Forrest v Australian Securities and Investments Commission; Fortescue Metals Group Ltd v Australian Securities and Investments Commission [2012] HCA 39

What the court decided

In 2004 Mr Forrest was chairman and chief executive of Fortescue Metals Group Ltd (Fortescue), a listed company [1]. Fortescue signed three framework agreements in 2004 with companies based in the People's Republic of China [3]. Its letters to the Australian Stock Exchange (the ASX) and media releases in August and November 2004 said that these were binding contracts to build, finance and transfer the railway, port and mine [4]. Fortescue and Mr Forrest referred to the agreements in other communications in 2004 and 2005 [4].

The Australian Securities and Investments Commission (ASIC) alleged that Fortescue engaged in misleading or deceptive conduct contrary to section 1041H and contravened the continuous disclosure requirements of section 674 [2]. It also alleged that Mr Forrest had not exercised the care and diligence that section 180(1) requires of a director [2].

At first instance Gilmour J dismissed ASIC's claims [6]. The Full Court of the Federal Court (Keane CJ, Emmett and Finkelstein JJ) allowed ASIC's appeal and made declarations of contravention [6].

French CJ, Gummow, Hayne and Kiefel JJ gave joint reasons allowing the appeals, brought by special leave [1], [7]. Heydon J, reasoning separately, would also allow them [117].

As argued in the High Court, ASIC's central case under section 1041H was treated as sufficiently identified by the letter and media release of 23 August 2004 about the agreement with China Railway Engineering Corporation [10]. All the statements were intended to describe substantially identical agreements and ASIC's allegations followed one pattern, so the other statements were not considered separately [11], [59]. The joint reasons' conclusion nonetheless covered all the impugned statements [8], [60].

On the determinative issue, the joint reasons held that the statements told their intended audience what the parties had done and said they had done, and ASIC did not show that an ordinary or reasonable member of that audience took any wider message [31], [43].

That conclusion proceeded on the footing that the parties genuinely intended to be bound [42]–[43]. ASIC accepted at trial that the agreements showed an intention to be legally bound, and its allegation that Fortescue did not believe them binding was rejected at trial and not disturbed [40], [42], [97]. No evidence showed that investors would read the words "binding contract" as promising court relief if a party did not perform [39].

The joint reasons also held that the Full Court and ASIC had assumed, without demonstrating it, that Australian domestic law determined the agreements' legal effect, although the counterparties were foreign state-owned entities and there was no choice of law or forum clause [44], [46], [49]. The joint reasons did not decide which law governed, noting that Chinese law might do so [47].

Their Honours held that the letter was not misleading or deceptive and not likely to mislead or deceive [58]. It accurately recorded what the agreement provided and conveyed no message about whether an Australian court would enforce it [58]. ASIC did not establish that Fortescue contravened section 1041H [60].

ASIC's primary continuous disclosure case rested on the premise that the statements had misrepresented the effect of the agreements, and that premise was not established [61]–[62]. ASIC's proposed cross-appeal argued that if the statements were opinions, the agreements' terms had to be disclosed [63]–[64]. The joint reasons answered that the statements expressed no relevant opinion and conveyed what the agreements provided, so Fortescue need not publish their text [65]. As there was no failure to disclose, they did not consider section 674(2A) on the liability of directors and officers or the excusing provisions of section 674(2B) [66].

ASIC's claim against Mr Forrest under section 180(1) depended on showing that Fortescue had contravened section 1041H or section 674, and it failed with those claims [67].

In each matter the Court allowed the appeal with costs, set aside the Full Court's orders and ordered instead that ASIC's appeal to that Court be dismissed with costs [71]. By majority, it granted ASIC special leave to cross-appeal and dismissed the cross-appeal with costs [71]. Heydon J would have refused the application for special leave to cross-appeal, with costs [114], [117].

In Heydon J's view, at least in the context of this case, describing the agreement as a binding contract was a statement of opinion [94]. His Honour held that, leaving aside its contractual force, the release correctly stated the agreement's effect, and that the agreement was at least a binding contract to negotiate further agreements [85], [90], [92]. He also held that ASIC did not show that the audience took the representation it alleged [106]. On the opinion ground, he reasoned that ASIC failed because it did not establish that Fortescue did not genuinely and reasonably hold that opinion [93]. He left open whether a statement of opinion implies reasonable grounds for it, and found such grounds on the assumption that it did [102]–[104], [107]. He held that ASIC's other criticisms of Fortescue's releases failed for similar reasons or concerned opinions not shown to be misleading [111].

Why it matters

The joint reasons' conclusion rested in part on the parties' genuine intention to be bound, the absence of evidence that the audience would read the words as a statement about enforcement in court and the agreements' international features [39], [43], [45]. They declined to decide the case by classifying what was said as fact or opinion, and held that no relevant opinion was expressed [33], [38], [65]. They did not hold that a statement that one company has contracted with another necessarily conveys only what the contractual document contains, saying that depends on the facts [69]. Readers should check the current text of the Act.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.