Twig­gy off the hook — For­rest v Aus­tralian Secu­ri­ties and Invest­ments Com­mis­sion [2012] HCA 39

---

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.