Bonham v Iluka Resources Limited

THE COURT: 1 The applicant (or "Mr Bonham") sought leave to appeal from the decision of the primary judge dismissing his application for preliminary discovery: Bonham v Iluka Resources Limited [2015] FCA 713. 2 The application was made pursuant to r 7.23 of the Federal Court Rules 2011, which states: (1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant: (a) reasonably believes that he or she 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 subparagraph (1)(c)(i). 3 Mr Bonham purchased shares in the respondent ("Iluka") on 15 May 2012. The purpose of the preliminary discovery application was to enable a decision to be made whether or not to commence a class action, for which Mr Bonham was considering being a lead applicant, based on the premise that Mr Bonham had purchased his shares at an inflated price in reliance on misleading or deceptive statements made by the company on 8 May 2012, or in an uninformed market. The price of the shares fell sharply following an announcement Iluka made on 9 July 2012. 4 The prospective case is based on three possible alternative causes of action: misleading or deceptive conduct, implied representations and failure to comply with market disclosure obligations. The parties agreed that the documents sought by the applicant, with agreed minor amendments, would be directly relevant to the question of whether a putative right exists and a decision whether or not to commence an action seeking relief. 5 The primary judge dismissed the application for three reasons: (1) Mr Bonham had not established an objectively reasonable basis for a belief that he may have the right to obtain relief in this Court (at [137]); (2) Mr Bonham had failed to demonstrate that he believed he may have a claim for relief (at [154] to [156]); (3) As a matter of discretion, the application should not be granted because of the conduct of Mr Bonham's solicitor in seeking to "book build" for the purpose of recruiting potential members of a class action, while simultaneously seeking preliminary discovery on the basis that Mr Bonham did not have sufficient information to decide whether to start that action (at [169]). 6 Mr Bonham contends that each of the primary judge's reasons involved appellable error. 7 The application for leave to appeal and the appeal were heard concurrently. For the following reasons, we would grant leave to appeal and allow the appeal. On the question of leave to appeal, Mr Bonham has established error in the primary judge's reasons and he would suffer substantial injustice if leave were refused by losing the opportunity to determine whether he has a right to obtain relief against Iluka: cf. Décor Corporation Pty Ltd v Dart Industries Inc [1991] FCA 655; (1991) 33 FCR 397 at 398-400.

Background facts and Findings 8 Iluka is a mining company listed on the Australian Securities Exchange ("ASX"). It is the world's largest producer of zircon. It also a significant global supplier of other mineral sands - rutile, synthetic rutile and ilmenite. 9 In 2011, Iluka 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 cash. 10 On 23 February 2012, Iluka published its Key Physical & Financial Parameters report, which provided "guidance", inter alia, that its production of zircon would be reduced to approximately 500 thousand metric tonnes "in light of potentially lower short term demand". The report stated that Iluka's production costs had increased and that it had advised customers of a US$100 per tonne first quarter 2012 price increase. In contrast to an earlier disclosure on 12 October 2011, Iluka provided no guidance as to its expected revenue per tonne from the sale of its mineral sand products into the future.

8 May 2012 announcement 11 On 8 May 2012, Iluka published two documents in which it further downgraded its guidance: an ASX notice entitled Key Physical & Financial Parameters - Update ("8 May 2012 announcement") and a document entitled Key Physical & Financial Parameters Iluka 2012 - May Update ("KPFP May 2012 Update"). 12 The 8 May 2012 announcement included the following statements: Iluka Resources Limited (Iluka) today advises a number of changes to its 2012 Key Physical and Financial Parameters document, issued on 23 February 2012. Iluka has stated on several occasions that it expected a soft quarter or two of zircon demand associated with the impact of global economic conditions on customer confidence and business conditions in various markets, together with the effect of various government policy measures globally and the need for a destocking period, especially for ceramics manufacturers. Iluka has also stated previously that it expected it would take some time for a clear view on overall 2012 zircon demand and the phasing of that demand to emerge. After a low first quarter, zircon sales volumes improved in April. 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 outlook therefore remains far from clear. Accordingly, Iluka has decided to reduce its zircon production in 2012, from the previously advised ~500 thousand tonnes to ~430 thousand tonnes, while maintaining its high grade titanium dioxide production. The zircon production adjustment will be achieved mainly via mining lower grade ore at Iluka's Jacinth-Ambrosia operation in South Australia and processing less zircon-rich concentrate at its Narngulu and Hamilton mineral separation plants. This approach provides the maximum operating flexibility, as well as rapid response capability to return to full production throughputs at the mineral separation plants. Iluka now forecasts its zircon sales for the full year to be ~400 thousand tonnes compared with the previously forecast ~450 thousand tonnes. … 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. 13 The KPFP May 2012 Update noted that it provided "an indicative guide to key physical and financial parameters in the Iluka business for the 2012 financial year". It stated, relevantly: 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 dynamics; and potential modifications to the company's plans and should be treated as a guide only. Iluka does not undertake to update this information regularly in part or whole, but can be expected to comment on any material variations. Iluka does not provide pricing forecasts. … 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. 14 The KPFP May 2012 Update contains the following disclaimer: Disclaimer - Forward Looking Statements 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 the 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 its projections from time to time. Iluka does not undertake to update the projections provided in this document on a regular basis.

Events following the 8 May 2012 announcement 15 The 8 May 2012 announcement was reported on by RBC Capital Markets, in a note headed "Zircon Downgraded as Risks Increase on Uncertain Global Economy". RBC's note included the following opinion: Iluka downgraded its CY12 zircon sales and product following continued uncertainty in the global economic outlook and demand pickup in zircon. Zircon consensus was already below guidance at 411kt and our forecast at 350kt. With the economic environment still challenging, especially in Europe, the risk of further downgrades is increasing. That said, even with our more cautious Zr sales of 350kt, we still project very robust earnings in CY12 and beyond, though very much 2H weighted this year. Despite our strong belief in the stock on a 1 year horizon, over the short term, conditions remain difficult and risk elevated. Consequently, we retain our OP but lower our target to A$20 (A$22). … Iluka surprised the market with a downgrade to its CY12 zircon sales and production on the morning of a site visit to Jacinth-Ambrosia. Zircon sales guidance was lowered 11% to ~400kt (~450kt) while production guidance was reduced 14% to ~430kt (~500kt). The company conceded that while zircon sales did improve in April following a low first quarter (RBCe: 33kt), the global economic outlook still remains far from clear, especially in Europe where 27% of CY12 mineral sands sales are expected. Importantly, the current economic malaise is predominantly affecting zircon only with titanium dioxide feedstock demand remaining firm so far. While the timing of the downgrade caught the market by surprise, the news itself did not. Zircon sales consensus was already below guidance at 411kt and our own forecast of 350kt is well below. Despite downgrading to around current consensus, the news was badly received with the stock failing 12% and closing on its low on a massive 19.5m shares (A$280m). The concern for many in the market, especially given the experience during the GFC, is: will this be the first of further downgrades to zircon or the only downgrade? With the global economic outlook still unclear, especially in Europe, the former is becoming a real possibility. That said, even with our divergent view on zircon sales (ie 350kt) and in line Ti production, we still project very robust CY12 earnings and free cash of A$813m and A$893m respectively. This from a company with a market cap of mere A$6bn as of today's close. 16 The note contained a table which compared Iluka's production and sales projections with RBC's estimates. 17 At Iluka's AGM on 23 May 2012, Iluka's managing director, David Robb, reported that there was 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. The language of "improved economic traction" had also been used in the 8 May 2012 announcement. 18 In June 2012, a large shipment of zircon was deferred. The primary judge accepted that this event was the "trigger point" for Iluka revising its 8 May 2012 outlook in July 2012.

9 July 2012 announcement 19 On 9 July 2012, Iluka published an ASX notice entitled Forecast Sales Volumes - Update ("9 July 2012 announcement"). The announcement was expressed to be "in accordance with [Iluka's] continuous disclosure obligations". In this announcement, the company revealed that it now predicted significantly lower sales volumes. The announcement stated, relevantly: Lower sales volumes now forecast reflect second quarter sales below expectations, but also and more significantly, deteriorating economic outlooks, discussions (which in many cases are ongoing) with customers in relation to second half volume requirements, and completion of the initial stages of the company's usual mid year reforecast process. Market Conditions and Revised Guidance A marked deterioration in major 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. On a year-to-date basis, Iluka's product prices have been in line with the previous commentary provided by the company. 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. A reinstatement of such guidance will be dependent on market, commercial and other considerations, including reaching a period in terms of global economic performance when multiple year forecasts can be made with an appropriate degree of confidence. The company's revised 2012 full year sales volume expectations for zircon and high grade titanium dioxide products (rutile and synthetic rutile) are detailed below. Saleable ilmenite expectations are at this stage unchanged at 350 thousand tonnes for the full year, with 219 thousand tonnes sold in the first half. Sales Volumes - 1st Half Actuals and Revised Full Year Guidance Ranges Kt 2012 2012 1st Half Actuals Full Year Sales Guidance Ranges Zircon 87 200 - 300 Rutile 85 140 - 200 Synthetic rutile 101 170 - 220 Total Z/R/SR 273 510 - 720

(footnotes omitted) 20 Under the heading "Managing Director Commentary", the announcement included the following statements: Iluka's marketing approach over recent years has involved changing sales contract periods from multi-year or annual arrangements to much shorter periods - quarterly or spot in the case of zircon and six-monthly, quarterly or spot in the case of titanium dioxide products. This approach has served the company well, given the level of price increases achieved during periods of strong demand. However, in times of global and regional economic uncertainty and turmoil, and with weakened business confidence levels, this can result in volatility in sales levels from period to period, an effect compounded by de-stocking and re-stocking behaviour through the value chain. Unpredictable economic conditions and markets can also lead some customers to make purchase commitments and then seek to reschedule or reduce those commitments. Clearly, the performance of major regional economies has deteriorated recently and outlooks are more pessimistic as evidenced by changed commentary by central bankers in the past couple of months. Iluka's revised sales volume forecasts reflect this deterioration. 21 An appendix headed "Market Commentary" set out the following: Zircon Iluka sold 87 thousand tonnes of zircon in the first half of 2012. A large scheduled shipment was deferred in June associated with port delays and current forecasts assume this volume will not be recovered. Zircon sold in the first half has achieved weighted average prices in line with previous commentary. Market conditions in specific markets and end applications affecting second half demand can be summarised as follows: • in China, the absence of direct policy adjustments to boost the property sector, with attendant implications for property construction, completions and sales, has been compounded by high finished ceramics inventory level in-country. These factors have led to a continuation of subdued customer confidence levels beyond that expected earlier in the year, albeit China's zircon demand has shown the strongest regional recovery in the second quarter. Iluka has seen the continuation of "just in time" ordering patterns which, from recent discussions with customers, (despite some encouraging factors in relation to increased demand, higher spot pricing and monetary policy easing, as well as zircon sand inventories at historically low levels) are not assumed to change materially in the second half; • continuing and more pronounced economic weakness and policy uncertainty into the second quarter in the eurozone; • continuing weakness in the main ceramics export markets for Spain and Italy, such as the fourth largest tile manufacturer, Iran, which has been impacted by sanctions; and Turkey and Egypt, both within the top 10 tile manufacturers, which have been impacted by the aborted Arab Spring", have flowed through to continued fragile business confidence levels. From recent discussions with customers this is forestalling expected bulk re-ordering patterns, including inventory replenishment, into the second half despite low zircon sand inventories; • while demand for zircon in North America has remained relatively constant, there is new evidence of softening manufacturing output and export growth, particularly in June. This has influenced customer sentiment (a major part of Iluka's zircon sales in North America are into the manufacturing sector) and it is considered prudent to factor this into expected sales volumes estimates over the coming half; • in other developing markets, such as South East Asia and India, demand has also been negatively impacted by the macro economic settings. This has been especially significant in India (the world's third largest tile producer), where the Rupee has weakened by 15 per cent since March, making zircon sand imports (and other tile making raw materials) significantly more expensive; and • some level of thrifting, substitution and application of technology to ceramics manufacturing (difficult to forecast with confidence until ceramics inventories are worked down) which has compounded the effect of the weak economic and business conditions on customer demand. Zircon demand in non ceramic markets. namely zirconium chemicals, has been relatively stable while in foundry applications, as expected, use of alternative materials where feasible has subdued demand. A lower demand pattern in the second half appears likely in these applications, depending on economic and market conditions. Global and regional zircon demand recovery remains problematical to predict given current global economic conditions. 22 Senior counsel for Mr Bonham, Mr Hutley SC, referred to the 9 July 2012 disclosures as a "corrective disclosure". Upon the corrective disclosure, Iluka's share price fell by about 24%. 23 RBC Capital Markets responded to the 9 July 2012 announcement, in a note headed "Savage Downgrades to Guidance; Earnings Slashed ~50%". The note contained the following: Iluka shocked the market with the magnitude of sales volumes downgrades this year, based on the sharp deterioration of its market. As the CEO stated, this sector went from "full steam to full stop" within 8 weeks and it is the weakness in the pigment market that surprised us the most and is most concerning. Pigment producers are slowing output as macro economics deteriorate. Current zircon guidance of 200-300kt compares to the start of the year 450kt, and at 300kt, the 2H needs to deliver 213kt, up 145% on the 1H of 87kt! This is a big ask given the quite bearish tone of the Conference Call. We thought our recent big downgrades were amply sufficient - also not so! … Downgrades to sales volumes in CY12 came as no surprise to us BUT the magnitude of the changes certainly did surprise and particularly those for titanium minerals. Not surprisingly, the share price fell 24% on very heavy volume of 29m shares worth A$270m. Daily volume has averaged 4.4m shares over the past year. What worries us now is that Iluka stated that the market for pigment had gone from "Full Steam to Full Stop" within 8 weeks and that it had a little clarity ahead. Recall, mineral sand remains a rather opaque sector, despite the special effort of Iluka's disclosure over the past few years to help the market understand it. In many ways, downgrades may simply represent a delayed reaction to the woeful macroeconomic outlook and in fact, possibly represent reality. Iluka provided 1H 2012 sales volumes and we were not surprised by these figures which were weak as expected. The key zircon sales figure of 87kt compare to our forecast of 90kt and rutile sales of 86kt compared to our estimate of 85kt, with SR at 101kt vs RBC at 120kt. Capex spend at A$120m in 1H was down on our A$160m estimate (CY12 guidance is A$260m and is not addressed or revised at this time) but cash costs and realised prices were largely as expected. There were no great concerns in all the 1H figures but there are lots of worries regarding the outlook which has suddenly deteriorated and can be compared to the 2009 GFC period. The large range for volume forecasts is indicative of the many scenarios and unclear outlook according to Iluka. This is also of concern to us because, for example, guidance for zircon sales in the 2H of this year ranges from 113kt to 213kt versus actual 1H sales of 87kt. Readers should not be surprised that our new forecasts are at the more conservative, lower end of this drastically slashed range. It is very difficult for the market to price a very wide range of outcomes with such a large spread of uncertainty!

2014 book build 24 On 24 March 2014, ACA Lawyers issued a media release under the title "Shareholder Class Action Against Iluka Resources". 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. 25 Also on 24 March 2014, ACA Lawyers issued a note titled "Iluka Resources Class Action". On the front page, under the heading "Recovering Loss", the note read: Former shareholders of Iluka are intending to launch legal action to recover losses resulting from the non-disclosure of price sensitive financial information in breach of ASX continuous disclosures riles. This inflated Iluka's share price during the period. 26 Iluka responded to the ACA Lawyers' media release and information note on the same day. It issued a statement to the ASX in the following terms: During 2012, market conditions for mineral sands were extremely volatile and, in the case of zircon, conditions deteriorated markedly during the year. Iluka's sales arrangements for zircon are also typically short-dated, 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. 27 The Iluka class action was listed on ACA Lawyers' website as one of the firm's current class actions until sometime after the first day of the hearing of the preliminary discovery application.

Mr Lewis's evidence about the book build 28 Despite the language of the ACA Lawyers' media release and information note, and despite the statements on its website, Mr Lewis's 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. 29 Mr Lewis 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" (which had remained on ACA Lawyers' website at least until the end of February 2015), was not a true statement. 30 The primary judge was not prepared to find dishonesty on Mr Lewis's part. However, at [165], the primary judge concluded: 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.

2014 solicitors' correspondence 31 By letter dated 10 November 2014, from ACA Lawyers to Iluka, Mr Lewis informed Iluka that his firm was investigating commencing a representative proceeding against Iluka on the basis that it breached its continuous disclosure obligations between the time it issued the 8 May 2012 announcement "and the time when it substantially downgraded its guidance on 9 July 2012". Mr Bonham was identified as ACA Lawyers' client. The letter stated, relevantly: [10.] (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. 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 contrary to the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) and/or the Australian Consumer Law 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. … 12. Accordingly, our client, the proposed applicant in the contemplated proceeding, is 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 in the Federal Court to obtain that relief. 32 By letter dated 19 November 2014, from Herbert Smith Freehills to ACA Lawyers, Herbert Smith Freehills observed, relevantly that: Mr Bonham's belief that he may have a right to obtain relief against our client appears to be almost entirely based on the fact of a price drop in Iluka's share price on 9 July 2012. 33 By letter dated 22 December 2014, from ACA Lawyers to Herbert Smith Freehills, ACA Lawyers stated relevantly: [W]here we refer to our client's belief and knowledge, as indicated in our letter of 10 December [sic - November] 2014, our client has instructed us to investigate these matters on his behalf, and that his belief and knowledge is based on those investigations. And Our client reasonably believes he may have the right to obtain relief in the Court because of a combination of facts and matters ascertained from his reasonable inquiries. And Our client believes that at the time the May 2012 Announcement was made Iluka was aware or ought to have been aware that there was a real and/or material risk that the sales forecasts were not reliable and/or that the provision or maintenance of point estimates for sales had the potential to mislead the market as to the reliability of the basis of Iluka's ability to gives [sic] sales and earnings guidance going forward. And 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. On the basis of the matters set out above, he presently believes he may have the right to obtain relief in the Court on the grounds that Iluka has: (i) engaged in misleading or deceptive conduct contrary to the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) and/or the Australian Consumer Law 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.

Nature of the claims identified by Mr Bonham 34 There was no evidence as to the grounds upon which the forecasts in the 8 May 2012 announcement were made, beyond the content of the announcement and the KPFP May 2012 Update. 35 Mr Bonham's evidence included a draft statement of claim, said to be "subject to investigation". 36 Paragraph 9 of the draft statement of claim pleads facts concerning the content of the 9 July 2012 announcement. Paragraph 11 pleads Iluka's alleged sales figures for the year ended 30 June 2012 for zircon, rutile and synthetic rutile. 37 Paragraph 26 of the draft statement of claim states: As at 8 May 2012 [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 periods from [sic] 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. [bolded comment in original] 38 Paragraph 27 of the draft statement of claim also contains the following allegations: 27. By the May Earnings Guidance [Iluka] impliedly represented that: (a) [Iluka] had reasonable grounds to make the May Zircon Forecast Representation and the May Titanium Dioxide Forecast Representation (May Reasonable Grounds Representation); (b) there was no information known to [Iluka] which created a material risk that the May Zircon Forecast Representation and the May Titanium Dioxide Forecast Representation were not reliable (May Reliable Guidance Representation); (c) [Iluka] had a reasonable basis for providing reliable forecasts of future sales and/or revenue (May Ability to Forecast Representation); and (d) [Iluka] had a reasonable basis for providing point estimates of sales for mineral sands products rather than a broad range going forward (May Predictable Market Representation). Particulars The representations were implied in circumstances in which: a) [Iluka] was subject to obligations imposed by Listing Rules 3.1 and section 674(2) of the Corporations Act; and sections 1041H(1) and 1041H(2)(b) of the Corporations Act and section 12DA(1) of the ASIC Act; b) [Iluka] made the May Express Statements and the May Zircon Forecast Representation, May Titanium Dioxide Forecast Representation and the Half Yearly Weighted Sales Representation; c) [Iluka] made the May Express Statements and the Zircon Forecast Representation, May Titanium Dioxide Forecast Representation and the Half Yearly Weighted Sales Representation in documents released to the market by means of the ASX company announcements platform and [Iluka] knew or ought to have known that investors and potential investors in its securities may rely upon the statements and forecasts in those documents in making decisions about whether to acquire or retain its securities; d) the market was aware that [Iluka] was aware of the matters pleaded in subparagraphs 26(a) and 26(c) (though the market was not aware of the content of [Iluka]'s knowledge). 39 In the draft statement of claim, the "May Earnings Guidance" refers to the 8 May 2012 announcement and the KPFP May 2012 Update. 40 The "May Express Statements", "May Zircon Forecast Representation", "May Titanium Dioxide Forecast Representation" and the "Half Yearly Weighted Sales Representation", referred to in para 27 of the draft statement of claim, are defined in paras 24 and 25 of the draft statement of claim. The "May Express Statements" are statements said to have been expressly included in the "May Earnings Guidance". The three representations are alleged express representations made by Iluka in the "May Earnings Guidance". The primary judge found that none of the three representations were made (at [79] and [96]) and Mr Hutley SC did not rely on the alleged express representations in support of the appeal. Ultimately, Mr Hutley SC relied only on the representations pleaded in paras 27(c) and (d) of the draft statement of claim. 41 Mr Hutley SC submitted that the representations pleaded in paras 27(c) and (d) are representations with respect to a future matter, arguing that a forecast is a future matter. However, he also put his argument on the basis that the representations are representations of present facts, namely, the existence of reasonable bases for the forecasts and estimates. We prefer the latter characterisation. 42 Paragraph 28 of the draft statement of claim, which senior counsel for Iluka, Mr Dick SC, described as the applicant's "case theory" states: As at 8 May 2012, [Iluka] was aware, or ought to have been aware, including by reason of the matters pleaded in paragraph 26 [see comment re 26 above], that there was a real and/or a material risk that: (a) the May Zircon Forecast Representation and/or the May Titanium Dioxide Forecast Representation were not reliable; (b) the May Reliable Guidance Representation and/or the May Ability to Forecast Representation were not reliable; and/or (c) the May Predictable Market Representation was not reliable, and the provision and/or maintenance by [Iluka] of point estimates for sales of Z/R/SR had the potential to mislead the market as to the reliability of the basis of [Iluka]'s ability to give sales and earnings guidance going forward; (each being May Material Information). [bolded comment in original] 43 For the reasons given in [40] above, para 28(a) may also be disregarded. 44 Finally, para 51 of the draft statement of claim states: By reason of the matters pleaded at paragraph 9, 11 and 26 [see comment re 26 above], the May Ability to Forecast Representation was, from 8 May 2012 to the end of the Relevant Period: (a) in so far as it was a representation as to a present matter or present matters, misleading or deceptive, or likely to mislead or deceive [see comment re 26 above]; (b) in so far as it was a representation as to a future matter or future matters, made without reasonable basis [more information needed]. Particulars In so far as the May Ability to Forecast Representation was a representation as to a future matter or future matters the Applicant relies on: a) section 12BB(1) of the ASIC Act; b) section 769C of the Corporations Act; and/or c) section 4 of the Australian Consumer Law. [bolded comments in original] 45 At [75], the primary judge noted that Mr Bonham had claimed to have relied on the representations conveyed by the 8 May 2012 announcement, and to have believed that Iluka could give reliable forecasts over an extended period.

Bases for the asserted reasonable belief as to right to obtain relief 46 At [52] of the primary judge's reasons, his Honour noted that senior counsel for Mr Bonham had identified the matters pleaded in para 26 of the draft statement of claim together with the matters set out in para 14 of written submissions prepared on Mr Bonham's behalf as the matters relevant to Mr Bonham's reasonable belief. 47 Those written submissions identified the following matters as providing a foundation for Mr Bonham's asserted reasonable belief: 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. 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. 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["]. The existence of shorter period sales contract 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. 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 upon the information Iluka had at earlier times, and its reasonable beliefs based upon that information) that the uncertainty (and absence of policy responses) also existed as at the time of the May 2012 Announcement. 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 Iluka shareholders who purchased between 8 May and 9 July 2012).

Insufficient information to decide whether to start proceeding: Rule 7.23(b) 48 The primary judge did not make a specific finding that the applicant had satisfied the requirement in r 7.23(1)(b) that, after making reasonable inquiries, he did not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief. However, it does not appear that Iluka contended to the contrary and his Honour's reasons appear to proceed on the basis that this requirement was satisfied.

Mr Bonham's subjective belief: Rule 7.23(1)(a) 49 The primary judge considered what subjective belief was required by r 7.23(1)(a) at [139] to [156] of his Honour's reasons. The relevant belief is the prospective applicant's belief that he or she may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained. 50 His Honour correctly rejected the contention, put on behalf of Mr Bonham, that it was unnecessary to establish Mr Bonham's subjective belief that he may have the right to obtain relief in the Court from Iluka. That contention was not re-agitated on the appeal. 51 The primary judge then considered whether the evidence before the Court was sufficient to establish that Mr Bonham held the requisite belief. At [142], his Honour identified, as the only relevant evidence, the following affidavit evidence of Mr Lewis, Mr Bonham's solicitor: 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. 52 Mr Dick SC maintained that the primary judge was correct to identify this as the only relevant evidence, on the basis that the affidavit evidence "was meant to be the distillation of the evidence in the correspondence" that had been referred to in the affidavit. We do not accept that submission. The correspondence set out at [33] above was relevant, albeit hearsay, evidence as to the actual beliefs of Mr Bonham. That correspondence was admitted into evidence without objection. 53 Mr Dick SC argued that, in circumstances where Iluka had clearly raised, in advance of the hearing, the need for Mr Bonham's subjective belief to be proved and where Mr Bonham had not given affidavit evidence, the correspondence was not a sufficient basis to conclude that he held the requisite belief. That submission is also rejected. The assertions in the correspondence can be taken at face value in the absence of any objection to the admissibility of the correspondence or any application to restrict its use. 54 Accordingly, we conclude that his Honour erred in failing to identify the correspondence as evidence of Mr Bonham's subjective belief that he may have the right to obtain relief in the Court from Iluka. In the absence of any contradicting evidence or any other reason not to accept that evidence, his Honour erred in failing to find that Mr Bonham had demonstrated that he held the subjective belief required by r 7.23(1)(a).

Was Mr Bonham's belief reasonably held? 55 In summary, the primary judge concluded that the available evidence of the proposed causes of action did not support a reasonable belief that the prospective applicant may have the right to obtain relief, but justified only mere suspicion or speculation.

Submissions on behalf of Mr Bonham 56 The essence of Mr Hutley SC's argument was that the primary judge failed to address the implications of the factors identified in the 9 July 2012 announcement for the question whether the applicant could reasonably believe that Iluka did not have a reasonable basis for the implied representations in the 8 May 2012 announcement. The factors which Mr Hutley SC referred to were: (1) ongoing discussions with customers regarding second half volume requirements; (2) an absence of anticipated or effective policy responses to deterioration in major regional economies; (3) shorter period sales contracts, which had increased the difficulty in providing specific company performance guidance; and (4) continuing uncertainty associated with economic business conditions. 57 Mr Hutley SC argued that the critical question, regardless of whether the implied representations are construed as representations of fact or representations in respect of a future matter, about which his client did not have information, was the grounds upon which the implied representations were made and whether those grounds were reasonable grounds. His contention was that the Court can infer that Iluka had available to it the objective materials which gainsaid the reasonableness of their representations for the very reasons that Iluka eventually gave in July 2012. 58 Instead, Mr Hutley SC argued, the primary judge incorrectly focused his attention on whether Iluka itself believed that it had reasonable grounds for representations at the time that they were allegedly made. 59 Mr Hutley SC also argued that the primary judge had incorrectly treated the applicant's reasons as infected by impermissible "hindsight bias". According to Mr Hutley SC, there was nothing illogical in an analysis which: (1) identified the factors said to warrant the "corrective disclosure" in the 9 July 2012 announcement question; (2) observed that those factors appeared to apply to the company's situation on 8 May 2012; and (3) relied upon that observation to form a reasonable belief that the company may not have had reasonable grounds for its 8 May 2012 forecasts. 60 Mr Hutley SC further contended that statutory deeming provisions like s 4(1) of the Competition and Consumer Act 2010 (Cth) and s 12BB of the Australian Securities and Investments Commission Act 2001 (Cth) are relevant to what is necessary to form the requisite reasonable belief. In this case, he argued, all that is required is a representation as to a future matter which has been falsified, evidence of reliance upon the representation and consequential loss, and the prospect that an absence of reasonable grounds would be deemed on an eventual hearing because Iluka may not adduce evidence to the contrary. It is not necessary to reach a firm conclusion on this submission, because the case can be decided on the basis of the inferences available to be drawn from the terms of the 9 July 2012 announcement, as explained below.

Submissions on behalf of Iluka 61 On behalf of Iluka, Mr Dick SC submitted that the applicant had done no more than identify a theory that there was a lack of reasonable grounds for the alleged implied representations without any material to support a reasonable belief as to the lack of reasonable grounds at the time of the 8 May 2012 announcement. 62 Mr Dick SC acknowledged that the factors identified by Mr Hutley SC from the 9 July 2012 announcement were factors that seem to have existed in May 2012. However, he argued that on an examination of the 8 May 2012 announcement and the KPFP May 2012 Update, and having regard to other evidence of the bases on which those publications were made, there is no basis for attacking the reasonableness of the grounds for any future representations conveyed by those documents because there was evidence that those factors were addressed by the company in May 2012. For example, Mr Dick SC referred to Mr Robb's report to Iluka's 2012 AGM on 23 May 2012 as providing evidence of reasonable grounds for Iluka's 8 May 2012 volume forecasts. Mr Dick SC argued that the primary judge had correctly identified the June 2012 deferred zircon shipment as an explanation for Iluka only making its 9 July 2012 announcement when it did. Mr Dick SC argued that his Honour had also correctly identified Iluka's recent success from shorter contract periods as a reason why it was "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" (at [100]). Thus, Mr Dick SC contended that his Honour correctly concluded (at [100]): 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.

Consideration 63 The applicant sought preliminary discovery, not knowing the basis for Iluka's 8 May 2012 forecasts (although he knew Iluka's stated basis) and, therefore, not knowing whether the forecasts were made on reasonable grounds. 64 In St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360; (2004) 211 ALR 147 ("Rabo") at [26], Hely J relevantly observed: The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court: Quanta Software [International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536] at [33]-[34]; IPR 32-3, Alphapharm [Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500] at 24-26. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent's breach and the likely quantum of any damages award: CGU Insurance Ltd v Malaysia International Shipping Corp Berhad [[2001] FCA 1223;] (2001) 187 ALR 279 at 285 [21]; Quanta Software at [33]-[34]; IPR 32-3, Alphapharm at 24-26, Airservices Australia [v Transfield Pty Ltd [1999] FCA 886] at [5]. (emphasis in original) 65 The basis for Mr Bonham's belief commences with the fact that Iluka had made certain forecasts of future sales and revenue which were not achieved. 66 Next, it is based on alleged representations, impliedly made by the 8 May 2012 announcement, that Iluka had a reasonable basis for providing reliable forecasts of future sales and/or revenue and for providing point estimates of sales for mineral sands products rather than a broad range going forward. 67 The primary judge did not deal with these particular alleged implied representations but, at [83], his Honour commenced his consideration of the alleged implied representation that Iluka had a reasonable basis for making its projections of future volumes in the 8 May 2012 announcement. His Honour's analysis proceeds on the basis that this implied representation could arise. 68 Although there was some argument as to whether the implied representations propounded by the applicant were present or future representations or representations "in respect of a future matter", Mr Hutley SC ultimately argued his case on the basis that the claim for relief was relevantly based upon representations as to present facts, namely the basis which Iluka had, as at 8 May 2012, for the forecasts which it made in the 8 May 2012 announcement. 69 Mr Hutley SC accepted that the mere fact that a representation as to a future matter is falsified is, at least as a general proposition, insufficient to support a reasonable belief as to the existence of a right to obtain relief based on a claim of misleading or deceptive conduct. 70 Next, Mr Bonham relies upon the factors identified in the 9 July 2012 announcement, on the basis that those factors probably also applied to Iluka as at 8 May 2012. That is: (1) it is reasonable to think that, as at 8 May 2012, discussions with customers regarding second half volume requirements were equally or less advanced; (2) the anticipated or effective policy responses to deterioration in major regional economies were presumably also absent; (3) the fact that shorter period sales contracts increased the difficulty in providing specific company performance guidance is a characteristic of those contracts and therefore applicable both in May and July 2012; and (4) the continuing uncertainty associated with economic business conditions probably existed in May, since it was said to be continuing in July. 71 Rather than focusing on these factors, his Honour directed his attention to evidence put forward by Iluka to justify or explain its conduct. His Honour referred, at [87], to the existence of evidence, adduced on Iluka's behalf, that appeared "plausibly to explain why, notwithstanding deteriorating market conditions, Iluka continued to stand by its 8 May 2012 forecasts of future volumes … until well after Mr Bonham had purchased his shares on 15 May 2012". That evidence comprised evidence of improved economic traction in the US and China and the need for replenishment of zircon sand stocks in Europe. 72 At [88], his Honour stated: 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. 73 North East Equity Pty Ltd v Proud Nominees Pty Ltd [2012] FCAFC 1; (2012) 285 ALR 217 was not a case about preliminary discovery. It was a case which concerned the evidential burden under s 51A(2) of the Trade Practices Act 1974 (Cth). Paragraph [88] of his Honour's reasons reveals that the primary judge proceeded upon the basis that the implied representation was a representation as to a future matter, to which a statutory provision, deeming an absence of reasonable grounds for such a representation, might apply. Accepting this premise, on the application for preliminary discovery, the applicant was not required to show that Iluka did not have reasonable grounds for making the representation, but only that he had a reasonable basis for believing that he may have the right to obtain relief in the Court based on the proposition that Iluka did not have such reasonable grounds. 74 At [90], the primary judge referred to the importance of guarding against "hindsight illusion", citing City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 ("Jazabas"). Jazabas was another case which concerned an opinion as to a future matter. The observation of Mason P, at [83], that it remained "vital to guard against hindsight illusion" was made in relation to the question whether a person had reasonable grounds for expressing an opinion or making a prediction as to a future matter. Mason P also noted, at [83], that the need to judge this question as at the date of the representation did "not preclude examining evidence of later events which may throw light upon the overall probabilities". 75 The primary judge commenced his consideration of the matters contended to justify Mr Bonham's reasonable belief at [94]. At [98], his Honour said: 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. 76 This observation is only relevant to the question of whether Mr Bonham held a reasonable belief to the extent that it might assist in identifying the grounds on which the alleged implied representations were made. It is only relevant to the extent that Iluka's explanation and the deferred shipment are matters that affect the existence or significance of the grounds that Mr Bonham identified as grounds for his belief. 77 At [99], his Honour set out para 10(d) of ACA Lawyers' 10 November 2014 letter as follows: (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; 78 His Honour continued: 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). 79 In our view, the primary judge erred in his reasoning in this paragraph. Mr Bonham was not required to demonstrate that Iluka had prior knowledge that its capacity to make reliable forecasts would be impaired, or that Iluka ought reasonably to have known that its forecasts could not be met at the time they were made. The correct question was whether the evidence of Iluka's forecasting capacity in July 2012 provided a reasonable basis for Mr Bonham to believe that Iluka's forecasting capacity was impaired in May 2012 such that it did not have reasonable grounds for its forecasts. 80 The primary judge's reference to the deferred shipment indicates that his Honour was focusing his attention on Iluka's state of knowledge, rather than on whether the matters identified by Mr Bonham from the 9 July 2012 announcement were matters which he could reasonably believe obtained as at 8 May 2012 so as to cause him to conclude that Iluka may not have had reasonable grounds for its forecasts. Put another way, the trigger for Iluka revising its outlook did not matter unless it suggested that the bases for Mr Bonham's belief were not reasonable. 81 At [100], the primary judge addressed the macro-economic factors to which Iluka attributed its decision to revise its guidance in July 2012. Mr Bonham's contention was that "none … were new information not generally available prior to 9 July 2012". His Honour did not deal with this contention. However, his Honour acknowledged the correctness of the further contention that the movement to "shorter period sales contracts" was the first time that Iluka had linked this to the reliability of its sales guidance. 82 The primary judge then addressed the significance of the movement to shorter period sales contracts by noting that: (1) there was no reason to doubt that the contracts had served the company well, given price increases during periods of strong demand; (2) 2011 had been a record year for the company; and (3) in the context of these matters, it was not surprising that Iluka did not link shorter term contracts previously to the reliability of its sales guidance. 83 His Honour concluded that it could only appear unreasonable for Iluka not previously to link shorter term contracts to the reliability of its sales guidance in retrospect. That conclusion appears to depend, at least in part, upon the further conclusion that there was "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". The latter observation again focuses upon the state of knowledge of Iluka, rather than the implications of shorter term contracts for Iluka's forecasts. The observation also depends upon the proposition that the economic circumstances "changed and deteriorated" between May and July 2012, which was not a matter about which the primary judge had made findings. 84 His Honour also relied upon the evidence mentioned at [87] which was relied upon by Iluka to explain the timing of its announcements. Even assuming that this evidence was evidence of grounds for the 8 May 2012 announcements (which is not obvious since it is a report given on 23 May 2012), the evidence does not demonstrate that the shorter term contracts did not form a basis for a reasonable belief that the May 2012 forecasts lacked reasonable grounds. 85 At [103], the primary judge said: 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. 86 The fact that a plausible basis for Iluka's opinions was demonstrated is not to the point, and nor is the question of what Iluka must have known at 8 May 2012. In addressing these matters, his Honour omitted to consider the central question which was whether factors identified in July 2012 and, by inference, in existence in May 2012, gave rise to a reasonable belief that Mr Bonham may have a right to relief in this Court based on the logic that those factors should have had the same impact upon Iluka's forecasting capacity in May 2012 as they had in July 2012. 87 The proposition that the factors identified in July 2012 can be taken to have applied in May 2012 in the absence of any consideration to the contrary does not involve speculation or suspicion: it is an inference. There is no other element of Mr Bonham's reasoning which could be said to involve speculation or suspicion. 88 At [108] and following, the primary judge addressed the written submissions made on Mr Bonham's behalf and set out at [47] above. At [110], his Honour formulated the requisite reasonable belief as one "that by 8 May 2012 Iluka would or should have known that its forecast could not be met". At [111], his Honour described the applicant's case as involving an "argument that the scale of the shortfall of sales volumes must have been known". At [112], his Honour observed that "[i]t was never suggested by Mr Lee that there was any untruth in [the] statement" that a scheduled large shipment had been deferred in June "or that cancellation of that shipment was foreseeable". At [114], his Honour found that there was "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". At [115], the primary judge found that there was nothing to suggest that "the degree of Iluka's knowledge of market uncertainty was greater at those times than was then revealed by it". 89 These findings illustrate that the primary judge focused his attention on what the evidence said about Iluka's state of knowledge, and not upon what the evidence said about the grounds for Iluka's forecasts and whether the appellant had reasonable grounds to believe that he could obtain relief in this Court on the basis that Iluka did not have reasonable grounds to make the forecasts. Similarly, at [135], the primary judge said: 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". 90 The applicant was required to demonstrate only a reasonable belief that he may have the right to obtain relief, in this case damages, as opposed to a reasonable belief as to his possible entitlement to relief arising from any particular cause of action pleaded. He was not required to make out a prima facie case: Rabo at [26]; Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58 at [43]. In our view, his Honour's approach suggested that the applicant was required to bring forward evidence about Iluka's actual grounds for the alleged implied representations. But Iluka's actual grounds are not a matter within the applicant's knowledge, except to the extent that Iluka has chosen to disclose them. In this case, the factors identified by Mr Hutley SC did not merely create a suspicion as to the reasonableness of Iluka's grounds for the implied representations. They provided an objective foundation for a belief that Iluka's grounds were deficient because, as Mr Hutley SC contended, if overall economic conditions were the same between May and July, then it could be inferred that there was no real reason why forecast guidance should have been maintained in May and yet pulled in July. In other words, if there was no reasonable basis for maintaining point forecasts in July, a question is immediately raised as to whether there was a reasonable basis for maintaining them in May. If one looked at the logic of the material which drove the decision not to have point estimates in July, there were reasonable grounds to believe that an organisation acting reasonably would not have had point estimates in May. His Honour erred in focusing on evidence about what Iluka believed was reasonable, instead of the reasonableness of Mr Bonham's belief in the light of all of the circumstances. 91 Accordingly, we conclude that the primary judge erred in finding that the applicant had not established reasonable grounds for his belief that he may have a claim for relief against Iluka.

Discretion 92 The primary judge would have refused to grant preliminary discovery in the exercise of his discretion upon the basis that ACA Lawyers was acting as Mr Bonham's agent and Mr Bonham's position could not be distinguished from the lawyers' position (at [169]). The conduct which would have caused him to refuse to exercise his discretion in Mr Bonham's favour was the conduct of ACA Lawyers described at [165] of his Honour's reasons and set out at [30] above. In summary, that conduct comprised conducting the book build while pursuing an application for preliminary discovery. 93 At [41] and [166], the primary judge recorded that Mr Lee SC, senior counsel for Mr Bonham, did not dispute the proposition that, 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 were matters that the Court might properly take into account in declining, in the exercise of its discretion, to make the orders sought. 94 Mr Hutley SC pointed to several passages of the transcript where, he contended, Mr Lee SC had explicitly disputed that proposition. An example is the following submission: And it's shown to be a total red herring in my respectful submission, because what your Honour will be doing, in effect, is acting as some sort of roving legal commissioner punishing the solicitors for taking steps that you regard were misleading or false in circumstances where what you're doing, in effect, is denying the applicant relief to which he otherwise is entitled. The applicant did not authorise that release. The applicant had nothing whatever to do with the release of [sic - on?] the evidence. 95 It therefore appears that the primary judge had misunderstood the submission put by Mr Lee SC which was, in summary, that the conduct of ACA Lawyers should not be visited on Mr Bonham. 96 Mr Hutley SC next referred to the primary judge's findings at [167] and [168] that Mr Bonham was an existing client of ACA Lawyers at the time of their statement, being the March 2014 media release and that there was "nothing to suggest that Mr Bonham did not authorise ACA Lawyers' conduct". Mr Hutley SC referred to the following re-examination of Mr Lewis: MR LEE: Yes. And the - you were asked some questions about the media release which occurred - sorry, which was published on 24 March 2014? Yes Was or was that not a document that - sorry. On whose behalf was that document prepared and sent? That document was prepared and sent on behalf of the funder… Did it or did it not have anything whatever to do with Mr Bonham? Nothing to do with Mr Bonham HIS HONOUR: So the press release - your evidence is the press release was made on behalf of the funder? --- Yes. Because the funder had then - had -had, on or about that day, announced that they had agreed to fund the potential claim and that was the trigger point to send out the media release. 97 Once it was accepted by the primary judge that, notwithstanding the book build and the statements made in connection with it, no decision had been made to commence proceedings against Iluka, in our view, that conduct was not a matter of relevance to the exercise of the discretion whether to grant preliminary discovery. Although the discretion is not expressly fettered, it must be exercised for the purpose for which it is conferred. That purpose did not include stultifying the applicant's potential claim for relief by reference to conduct for which he was not responsible and which was not relevant to the utility of the relief sought.

Conclusions 98 Leave to appeal should be granted. The appeal should be allowed. 99 The order of Kerr J dated 15 July 2015 will be set aside and, in lieu thereof, Mr Bonham will be granted the relief sought in the originating application dated 24 December 2014. 100 The respondent should pay the costs of the application for leave to appeal and the appeal, and the costs of the proceeding below. I certify that the preceding one hundred (100) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Foster, Yates and Gleeson.