Fortescue Metals Group wins in High Court

The High Court has ruled mining billionaire Andrew Forrest and his iron ore company Fortescue Metals Group did not mislead investors.

The court this morning (2 October 2012), upheld an appeal by Mr Forrest and Fortescue against a Federal Court decision they misled investors in 2004 by misrepresenting the nature of agreements with three Chinese entities.

Mr Forrest was facing possible disqualification as a company director. Fortescue struck framework agreements with the state-owned Chinese companies for the building and transfer of a rail line and port in the Pilbara in Western Australia.

The case is Forrest v ASIC: Fortescue Metals Group Ltd v ASIC [2012] HCA 39 and the unanimous verdict overturns the Federal Court's earlier finding.

Briefly the background to the case is that each of the agreements was headed "Framework Agreement" and was four pages long.  Each agreement recorded that it was to become binding upon approval by the parties' respective boards, and that the parties were jointly to agree and develop further general conditions of contract at a later date.  The parties' boards approved the agreements.  Fortescue and Mr Forrest, as Fortescue's chairman and chief executive, made public statements that Fortescue had entered into a "binding contract" with each of the Chinese entities to build, finance and transfer the relevant construction works.

Four members of the Court held that the statements made by Fortescue and Mr Forrest represented to those hearing or reading them that Fortescue and the Chinese state-owned entities had entered into agreements that each intended to be binding and that  this representation was neither false nor misleading. There was no evidentiary basis for an assumption that a person hearing or reading these statements would understand that the parties had entered into agreements that would be enforced by an Australian court according to Australian law should a dispute ever arise between them. Further because the statements were neither misleading nor deceptive, the Court found that Fortescue and Mr Forrest had not failed to meet their obligations under the Corporations Act. The Court therefore set aside the Full Federal Court's decision and declarations and reinstated the primary judge's decision that Fortescue and Mr Forrest had not contravened the Corporations Act.

SmartCompany points out that “The High Court's finding will come as a blow to the Australian Securities and Investment Commission, which has engaged in a long legal battle with Forrest. . .” but goes on to add “as the High Court did not consider the issue of continuous disclosure, much of the Federal Court's reasoning around continuous disclosure is likely to stand until the High Court considers the issue again.”

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