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Forrest v ASIC; Fortescue Group Metals Ltd v ASIC [2012] HCA 39

by David Levin

7 November 2012 David Levin QC

The facts are relatively simple to state. FMG was seeking to develop a mine a railway and a port to enable it to export the future mine output. It entered into three Framework Agreements, each with a Chinese entity. At different times it announced to the ASX and issued media releases claiming it had made binding contracts with each of the Chinese entities to build finance and transfer the railway, port and mine for the project. Forrest was at the relevant time chairman and CEO of FMG.

 

Complexities in the pleading (106 pages of claim) and communications claimed to be misleading or deceptive (13) were simplified by the High Court allowing it to consider only a single letter and media release of 23 August 2004 issued after the signing of a Framework Agreement with one Chinese corporation (CREC).

 

At trial ASIC alleged the communications were dishonest, in that FMG and Forrest had no genuine or reasonable basis for making them and also misleading or deceptive or likely to mislead or deceive. The ASIC case was that FMG and Forrest knew that the relevant Framework Agreement did not state that CREC would build and finance the railway component of the development nor did it have that legal effect. It contained a list of areas which would be the subject of further negotiations and agreement in due course before binding commitments would be reached.

 

The plurality of the High Court (French CJ, Gummow, Hayne & Kiefel JJ) (agreeing on this aspect of the case with Keane CJ in the Full Federal Court) was critical of ASIC combining allegations of fraudulent and negligent misrepresentation, which resulted in ‘hundreds, if not thousands, of alternative and cumulative combinations of allegations’ and which distracted attention from the two critical issues in the s.1041H case, namely:

(a) what was it that the communications were claimed to have conveyed to the intended audience; and

(b) were such communications misleading or deceptive?

 

The plurality identified a ‘central difficulty’ with the ASIC case whereby it had pleaded that by the Framework Agreement the parties had agreed certain matters, including that the Framework Agreement would become binding on board approvals and that it represented an agreement in itself which would later be developed into a fuller and more detailed agreement ‘not different in intent’. The recitals to the Framework Agreement recorded that CREC had offered to build and finance the railway, that FMG had accepted the offer and that the parties now wished to evidence their agreement. However the ASIC claim was framed along the lines of setting out what it claimed the Framework Agreement did not state, albeit that the content of that agreement was plainly (in the opinion of the plurality) at odds with that contention.

 

Binding Contract

The High Court disagreed with the approach of the Full Court in sliding from consideration of what the communication conveyed to the audience to what the alleged legal effect of the concluded Framework Agreement was taken to be. The Full Court inferred that the communications conveyed more than the fact that the parties themselves described what they had achieved as the entry into a commitment which they described as a ‘binding contract’. It had concluded that the statements would be misleading or deceptive unless the parties had in fact entered into a contract which could and would be enforced in an Australian court.

 

The correct approach according to the High Court is to consider the entirety of the impugned statement without immediately concluding that it was factual (i.e. that an Australian court would enforce the agreement) or an opinion (i.e. that the author considered that the agreement would be enforceable).

 

The plurality was firmly of the opinion that the statements ASIC criticised in fact conveyed that an agreement had been concluded and that the agreement contained what the statement said it contained. ASIC accepted at trial that the parties intended the Framework Agreement to be legally binding. What ASIC contended and the Full Court had wrongly accepted, however, was that the communications were impliedly conveying the broader statement that the concluded agreement was not open to legal challenge in an Australian court.

 

A further conclusion of the Full Court was also disavowed. This was that the Framework Agreement was incomplete and unenforceable under Australian domestic law, a conclusion which the plurality concluded was unjustified. After all, the Chinese parties were state owned entities of a foreign government (which might be able to rely upon the Foreign States Immunities Act 1985 (Cth.)) and no consideration had been given to what law governed the Framework Agreement, which had been signed in China. For either or both of these reasons the plurality was of the view that the fact that the Framework Agreement did not identify the work to be performed in any detail, the terms and conditions of any performance and the price to be paid was not relevant.

 

Once it was concluded that a reasonable member of the intended audience would not have understood the impugned statements to convey anything beyond the facts that the parties had concluded a Framework Agreement and that they intended it to be binding, the contentions as to misleading or deceptive conduct fell away.

 

Heydon J, delivering his separate judgment, viewed the issues as simple. He discerned three answers to the ASIC contentions:

(c) the Framework Agreement was an agreement calculated to ensure that CREC built and financed the railway by compelling the parties to enter into further negotiations to bring about a detailed agreement to give effect to the intent of it;

(d) the Framework Agreement was a binding agreement to engage in the necessary further negotiations to enter into the necessary detailed agreements;

(e) the FMG statements were matters of opinion and only contravened the legislation if FMG did not hold that opinion or had no reasonable basis for expressing it, neither of which propositions ASIC established. Once the statements are analysed as opinions it was unnecessary to decide whether the Framework Agreement was an agreement to build and finance the railway.

 

Heydon J, albeit obiter, did consider whether the communication of an opinion implied that the party expressing that opinion had a reasonable basis for stating it. This might be the usual contention in s.52 TPA and s. 1040H Corporations Act pleadings. His words suggest that he was uncomfortable with the proposition, although he did not need to state his final conclusion and did not do so.

 

No doubt this judgment will be one to which practitioners will regularly return and tease out the threads of the analysis over time.

 

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