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18 October 2012 “Twiggy off the hook” - Forrest v Australian Securities and Investments Commission [2012] HCA 39

By Phillip Briffa, Solicitor and Alistair Jaque, Partner


IN brief

The High Court appeal against the Full Federal Court decision (handed down in February last year) related to conduct by both Fortescue Metals Group Ltd (FMG) and Mr Andrew Forrest in relation to a breach of continuous disclosure obligations under the Corporations Act 2001 (Act) and of Mr Forrest's duties as a director under section 180 of the Act.
 
On appeal to the High Court, FMG and Mr Forrest sought reinstatement of the trial judge's decision, where it was held that the statements made by FMG and Mr Forrest were based on reasonably held opinions. On 2 October 2012, four members of the High Court dismissed the Australian Securities and Investments Commission’s (ASIC’s) case and held that the statements made were neither false nor misleading.


THE FACTS

The matter concerned three framework agreements entered into between FMG and three Chinese companies for the construction of a mine and a port in the Pilbara region of Western Australia. Between August 2004 and March 2005, FMG made a series of announcements and statements to the market in relation to these framework agreements (Announcements). FMG indicated in the Announcements that the agreements created legally binding obligations.
 
ASIC brought proceedings against both FMG and Mr Forrest, alleging that the Announcements were misleading and deceptive and breached FMG's continuous disclosure obligations.

TRIAL JUDGE AND FULL FEDERAL COURT FINDINGS

The trial judge dismissed ASIC's case. It was held that the Announcements were based on opinions that were reasonably held.
 
ASIC appealed to the Full Federal Court, which upheld the appeal. The full bench found that the Announcements amounted to misleading and deceptive conduct and that FMG breached its continuous disclosure obligations by failing to correct the misleading and deceptive conduct once the Announcements were released. The full bench also found that Mr Forrest breached his duties as a director and contravened the Act by his involvement in drafting and releasing the Announcements.

HIGH COURTS FINDINGS

On appeal to the High Court, FMG and Mr Forrest sought reinstatement of the trial judge's decision.
 
The High Court held that:

  1. the Announcements represented that FMG and the Chinese companies had entered into agreements that each intended to be binding. The Court held this representation was neither false nor misleading,
  2. there was no evidential basis for assuming that a person reading the Announcements 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,
  3. FMG did not need to release the full text of the framework agreements in order to comply with its continuous disclosure obligations.

Because the statements were neither misleading nor deceptive, the Court found that FMG and Mr Forrest had not failed to meet their obligations under the Act.
 
The High Court therefore set aside the Federal Court's decision and declarations and reinstated the trial judge's decision that FMG and Mr Forrest had not contravened the Act.

LESSONS

The decision confirms well established corporate law principles, in particular that statements in ASX announcements must be correct and verifiable.
 
Legal advice on the wording of ASX announcements should be obtained to ensure the message that is conveyed to the target audience is the intended message of the announcement and that this message cannot be construed as being misleading or deceptive.

Alistair Jaque, Partner  |  Phone: +61 2 9233 5544  |  Email: afj@swaab.com.au

If you would like to republish this article, it is generally approved, but prior to doing so please contact the Marketing team at marketing@swaab.com.au

This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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