Australia: High Court clears Fortescue Metals and Andrew Forrest of Corporations Act breaches

Corporate Advisory and Governance Alert: 3 Oct 2012

The highly anticipated judgment in ASIC's joint action against Fortescue Metals and Andrew Forrest was handed down by the High Court of Australia yesterday.

ASIC initiated actions against Fortescue Metals and Mr Forrest in 2006, alleging that agreements entered into with Chinese entities that Fortescue had disclosed as binding were in fact not enforceable under Australian law, constituting misleading and deceptive conduct under the Corporations Act.

In a unanimous decision, the High Court determined that the disclosure was not misleading or deceptive, because the wording used was not misleading in these particular circumstances.

Partner Michael Hansel and associate Richard Hanel outline the proceedings and what company directors can learn from this decision.

Key lessons from this decision

While ASIC was unsuccessful in this instance, the action taken against Fortescue Metals and Mr Forrest, and the High Court's decision, provide some important lessons for company directors.

  • ASIC is serious in its pursuit of what it believes are breaches of the continuous disclosure obligations by listed entities, even though it may need to reconsider the manner in which it prepares its pleadings in future proceedings. This decision was fact based and is unlikely to deter ASIC from monitoring and enforcing continuous disclosure obligations.
  • In order to avoid investigation or further action by ASIC, directors should pay careful attention to the wording used in announcements, whether in relation to agreements entered into or more generally. Directors need to take into account:
    • the potential target audience of the announcement (in this instance the Court determined that the target audience was reasonably sophisticated); and
    • whether the message being conveyed is capable of being construed as misleading or deceptive by that identified target audience.

Background to this case

In 2004, Fortescue Metals disclosed that it had entered into binding agreements with three state-owned Chinese entities to develop infrastructure for its Pilbra project. ASIC initiated actions against Fortescue and Mr Forrest in 2006, alleging that the agreements were not binding because they were not enforceable under Australian law, and that the disclosure therefore constituted 'misleading and deceptive conduct' under the Corporations Act. It was alleged that Fortescue was in breach of its continuous disclosure obligations, and that Mr Forrest was in breach of his duties as a director under the Corporations Act.

ASIC argued that the agreements were not enforceable under Australian law because provisions setting out or providing for the determination of key commercial matters were missing, rendering the agreements incomplete.

ASIC was unsuccessful on its initial application to the Federal Court, but was successful on appeal to the Full Court of the Federal Court. Fortescue Metals and Mr Forrest applied for, and were granted, special leave to appeal to the High Court.

The High Court's decision

At the core of this decision is the Court's detailed consideration of the meaning that the statement 'binding contract' conveyed to the intended audience. The Court outlined three possible constructions of this statement:

  1. The statement conveyed a message about what the agreements said.
  2. The statement conveyed a message about the legal enforceability of the agreements.
  3. The statement conveyed a combination of the first two possible constructions.

The agreements Fortescue entered into contained several clauses that stated that while a more detailed agreement would be developed and entered into in the future which would reflect the same intent as the initial agreement, the initial agreement was an agreement in itself, and would become binding on acceptance by the board of each party.

The High Court determined that, in these particular circumstances, the first approach to construction as outlined above was to apply, as the agreements clearly stated that they were legally binding and the disclosure by Fortescue conveyed that message. Beyond that, it was going too far to suggest that the disclosure conveyed any message about the legal quality of the agreements. The High Court noted that ASIC did not present any evidence to suggest that a member of the intended target audience (identified by the majority of the Court as investors, comprising both present and possible future investors, and perhaps some wider section of the business or commercial community) would have understood the disclosure to be conveying a message that the agreements could, and would, be enforced by an Australian Court under Australian law if a dispute was to arise from them.

The High Court observed that:

  • all agreements were silent as to the jurisdiction that applied to them;
  • the other parties to the agreements were Chinese state-owned entities, and an elaborate and formal signing ceremony had been conducted in China; and
  • even though the infrastructure covered by the agreements was based in Australia, it was not justified in these circumstances to assume that the legal character of the documents was to be determined by an Australian court.

The Court also examined exchanges of draft agreements and emails between Fortescue Metals and the Chinese entities, looking at the terms that should be contained in the detailed agreements. The Court held that while each party had sought to negotiate better terms for itself during development of the detailed agreements, this did not demonstrate that the parties were not bound by, or intended to be bound by, the initial agreement that had been entered into.

In handing down its decision, the High Court also made the point that:

  • the decision was based on a close and careful analysis of the facts and does not establish any general proposition in relation to contracts between parties; and
  • the critical question when assessing a claim for misleading and deceptive conduct is not the message that the parties intended to convey to the target audience, but the message that is conveyed to that audience.

As the disclosure was not misleading or deceptive, the High Court also found that it could not be established that Fortescue Metals had breached its continuous disclosure obligations or, in turn, that Mr Forrest had breach his duties as director of Fortescue.

The High Court was highly critical that ASIC had made multiple, fall back and radically different arguments to justify its case against Fortescue Metals and Mr Forrest, which failed to present the claim in a clear and distinct manner fundamental to the conduct of a fair trial. Accordingly, ASIC will need to be more careful in the manner in which it frames its pleadings and approaches enforcement of contraventions of the Corporations Act in the future.

ASIC has indicated that it will review the decision and the impact it will have on the application of continuous disclosure requirements. We will keep you informed of further developments in this area.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

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

Click to Login as an existing user or Register so you can print this article.

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”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.