Forrest v Australian Securities and Investments Commission

• Jurisdiction: Australia Federal only
• Judge: French CJ,Gummow,Hayne,Kiefel JJ.,Heydon J.
• Judgment Date: 02 October 2012
• Neutral Citation: [2012] HCA 39,2012-1002 HCA B
• Court: High Court
• Docket Number: P44/2011 & P45/2011
• Date: 02 October 2012

[2012] HCA 39

HIGH COURT OF AUSTRALIA

French CJ, Gummow, Hayne, Heydon and Kiefel JJ

P44/2011 & P45/2011

John Andrew Henry Forrest

Appellant

and

Australian Securities and Investments Commission & Anor

Respondents

Fortescue Metals Group Ltd

Appellant

and

Australian Securities and Investments Commission & Anor

Respondents

Representation:

A J Myers QC with M Thangaraj SC for the appellant in P44/2011 and the second respondent in P45/2011 (instructed by Gadens Lawyers)

D F Jackson QC with B Dharmananda SC for the appellant in P45/2011 and the second respondent in P44/2011 (instructed by Corrs Chambers Westgarth)

N J Young QC with M K Moshinsky SC, J A Thomson and A D Pound for the first respondent in both matters (instructed by King & Wood Mallesons)

Corporations Act 2001 (Cth), ss 180(1), 674, 1041H.

Forrest v Australian Securities and Investments Commission Fortescue Metals Group Ltd v Australian Securities and Investments Commission

Corporations law — Misleading or deceptive conduct — Fortescue made agreements with Chinese state-owned entities to build, transfer and finance mining infrastructure — Forrest and Fortescue made public statements that binding agreements entered into — Whether statements were of opinion or fact — Whether ordinary or reasonable member of audience would understand statements as making representation about enforceability of agreements in Australian law — Whether statements misleading or deceptive or likely to mislead or deceive.

Corporations law — Continuous disclosure — Fortescue made statements to Australian Securities Exchange about agreements without publishing actual agreements — Whether obliged to disclose actual terms of agreements.

Practice and procedure — Pleadings — Statement of claim pleaded numerous allegations in alternative — Whether drafting of statement of claim in this manner desirable or appropriate.

Words and phrases — ‘binding contract’, ‘extreme or fanciful’, ‘misleading or deceptive’, ‘opinion’, ‘ordinary or reasonable member of audience’.

ORDER

In each matter:

• 1. Appeal allowed with costs.

• 2. Set aside the orders of the Full Court of the Federal Court of Australia made on 18 February 2011 as varied on 20 May 2011 and, in their place, order that the appeal by the Australian Securities and Investments Commission to that Court be dismissed with costs.

• 3. Special leave to cross-appeal granted, treated as instituted and heard instanter, and dismissed with costs.

1 French CJ, Gummow, Hayne and Kiefel JJ. In 2004, Fortescue Metals Group Ltd (‘Fortescue’) was a public company whose shares were listed on the Australian Stock Exchange Limited (‘the ASX’). Mr John Andrew Henry Forrest was chairman and chief executive of Fortescue and a substantial shareholder in the company.

2 The Australian Securities and Investments Commission (‘ASIC’) alleged that Fortescue and Mr Forrest contravened the Corporations Act 2001 (Cth) when, at various times in 2004 and 2005, Fortescue gave information to the ASX about a proposed mining project in Western Australia called the Pilbara Iron Ore and Infrastructure Project. The project was to consist of a mine in the Pilbara region of Western Australia, a port at Port Hedland and a railway to connect the mine to the port. ASIC alleged that, contrary to s 1041H of the Corporations Act, Fortescue engaged in misleading or deceptive conduct in relation to a financial product (shares in Fortescue) by publishing notices in relation to that financial product that were misleading or deceptive or likely to mislead or deceive. ASIC further alleged that Fortescue contravened the continuous disclosure requirements of s 674 of the Corporations Act and that, contrary to s 180(1) of the Corporations Act, on each occasion Fortescue contravened the Corporations Act Mr Forrest had not exercised his powers or discharged his duties as a director of Fortescue with the degree of care and diligence required by s 180(1).

3 The case which ASIC sought to make against both Fortescue and Mr Forrest hinged on announcements Fortescue had made (by letter and media release) concerning agreements it had made with China Railway Engineering Corporation (‘CREC’), China Harbour Engineering Company (Group) (‘CHEC’) and China Metallurgical Construction (Group) Corporation (‘CMCC’). Each of those bodies is based in the People's Republic of China, and they were described by Fortescue as ‘three of the largest state owned companies in China’. The CREC agreement was signed on 6 August 2004, the CHEC agreement was signed on 1 October 2004 and the CMCC agreement was signed on 20 October 2004. Each bore the heading ‘Framework Agreement’.

4 During August and November 2004, Fortescue sent letters to the ASX and made media releases about these agreements which said, among other things, that Fortescue had made binding contracts with each of CREC, CHEC and CMCC to build, finance and transfer the railway, port and mine for the project. Each media release and one of the letters referred to the Chinese Government owning the relevant company or companies. In addition, Fortescue and Mr Forrest made various other communications during 200and 2005 which referred to the agreements that Fortescue had made with each of CREC, CHEC and CMCC.

5 In March 2005, an article was published in the financial press suggesting that the contracts which Fortescue had made were not binding contracts to build, finance and transfer the railway, port and mine. In response to the ASX's request for comment, Fortescue then provided to the ASX a copy of the framework agreement with CMCC.

6 In March 2006, ASIC commenced proceedings in the Federal Court of Australia making the allegations that have been described. At first instance, Gilmour J dismissed 1 ASIC's claims. ASIC's appeal to the Full Court of the Federal Court (Keane CJ, Emmett and Finkelstein JJ) was allowed 2 and declarations of contravention were made. Questions about penalty for contravention were remitted for consideration by a single judge.

7 By special leave, Fortescue and Mr Forrest now appeal to this Court seeking the reinstatement of the orders made at first instance. The appeals should be allowed and the consequential orders sought by Fortescue and Mr Forrest should be made.

8 These reasons will demonstrate that the impugned statements were not misleading or deceptive or likely to mislead or deceive. Because the impugned statements were not misleading or deceptive or likely to mislead or deceive, ASIC failed to demonstrate that Fortescue contravened the continuous disclosure requirements of s 674 of the Corporations Act. There being no breach by Fortescue of either s 1041H or s 674, it was not shown that Mr Forrest failed to exercise his powers or discharge his duties as a director with the degree of care and diligence required by s 180(1) of the Corporations Act.

ASIC's pleaded claim of misleading or deceptive conduct

9 As finally formulated, the body of ASIC's statement of claim (excluding schedules) was 108 pages long. For its case that Fortescue had contravened s 1041H by making misleading or deceptive statements ASIC identified 13 different communications:

• (a) a letter dated 23 August 2004 from Fortescue to the ASX about the CREC framework agreement together with an associated media release;

• (b) a press conference conducted by Mr Forrest by telephone on 23 August 2004;

• (c) Fortescue's Annual Financial Report for the year ended 30 June 2004 sent to the ASX on 27 August 2004;

• (d) a television interview Mr Forrest gave on 17 October 2004;

• (e) Fortescue's Annual Report for 2004 sent to the ASX on 25 October 2004;

• (f) Fortescue's Quarterly Report for the period ending 30 September 2004 sent to the ASX on 29 October 2004;

• (g) a letter dated 5 November 2004 from Fortescue to the ASX together with an associated media release;

• (h) a letter dated 8 November 2004 from Fortescue to the ASX;

• (i) a slide presentation Fortescue made to investors, a copy of which Fortescue sent to the ASX and published on Fortescue's website on 24 November 2004;

• (j) Fortescue's Quarterly Report for the period ending 31 December 2004 sent to the ASX on 31 January 2005;

• (k) a slide presentation Fortescue made to investors, a copy of which Foretscue sent to the ASX on 10 February 2005 and published on Fortescue's website on 11 February 2005;

• (l) a presentation Mr Forrest made on behalf of Fortescue at a conference on 22 February 2005; and

• (m) a further presentation Mr Forrest made on behalf of Fortescue at a conference on 28 February 2005, a copy of which Fortescue sent to the ASX on 28 February 2005 and published on Fortescue's website on 1 March 2005.

10 Although there were some variations in the allegations made about those 13 communications, the central case which ASIC sought to make under s 1041H was treated in argument in this Court as sufficiently identified by reference only to Fortescue's letter to the ASX and media release sent and made on 23 August 2004 after the signing of its agreement with CREC.

11 Reference to the statements about the CREC agreement was sufficient because all of the impugned statements were evidently intended to describe what was set out in one or more of the three substantially identical framework agreements. And the allegations made by ASIC about each of the impugned statements substantially followed the pattern set by its allegations about Fortescue's letter of 23 August 2004 (and the associated media release) concerning the CREC agreement.

The CREC framework agreement

12 The Full Court set out 3 the complete text of the CREC framework agreement in its reasons for judgment. For present purposes it is enough to notice the following seven features of the agreement.

• (a) Recital A identified ‘the Works’ as being to ‘carry out and complete the Build and Transfer of the...