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Forrest v Australian Securities and Investments Commission

[2012] HCA 39

(Judgment by: French CJ, Gummow J, Hayne J, Kiefel J)

Forrest
vAustralian Securities and Investments Commission

Court:
High Court of Australia

Judges:
French CJ
Gummow J
Hayne JHeydon J

Kiefel J

Legislative References:
Corporations Act 2001 - The Act
Foreign States Immunities Act 1985 - The Act
Trade Practices Act 1974 - s 52

Hearing date:
Judgment date: 2 October 2012

Judgment by:
French CJ
Gummow J
Hayne J
Kiefel J

[1] In 2004, Fortescue Metals Group Ltd ("Fortescue") was a public company whose shares were listed on the Australian Stock Exchange Ltd ("the ASX"). Mr John Andrew Henry Forrest was chairman and chief executive of Fortescue and a substantial shareholder in the company.

[2] The Australian Securities and Investments Commission ("ASIC") alleged that Fortescue and Mr Forrest contravened the Corporations Act 2001 (Cth) when, at various times in 2004 and 2005, Fortescue gave information to the ASX about a proposed mining project in Western Australia called the Pilbara Iron Ore and Infrastructure Project. The project was to consist of a mine in the Pilbara region of Western Australia, a port at Port Hedland and a railway to connect the mine to the port. ASIC alleged that, contrary to s 1041H of the Corporations Act, Fortescue engaged in misleading or deceptive conduct in relation to a financial product (shares in Fortescue) by publishing notices in relation to that financial product that were misleading or deceptive or likely to mislead or deceive. ASIC further alleged that Fortescue contravened the continuous disclosure requirements of s 674 of the Corporations Act and that, contrary to s 180(1) of the Corporations Act, on each occasion Fortescue contravened the Corporations Act Mr Forrest had not exercised his powers or discharged his duties as a director of Fortescue with the degree of care and diligence required by s 180(1).

[3] The case which ASIC sought to make against both Fortescue and Mr Forrest hinged on announcements Fortescue had made (by letter and media release) concerning agreements it had made with China Railway Engineering Corporation ("CREC"), China Harbour Engineering Company (Group) ("CHEC") and China Metallurgical Construction (Group) Corporation ("CMCC"). Each of those bodies is based in the People's Republic of China, and they were described by Fortescue as "three of the largest state owned companies in China". The CREC agreement was signed on 6 August 2004, the CHEC agreement was signed on 1 October 2004 and the CMCC agreement was signed on 20 October 2004. Each bore the heading "Framework Agreement".

[4] During August and November 2004, Fortescue sent letters to the ASX and made media releases about these agreements which said, among other things, that Fortescue had made binding contracts with each of CREC, CHEC and CMCC to build, finance and transfer the railway, port and mine for the project. Each media release and one of the letters referred to the Chinese Government owning the relevant company or companies. In addition, Fortescue and Mr Forrest made various other communications during 2004 and 2005 which referred to the agreements that Fortescue had made with each of CREC, CHEC and CMCC.

[5] In March 2005, an article was published in the financial press suggesting that the contracts which Fortescue had made were not binding contracts to build, finance and transfer the railway, port and mine. In response to the ASX's request for comment, Fortescue then provided to the ASX a copy of the framework agreement with CMCC.

[6] In March 2006, ASIC commenced proceedings in the Federal Court of Australia making the allegations that have been described. At first instance, Gilmour J dismissed [1] ASIC's claims. ASIC's appeal to the Full Court of the Federal Court (Keane CJ, Emmett and Finkelstein JJ) was allowed [2] and declarations of contravention were made. Questions about penalty for contravention were remitted for consideration by a single judge.

[7] By special leave, Fortescue and Mr Forrest now appeal to this court seeking the reinstatement of the orders made at first instance. The appeals should be allowed and the consequential orders sought by Fortescue and Mr Forrest should be made.

[8] These reasons will demonstrate that the impugned statements were not misleading or deceptive or likely to mislead or deceive. Because the impugned statements were not misleading or deceptive or likely to mislead or deceive, ASIC failed to demonstrate that Fortescue contravened the continuous disclosure requirements of s 674 of the Corporations Act. There being no breach by Fortescue of either s 1041H or s 674, it was not shown that Mr Forrest failed to exercise his powers or discharge his duties as a director with the degree of care and diligence required by s 180(1) of the Corporations Act.

ASIC's pleaded claim of misleading or deceptive conduct

[9] As finally formulated, the body of ASIC's statement of claim (excluding schedules) was 108 pages long. For its case that Fortescue had contravened s 1041H by making misleading or deceptive statements ASIC identified 13 different communications:

(a)
a letter dated 23 August 2004 from Fortescue to the ASX about the CREC framework agreement together with an associated media release;
(b)
a press conference conducted by Mr Forrest by telephone on 23 August 2004;
(c)
Fortescue's Annual Financial Report for the year ended 30 June 2004 sent to the ASX on 27 August 2004;
(d)
a television interview Mr Forrest gave on 17 October 2004;
(e)
Fortescue's Annual Report for 2004 sent to the ASX on 25 October 2004;
(f)
Fortescue's Quarterly Report for the period ending 30 September 2004 sent to the ASX on 29 October 2004;
(g)
a letter dated 5 November 2004 from Fortescue to the ASX together with an associated media release;
(h)
a letter dated 8 November 2004 from Fortescue to the ASX;
(i)
a slide presentation Fortescue made to investors, a copy of which Fortescue sent to the ASX and published on Fortescue's website on 24 November 2004;
(j)
Fortescue's Quarterly Report for the period ending 31 December 2004 sent to the ASX on 31 January 2005;
(k)
a slide presentation Fortescue made to investors, a copy of which Foretscue sent to the ASX on 10 February 2005 and published on Fortescue's website on 11 February 2005;
(l)
a presentation Mr Forrest made on behalf of Fortescue at a conference on 22 February 2005; and
(m)
a further presentation Mr Forrest made on behalf of Fortescue at a conference on 28 February 2005, a copy of which Fortescue sent to the ASX on 28 February 2005 and published on Fortescue's website on 1 March 2005.

[10] Although there were some variations in the allegations made about those 13 communications, the central case which ASIC sought to make under s 1041H was treated in argument in this court as sufficiently identified by reference only to Fortescue's letter to the ASX and media release sent and made on 23 August 2004 after the signing of its agreement with CREC.

[11] Reference to the statements about the CREC agreement was sufficient because all of the impugned statements were evidently intended to describe what was set out in one or more of the three substantially identical framework agreements. And the allegations made by ASIC about each of the impugned statements substantially followed the pattern set by its allegations about Fortescue's letter of 23 August 2004 (and the associated media release) concerning the CREC agreement.

The CREC framework agreement

[12] The Full Court set out [3] the complete text of the CREC framework agreement in its reasons for judgment. For present purposes it is enough to notice the following seven features of the agreement.

(a)
Recital A identified "the Works" as being to "carry out and complete the Build and Transfer of the railway ... for the Pilbara Iron Ore and Infrastructure Project";
(b)
Recital B recorded that CREC had submitted an offer to execute "the Works" and Fortescue had "accepted the CREC's offer and the parties now wish to evidence their agreement";
(c)
Clause 1 was headed "FRAMEWORK" and provided for the parties to "jointly develop and agree" on certain matters including "a General Conditions of Contract suitable for a Build and Transfer type contract", "The Scope of Work to be included in the Contract", "Scheduling of the Works" and "Determination of the Value of Works";
(d)
Clause 2 was headed "SCOPE OF WORK" and set out a list of matters included in "the Works" including "Earthworks", "Civil works", "Above track works", "Signals and communications" and "All rolling stock with the exception of locomotives";
(e)
Clause 3 provided that some provisions about payment terms were to be included in the General Conditions of Contract. Fortescue was to provide security to CREC of a specified kind "to the value of the Works". Fortescue was to "make a down payment of 10% of the value of the Works in exchange for a bank guarantee of the same value from CREC" and the remaining 90% of the value of the Works was to be paid in four instalments the last of which (being 50% of the value of the Works) was to be due "on the third anniversary of the issue of the Certificate of Practical Completion";
(f)
Clause 5 provided that:
This agreement will become binding upon the approval of both the Board of Directors of CREC and the Board of Directors of [Fortescue]. Such approval must be given before 31 August 2004;
(g)
Clause 7 provided that:
This document represents an agreement in itself, and it is recognised a fuller and more detailed agreement not different in intent from this agreement will be developed later.

The CREC announcement

[13] On 23 August 2004, Fortescue sent to the ASX a letter headed "China Signs to Build Railway" which said, among other things:

Fortescue Metals Group Ltd ("FMG") is pleased to announce that it has entered into a binding contract with China Railway Engineering Corporation (CREC) to build and finance the railway component of the Pilbara Iron Ore and Infrastructure Project.
The "Build and Transfer" (BT) contract covers the railway from the Company's iron ore tenements in the Chichester Ranges to the export hub at Port Hedland. The contract covers all earthworks, culverts, bridges, rail, sleeper and rolling stock requirements, with the exception of locomotives which will continue to be sourced internationally and may form an addition to this agreement.
CREC is China's largest construction group, having constructed 40,000 kilometres of rail networks throughout the country. FMG is confident in CREC's ability to build the heavy axle load railway in the Pilbara pursuant to the BT contract. CREC plans to become Asia's top construction company within 3 to 5 years and this contract provides them with a platform for further international growth. CREC has commenced discussions with Australian based engineering and construction groups with a view to forming local joint ventures to meet its obligations pursuant to the contract. (emphasis added)

[14] Much of the argument in the appeals focused upon what was conveyed to the intended audience of this announcement by the words "Fortescue ... has entered into a binding contract with [CREC] to build and finance the railway component of the Pilbara Iron Ore and Infrastructure Project". But in addition to ASIC complaining that the statement was misleading or deceptive when it described the framework agreement as "a binding contract", ASIC alleged, and sought to maintain on appeal to this court, that it was also misleading or deceptive to say of the agreement that it was "to build and finance" the railway and that it was a "'Build and Transfer' (BT) contract".

[15] It is convenient to deal at once with the allegations about describing the agreement as an agreement to "build and finance" the railway, or as a "Build and Transfer" agreement. As already noted, cl 3 of the framework agreement provided that some provisions about payment terms were to be included in the General Conditions of Contract. Those terms would require Fortescue to make a first payment of 10% of the value of the Works (in return for a bank guarantee from CREC) and to pay the balance by instalments over time. The last instalment of 50% was not to be due until the third anniversary of the issue of the Certificate of Practical Completion. Payment arrangements of that kind were aptly described in the announcement as CREC agreeing to "build and finance" the railway.

[16] As for the announcement's description of the agreement as a "'Build and Transfer' (BT) contract", that was the description the parties gave to their arrangements both in the recitals to the framework agreement and in cl 1 of that document. And the expression was an accurate general description of the agreement they had then made. As ASIC observed, the framework agreement provided that the parties would "jointly develop and agree on ... a General Conditions of Contract suitable for a Build and Transfer type contract". But contrary to ASIC's submission it does not follow from the fact that there were to be these further steps that the agreement the parties had made and recorded in the framework agreement was not accurately described as a "'Build and Transfer' (BT) contract".

[17] ASIC's allegations about "build and finance" and "Build and Transfer" should be rejected. Attention, therefore, can be confined to ASIC's principal complaint about the announcement's description of the framework agreement as a "binding contract". But before turning to consider that issue, it is desirable to describe more fully the several ways in which ASIC put its case.

ASIC's claims

[18] At trial, ASIC alleged that Fortescue, its board of directors and Mr Forrest in particular had been dishonest in making the impugned statements. In his reasons for judgment, the trial judge recorded [4] ASIC's allegations as having been:

that [Fortescue] did not have a genuine and/or reasonable basis for making [the] disclosures concerning the framework agreements [and] ... that [Fortescue] engaged in a course of knowing and deliberate conduct to make the disclosures, by the notifications to the ASX and other statements, which were false, unqualified and emphatic as to the significance and effect of the framework agreements.

[19] This understanding of ASIC's case depended on, and reflected, the way in which the case had been conducted at trial. But it was an understanding of the case which, although open on ASIC's statement of claim, was not the only way in which the case that was pleaded could have been understood.

[20] Although there were variations in the way in which ASIC pleaded its case in respect of each of the 13 communications which it alleged were misleading or deceptive, there were important common elements. Having identified the relevant communication, ASIC pleaded in respect of each communication that (in the circumstances in which those communications were made "and against the background" of certain matters ASIC identified as information previously made available to the market or more generally) Fortescue "represented to, further or alternatively, created the impression for, reasonable investors in the ASX's financial market and persons obtaining access to [Fortescue's] website" that:

(a)
Fortescue "had entered a binding contract" with CREC, CHEC or CMCC "obliging" that company to build and finance the relevant elements of infrastructure, and
(b)
that Fortescue "had a genuine and reasonable basis for making" the relevant statement.

[21] The pleading then alleged that the impugned statements were "in the manner specified below, false, and were misleading or deceptive, or were likely to mislead or deceive". Several subparagraphs specified how the relevant impugned statement was said to be false and misleading or deceptive. So in the case of statements about the framework agreements, it was alleged that the relevant framework agreement "did not state that [CREC, CHEC or CMCC] would, nor did it have the legal effect of obliging" CREC, CHEC or CMCC to do certain things (emphasis added). But there was then added a further and radically different subparagraph which alleged that Fortescue "did not have a genuine and/or reasonable basis for making" the impugned statement "in that [Fortescue] was aware of the terms" of the relevant framework agreement and "the list of matters contained therein requiring further agreement between the parties", and "knew, or ought reasonably to have known", that the parties to the agreement "had not agreed on all of the terms necessary for it to be practicable to force" the opposite party to design, build, transfer and finance the relevant infrastructure.

[22] On their face, these allegations mixed two radically different and distinct ideas: that Fortescue knew that the statements were false (it had no genuine basis for making them) and that Fortescue should have known that the statements were false (it had no reasonable basis for making them). At common law the first idea is expressed in the tort of deceit and the second in liability for negligent misrepresentation. And since at least 1889 and the well-known decision of the House of Lords in Derry v Peek, [5] it has been firmly established that a false statement, made through carelessness and without reasonable grounds for believing it to be true, may be evidence of fraud but does not necessarily amount to fraud. As four members of this court said in Krakowski v Eurolynx Properties Ltd: [6] "In order to succeed in fraud, a representee must prove, inter alia, that the representor had no honest belief in the truth of the representation in the sense in which the representor intended it to be understood." (emphasis added)

[23] The confusion in ASIC's statement of claim, of allegations of fraudulent misrepresentations with allegations of negligent misrepresentations, finds its origins in ASIC's combination of two allegations: first, that the relevant statements conveyed to their intended audience that Fortescue had made binding contracts; and second, that those statements also conveyed to the audience that Fortescue "had a genuine and reasonable basis for making" the relevant statement. The second allegation added nothing to the case of misleading or deceptive conduct which ASIC set out to make. As explained in this court, ASIC's case was that the impugned statements conveyed facts which ASIC said were not true. If that was ASIC's case, the reference to Fortescue's state of knowledge was unnecessary and inappropriate. The allegation served only to distract attention from two questions critical to ASIC's misleading or deceptive conduct case: first, what ASIC alleged that the impugned statements conveyed to their intended audience; and second, whether what was conveyed was misleading or deceptive or likely to mislead or deceive.

[24] ASIC sought to explain and justify the inclusion in its statement of claim of a plea that Fortescue had no genuine or reasonable basis for making the statements as a plea that anticipated Fortescue alleging that the impugned statements were expressions of opinion not fact. But it was neither necessary nor appropriate for ASIC to attempt to use its statement of claim to meet an answer that had not been made.

[25] This is no pleader's quibble. It is a point that reflects fundamental requirements for the fair trial of allegations of contravention of law. It is for the party making those allegations (in this case ASIC) to identify the case which it seeks to make and to do that clearly and distinctly. The statement of claim in these matters did not do that.

[26] Contrary to ASIC's submissions in this court, a case of fraud cannot properly be seen as a "fallback" claim to be made against the possibility that the party accused of engaging in misleading or deceptive conduct by publishing notices in relation to a financial product may seek to characterise them as statements of opinion, not fact. It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. [7] A pleading of fraud will necessarily focus attention upon what it was that the person making the statement intended to convey by its making. And the pleading must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity. If an alternative case of misleading or deceptive conduct is to be advanced, it is necessary to identify that claim as separate from the allegation of fraud. And for the purposes of the misleading or deceptive claim the pleader must identify what it is alleged that the impugned statements conveyed to their intended audience. Of course there may be circumstances in which it is appropriate to plead alternative cases of misleading or deceptive conduct or alternative cases of fraud and misleading or deceptive conduct. But 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. Doing so risks contravention of what, in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq), [8] Isaacs and Rich JJ said was "the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him" which requires that "pleadings should state with sufficient clearness the case of the party whose averments they are".

[27] The task of the pleader is to allege the facts said to constitute a cause of action or causes of action supporting claims for relief. Sometimes that task may require facts or characterisations of facts to be pleaded in the alternative. It 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. As Keane CJ observed in his judgment in the Full Court: [9]

The presentation of a range of alternative arguments is not apt to aid comprehension or coherence of analysis and exposition; indeed, this approach may distract attention from the central issues.

[28] As already noted, ASIC's allegations were taken, at trial, to be allegations of fraud. Yet on appeal to the Full Court of the Federal Court, and again on the appeals to this court, ASIC advanced its case on the wholly different footing that the impugned statements should be found to be misleading or deceptive. That is, whereas the case that was presented at trial focused upon the honesty of Fortescue, its board and Mr Forrest, the case which ASIC mounted on appeal focused on what it was that the impugned statements would have conveyed to their intended audience.

[29] It will be recalled that one of the alternative cases that ASIC pleaded was that the impugned statements were misleading or deceptive because the relevant framework agreements did not say what the impugned statements said was contained in them. A central difficulty with this aspect of ASIC's case can be illustrated by reference to the CREC framework agreement. ASIC pleaded that Fortescue had made the framework agreement with CREC and that by that agreement "the parties agreed ... in relation to the Project" various matters. These included not only that the CREC framework agreement would become "binding" upon the approval of both the board of directors of CREC and the board of directors of Fortescue but also that the CREC framework agreement "represented an agreement in itself and it was recognised that a fuller and more detailed agreement not different in intent would be developed later". And although the pleader chose not to refer expressly to the recitals to the CREC framework agreement which recorded (among other things) that CREC had submitted an offer to execute "the Works" ("the Build and Transfer of the railway"), Fortescue had accepted CREC's offer, and "the parties now wish to evidence their agreement", the pleader did set out in the statement of claim the substance of the several provisions of the framework agreement which said that CREC would:

(a)
build and finance the railway component of the project;
(b)
construct the railway on a Build and Transfer basis; and
(c)
complete the works stated in the framework agreement and set out in the statement of claim.

[30] To the extent to which ASIC's statement of claim alleged that the CREC framework agreement did not state certain matters, it was a pleading inconsistent with not only the facts but also ASIC's allegations of what the CREC framework agreement provided. The allegation that the CREC framework agreement did not state the matters alleged should not have been made. There was no foundation for the allegation. Its inclusion was embarrassing to the fair trial of the proceedings.

[31] These reasons now turn to the determinative issue in the appeal: what did the impugned statements convey to their intended audience when they said that the parties to each framework agreement had made a "binding contract"?

A "binding contract"

[32] Three possibilities must be considered: first, that the statements conveyed a message about what the agreements said; second, that they conveyed some message about "legal enforceability"; and third, that they conveyed a message which was a mixture of elements drawn from the first two possible constructions of what was said. It is the first possibility that is decisive of these appeals: the statements conveyed to their intended audience what the parties to the framework agreements had done and said they had done.

[33] As has already been noted, ASIC's argument in this court hinged on the proposition that the impugned statements conveyed to their intended audience a view about the legal enforceability of the framework agreements. ASIC sought to describe what was conveyed as a matter of fact, submitting that "the words 'agreement' or 'binding agreement' convey that it is an agreement containing all of the essential elements that would constitute a contract under Australian law". While it is to be doubted that the proposition which ASIC identified is accurately, or at least sufficiently, described as a statement of "fact", it is ultimately unprofitable to attempt to classify the 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. It is necessary instead to examine more closely and identify more precisely what it is that the impugned statements conveyed to their audience.

[34] It is convenient to begin that examination by noticing how the Full Court dealt with the issue. The Full Court concluded, [10] first, that the impugned statements "would have been understood as conveying the historical fact that agreements containing terms accurately summarised in the announcements had been made between the parties". Second, regardless of the subjective intentions of the parties, the question of whether the parties had made contracts of the kinds described was to be determined by taking an objective view of the agreements. [11] Third, objectively assessed, the agreements would be held by an Australian court to be incomplete, because they did not provide for the subject matter, scheduling and price of the work to be done or any mechanism for determining those matters. [12] And fourth, because the Full Court concluded that the agreements were incomplete in these respects, it was misleading or deceptive, or likely to mislead or deceive, to describe them each as a "binding contract". [13]

[35] The critical step taken by the Full Court was from the first to the second. The Full Court did not conclude that the impugned statements had not accurately summarised what the framework agreements said. Rather, the Full Court moved from the identification of what the impugned statements conveyed about what had been said and done by the parties (properly described as matters of "historical fact") to an examination of the legal consequences that were to be attached to what those parties had said and done. The Full Court took this step on the basis that the examination of that question was necessary in order to decide whether what was said and done amounted to the making of "contracts". That is, the Full Court treated the references in the impugned statements to the parties having made a "binding contract" as conveying more than the message that the parties had made an agreement which they described as a "binding contract". Importantly, the Full Court treated the references to "binding contract" as conveying more than the message that the parties had made an agreement which the commercial community (or some relevant section or sections of it, such as "investors") would describe in the terms Fortescue had used in its statements. And critically, the Full Court assumed that the impugned statements conveyed the message to the intended audience that the parties had made what an Australian court would decide to be a "binding contract". That is, the Full Court found, in effect, that it would be (and in this case was) misleading or deceptive or likely to mislead or deceive to say that the parties to the framework agreements had made "binding contracts" unless the parties had made bargains that could be and would be enforced by action in an Australian court.

[36] There are at least two difficulties in the Full Court's analysis. Both stem, ultimately, from the need to identify the intended audience for the impugned statements and the message or messages conveyed to that audience. The intended audience can be sufficiently identified as investors (both present and possible future investors) and, perhaps, as some wider section of the commercial or business community. It is not necessary to identify the audience more precisely. When that audience was told that Fortescue had made binding contracts with identified Chinese state-owned entities, what would they have understood?

[37] Would they, as the Full Court assumed, ask a lawyer's question and look not only to what the parties had said and done but also to what could or would happen in a court if the parties to the agreement fell out at some future time? Or would they take what was said as a statement of what the parties to the agreements understood that they had done and intended would happen in the future? The latter understanding is to be preferred.

[38] The Full Court's conclusion hinged on the use of the word "contract" or "agreement" in each of the impugned statements. The Full Court assumed that, by using one or other of those terms, the impugned statements conveyed to their intended audience a message about the legal quality (as determined by reference to Australian law) of the contract or agreement referred to in the relevant communication. And the relevant legal quality was identified as future enforceability in the event of a dispute between the parties. That is, the Full Court assumed that the words "contract" and "agreement" necessarily conveyed a message about legal enforceability in an Australian court. But that is too broad a proposition. First, it is necessary to examine the whole of the impugned statements to see the context in which reference was made to the making of a contract or agreement. Second, it is necessary to undertake that task without assuming that what is said must be put either into a box marked "fact" (identified according to whether an Australian court would enforce the agreement) or into a box marked "opinion" (identified according to whether the speaker thought that an Australian court could or would enforce the agreement).

[39] There was no evidence led at trial to show that investors or other members of the business or commercial community (whether in Australia or elsewhere) would have understood the references in the impugned statements to a "binding contract" as conveying not only that the parties had agreed upon what they said was a bargain intended to be binding, but also that a court (whether in Australia or elsewhere) would grant relief of some kind or another to one of the parties if, in the future, the opposite party would not carry out its part of the bargain.

[40] The very words of the impugned statements made two points abundantly clear. First, there can be no doubt that the impugned statements conveyed to their intended audience that the parties had made agreements. Second, there can be no doubt that the impugned statements conveyed what the parties to the framework agreements had said in those agreements. And the provisions of the framework agreements showed (and ASIC expressly accepted [14] at trial) that the parties intended their agreements to be legally binding.

[41] In argument in this court, ASIC disclaimed any special reliance upon the use of the word "binding" as a description of the agreements that had been made. Consistent with the reasoning of the Full Court, the weight of ASIC's argument in this court was placed on the proposition that "the words 'agreement' or 'binding agreement' convey that it is an agreement containing all of the essential elements that would constitute a contract under Australian law" (emphasis added). That is, ASIC submitted that, despite the parties' stated intention to make a legally binding contract, it was misleading or deceptive or likely to mislead or deceive to announce to investors, or some wider business or commercial audience, that the parties had made a contract (or binding contract) unless the agreement they had made would withstand legal challenge in an Australian court.

[42] The validity of that proposition must be determined assuming that the parties stated intention of making a legally binding agreement was genuinely shared by them. ASIC did not establish its allegation that Fortescue did not believe that the framework agreements were binding. That allegation was rejected [15] at trial and the trial judge's findings on that issue were not set aside on appeal to the Full Court.

[43] Once it is accepted, as it must be, that the parties genuinely intended to make a legally binding agreement, the breadth of ASIC's submission (and the Full Court's conclusion) becomes apparent. For the submission was that, although the impugned statements accurately recorded that the parties to each framework agreement had made an agreement which said that the bargain was, and was intended by the parties to be, legally binding, the impugned statements were misleading or deceptive or likely to mislead or deceive because they also conveyed to their intended audience a larger message. This was that the agreements the parties had made were not open to legal challenge in an Australian court. That broader proposition should not be accepted. The impugned statements conveyed to their intended audience what the parties to the framework agreements had done and said they had done. No further message was shown to have been conveyed [16] to an "ordinary or reasonable" member of that audience.

[44] There is a second and no less fundamental difficulty in adopting the Full Court's analysis. The Full Court's conclusion [17] that the agreements were incomplete and for that reason unenforceable, and ASIC's argument in this court in support of that conclusion, assumed that the legal character or effect of the framework agreements was to be determined by Australian domestic law. That assumption was not justified.

[45] The intended audience for the impugned statements would have recognised from the very content of the statements that the agreements to which they referred had important international features. Although it may readily be assumed that many, perhaps most, in that audience had some immediate association with Australia or the Australian share market, it by no means follows that such an audience would have understood the impugned statements as inviting any attention to what the courts of Australia could or would do if a party to one of the agreements did not perform its part of the bargain.

[46] The framework agreements related to infrastructure that would be constructed in Australia for use by one or more Australian companies. But as the impugned statements made plain, the work referred to in the framework agreements was to be done by companies that were state-owned entities of a foreign government -- the People's Republic of China, and indeed, the agreements were executed at signing ceremonies held in Beijing. No consideration was given, at any point of the Full Court's analysis, to the significance, if any, of the fact that the counter-party to Fortescue in each agreement was a foreign state-owned entity. More significantly, the agreements contained neither a choice of law nor a choice of forum clause. The only provision in the agreements relating to the question of applicable law provided that the relevant agreement "will conform with all relevant Australian and Chinese laws and regulations" and that "[a]ny difference that may exist will be negotiated in good faith and will not impact the effectiveness of the other clauses". Yet no consideration was given, at any point of the Full Court's analysis, to what law governed the agreements.

[47] Both the place of the signing ceremonies and the status of Fortescue's counter-parties as state-owned entities point to the real and lively possibility that the formal and essential validity of the agreements might be governed by the law of the People's Republic of China, not Australia. It would have been neither extreme nor fanciful for those who read or heard the impugned statements either to consider the possibility or even to assume that the law of the People's Republic of China governed the agreements. And regardless of whether questions about the validity of the framework agreements were governed by the law of Australia, there was an immediate question of the manner and extent of enforceability presented by the fact that Fortescue's counter-parties were state-owned enterprises. In Australia that question would be governed by the Foreign States Immunities Act 1985 (Cth), but no attempt was made by any party to explore whether there may have been some relevant and applicable Chinese law.

[48] It is, however, necessary to bear firmly in mind that the impugned statements were made to the business and commercial community. What would that audience make of the statement that Fortescue had made a binding contract with an entity owned and controlled by the People's Republic of China?

[49] It is surely relevant to ask whether the public expression of acceptance by such a state-owned entity of what were described as "binding" obligations may not have been a much more powerful spur to performance of its obligations than any possible legal action instituted by Fortescue. Again, for that audience to form such an understanding would be far from "extreme or fanciful". [18] But these issues were not explored, because the Full Court and ASIC incorrectly assumed, rather than demonstrated, that an inquiry into the "effect" of the agreements required an inquiry into their legal effect under Australian law.

[50] Instead, the central tenet of ASIC's case was that the impugned statements conveyed a message to their intended audience (a) that, in the words of ASIC's statement of claim, it was "practicable to force" the counter-parties to perform their part of the bargain and (b) that whether it was "practicable to force" performance was to be determined according to the same principles as would be applied to an agreement for the sale of a suburban block of land or the construction of a house in suburban Australia. ASIC established neither of those propositions. The impugned statements conveyed to their intended audience what the parties to the framework agreements said they had done -- make agreements that they said were binding -- and no more. ASIC did not demonstrate that members of the intended audience for the impugned statements would have taken what was said as directed in any way to what the parties to the agreements could do if the parties were later to disagree about performance. ASIC did not demonstrate that the impugned statements conveyed to that audience that such a disagreement could and would be determined by Australian law. And given that the impugned statements did accurately convey what the parties to the framework agreements had said in those agreements, it would be extreme or fanciful for the audience to understand the impugned statements as directing their attention to any question of enforcement by an Australian court if the parties later disagreed. Such an extreme or fanciful understanding should not be attributed [19] to the ordinary or reasonable member of the audience receiving the impugned statements.

[51] It is, then, not to the point to observe, as the Full Court did [20] and as ASIC sought to emphasise in this court, that the framework agreements did not fix either the work to be done or a price for the work to be done with any greater particularity than the list of items recorded in the framework agreements.

[52] Nor is it necessary to decide whether, as Fortescue and Mr Forrest submitted, the framework agreements did provide for mechanisms by which those matters could be determined. It is enough to say that, contrary to the arguments of Fortescue and Mr Forrest, the better view would appear to be that cl 1.2 of the framework agreements did not provide such a mechanism. That clause, on its more natural construction, provided only that Fortescue would have the opportunity (with the co-operation of its counter-party) to conduct its own "[i]ndependent review of the schedule and value of the Works" which, as cl 1.1 expressly provided, the parties were to "jointly develop and agree".

[53] One further aspect of the reasoning of the Full Court requires separate consideration. It will be recalled [21] that each framework agreement provided that the parties "recognised a fuller and more detailed agreement not different in intent from this agreement will be developed later". As the Full Court recorded, [22] Fortescue prepared and sent to CREC a draft "Advanced Framework Agreement" and CREC responded with its amended draft of that document. The trial judge considered [23] CREC's proposed amendments to be "powerful evidence" that CREC regarded the initial framework agreement as a legally binding agreement. By contrast, the Full Court regarded [24] the exchange of competing drafts as showing "that the parties were not ad idem as to the manner in which the works were to be valued". Further, the Full Court concluded [25] that the proposals made by CREC showed that CREC "firmly believed securing finance was an issue" for Fortescue.

[54] Both the Full Court [26] and ASIC in argument in this court, emphasised an email which Mr Forrest had sent to the person who was to conduct the relevant negotiations with CREC and to Fortescue's in-house counsel. In this email Mr Forrest set out what he wanted those negotiations to achieve, and described the points as "all hard asks".

[55] Contrary to the conclusion reached [27] by the Full Court and urged by ASIC in this court, that this email demonstrated that the framework agreement with CREC was not a binding contract, this email showed only that Mr Forrest sought to use the negotiations to improve Fortescue's position. Neither the fact that Fortescue sought to negotiate with CREC to achieve new or different terms, nor the fact that the parties differed about what their further agreement should say, sheds any light upon any question about what the framework agreements were or what they provided.

[56] When commercial enterprises make an agreement which records that it is intended to be a binding contract, those parties can be assumed, unless fraud is proved, to expect and to intend that the agreement will be performed. But it by no means follows that the parties will thereafter refrain from any attempt to strike a better bargain. And the fact that one or both of the parties tries to strike a better bargain does not, without more, show that the parties are not bound to the bargain that has been made. Nor does it show that the parties did not intend to be bound to that bargain.

[57] When Fortescue set about the negotiation of the further agreement which each framework agreement said would be made, it is plain that it sought to strike a better bargain with CREC than the bargain recorded in the framework agreement. No doubt there were risks in pursuing that kind of course. But Fortescue's attempts to better its commercial position do not suggest, let alone demonstrate, that Fortescue did not consider the framework agreements to be binding.

[58] The letter which Fortescue sent to the ASX about having made the framework agreement with CREC was not misleading or deceptive and was not likely to mislead or deceive. That letter accurately recorded what the framework agreement provided. The letter did not convey to its intended audience any message about whether an Australian court would conclude that the agreement could be enforced. It conveyed to its intended audience that the framework agreement between Fortescue and CREC was what those parties had described (and a commercial audience would describe) as a "binding contract".

[59] Having regard to the way in which ASIC presented its argument in this court, it is not necessary to consider separately the other impugned statements to which ASIC referred in its statement of claim. It is also unnecessary to give separate consideration to the "likely to mislead or deceive" limb of s 1041H. In the Full Court, Emmett J expressly based his reasons on this ground. His Honour concluded [28] that the statements "were, at least, likely to mislead or deceive an ordinary and reasonable member of the investing public who read the [impugned statements]". But the inquiry into how an ordinary or reasonable member of the intended audience would receive a message is of its nature hypothetical. That inquiry is therefore apt to answer both whether conduct is misleading or deceptive and whether it is likely to mislead or deceive. Separate consideration of this limb of s 1041H is therefore not necessary once it is decided that an ordinary or reasonable member of the audience would not have understood the impugned statements to have conveyed anything other than what the parties did and intended, and that the statement made about those matters was neither misleading nor deceptive.

[60] ASIC did not establish that Fortescue engaged in misleading or deceptive conduct contrary to s 1041H of the Corporations Act.

Contravention of s 674?

[61] The conclusion that Fortescue's statements were not misleading or deceptive, or likely to mislead or deceive, is enough to dispose of ASIC's primary case of contravention of the continuous disclosure requirements of s 674. ASIC's primary allegations of contravention of s 674 proceeded from the premise that the impugned statements made by Fortescue had misrepresented the effect of the framework agreements. As Keane CJ put [29] the point:

Once it is accepted that [Fortescue's] announcements contravened s 1041H of the Act, [Fortescue], having made misleading statements to the ASX, was obliged by s 674(2) to correct the position. (emphasis added)

[62] The premise for ASIC's argument about the application of the continuous disclosure requirements, and for the Full Court's conclusions about those issues, was not established. Once it is decided that Fortescue's statements that it had made binding contracts were not misleading or deceptive or likely to mislead or deceive, it is not to be supposed that, despite Fortescue lawfully making those statements, the continuous disclosure requirements nonetheless required Fortescue to tell the market that the agreements were not binding contracts.

[63] Consistent with its general approach to this litigation, ASIC sought to advance an alternative case of contravention of s 674 by giving notice of a proposed cross-appeal in this court. ASIC claimed that the Full Court's conclusion that Fortescue contravened s 674 was to be supported even if, contrary to its primary submissions, the impugned statements were not misleading or deceptive.

[64] The premise for this alternative argument about the application of s 674 was that, if the impugned statements were expressions of Fortescue's opinion about the effect of the framework agreements, Fortescue was bound to disclose the terms of the agreements themselves, not just issue statements about what it thought to be the effect of the agreements.

[65] For the reasons already given, the premise for ASIC's alternative argument about the application of s 674 was not established. The impugned statements did not express any relevant opinion. The impugned statements accurately conveyed to their intended audience what the agreements provided. That is reason enough to reject ASIC's alternative argument. Fortescue's statements having described accurately what the framework agreements provided, it is not to be supposed that s 674 nonetheless required Fortescue to publish the very text of those agreements. ASIC should have special leave to cross-appeal but its cross-appeal should be dismissed.

[66] There being no failure to disclose, it is neither necessary nor appropriate to consider the arguments advanced by the parties with respect to the application of s 674(2A) concerning the liability of directors and officers where there has been a breach of the continuous disclosure requirements, or the arguments advanced with respect to the reach and application of the excusing provisions of s 674(2B).

Contravention of s 180(1)?

[67] ASIC's allegations that Mr Forrest breached the duties imposed by s 180(1) of the Corporations Act on directors and officers depended upon it demonstrating that Fortescue had contravened ss 1041H or 674. Having failed to do that, ASIC's claim of contravention of s 180(1) also fails.

Conclusion and orders

[68] In the Full Court, Keane CJ observed [30] that "the approach adopted by the trial judge artificially limits the protection afforded to the investing public by the Act by giving effect to a distinction [between statements of 'opinion' and 'fact'] which is not drawn by the legislation and not warranted by the facts of the case". These reasons have not endorsed the approach adopted by the trial judge, but, lest it be suggested that the conclusions reached in this case "artificially limit the protection afforded to the investing public", it is important to make the following points.

[69] First, these reasons do not establish any general proposition to the effect that any public statement that Company A has made a contract with Company B necessarily conveys to its audience a message only about what the contractual document contains. That proposition is too broad. What message is conveyed to the ordinary or reasonable member of the intended audience cannot be determined without a close and careful analysis of the facts. In this, as in so many other areas, [31] the facts of and evidence in the particular case are all important.

[70] Second, any concern about "artificially limiting" the protections conferred by prohibitions upon misleading or deceptive conduct would be driven largely, perhaps even entirely, by a concern with cases of fraud or dishonest attempts to characterise wrongly the effect of what has been said. But if a party says something knowing that what is conveyed by the statement is false, or reckless as to its truth or falsity, that party is guilty of deceit. And for the purposes of a claim of misleading or deceptive conduct, if a person seeks to characterise a public statement as a representation about the content of a document, the critical question will be what the statement conveyed to its intended audience, not what the party concerned says that it was intended to convey. Concerns about dishonesty provide no reason to distort settled understandings about misleading or deceptive conduct.

[71] Each appeal should be allowed with costs. In each appeal, ASIC should have special leave to cross-appeal but that cross-appeal should be dismissed with costs. In each appeal, the orders of the Full Court of the Federal Court of Australia should be set aside and in their place there should be orders that ASIC's appeal to that court is dismissed with costs.


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