In brief - Full Federal Court overturns 2009 ruling
On 18 February 2011 the Full Federal Court unanimously
overturned the 2009 Federal Court ruling which cleared Fortescue
Metals Group (FMG) and its Chairman and CEO Mr
Andrew Forrest of misleading and deceptive conduct.
Framework agreements with three Chinese companies
The appeal related to conduct by both FMG and Mr Forrest in
relation to a breach of the continuous disclosure obligations under
the Corporations Act 2001 (Act) and of Mr
Forrest's duties as a director under section 180 of the
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.
FMG indicated in these announcements that the agreements created
legally binding obligations.
The Australian Securities and Investments Commission
(ASIC) brought proceedings against both FMG and Mr
Forrest, alleging that the announcements were misleading and
deceptive and breached FMG's continuous disclosure
The trial judge dismissed ASIC's case, holding that the
announcements that the agreements were binding were an opinion
which was reasonably held. ASIC appealed to the Full Federal Court,
which upheld the appeal.
Federal Court findings
The full bench found that:
FMG's announcement regarding the binding contracts amounted
to misleading and deceptive conduct
FMG breached its continuous disclosure obligations by failing
to correct the misleading the deceptive conduct once the
announcements were released
Mr Forrest breached his duties as a director and contravened
the Act by his involvement in drafting and releasing the
Consequence of contravention
The judgement is such that Mr Forrest could ultimately be banned
from sitting on the board of the company he founded. Additionally,
he may be fined up to $10 million dollars. ASIC is likely to push
for the imposition of both a fine and a ban during penalty hearings
which are expected to be heard at the Federal Court in coming
FMG intention to appeal
Mr Forrest has already indicated that he and FMG both intend to
appeal the decision before the High Court. If an application is
made, penalty hearings in the Federal Court would be stayed.
Further, it could take up to six months for the High Court even to
decide whether to hear an appeal.
Companies need to correct misleading information
ASIC, which commenced proceedings against Mr Forrest and FMG in
2006, proclaimed the judgment as significant for investor
confidence. In a statement made shortly after the judgement, ASIC
chairman Tony D'Aloisio said that the ruling was important
because it reinforced continuous disclosure requirements, which are
the "bedrock of confidence in the integrity of our
For companies, the judgement increases the importance of
correcting misleading information in the market once they become
aware that their previously released information may be misleading.
This obligation extends to directors who are knowingly involved in
Statements in ASX announcements must be correct and verifiable.
Legal advice on the wording of ASX announcements should be
If you would like to republish this article, please contact
Carly Dircks on 02 9233 5544 or email@example.com.
Swaab Attorneys was the highest ranking law firm and the
13th best place to work in Australia in the 2010 Business Review
Weekly Best Places to Work Awards. The firm was a finalist in the
2010 BRW Client Choice Awards for client service and was named the
winner in the 2009 Australasian Legal Business Employer of Choice
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).