to be able successfully to defend the proceedings on such a basis, further documents are required. It is not necessary to recite what has been set out in the correspondence, except to make a few points of emphasis: (a) When Iluka issued the July 2012 Announcement it revealed that its actual zircon sales for the first half of 2012 were only 87kT (that is about 20% of the forecasts made in the May 2012 Announcement had been achieved in the first six months of the year). If, as stated by Iluka in the July 2012 Announcement, its downgrade was based upon second quarter sales being "below expectation", it may be the case (depending upon what information was in Iluka's possession) that by 8 May 2012 (which was almost half-way through the second quarter), this would or should have been apparent to Iluka also, given that at most by that stage 87kT of zircon had been sold. 109 The content of the preface of ACA Lawyers' 10 November 2014 Letter has been discussed above and need not be further considered. As to the matters set out in sub-paragraph (a) the fact that Iluka achieved lower than forecast sales volumes for the first half of 2102 is not in dispute. However, the submission that it "may be the case" that Iluka had or should have had foreknowledge of lower sales as at 8 May 2012 is self-evidently mere speculation. 110 Moreover, to the extent there is material before the Court relevant to Iluka's knowledge it runs counter to the hypothesis. There is, for example, evidence that would provide a reason why, notwithstanding deteriorating market conditions, for some time subsequent to their making, Iluka continued to stand by the forecasts in its 8 May 2012 Update (see above at [61] and [87]). Accordingly, the relevant circumstances would not appear to the Court to give rise to reasonable suspicion, let alone objective reasonable belief that by 8 May 2012 Iluka would or should have known that its forecast could not be met. 111 The argument that the scale of the shortfall of sales volumes must have been known is based on unsound premises. Iluka, in its 8 May 2012 Update, stated that it anticipated sales in the first half would be slow and difficult to predict but it expected to achieve one-third of its sales volumes (zircon/rutile/synthetic rutile) in that period with the balance in the second half. Iluka's 8 May 2012 forecast sales of zircon for the 2012 full year was ~400kt. Its forecast first half 2012 sales of zircon was therefore ~133kt. Iluka achieved actual sales of 87kt of zircon in the first half of 2012 but that equates to approximately 65% of the forecast sales volume in the 8 May 2012 Update rather than 20% as the submission suggests. 112 Moreover, unacknowledged in the submission is the fact that Iluka also disclosed in the Iluka FSV 9 July 2012 Update that a scheduled large shipment had been deferred in June, associated with port delays. It was never suggested by Mr Lee that there was any untruth in that statement or that cancellation of that shipment was foreseeable. (b) As reasons for its downgrade (and its withdrawal of point guidance going forward) Iluka cited the "ongoing" or "incomplete nature of discussions" with customers for second-half volume requirements. If such discussions were incomplete as at 9 July 2012, they must have been incomplete as at 8 May 2012. Depending upon what other information was in Iluka's possession as at 8 May 2012, it could be the case that Iluka was in no different position as at 9 July 2012 than it had been earlier, and (on this basis) if it was appropriate to withdraw guidance as at 9 July 2012 for this reason, it would have been appropriate to do so earlier. 113 The proposition that something "could be the case" is no warrant for a belief that it was the case. There is nothing in the materials before the Court to justify elevating the premise underlying such speculation to the status of belief. (c) Iluka also referred to its move to shorter period sales contracts as having "increased the difficulty in providing specific company performance guidance, particularly over extended periods. [sic] The existence of shorter period sales contract [sic] was known by Iluka at the time of the May 2012 Announcement, given it had been using the shorter period contracts "in recent years", and depending upon what information Iluka may have had at that time about the relationship between those contract lengths and providing performance guidance, it may very well be the case that it did not have reasonable grounds for not withdrawing guidance at that point. 114 The evidence before the Court is that shorter term contracts had been in existence for some years without adverse consequences and had served the company well (see [100]). There is no evidence to support the inference, and it is mere speculation to suggest, that as at 8 May 2012 a likely downside to its use of shorter contracts going forward had become apparent, or ought to have become apparent to Iluka. (d) Finally, Iluka also referred to "continuing uncertainty associated with economic and business conditions" as making it impossible to give point forecasts with an appropriate degree of confidence. It also referred to the "absence" of policy responses both in Australia and globally. If the uncertainty was "continuing" (and there was an absence of policy responses) as at the time of the July 2012 Announcement, then it may be inferred (depending on the information Iluka had at earlier times, and its reasonable beliefs based on that information) that the uncertainty (and absence of policy responses) also existed at the time of the May 2012 Announcement. 115 It is unnecessary to "infer" that Iluka may have been aware of uncertainty associated with economic and business conditions prior to 9 July 2012 - it had previously twice downgraded its 2012 expectations on that basis. On 23 February 2012 Iluka had published the Iluka KPFP 23 February 2012 Report. In that report Iluka provided new "guidance" inter-alia, that its production of zircon would be reduced to ~500kt "in light of potentially lower short-term demand". Then, on 8 May 2012, Iluka again downgraded its guidance when it published the Iluka ASX Notice 8 May 2012 Update referring to "contra-indicators" of traction in the US and China and increased weakness in the Eurozone. Nothing in those circumstances suggests that the degree of Iluka's knowledge of market uncertainty was greater at those times than was then revealed by it. There is no evidential basis to elevate the speculation advanced in this paragraph to the status of belief. (e) Iluka's "savage" downgrades "shocked the market" in their magnitude, and were read by analysts to have caused the 24% drop in Iluka's share price which occurred on 9 July 2012. Prima facie, this is the measure of inflation in the share price (and the loss suffered by the shareholders who purchased between 8 May and 9 July 2012). 116 This proposition appears to have been advanced in order to equate Iluka's fall in share prices after the publication of the Iluka FSV 9 July 2012 Update with Mr Bonham's measure of loss rather than to establish the proposition that Mr Bonham had an objectively reasonable belief that Iluka had engaged in misleading or deceptive conduct by making of future representations without reasonable grounds. 117 To the extent it was submitted to establish the proposition that what was stated in the various market analyst reports is evidence entitling the Court to draw that further inference, that submission must be rejected. 118 Mr Lee did not identify any analyst's report that had expressed scepticism about Iluka's proper discharge of its disclosure obligations to the market. 119 The Court engaged Mr Lee in a discussion relating to the Royal Bank of Canada Capital Markets Ratings Revision (9 July 2012; Exhibit 2, annexure "SL-6", pp 741-751 (RBC Capital Markets Ratings Revision)) from which the language of "savage" downgrades and "shock[ing] the market" quoted in the Prospective Applicant's Written Submissions is derived (at paragraph 14(e)), (transcript p 145, line 33 to p 146, line 9). 120 The Court drew Mr Lee's attention to the fact that Iluka was regarded by experienced market analysts as having made "special efforts of disclosure" to help the market understand the "rather opaque" mineral sands sector (RBC Capital Markets Ratings Revision; p 741). 121 Notwithstanding it was the RBC Capital Markets Ratings Revision upon which paragraph 14 (e) was based Mr Lee responded (transcript, p 146, lines 4-6): Well your Honour, I accept that idiosyncratic responses to materials and taking one analyst's view in isolation is not a particularly helpful exercise…What is a useful exercise is viewing the analysts' reports as a whole and seeing various themes emerge. 122 However, Mr Lee did not submit that a theme of the analysts' reports was to the effect that Iluka had made future representations without reasonable grounds. It is strictly not necessary to address a submission not made, but to the extent such a submission may be thought to have been implicit, the Court examined a selection of those reports (RBS Equities (Australia) Limited (Exhibit 2, annexure "SL-6", pp 726-732); the RBC Capital Markets Ratings Revision; Deutsche Bank AG (Exhibit 2, annexure "SL-6", pp 763-774); and the E.L. & C Baillieu Stockbroking Ltd (Exhibit 2, annexure "SL-6", pp 788-793)). No such theme was evident. 123 For completeness the Court notes that no market analyst or expert was called by the prospective applicant to give evidence.

Preliminary Draft Statement of Claim 124 The final matters Mr Lee referred the Court to in support of Mr Bonham's entitlement to preliminary discovery were the matters alleged in the Preliminary Draft Statement of Claim (para 26). Paragraph 26 asserts as a fact that as at 8 May 2012 Iluka was aware of certain things: As at 8 May 2012 ILU [Iluka] was aware of each of the following matters [more information needed]: (a) the actual sales figures for 1Q 2012 and for April 2012 for Z/R/SR; (b) that demand for zircon had materially decreased during 1Q 2012; (c) the contracts it had going forward for the sales of Z/R/SR; (d) that generally consumer confidence and economic conditions were subdued; (e) that the point estimates of sales provided in the February Earnings Guidance [KPFP 23 February 2012 Report] were likely to be unreliable; and, (f) that its marketing strategy of changing sales contract periods from periods from multi-year or annual arrangements to much shorter periods could result, in times of global and regional economic uncertainty and turmoil with weakened confidence levels, in volatility in sales levels from period to period. (Emphasis added) 125 Paragraph 26 is premised on the basis that "more information [is] needed" to establish the facts asserted therein. The "more information" which is required is that which is sought by the preliminary discovery application. Mr Lee's submission based on paragraph 26 cannot be accepted. It suffers from a fundamental defect of logic. 126 A proposition advanced on the basis that a particular fact or circumstance cannot be established without additional information logically is incapable of justifying an objectively reasonable belief in that fact or circumstance's existence. Absence of a fact may leave room for suspicion or conjecture but it can provide no basis for a reasonable belief. Mr Bonham cannot lift himself by his own bootstraps to an entitlement to preliminary discovery merely by identifying what he does not know, assuming that if it were known it would make his case, then asserting that case would be sufficient to satisfy the Court that he has a reasonable belief that he would be entitled to relief.

ACA Lawyers' 22 December 2014 letter 127 For completeness, the Court notes that paragraph 14 of the Prospective Applicant's Written Submissions that have been discussed at [108]-[123] also referenced (by a footnote) paragraph 1 of ACA Lawyers' correspondence of 22 December 2014 addressed to Iluka's solicitors (Exhibit 1, annexure "SL-4") as the basis for Mr Bonham's reasonable belief that he may have the right to obtain relief. However, those propositions were in the main restated in a more concise manner in paragraph 14 of the Prospective Applicant's Written Submissions and in the other submissions previously addressed. It would be otiose to repeat all of the reasons why the Court is unpersuaded that those propositions justify the conclusions the submissions contended for. But lest appear the Court may have overlooked the significance of an element of that correspondence the Court records the following in relation to each subparagraph of ACA Lawyers' correspondence of 22 December 2014: (1) subparagraph (a) is an uncontentious statement of fact; (2) subparagraph (b) is responded to by the Court's observations at [96]; (3) subparagraph (c) is responded to by the Court's observations at [97] ; (4) subparagraph (d) is responded to by Court's observations at [98]; (5) subparagraph (e) is responded to by the Court's observations at [87] and [108]-[109]; (6) subparagraphs (f)-(g) are responded to by the Court's observations at [108]-[109], [114], [115] and [124]-[126]; (7) subparagraph (h) is responded to by the Court's observations at [87], [98]-[99] and [124]-[126]; (8) subparagraph (i) is responded to by the Court's observations at [99]; (9) subparagraph (j) is responded to by the Court's observations at [104], [116]-[123] and [134]-[135]; (10) subparagraph (k) adds nothing relevant; (11) subparagraph (l) is factually correct but to the degree it is relevant it is responded to by the Court's observations at [116]-[123]; and (12) subparagraph (m) is responded to by the Court's observations at [105]-[106].

Conclusions regarding reasonable belief 128 The Court does not overlook the possibility that notwithstanding the want of persuasiveness of each of the individual propositions advanced by Mr Lee that taken together they could amount to an objective basis for Mr Bonham to have held the required belief. Facts or circumstances sufficient to give rise to an objectively reasonable belief can sometimes be inferred from other facts or circumstances. What is sufficient to establish a belief, as with any other state of mind, can emerge from a process of inference that combines several factors as strands in a cable or as rays of light each too feeble in themselves converging to clear away darkness. 129 However, a cable of belief cannot be woven exclusively from threads of mere speculation or conjecture, nor do unfocussed feeble rays add up to illumination. 130 "Reasonable grounds" for a state of mind, in this instance Mr Bonham's belief, requires the existence of facts and circumstances sufficient to induce that state of mind in a reasonable person. 131 For the reasons explained above none of the facts or circumstances put forward by Mr Lee on the prospective applicant's behalf when examined, amount to more than conjecture, suspicion or speculation that Iluka breached its continuous disclosure obligations or engaged in misleading or deceptive conduct by making of future representations without reasonable grounds. The circumstances said to justify that belief are, when examined, quite insufficient to induce belief in the mind of a reasonable person. 132 The Court is unpersuaded that the evidence and available inferences from that evidence, viewed as a whole, justifies a reasonable belief that Iluka did not publish its advice to the market on 8 May 2012 on a sound basis, or it lacked plausible grounds for remaining persuaded of that advice until it discharged its continuous disclosure obligations on 9 July 2012 for the reasons it then stated. 133 Commercial ventures are routinely exposed to risks both at the macro-economic and micro-economic level, some of which are entirely unpredictable: disruptive technologies, global or regional economic crises, changes in market conditions, cancelled orders and a myriad of other such influences. The law in respect of misleading and deceptive conduct demands that a company's representations with respect to future matters be made on reasonable grounds not that events occur as predicted. 134 When there has been a significant fall in a company's share price after an announcement by it of unexpected bad news, it is entirely understandable that those who have suffered a loss may be suspicious that earlier, more optimistic, guidance from the company was misleading or deceptive. That the Court has not, on the materials currently before it, been persuaded that an objective basis for the prospective applicant to hold a belief that he may have a right to relief has been established, does not deny, that if an action is commenced and discovery obtained in the usual manner, the prospective applicant's right to relief ultimately may be established. It is merely to conclude, that on those materials, Mr Bonham has not established his entitlement to preliminary discover pursuant to r 7.23, for which such understandable, but still mere, suspicion and conjecture is inadequate. 135 Only through the lens of "hindsight illusion" (that if an event happens it must have been foreseeable) is it possible for the proposition that Iluka must have known at 8 May 2012 what it later became aware of and announced on 9 July 2012 to appear "as plain as a pikestaff". 136 It would be an error of law for the Court to order preliminary discovery upon no more than the possibility that facts to be discovered might reveal a cause of action; Echo Tasmania. 137 The Court is not satisfied that the prospective applicant has established an objectively reasonable basis for a belief that he may have the right to obtain relief in this Court. The order the prospective applicant seeks is therefore refused.

IS EVIDENCE OF THE PROSPECTIVE APPLICANT'S OWN BELIEF REQUIRED 138 Given that the Court has found that the prospective applicant has not established an objectively reasonable basis for a belief that he may have the right to obtain relief it is strictly unnecessary to go beyond that. However in recognition that the question was fully argued it is convenient to also make findings on this subject.

The prospective respondent's submissions 139 Counsel for Iluka submits that r 7.23 identifies not only what must be reasonably believed, but also prescribes the person who must hold that belief. Mr Withers submitted that the text of r 7.23 is clear that it requires that the relevant belief be held by the prospective applicant, in this case Mr Bonham. He submitted that there was no evidence before the Court to permit a finding that Mr Bonham held any belief, let alone a reasonable belief, regarding his putative right to obtain relief against Iluka. In the absence of Mr Bonham's belief being established an order for preliminary discovery under the rule cannot be made.

The prospective applicant's submissions 140 Mr Lee submits that the decision of Sandhurst Trustees was clear authority for the contrary; all that must be established by a prospective applicant was an objective basis for what was advanced on his or her behalf as the basis for a reasonable belief that he or she may have a right to relief. 141 It therefore was unnecessary to establish Mr Bonham's state of belief. 142 Mr Lee did not identify any support for the assertion made at [22] of the Prospective Applicant's Written Submissions that following legal advice Mr Bonham had conscientiously reviewed the publicly available documents and that "although he believes he may have the right to obtain relief on behalf of himself and potential group members, he is not, without assessing the strength of the defence Iluka has publicly foreshadowed in the March 2012 (sic) [2014] announcement, in a position to decide to commence the Contemplated Class Action" The only evidence of Mr Bonham's belief that Mr Lee could point to or the Court can identify was that contained in the affidavit of Mr Lewis, a partner of ACA Lawyers, sworn on 30 March 2015 (Exhibit 4). Mr Lewis deposed at [38]: As the solicitor for the Prospective Applicant, the Prospective Applicant relies upon me for advice as to whether to commence a proceeding against Iluka, and so in respect of the questions as to whether the Prospective Applicant may be entitled to relief from Iluka, and whether the Prospective Applicant has sufficient information in order to decide whether to commence a proceeding, my views are the views of the Prospective Applicant. 143 However, to the extent it might be held, contrary to his primary submission, that evidence was required of Mr Bonham's belief that he may be entitled to relief, Mr Lee submitted that that paragraph, given that Mr Lewis himself believed both that Mr Bonham may be entitled to relief and that the prospective respondent had or was likely to have documents relevant to that relief, satisfied that obligation.

Discussion 144 It clearly is settled law that a prospective applicant must show an objective basis for a reasonable belief that he or she may have the right to obtain relief in the Court from a prospective respondent in order to obtain an order for preliminary discovery. But the question that Mr Withers' submission raises is whether that alone is sufficient to meet the requirements of r 7.23 or is there a further requirement that the relevant belief be held by the prospective applicant. 145 In some instances "where a power is expressly conditioned upon the formation of an opinion, the existence of the opinion itself may be a jurisdictional fact" (W Gummow AC, "Rationality and reasonableness as grounds for review" (2015) 40 Aust Bar Rev 1 at 9). 146 There may have been a sound forensic basis that would explain why the only evidence to be put before the Court to establish Mr Bonham's belief was that which was adduced in Mr Lewis's affidavit (at para 38) but if so that forensic purpose ultimately remains entirely obscure to the Court (transcript, p 226, line 37 to p 31, line 26). However, this issue did not come as a surprise - the prospective respondent had put the prospective applicant on notice that the fact of Mr Bonham's belief, and not merely its objective reasonableness, would be in issue (the prospective respondent's submissions filed on 24 March 2015 (at paras 10 and 18.1)). 147 I admitted the relevant paragraph of Mr Lewis's affidavit over objection, as hearsay (transcript, p 28, line 22 to p 30, line 21). I did so on the basis that proceedings brought to obtain orders for preliminary discovery are interlocutory in nature and in such interlocutory matters hearsay may be received. 148 I reject the submission made by Mr Lee that this question was authoritatively determined in Sandhurst Trustees. That case certainly decided that direct evidence from a prospective applicant is not required to satisfy r 7.23 but as I read that case it did not go so far as to decide that the fact of the belief being held by the prospective applicant did need not be established as Dowsett, Davies and Wigney JJ held at [19]: …In considering whether a belief is reasonably held, the court is not confined to the matters about which the applicant has deposed, but can consider the facts and matters put before the court by the applicant and whether, having regard to those facts and matters, the court is satisfied that the applicant's belief is one that is reasonably held... 149 I am reinforced in that conclusion because (a) the actual decision in that case involved rejecting an appeal from the judge at first instance, Greenwood J in Clarke, who had concluded that the prospective applicant's holding of the relevant belief had been established, albeit by indirect evidence and (b) it did not purport to overrule what had been earlier decided by two judges of this Court. 150 In EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd (No 3) [2012] FCA 48 (EBOS Group) the prospective respondents had similarly argued that r 7.23 required that the prospective applicants must prove that they actually hold the belief and that in this respect the rule differed significantly from its predecessor, O 15A r 6 of the Federal Court Rules 1979 (Cth). Justice Katzmann at [32] held as follows: …I question whether the intention of the redrafted rule was to require an applicant to adduce evidence of the applicant's belief in the matters covered by paragraphs (a) and (c) of the rule. For more abundant caution, however, and in the absence of any higher authority, I intend to proceed on the basis that evidence is indeed necessary. 151 The question arose again in ObjectiVision v Visionsearch [2014] FCA 1087. Justice Perry held at [32]-[35] as follows: 32. The question then arises as to whether or not the reference to what an applicant "reasonably believes" in rule 7.23(1)(a) requires proof also of the existence of a subjective belief. It was well-established in this regard that the test under the old O 15A r 6 - whether there was "reasonable cause to believe" that the applicant may have the right to obtain relief - was objective, and therefore did not import any subjective element: see Hooper v Kirella Pty Ltd [1999] FCA 1584; (1999) 96 FCR 1 at 11 [39]; St George at 26. 33. The question whether the position changed under the new rule arose for consideration in EBOS. Katzmann J in EBOS at 539 [28] doubted whether, aside from the insertion of the word "directly" in r 7.23(1)(c), it was intended that the new rule would effect any substantive change, as opposed to merely expressing the old rule in plain English (see also EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 at [18]- [21] (Flick J), and Higgins v Hancock (as liquidator of 246 Arabella Investments Pty Ltd (ACN 001 085 481)) [2011] FCA 1492 at [55]- [59] (Jacobson J). As Katzmann J points out at 539 [28] in EBOS, this view accords with the goal, among others, of rewriting the rules to be "simple and clear": see the Explanatory Statement issued by the Judges of the Court at 2; see also at 4. More specifically, the Explanatory Statement explains at 10 that: The provisions in Divisions 7.1..., 7.2... and 7.3 (Preliminary Discovery) adopt, simplify and streamline the process and procedures which operated under the former Rules and do not substantially alter existing practice. 34. Thus, as Katzmann J explained, '"[r]easonably believes" may therefore have been substituted for "reasonable cause to believe" for the sake of preferring plain English expression, just as replacing "commence" with "start" exhibits a preference for the Anglo-Saxon over words of Latin origin...'. However, out of abundant caution and in the absence of higher authority, her Honour proceeded on the basis that evidence of an applicant's subjective belief in the matters covered by subrules (a) and (c) was necessary in contrast to the position under the old O 15A r 6: EBOS at 540 [32]. 35. I consider that it is prudent to proceed on the same basis here. In reaching this view, I also consider that this construction accords with the ordinary meaning of the phrase "reasonably believes" which suggests that the prospective applicant must have a subjective state of belief which is reasonable. 152 I respectfully adopt the conclusions expressed by Perry J at [35]. A judge may not be bound by the reasoning of another judge at first instance, but, in comity, would do so only if driven to conclude that the reasoning was unsound. Far from regarding Perry J's reasoning as unsound I agree with her Honour's conclusion that the construction she applied gives effect to the ordinary grammatical meaning of r 7.23. I acknowledge that Katzmann J in EBOS Group queried whether the intention of the redrafted rule was to require a prospective applicant to adduce evidence of the prospective applicant's belief in the matters covered by paragraphs (a) and (c) of r 7.23. However, I proceed on the basis that if the law should be applied otherwise than as determined both by her Honour and Perry J that must be a matter properly for the determination of a Full Court. 153 I therefore return to the fall back position advanced on the prospective applicant's behalf. 154 On close examination, what is stated in Mr Lewis's affidavit at paragraph 38 (see [142] above) does not establish the fact in issue. It advances a conclusion based on a logical fallacy. It asserts that because the prospective applicant, Mr Bonham, relies upon Mr Lewis for advice in these proceedings, Mr Lewis's views are the views of Mr Bonham. As a matter of logic that proposition cannot be sustained. 155 A person may rely on another for legal advice, yet hold a quite different belief as to part or the whole of the advice tendered. Hypothetically it might be the case that, unlike Mr Lewis, Mr Bonham believes there would be little or no prospect of his obtaining relief in the Court, yet because he is indemnified in respect of costs, he may be prepared to assent to these proceedings being brought knowing that the risks fall on his solicitors. Of course I do not advance that hypothesis as a finding - it is put forward merely as an illustration of the problem in accepting what Mr Lewis deposes (at para 38) as establishing the basis for the Court to be satisfied that Mr Bonham held the requisite belief. 156 Had I not already determined that the application must be refused on other grounds, I would also have done so on this basis.

The discretion 157 Similarly because the Court has held that the prospective applicant is not entitled to preliminary discovery the Court is not strictly required to consider whether or not that remedy would have been refused in any event in the exercise of the Court's discretion. However discretionary considerations would incline the Court to refuse relief in this specific instance in any event. Rule 7.23(2) makes clear that preliminary discovery is not of right; it is a discretionary remedy. That also is consistent with discovery's equitable origins. 158 It will be recalled that on 24 March 2014, Mr Bonham's solicitors, ACA Lawyers, issued the ACA Lawyers' 24 March 2014 Media Release announcing that ACA Lawyers had obtained funding from "London based Harbour Litigation Funding" to commence proceedings in the Federal Court of Australia against Iluka on behalf of shareholders who had sustained losses caused by the company's actions. The ACA Lawyers' 24 March 2014 Media Release stated that "The class action will allege that Iluka failed to comply with its continuous disclosure obligation and engaged in misleading or deceptive conduct" (Exhibit 5, annexure "AG-6", p 67). One of ACA Lawyers' Principals, Mr Lewis, was quoted as asserting the class action would seek compensation on behalf of Iluka shareholders who acquired their shares between "8 May 2012 and 8 July 2012" on the basis that Iluka's zircon sales forecast in May 2012 was overly optimistic and not achievable and that Iluka had information prior to July 2012 that it could not achieve its forecast and did not keep the market informed. 159 Furthermore, statements, inter-alia, listing the Iluka class action as one of ACA Lawyers' current class actions (see Exhibit 7, annexures "AG-9" and "AG-10"), remained on ACA Lawyers' website until they were removed some time after the first day of the hearing of these proceedings (transcript, p 126, line 24). 160 However, in these interlocutory proceedings, Mr Lewis gave sworn testimony that "… it was likely that we would [commence legal action] but no decision had been made [at the time of the media release] whether we would" (transcript, p 127, line 30-31). His evidence was that any decision to commence proceedings had to be subject to three conditions precedent: (a) registration of sufficient affected shareholders to make proposed representative proceeding viable, (b) the identification of a lead applicant, and (c) advice from counsel as to prospects of success. (Exhibit 3, paragraph 12). He maintained that denial under cross examination by Mr Withers (transcript, p 118, lines 46-47). 161 Although, under cross-examination, Mr Lewis denied that the ACA Lawyers' 24 March 2014 Media Release had conveyed a misleading and deceptive picture, he accepted that the statement that "Shareholders are commencing legal action against Iluka for failing to inform shareholders that it would not achieve its sales forecasts for the calendar year 2012" (Exhibit 7, annexure "AG-9", p 6), which had remained on ACA Lawyers' website at least until the end of February 2015 (transcript, page 130, lines 1-3), was not a true statement (transcript, page 127, line 28). 162 I am not prepared to find dishonesty on Mr Lewis's part. 163 However, the corollary of my accepting Mr Lewis to be a witness of the truth in this regard is that I have been compelled to conclude that the statements made by ACA Lawyers both in the ACA Lawyers' 24 March 2014 Media Release and on their website (Exhibit 7, annexures "AG-9" and "AG-10") until the webpage as appears in Exhibit 7, annexure "AG-9" was removed after the first day of the hearing of this interlocutory application conveyed at least inaccurate and false impressions (transcript, p 130, lines 1-3). 164 I reject the prospective applicant's submission that read as a whole and in their context the statements in the ACA Lawyers' 24 March 2014 Media Release and the website (Exhibit 7, annexures "AG-9" and "AG-10") did not convey an impression to its intended audience that ACA Lawyers had decided to commence the proceedings. The ACA Lawyers' 24 March 2014 Media Release concluded by inviting "those wishing to join the class action [to] register their interest at http://acalawyers.com.au/iluka-class-action by no later than 9 May 2014". The website contained the statement that: The class action will allege that in the period 8 May 2012 to 9 July 2012 Iluka did not disclose information that it would not achieve 2012 zircon sales of 400kt. This information had it been made public would have a material effect on the price for Iluka shares. It will be further alleged that representations made in the 8 May 2012 earnings guidance mislead or deceived shareholders as to zircon sales for the year 2012" (Exhibit 7, annexure "AG-10"). Other statements on Iluka's website, including an "information note" (transcript, p 132, line 6) relied upon by Mr Lee which contain statements that ACA Lawyers "is investigating a potential funded class action" (Exhibit 5, annexure "AG-7", p 69; repeated at p 70) stand separate to ACA Lawyers' 24 March 2014 Media Release. Moreover, while in a different context such words might suggest conditionality, they were followed by later statements on the information note stating that "the class action will allege that in the period from 8 May 2012 to 9 July 2012 Iluka did not disclose information that it would not achieve 2012 zircon sales of 400 kt…" and that "Litigation funder Harbour Litigation Funding is supporting the class action" (Exhibit 5, annexure "AG-7", p 70) both of which appear to the Court to unambiguously assert that a decision to commence the action had already been made. I accept Mr Withers' written submissions (filed on 24 March 2015) at [44]-[45] with reference to what Lindgren J said in Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 that any "shareholder reviewing that website would form the view that a class action will be commenced against Iluka". For his part, Mr Lewis conceded that the purpose of the website, at least in part, was to "book-build" - that is to recruit potential members of a class for whom litigation is in contemplation (transcript, page 132, line 20). 165 In the Court's view, it was wrong for solicitors acting on Mr Bonham's behalf, to "book-build" for the purpose of recruiting potential members of a class action through statements made to them and the world that those solicitors had determined to commence a class action while simultaneously and inconsistently contending to the Court that the lead plaintiff in the contemplated class action needed the assistance of the Court by way of orders for preliminary discovery to enable him to make a decision whether to commence that class action proceeding. 166 Mr Lee did not dispute that the conduct of ACA Lawyers could be taken into account as a relevant circumstance that could be considered in the exercise of the Court's discretion. In any event the discretion does not appear relevantly fettered. 167 I have considered whether refusing relief on such discretionary grounds might be thought unfair to the prospective applicant, effectively punishing Mr Bonham for the conduct of his solicitors, but I am satisfied it would not be. It will be recalled that Mr Bonham was an existing client of ACA Lawyers at the time of their statement. 168 There is nothing to suggest that Mr Bonham did not authorise ACA Lawyers' conduct. 169 Accordingly, I accept, in the absence of any contrary evidence, that ACA Lawyers was then acting as Mr Bonham's agent and I do not distinguish between the positions of ACA Lawyers and that of Mr Bonham. Therefore, even had I decided otherwise regarding the reasonableness of Mr Bonham's belief regarding the prospect of his obtaining relief in the Court, the orders he seeks would have been refused in the exercise of my discretion.

Professional duties 170 The Court has concluded that the statements made by ACA Lawyers in the ACA Lawyers' 24 March 2014 Media Release and other statements published on its website conveyed an impression that, contrary to the fact, a decision to actually commence proceedings against Iluka had been taken. 171 Some of the statements which the Court has found made that assertion, contrary to the fact, remained on ACA Lawyers' website until well after the first day of hearing - despite ACA Lawyers having been put on clear notice through Mr Withers' submissions. It was not until after Mr Lewis was cross-examined, after Mr Lee obtained leave to reopen his case on the second day of the hearing of this application, was their inaccuracy acknowledged. 172 As noted above, Mr Lewis did not dispute that those statements were made to assist "book-building" (transcript, page 132, line 20). ACA Lawyers therefore solicited clients to their legal practice on that basis. That announcement and the statements that remained on ACA's website may have dissuaded some potential clients from considering engaging another firm. 173 ACA Lawyers' conduct cannot be accepted to be usual practice in this area of legal practice. Even if it be usual practice, that practice may nevertheless be wrong and require correction: (Nevistic v Minister for Immigration and Ethnic Affairs (1981) 34 ALR 639 per Deane J at 647). 174 I will therefore refer these reasons to the Office of the Legal Services Commissioner (NSW) for such further consideration as the Commissioner may think fit.

COSTS 175 Mr Lee advised the Court that the prospective applicant is wholly indemnified in respect of costs by ACA Lawyers. While that statement was made in submissions from the bar table it was made in Mr Lee's client's presence. For this reason limited to the costs of this application, I accept it as having been assented to by Mr Bonham. Accordingly there is no reason why the Court should not make the usual order that costs follow the event. The prospective applicant must pay the prospective respondent's costs in respect of these proceedings. 176 I therefore need not consider the contingent issue, which does not arise, of whether the prospective applicant should be ordered to give security for the costs of preliminary discovery had such an order been made. However, against the contingency that on appeal I may be held to have been in error my decision to make such an order would have been made subject to security for costs being provided. I accept Mr Withers submission (transcript, p 218, lines 4-18) that there was no evidence as to the prospective applicant's financial capacity. I would not have found it unreasonable for the prospective respondent to use the law firm it had chosen to act for it generally in these proceedings to also act on its behalf in respect of that task. I would not have concluded that the Court should assess the reasonable costs of giving preliminary discovery on the basis of that law firm being expected to use cheaper external providers. I accept the reasonableness of the estimate of $397,000 advanced by the prospective respondent (a matter not put in contest) but on that assumption I would have accepted that the prospective applicant should not be excluded from contesting any unnecessarily incurred expenses. I therefore would have made an order in terms of Order 1(b), and not Order 1(a), as proposed by the prospective respondent in the interlocutory application filed by the prospective respondent on 22 February 2015. I certify that the preceding one hundred and seventy-six (176) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kerr.

Corporations Act, the Australian Securities and Investments Commission Act 2001(Cth)

Federal Court Rules 1979(Cth)

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Judgment (41 paragraphs)

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Cases Cited (28)