In Forrest v Australian Securities and Investments Commission [2012] HCA 39 the High Court of Australia dismissed ASIC’s claims that statements to the ASX by Fortescue Metals Group Ltd were misleading or deceptive or likely to mislead or deceive. Because the statements were not misleading or deceptive or likely to mislead or deceive, the High Court concluded that ASIC failed to demonstrate that Fortescue contravened the continuous disclosure requirements of section 674 of the Corporations Act. There being no breach by Fortescue, it was decided that Mr Forrest (as chairman and then chief executive of Fortescue and a substantial shareholder in the company) had not 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 case related to 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”).
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 Pilbara Iron Ore and Infrastructure Project.
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.
In analysing the comments, the High Court criticised the way ASIC’s presented its arguments, saying ASIC confused the claim of misleading conduct with a claim of deceit.
The High Court decided that:
” The impugned statements conveyed to their intended audience what the parties to the framework agreements said they had done — make agreements that they said were binding — and no more. ASIC did not demonstrate that members of the intended audience for the impugned statements would have taken what was said as directed in any way to what the parties to the agreements could do if the parties were later to disagree about performance. ASIC did not demonstrate that the impugned statements conveyed to that audience that such a disagreement could and would be determined by Australian law. And given that the impugned statements did accurately convey what the parties to the framework agreements had said in those agreements, it would be extreme or fanciful for the audience to understand the impugned statements as directing their attention to any question of enforcement by an Australian court if the parties later disagreed. Such an extreme or fanciful understanding should not be attributed to the ordinary or reasonable member of the audience receiving the impugned statements. …
… if a party says something knowing that what is conveyed by the statement is false, or reckless as to its truth or falsity, that party is guilty of deceit. And for the purposes of a claim of misleading or deceptive conduct, if a person seeks to characterise a public statement as a representation about the content of a document, the critical question will be what the statement conveyed to its intended audience, not what the party concerned says that it was intended to convey. Concerns about dishonesty provide no reason to distort settled understandings about misleading or deceptive conduct. “
