Australia: Shareholder Seeks Preliminary Discovery Against ASX Listed Company After Share Price Plummets

Potential litigants sometimes lack sufficient documentation to make an informed decision whether to commence litigation against another party. Often, the party against whom litigation is contemplated is the same party who holds the documentation, and logically will not provide the documentation voluntarily.  In the recent decision of Bonham v Iluka Resources Limited, the full Federal Court overturned the primary judge's decision declining to grant preliminary discovery (that is, an application for the production of documents prior to commencement of proceedings) and in doing so, considered the elements that must be satisfied to obtain an order for preliminary discovery.

Background: Shareholder application for preliminary discovery following a drop in share price

The timeline of events was as follows.

  • In May 2012, Iluka Resources Limited, an ASX-listed mining company, published an announcement slightly downgrading sales forecasts recorded in an earlier report.
  • 4 days later, Mr Bonham, the applicant, purchased shares in Iluka Resources.
  • About 2 months later, Iluka Resources published an ASX notice, this time significantly downgrading its sales forecasts, causing its share price to drop by 24%.
  • Subsequently, Mr Bonham's solicitors issued a media release announcing a shareholder class action against Iluka Resources relating to the share price drop (with Mr Bonham named as the lead applicant in the action).
  • Mr Bonham applied to the Court for preliminary discovery. Mr Bonham's application was based on potential causes of action against Iluka Resources including misleading and deceptive conduct as well as failure to comply with market disclosure obligations.

The Rules: When can a party apply for preliminary discovery?

Under the Federal Court Rules, a prospective applicant may apply for an order for preliminary discovery if the prospective applicant:

  • reasonably believes that he or she may have the right to obtain relief from an identified prospective respondent;
  • after making reasonable inquiries, does not have sufficient information to decide whether to commence proceedings to obtain that relief; and
  • reasonably believes that:
    • the prospective respondent has or had, or is likely to have or had, in his or her control, documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and
    • inspection of the documents would assist in making that decision.

The application at first instance and on appeal

The primary judge dismissed Mr Bonham's application on 3 grounds.

  1. Mr Bonham did not demonstrate that he held the subjective belief that he may have a claim for relief.
  2. Mr Bonham did not have an objectively reasonable basis for believing he had a right to obtain relief.
  3. The Court's discretionary right to refuse the application should be exercised because of Mr Bonham's solicitor's conduct in "book building" (this related to the primary judge's criticism that the solicitors "book built" for the purpose of recruiting potential members of a class action through statements by them suggesting that a determination had already been made to commence proceedings when it was clear from the preliminary discovery application that that was not the case).

On appeal, the Full Court agreed with the primary judge that Mr Bonham had insufficient information to decide whether to commence proceedings. Otherwise, the Full Court disagreed with the above 3 grounds.

In relation to 1, the only affidavit put on was by Mr Bonham's solicitor. The primary judge found the solicitor's affidavit was insufficient evidence of Mr Bonham's subjective belief. The Full Court held other evidence, being correspondence between the parties' solicitors, was sufficient evidence of Mr Bonham's subjective belief.

In relation to point 2, the Full Court found that the primary judge incorrectly focused, not on whether Mr Bonham's belief was reasonable, but whether Iluka Resources had reasonable grounds for making its 8 May 2012 announcement. The Full Court found that to prove an objectively reasonable belief, Mr Bonham did not need to prove Iluka Resources had prior knowledge, or should have known certain facts, when making its 8 May announcement. That is, Mr Bonham did not need to establish a prima facie case. The announcements provided an objectively reasonable ground for Mr Bonham to believe he had a right to obtain relief, and it was unnecessary to prove whether these announcements were reasonably made by Iluka Resources.

In relation to 3, the Full Court found that the conduct of Mr Bonham's solicitors should not prejudice his application, and determined that the power to refuse an application on discretionary grounds could not be exercised for illegitimate purposes such as refusing Mr Bonham's claim because of his solicitor's conduct.

What does this mean for you?

If you are considering an application for preliminary discovery, bear in mind the following.

  • An affidavit from a solicitor may not be enough to meet the subjective belief requirement. Ideally, an affidavit from the applicant is preferable. In Mr Bonham's case, he was lucky that there was other evidence before the Court that established the requisite belief.
  • You must demonstrate to the Court a reasonable belief that the documentation sought is directly relevant to the question whether you have a right to obtain the relief and that inspection of the documents by you would assist in making a decision whether to litigate.
  • You do not need to establish a prima facie case. But, you must establish that you have objectively reasonable ground to believe you have a right to obtain relief.

If you are a prospective respondent resisting a claim for preliminary discovery, consider whether:

  • you have a proper basis to argue that the applicant does not have the requisite reasonable belief or has not made the reasonable inquiries required by the Rule outline above; and
  • the documentation sought is directly relevant to the question whether the applicant has a right to obtain relief and whether inspection of the documents would aid a decision whether to litigate.

Following the above decision, on 20 June 2017, the Supreme Court of New South Wales granted preliminary discovery in Wright Medical Australia Pty Limited v Johnston [2017] NSWSC 761. In doing so, Justice Hallen limited the discovery sought to "no more than that which is necessary, to overcome the insufficiency of information already possessed by the Plaintiff to enable a decision to be made whether to commence a proceeding." This factor should also be borne in mind, whether you are seeking or resisting an order for preliminary discovery.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
23 Jan 2019, Seminar, Los Angeles, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

24 Jan 2019, Other, New York, United States

Join Dentons’ Health Care Partner Lori Mihalich-Levin and White Collar & Government Investigations Counsel Christine Genaitis as they lead conference sessions at AHLA Academic Medical Centers and Teaching Hospitals Institute.

30 Jan 2019, Other, Chicago, United States

Please join us on January 30, 2019, for the Fifth Annual Courageous Counsel Leadership Institute. This year's theme is "Risk and reward: Creating a culture that promotes innovation, change and growth.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions