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ASIC: Cannot see the Forrest for the Trees - Ranger BFCSA can guide you

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Forrest wins High Court disclosure case

Published  2 Oct 2012


In a decision likely to have significant ramifications for company disclosure laws, the High Court of Australia has unanimously ruled that Fortescue Metals Group Ltd chairman Andrew Forrest did not mislead investors regarding the infrastructure on miner's proposed Pilbara project in Western Australia.

The court overturned a 2011 Federal Court decision that Mr Forrest and the company misled investors in 2004 by misrepresenting the binding nature of agreements with three Chinese entities, ruling Mr Forrest did not contravene the Corporations Act 2001 (Cth).

“Four members of the court held that the statements made by Fortescue and Mr Forrest represented to those hearing or reading them that Fortescue and the Chinese state-owned entities had entered into agreements that each intended to be binding,” the court said in its summary.

“This representation was neither false nor misleading. There was no evidential basis for assuming that a person hearing or reading these statements would understand that the parties had entered into agreements that would be enforced by an Australian court according to Australian law should a dispute ever arise between them.

“Because the statements were neither misleading nor deceptive, the court further found that Fortescue and Mr Forrest had not failed to meet their obligations under the Corporations Act.

"The court therefore set aside the full court’s decision and declarations and reinstated the primary judge’s decision that Fortescue and Mr Forrest had not contravened the Corporations Act.”

Shares in Fortescue came out of a halt in the hours following the judgement. At 1307 AEST, Fortescue shares had risen 1.86 to $3.565, against a benchmark index rise of 0.67 per cent.

Expensive distraction

Fortescue deputy chairman Herb Elliott said the decision brought an end to an eight-year long pursuit from ASIC was ultimately determined to be wrong.

"ASIC's allegations have been an expensive distraction," he said.

"We can now focus our full attention to ensuring the continued success of Fortescue Metals Group for many years to come."

Fortescue has been awarded full costs from all proceedings, including the Federal Court, Full Federal Court and High Court cases.

Mr Forrest could have faced disqualification as a company director if the appeal was dismissed.

Fortescue struck framework agreements with the three state-owned Chinese companies for the building and transfer of a rail line and port in the Pilbara in Western Australia.

The decision is a blow for the Australian Securities and Investment Commission, which began proceedings six years ago against Mr Forrest and Fortescue alleging he misrepresented the accords.

The corporate watchdog lost a Federal Court case in 2009 but successfully appealed that decision last year.

The judgement comes after ratings agency Standard & Poor's lowered its credit rating on the miner.

S&P has cut its credit rating on Fortescue's unsecured debt, as well as reaffirming its concerns that the miner is vulnerable to falling iron ore prices.

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