Australia: High Court upholds appeal by Fortescue Metals and Forrest

Last Updated: 10 October 2012

By Robert Austin and Carolyn Reynolds

The High Court of Australia has unanimously allowed an appeal by Fortescue Metals Group (FMG) and Andrew Forrest from last year's decision of the Full Federal Court. The High Court found that FMG's market announcements, that it had entered binding agreements with Chinese state-owned enterprises (SOEs) to build, transfer and finance its massive Pilbara infrastructure project, did not amount to misleading conduct.

The High Court's reasoning demands careful consideration, to assess the implications for market announcements and continuous disclosure.

Facts and background

During August - December 2004 FMG made repeated announcements to the effect that it had entered into binding agreements with three Chinese SOEs to build, finance and transfer the railway, port and mining construction work for its massive Pilbara iron ore and infrastructure project.

In fact, the agreements were very slim framework agreements, which contemplated that fuller and more detailed agreements would be developed later.

In March 2005 the Australian Financial Review published an article suggesting the agreements were not binding contracts to build, finance and transfer the railway, port and mine. In response to the ASX's request for comment, FMG then provided the ASX with a copy of the framework agreement with one of the Chinese entities.

In 2006 ASIC commenced proceedings in the Federal Court alleging that the market announcements were misleading or deceptive and that FMG contravened the continuous disclosure requirements of the Corporations Act by not correcting the information. It alleged that Mr Forrest was involved in the contraventions, and was also in breach of his duty of care by allowing the company to contravene the law.

The trial judge dismissed ASIC's claims, on the grounds that the market announcements were expressions of opinion as to the legally binding force of the agreements, and FMG had a reasonable basis for its opinion.

The Full Federal Court unanimously allowed an appeal (see our alert). The Full Court found that the market announcements represented that the framework agreements were legally enforceable contracts to build, transfer and finance infrastructure, and since they were not, publication of the market announcements amounted to misleading conduct by FMG. The Full Court held that FMG breached its continuous disclosure obligation by failing to correct the misleading information, and that Mr Forrest was involved in that contravention, and was also in breach of his duty of care and diligence by failing to prevent the company from contravening.

The High Court has now reversed the Full Federal Court's decision. There were two judgments reaching the same conclusion, but for somewhat different reasons: the joint judgment of French CJ, and Gummow, Hayne and Kiefel JJ (the majority judges) and the judgment of Heydon J. All judges found that the market announcements were not misleading or deceptive, and consequently there was no breach of the continuous disclosure obligation by FMG and no breach of duty by Mr Forrest.

We shall explain the Court's reasoning under seven numbered headings, and then offer some comments.

1. Misleading or deceptive?

The central difference between the majority's joint judgment and the Full Federal Court was about the meaning of the market announcements. According to the Full Court, when FMG said it had 'entered into binding agreement[s] ... to build, transfer and finance' the railway, port and mine, it was saying something about the legally binding effect of the agreements.

The majority judges disagreed. ASIC's assertion that the market announcements were misleading and deceptive required that it prove the effect of the announcements on the intended audience, and that this effect was misleading. The majority judges identified the intended audience as investors (present and possible future investors) and perhaps, some wider section of the commercial business community (at [36]).

The majority judges said that when the announcements were properly read in their context, they would not convey to the audience statements about the legal effect of the agreements, under Australian law or any other law. Instead, they would be read as statements about what the parties to the agreements understood that they had done and intended would happen in the future (at [37]). They were summaries of what the agreements themselves said: namely that there was an agreement; to carry out a Build and Transfer of the identified Works; which would become 'binding' upon approval by the directors of the parties.

It would have been 'extreme or fanciful' for the audience of investors to have understood the market announcements as directing attention to the question of enforcement of the agreements by an Australian court if the parties later disagreed (at [50]).

Accordingly, it was not necessary for the majority judges to pronounce upon whether the framework agreements were legally enforceable. However, they noted that if the market announcements had been statements that the agreements were legally enforceable, the question would arise, under whose law? There was a 'real and lively possibility' that the validity of the agreements might be governed by Chinese law (at [47]). They also commented that the public expression of acceptance by the Chinese SOEs at signing ceremonies of what were described as binding obligations might be a much more powerful spur to performance of ... obligations than any possible legal action (at [49]).

2. Agreements 'to build and transfer'

The majority judges rejected ASIC's argument that it was misleading to describe the agreements as 'Build and Transfer' contracts. They did so because the agreements described themselves as agreements to 'Build and Transfer', and contemplated fuller and more detailed agreements. It does not follow from the fact that there were to be fuller agreements, that it was inaccurate to describe the framework agreements as 'Build and Transfer' contracts [16].

3. Fact v opinion

The trial judge and the Full Federal Court emphasised the distinction between statements of fact and statements of opinion. An incorrect statement of fact is necessarily misleading. If the statement is a statement of opinion, the question is whether there is a reasonable basis for it. The Full Court found that the statement that FMG had entered into binding contracts to build and transfer was a statement of fact (if I say I have sold my car for $1000, I am not expressing an opinion about whether a court would find I have a binding agreement, I am stating a fact).

The majority judges rejected this approach [33]. They said it was unprofitable to attempt to classify a statement according to some 'taxonomy, no matter whether that taxonomy adopts as its relevant classes fact and opinion, fact and law, or some mixture of these classes'. Instead the court should examine closely what it is that the statements conveyed to the audience.

Heydon J took a different approach on this point. He regarded the market announcements as necessarily statements of opinion about the legal effect of the agreements, because 'the binding quality of an alleged contract is an inherently controversial matter of professional judgment' [94]. He found it unnecessary to decide whether a statement of opinion conveys not only that the opinion is held, but also that there is a basis for it. He contemplated that judicial recognition of a duty to have reasonable grounds when expressing an opinion would widen misleading and deceptive conduct liability (at [103]).

In order to assess whether there was a reasonable basis for the expressions of opinion in the market announcements, it is first necessary to identify the opinion in fact conveyed. In Heydon J's view, the audience to whom the market announcements were directed would not have understood FMG as claiming agreements that would make it 'practicable to force' the SOEs to build, transfer and finance the railway, as ASIC alleged. The target audience would have understood the representations as being less high and less intense - namely representations that there was a binding agreement containing machinery capable of procuring the result that the SOEs would voluntarily build, transfer and finance the project (at [105], [107]).

Heydon J reached this conclusion after an analysis of the target audience (at [106]). It was an investor audience and it was not naive:

It was not an audience to whom the adjectives 'Western Australian', 'mining' and 'Chinese' would excite a sudden certainty about the imminent creation of wealth beyond the dreams of avarice.

It was a 'tough, shrewd and sceptical' audience conscious of the problems of creating infrastructure in the harsh conditions of Western Australia, and in doing so in cooperation with the Chinese. This audience would have realised that a legal agreement is unlikely to be enough to 'force' the Chinese SOE to do anything:

When Bismarck was asked during the war of 1870 how he would force the British Army to surrender if it landed on the Baltic Coast, he said he would send a police constable to arrest it. Fortescue's target audience would have known that it would be very much less easy for Fortescue to deal with the People's Republic of China.

4. Misleading conduct and fraud

ASIC alleged that either the market announcements were misleading statements of fact, or were statements of opinion for which FMG did not have 'a genuine and/or reasonable basis.' According to the majority judges, this latter allegation amounted to claiming that FMG was making either a fraudulent or negligent misrepresentation.

The allegation of fraud or negligence was out of place in misleading conduct case, where there should be only two questions: what was conveyed by the market announcements to the intended audience, and was that misleading or deceptive? (at [21]):

It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. ... it is greatly to be doubted that it will ever be appropriate to pile, one on top of the other, as many alternative allegations as were made in this case. [Although sometimes a case may be pleaded in alternatives, this does not extend to] planting a forest of forensic contingencies and waiting until final address or perhaps even an appeal hearing to map a path through it. In this case, there were hundreds, if not thousands, of alternative and cumulative combinations of allegations. (at [26]-[27])

ASIC's allegation, that the framework agreements did not state certain matters, was without foundation, and 'embarrassing to the fair trial of the proceedings'. (at [30])

5. Continuous disclosure

The conclusion that FMG's market announcements were not misleading was enough to dispose of ASIC's claim that FMG breached its continuous disclosure obligation by failing to correct the misleading information it had put into the market.

ASIC sought leave to advance an alternative case of contravention of the continuous disclosure obligation, by claiming that even if FMG had made no public announcements, it would have been obliged to disclose the terms of the agreements. The majority judges found that the market announcements accurately conveyed to their intended audience what the agreements provided, and so it was not to be supposed that FMG's continuous disclosure obligation would require it to publish the very text of the agreements (at [65]).

Heydon J said that on ASIC's case, the framework agreements were no more than unenforceable agreements to agree, and if that were true they would have been of trivial significance and not likely to influence the share price (at [114]). His Honour did not consider whether there would have been an obligation to disclose the agreements if they had the legal effect he attributed to them.

6. Directors' duties

As ASIC had failed to establish a breach of the misleading conduct or continuous disclosure provisions, its claim that Mr Forrest breached his duty of care by failing to prevent FMG from contravening the law must necessarily fail. The High Court therefore did not make any comment in relation to the content of the statutory duty of care and diligence or the business judgment rule.

7. The concluding remarks of the majority judges

The majority judges defended the High Court's decision against any criticism that the decision had artificially limited the protection afforded to the investing public [69]-[70]. They said they had not decided that, when a company makes a market announcement that it has a contract with another company, this necessarily conveys nothing more than a message about what the contract document contains. They said the message conveyed by market announcements to the intended audience can only be determined by a close and careful analysis of the facts. This suggests that the High Court's decision should be regarded as very fact specific.

The majority judges also drew attention to the protection for investors that is provided by the law in a case where a market announcement is fraudulently or dishonestly made (at [70]).

Some comments on the High Court's judgment

Does the judgment lower the bar for continuous disclosure? According to the majority judges, the market announcements were accurate and not misleading, even though on an objective view there were significant gaps in the disclosed arrangements regarding pricing, conditions and other matters. Does it follow that other listed entities can disclose their material contracts to the market in the same limited way?

We think not. This was a special case, in which the binding nature of the framework agreements was affected by the fact that FMG's counterparties were Chinese SOEs, and the agreements expressly stated that they were binding even though more detailed agreements were to be developed.

In more routine circumstances, listed entities will be well advised to make careful disclosure of all of the salient terms of a material contract, immediately after (and possibly even before) entering into it. They should consider whether it is appropriate to give ASX a copy of the contract. The overriding obligation is to disclose, immediately, all information concerning the contract that a reasonable person would expect to have a material effect on the price or value of the entity's securities.

The High Court did not give general guidance on the content of the continuous disclosure obligation. But, with respect, one wonders whether Heydon J was right to say that if the framework agreements had been unenforceable agreements to agree (as ASIC alleged), there would have been no disclosure obligation because they would have been trivial and unlikely to influence the share price. That, surely, is a matter of fact to be determined on the evidence, but conceivably announcements about 'agreement to agree' arrangements with Chinese SOEs, even if expressly declared to be unenforceable, might have boosted the FMG share price.

While our overall conclusion is that the continuous disclosure obligation remains firm and undiminished, there is one aspect of the judgment that is troubling. This is Heydon J's assessment, apparently without relying on any evidence, that the target audience for the market announcements was relatively sophisticated.

That is out of line with the more common perception within the corporate community and corporate advisers that market disclosure must recognise a target audience that includes retail investors for whom very little, if any, sophistication can be assumed. If Heydon J's approach on this question were to be accepted, the quality and utility of market announcements could well decline.

The High Court's decision will demand several responses from ASIC. First, ASIC and its legal advisers will have to take to heart the highly critical comments made by the majority judges about the complexity of ASIC's pleaded case. When ASIC frames future proceedings, it will be more important than ever to limit the issues for determination with surgical precision, so as to select issues that do not require extensive and expensive factual investigations, that can be presented in a clear and linear fashion, and that invite the court to adopt a principle that will provide guidance to the market.

Second, ASIC will need to decide whether the High Court's judgment should alter its enforcement strategy, for example by accelerating the tendency to deal with continuous disclosure by infringement notices and enforceable undertakings rather than by litigation (as to the use of infringement notices see our Leighton Holdings alert).

We suggest that increased use of infringement notices is undesirable because of their potential unfairness for the listed entity concerned (which may, as a practical matter, prefer to pay a fine than to go to the expense and effort of establishing its innocence), and also because the infringement notice procedure does not generate principles for guidance of the market in areas of uncertainty.

Of course, there is no guarantee that pursuing a civil case to judgment will lead to the establishment of a principle to guide listed entities about their disclosure obligation. As shown above, the High Court has decided the Fortescue Metals case on a narrow, fact-specific basis. But it is of some significance that, since the High Court limited the scope of its decision, much of what the Full Federal Court said remains 'on the table', though resting in the shadowy light of compromised precedent.

Thus, it remains open to future courts to develop the duty of listed entities to make corrective disclosure when the market is misinformed, to explain more fully the extent to which corporate contravention exposes the corporation's directors to a charge of breach of their statutory duty of care and diligence, and to give more flesh to the business judgment defence.

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”

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions