Case Citation and Law Reports
The correct name for the case encompasses ASIC v Fortescue Metals Group Ltd and Forrest. As per the Australian Guide to Legal Citation, the case can be cited as Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd (2011) 190 FCR 364. This citation encompasses that for the case presented during the appeal; while the original case was cited as Australian Securities & Investments Commission v Fortescue Metals Group Ltd [No 5] (2009) FCA 1586.
Research ascertains that the case has been reported in various law reports. Such reports encompass the Federal Court of Australia Annual Report 2010-2011, Australian Company Law Reports, Australian contract Reports, Australian Law Reports, Australian Company Law cases, Australian Law Journal Reports, Australian Trade Practices Reports, Australian Industrial Law Reports and Australian Corporations, Commonwealth Law Reports and Securities Reports.
Legislation Provisions Utilized by the Full Federal Court
On the part of the FMGL as a company, the court utilized sections 1041H and 674(2) of the Corporations Act 2001 as well as section 52 of the Trade Practice Act 1974. On Forrest’s part, the court utilized section 674(2A) and 180(1) of the same Corporations Act 2001. Section 1041H of the Corporations Act 2001 deals with deceptive or misleading conduct. It provides that any person should not engage in conduct that is deceptive or misleading or one that will deceive or mislead, in terms of financial services or financial products. Section 52 of the Trade Practice Act 1974, holds that no corporation in commerce or trade should engage in conduct that is deceptive or misleading or which can likely deceive or mislead (Yorke v Lucas, 1985, Campomar Sociedad Limitada v Nike International Limited, 2000, National Exchange Pty Ltd v Australian Securities and Investments Commission, 2004), Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd, 1984, Heydon v NRMA Ltd, 2000).
The Full Federal Court utilized these legislative provisions in considering whether the announcements made were statements of opinion or statements of fact. The statements were considered to be statements of fact as per the Framework Agreement’s content (Middleton v Aon Risk Services Australia Ltd, 2008). These statements were misleading and deceiving to investor’s, as they were not based on the correct contents of the Framework Agreements (Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd, 2011, Reefs, Limited v Twiss, 1896), Inn Leisure Industries Pty Ltd (Prov liq app) v DF Mc Cloy Pty Ltd (1991)). They were termed as likely to mislead or deceive, as FMG statements referred to the Framework agreements as binding contracts even though such issues as price and scope of work made up the subject matter that was to be agreed upon between the involved parties at a later date.
As such, investors were likely to be influenced by the information contained in the statements into disposing of or acquiring FMG shares. Section 674(2) of the Corporations Act 2001, holds that a listed disclosing entity should provide the information about specified matters or events to the market operator as these facts arise so that the operator can provide such vital information to the market participants (Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd, 2011). This includes corrective disclosure of information about specified matters, to ensure that the market participants are accorded with the correct information before participating in the market, about the shares of the listed disclosing entity.
As per this legislative provision, the court held that FMG did not correct the misleading statements, as per the provisions of this section (Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd, 2011). In the initial case, FMG had stated it did not contravene this section because corrective disclosure would only have been required had the initial statements had a positive impact on the price of its shares. As a response to this, the court asserted that though the company was not obligated to correct the information initially provided to ASX, corrective information was however required to ensure that investors were not influenced into disposing of or acquiring the FMG shares based on the initial information provided.
Section 674 (2A) of the Corporations Act 2001 holds that a person involved with the listed disclosing entity contravenes section 674 if he or she does not act according to the statutes contained in the section. As per this legislative provision, the court ruled that Forrest contravened the statutes of Section 1041 and 674(2) under section 79 (c).
As such, he could not provide the defense of Section 674 (2B), because he did not present any evidence to show that he took the required steps to make certain that FMG complied with section 674(2). He had only provided his late reference after the public statements had already been presented to ASX (Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd, 2011). Essentially, he did not provide any form of communication to show an inconsistency in his understanding of the Frameworks Agreement.
Section 180(1) of the Corporation Act 2001 holds that all officers and directors have the duty of discharging their responsibility with the type of diligence and care that can be used by any director of a company or any person holding the occupying the office of an officers or director. According to the court, Forrest breached his duty of diligence and care as a director, as he knowingly involved himself with the events that culminated in FMG’s misleading or deceiving public statements, without taking reasonable steps in ensuring the company complied with obligations stated under Section 674 (2) of the Corporations Act 2001 (Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd, 2011). Inherently, he could not defend his action using the business judgment rule, because this applies to ordinary business only and not legislation compliance.
Previous cases Followed in Reaching the Verdict
In reaching the verdict in the case at hand, various previous cases were utilized by the Full Federal Court. The first case to be utilized encompasses Middleton v Aon Risk Services Australia Ltd (2008) WASCA 239. The decision, in this case, was cited in ascertaining whether the statements made by FMG were statements of fact or statements of opinion.
According to Middleton v Aon Risk Services Australia Ltd (2008), “Thus, an unqualified assertion by a person who has, or is reasonably expected to have, personal knowledge of a matter may be a statement of fact, not opinion.” As per this decision, the court held that the statements made by FMG were a statement of fact as evidence showed that FMG, as well as Forrest, had reasonable personal knowledge of the matter concerning the Framework agreements. To ascertain the same Aaron’s Reefs, Limited v Twiss (1896) AC 273 and Inn Leisure Industries Pty Ltd (Prov liq app) v DF Mc Cloy Pty Ltd (1991) 28 FCR 15 were also utilized.
To ascertain the contravention of section 1041H of the Corporations Act 2001 as well as section 52 of the Trade Practice Act 1974, the cases utilized include Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661, Campomar Sociedad Limitada v Nike International Limited [2000] HCA 12; (2000) 202 CLR 45, National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369, Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 180; (1984) 2 FCR 82, Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR. The ruling also relied upon Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 in ascertaining what can be identified as a contract.
According to Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988),Thorby v Goldberg (1964), Booker Industries Proprietary Limited v Wilson Parking (Queensland) Proprietary Limited (1982), Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991), Sinclair, Scott & Co Ltd v Naughton (1929) and G R Securities v Baulkham Hills Private Hospital Pty Ltd (1986) ,it was held that a the Framework Agreement could not be identified as a binding contract because such terms as price, scope of work and scheduling were subject to further discussion between the parties (Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540,Thorby v Goldberg (1964) HCA 41; (1964) 112 CLR 597, Booker Industries Proprietary Limited v Wilson Parking (Queensland) Proprietary Limited (1982) HCA 53; (1982) 149 CLR 600, Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, Sinclair, Scott & Co Ltd v Naughton (1929) HCA 34; (1929) 43 CLR 310 and G R Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631.
In ascertaining whether the Framework Agreement could be termed as a binding contract, Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, Thorsby v Goldberg [1964] HCA 41; (1964) 112 CLR 597, Booker Industries Proprietary Limited v Wilson Parking (Queensland) Proprietary Limited (1982) HCA 53; (1982) 149 CLR 600, Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, Sinclair, Scott & Co Ltd v Naughton (1929) HCA 34; (1929) 43 CLR 310 at 316-317 and G R Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631.
End of the Matter
This can be termed as the end of the matter. This is because Chapter three of the Australian constitution asserts that an appeal cannot be made from the Full Federal court to the Queen in Council. In this case, the ruling provided by the Full Federal court in an appeal case is final and cannot be contested. Essentially, the ruling made in the appellate case was more conclusive as opposed to the original ruling.
This is because it encompasses a thorough consideration of sections 674 (2), 1041H, and 180(1) of the corporation’s Act 2001 and section 52 of the Trade Practice Act 1974 (Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd, 2011). These legislative provisions ascertain the contravention engaged by FMG and Forrest as the director of the company. No contention can be presented against the court’s ruling based on the fact that the statements provided by the company were proven to be deceptive or misleading to investors, the company and Forest did not meet the continuous disclosure obligation, and evidence shows that Forrest contravened his duty as a director.
Inherently, the business judgment rule could not be utilized in defending Forrest’s decision as to the director of the company. Additionally, following the court proceeding and the passage of the verdict, Forrest’s conduct made him be banned as a corporate director and the judge ruled that all legal costs incurred by ASIC during the proceedings had to be covered by Fortescue (Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd, 2011). As a response, Forrest resigned as the director of FMG. To some extent, this might not be the end of the matter, because the Chief justice asserted that FMG would still face further penalties in the future based on the same case.
Commentary on the Case and Original Judgment
One major commentary on the case and original judgment encompass that written by Alicia Hill of the McInnes Wilson Lawyers, titled Directors and Officers: Performance of Duties in the Context of Continuous Disclosure. This commentary concentrates on a clear interpretation of the contents of Section 674 (2A) and Section 180(1) of the Corporation Acts 2001. Section 674(2A) deals with the role of a director or officer in terms of continuous disclosure, while Section 180(1) of the same act deals with the care and diligence obligations of officers and directors. As part of the commentary, the author has provided a thorough interpretation of the ruling of the case at hand, including a clear explanation of how Forrest contravened the above sections.
Another commentary encompasses that composed by Simon Pitt and Dean Luxton of the Greens List Barristers, titled Director’s Duties. It also deals with a considerable interpretation of Section 180 of the Corporations Act 2001. A third Commentary encompasses one composed by Kevin Lewis, the Group Executive, and Chie Compliance officer of ASX Limited. This commentary deals with a considerable interpretation of Section 674 of the Corporations Act 2001 that covers the continuous disclosure obligation of listed disclosure entities and their directors.
Case Note
Nature of the Case
The initial judgment was appealed by the Australian Securities and Investment Commission based on the duties and roles of directors, deceptive and misleading conduct as per the Corporations Act 2001, and disclosure of information obligation for listed entities. According to the ruling, FMGL engaged in misleading or deceptive conduct and contravened continuous disclosure obligation, as well as Mr. Forest, Involved the company in contravening its continuous disclosure obligation and he contravened his duty of diligence and care as a director.
Facts
The initial proceedings were based on FMGL’s disclosure of information on certain framework agreements between it and three Chinese companies aimed at developing a mine and its infrastructure in the Pilbara Region of Western Australia, even though binding obligation had not been completely established.
Courts Decision
The statements made were of facts and not opinion as the establishment of binding agreements could influence investors to dispose of or acquire FMGL’s shares. In terms of continuous disclosure obligations, FMG contravened the obligation as they did not disclose information on the non-binding nature of the framework agreements. Mr. Forrest contravened his duty of diligence and care as he did not take the right steps to ensure the company met its continuous disclosure obligations.
Conclusion
The decision enhances a fundamental reminder that Companies and their directors should not complacently make announcements in terms of their continuous disclosure obligations. Legal advice is essential for every company before ASX announcements can be made in the maintenances of integrity and confidence within a market.
References
Aron’s Reefs, Limited v Twiss [1896] AC 273.
Australian Securities & Investments Commission v Fortescue Metals Group Ltd [No 5] (2009) FCA 1586.
Australian Securities and Investments Commission (ASIC) v Fortescue Metals Group Ltd (2011) 190 FCR 364.
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540.
Booker Industries Proprietary Limited v Wilson Parking (Queensland) Proprietary Limited (1982) HCA 53; (1982) 149 CLR 600.
Campomar Sociedad Limitada v Nike International Limited [2000] HCA 12; (2000) 202 CLR 45.
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1.
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 180; (1984) 2 FCR 82.
G R Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631.
Heydon v NRMA Ltd (2000) NSWCA 374; (2000) 51 NSWLR.
Inn Leisure Industries Pty Ltd (Prov liq app) v D F Mc Cloy Pty Ltd (1991) 28 FCR 15.
Middleton v Aon Risk Services Australia Ltd (2008) WASCA 239.
National Exchange Pty Ltd v Australian Securities and Investments Commission (2004) 49 ACSR 369.
Sinclair, Scott & Co Ltd v Naughton (1929) HCA 34; (1929) 43 CLR 310.
Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597.