Forrest v Australian Securities and Investments Commission

[2012] HCA 39

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(Judgment by: Heydon J)

Forrest
vAustralian Securities and Investments Commission

Court:

Judges: French CJ
Gummow J
Hayne J

Heydon JKiefel 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

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Judgment by:
Heydon J

[72] At its heart this case is much simpler than it appears to be at first sight. The central question is whether Fortescue ^[32] contravened s 1041H of the Corporations Act by engaging in conduct that was misleading or deceptive or likely to mislead or deceive.

Factual background

[73] In 2004, Fortescue had rights to mine iron ore in the Pilbara region of Western Australia. It developed a plan to mine iron ore at its tenements, build a railway to transport the ore to Port Hedland, and build a port facility there. It furthered that plan by entering three agreements, each with a State enterprise owned directly or indirectly by the People's Republic of China.

[74] The agreements which Fortescue made with CREC, CHEC and CMCC in late 2004 filled no more than 12 pages. At times ASIC treated them as only scraps of paper.

[75] What did the law require Fortescue to tell the market, through the ASX and the media, about its agreements? It could have permitted Fortescue to say nothing. It could have compelled Fortescue to release the agreements. Or it could have compelled Fortescue to release a summary of the agreements.

[76] The first possibility was not available. Low though ASIC's esteem was for the agreements, if Fortescue had said nothing about them it would probably have been in breach of the ASX listing rules.

[77] To some extent, in its case on s 1041H, ASIC toyed with the idea that it is not possible to say anything about a contract without setting it out in full. It put that case explicitly in respect of s 674 of the Corporations Act, which obliges listed companies to disclose information in accordance with the ASX listing rules. However, the submission in respect of s 1041H must be rejected, even though the Full Court gave it some passing approval. ^[33] If the law compelled Fortescue to have released the totality of the agreements, it would have compelled other companies making much more bulky agreements to do the same. That would not have assisted the cause of ensuring a speedily informed market. It would often be extremely inconvenient. It could require members of the target audience to procure expert assistance to analyse what particular agreements said.

[78] That left Fortescue with the third course. It took that course. In relation to the CREC agreement, for example, it released to the ASX a short summary, and to the media a longer summary.

ASIC's s 1041H case on the CREC agreement and the ASX announcement

[79] ASIC's pleaded case, and the way it was presented forensically, was lengthy and complex. But it boiled down to two allegations in respect of each agreement. These allegations can be illustrated by ASIC's case on the CREC agreement, which related to railway infrastructure. One allegation was that Fortescue had falsely represented that it had entered a binding contract of a specified kind with CREC. The other, alternative, allegation was that even if Fortescue had merely stated an opinion to that effect, it had no "genuine and/or reasonable basis" for stating that opinion because it "knew, or ought reasonably to have known, that the parties to the CREC [agreement] had not agreed on all the terms necessary for it to be practicable to force CREC to design, build, transfer and finance the railway".

[80] It is convenient to analyse how these allegations were presented in relation to a 23 August 2004 release to the ASX by Fortescue. That release began as follows:

Fortescue ... is pleased to announce that it has entered into a binding contract with ... [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 [Fortescue'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.

[81] Paragraph 19 of the statement of claim pleaded some of the terms of the agreement. Paragraph 20 pleaded the "legal effect, if any" of those terms. Subparagraph (a) alleged that the agreement "did not by its terms oblige CREC to build or transfer a railway facility". Subparagraph (b) alleged that the agreement "did not by its terms oblige CREC to finance the construction of a railway facility". Paragraph 24 pleaded that Fortescue's 23 August 2004 announcement to the ASX, which both the ASX and Fortescue published generally, "in effect informed the ASX" that:

(a)

[Fortescue] had entered into a binding contract with CREC to build and finance the railway component of the Project;

(b)

this contract, which was described as a "Build and Transfer" contract, covered the railway from [Fortescue's] iron ore tenements in the Chichester Ranges to the export hub at Port Hedland;

(c)

this contract covered all earthworks, culverts, bridges, rail, sleeper and rolling stock requirements, with the exception of locomotives which would continue to be sourced internationally and may form an addition to the contract.

Paragraph 27 pleaded that Fortescue thereby "represented" or "created the impression" that:

(a)

[Fortescue] had entered a binding contract with CREC obliging CREC to build and finance the railway component of the Project;

(b)

[Fortescue] had a genuine and reasonable basis for making the statements in paragraph 24 above.

Paragraph 28 pleaded that the statements listed in para 24 and the representations and impressions listed in para 27 were "false", "misleading or deceptive", or "likely to mislead or deceive" in four respects. The first three were that the agreement "did not state that CREC would, nor did it have the legal effect of obliging CREC" to do the three things alleged in para 24(a)-(c). The fourth was that contrary to para 27(b), Fortescue did not have "a genuine and/or reasonable basis for making the statements pleaded in para 24 ... in that [Fortescue] was aware of the terms of the [agreement] and, in particular, 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 CREC to design, build, transfer and finance the railway". (emphasis added)

[82] Two matters should be noted briefly at this point, and returned to later. The first concerns the two pleas in para 27. They were not separated by the word "or". Counsel for Mr Forrest relied on this to submit that the whole of ASIC's case had to fail unless it proved the fraud allegation inherent in para 27(b). This submission was forensically resourceful in seeking to manoeuvre ASIC onto distasteful and dangerous ground from which it would be difficult for ASIC to succeed. However, the two pleas must be read as leading to alternative allegations. The first alternative treats the para 24 statements as statements of fact. The second alternative treats them as statements of opinion. That must be so, because if they were untrue statements of fact the circumstance that Fortescue had a genuine and reasonable basis for making them would be no answer to a contention that they fell within s 1041H of the Corporations Act. But if they were incorrect statements of opinion, that circumstance would be an answer to that contention according to a commonly accepted understanding. That construction of para 27 is supported by para 28(d), which uses the words "genuine and/or reasonable basis". The significance of this first matter is that ASIC's approach, though criticised in the Full Court of the Federal Court of Australia, was not only common but endeavoured to set up the case which Fortescue had to meet. ^[34] The second matter is the expression "practicable to force" in para 28(d) of the statement of claim. That casts light on what ASIC alleged the representations made and impressions created were and the respects in which they were "false". ^[35]

[83] The Full Court upheld the allegations in paras 27(a) and 28(a)-(c), and the equivalent allegations for the other two agreements. It held that the agreements could not accurately be described as being agreements to build, finance and transfer the infrastructure for the project. ^[36] The Full Court therefore made declarations that Fortescue had engaged in conduct that was misleading or deceptive or likely to mislead or deceive investors in that company by misrepresenting the material terms and effect of each of the agreements.

ASIC's allegations answered: summary

[84] There are three points which together operate as complete answers to ASIC's allegations regarding the CREC agreement.

[85] First, leaving aside issues relating to what was "contractually binding", the agreement was an agreement calculated to ensure that CREC built and financed a railway by compelling the parties to enter further negotiations about the further detailed agreements necessary to make certain that the railway was built within the framework -- what cl 7 called the "intent" -- of the agreement. Secondly, even if the agreement was not a "binding contract" to build the railway, it was a "binding contract" to engage in the necessary further negotiations and enter the necessary further agreements. Thirdly, so far as Fortescue had represented that there was a "binding contract" to build the railway, the statement was one of opinion, and only fell within s 1041H if ASIC established that Fortescue did not hold that opinion, or, if it did, that it had no reasonable basis for stating it. ASIC did not establish either proposition.

Independently of whether the agreement was contractually binding, what was agreed?

[86] Whether or not Fortescue had entered a contract, the agreement described itself as an agreement "to build and finance the railway component of the Project" as alleged in para 24(a) of ASIC's statement of claim. The railway proposed in the agreement was to extend over the distance alleged in para 24(b). And the agreement covered the matters alleged in para 24(c).

[87] So far as the para 20(a) question of whether the agreement was an agreement to "build" the railway is concerned, Recital A of the agreement provided:

CREC has represented that it has the necessary skills, personnel and equipment to successfully carry out and complete the Build and Transfer of the railway (the "Works") for the Pilbara Iron Ore and Infrastructure Project (the "Project") and [Fortescue] is relying on the CREC's representation. (the emphasis in this and other quotations from the agreement is in the original)

Recital B provided:

CREC, having closely examined all proposed documents, has submitted an offer to execute the Works and [Fortescue] has accepted the CREC's offer and the parties now wish to evidence their agreement.

The reference to "Works" in Recitals A and B was amplified in cl 2.1:

The Works include the following:

•

Earthworks for the formation including level crossings.

•

Civil works associated with the construction of culverts and bridges.

•

Above track works including ballast, sleepers, ties and rail.

•

Signals and communications.

•

All rolling stock with the exception of locomotives.

Clause 4 provided:

CREC has agreed to assist [Fortescue] to accelerate the procurement of materials, equipment and their technical understanding of the relevant Australian Standards and work practices inherent in this Project such that the target delivery date for first shipment of ore is last quarter 2006 ... To expedite the Works CREC have agreed to supply sufficient engineering support from the signing of this Agreement such that it will allow CREC to competently expedite its role in the provision of the Works.

This promise by CREC to supply sufficient engineering support to allow it competently to expedite its role in the provision of the works was a promise to complete the works. Clause 5 provided that the agreement would "become binding" when approved by the parties' boards. Clause 7 reinforced that by providing that the "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." Hence there was an agreement to "build and transfer" the railway.

[88] So far as the para 20(b) question of whether the agreement was an agreement to "finance" the railway is concerned, cl 1.1 provided, inter alia, that the parties would "jointly develop and agree on ... a General Conditions of Contract suitable for a Build and Transfer type contract in good faith". And cl 3.1 dealt with payment, inter alia, as follows:

The Parties agree that the following will be included in the General Conditions of Contract:

•

[Fortescue] will provide security to CREC in the form of a JORC classified resource to the value of the Works.

•

[Fortescue] will make a down payment of 10% of the value of the Works in exchange for a bank guarantee of the same value from CREC. The bank guarantee to be returned when the parties agree 10% of the Works have been completed.

•

Remaining payment terms are:

•

10% upon issue of Certificate of Practical Completion.

•

15% on the first anniversary of the issue of the Certificate of Practical Completion.

•

15% on the second anniversary of the issue of the Certificate of Practical Completion.

•

50% on the third anniversary of the issue of the Certificate of Practical Completion.

Hence while Fortescue had to pay 10% at the outset, the works were to be carried out on credit terms under which the works did not have to be paid for in full for three years after the works were completed. As Mr D F Jackson QC, counsel for Fortescue, submitted, if "[t]hat is not financing ... that is a rather unusual view of financing."

[89] The above reasoning renders false the allegations in para 28(a)-(c) that the agreement "did not state that CREC would ... build and finance the railway", or "construct it on a 'Build and Transfer' basis", or "complete any works". It also renders false the allegations in para 20(a) and (b) that the agreement "did not by its terms oblige CREC" either to "build or transfer a railway facility" or "to finance the construction of a railway facility". Mr D F Jackson QC submitted that leaving aside the question of contractual effect, "with respect, the contention that that is not the effect of the agreement is absolute nonsense." This submission was entirely correct in content, style and tone.

[90] In short, by a process of unattributed quotation, paraphrase and summary, the ASX release had correctly represented the effect of the agreement, leaving aside the question of its contractual force. In particular, it correctly represented that there was agreement, and that it was in the view of the parties binding from the time of board approval. It did not follow from the fact that some matters were left to be the subject of "a fuller and more detailed agreement", particularly matters concerning general conditions of contract, that other matters were not the subject of a binding agreement.

[91] ASIC was contending in this part of the case that Fortescue was incorrect in saying that there was an agreement to build to completion and finance the railway. If that contention were correct, Fortescue's ASX announcement should have said: "Fortescue has not entered any agreement with CREC to build to completion and finance a railway." To say that would have been not only untrue, but absurd.

Was the agreement a binding contract?

[92] ASIC's case thus boils down to the question whether Fortescue was right to call the agreement a binding contract. It was certainly a binding contract to negotiate further contracts within the intent of the agreement which would result in the railway being built.

[93] Was the agreement a binding contract to build the railway? Fortescue advanced numerous arguments for the view that it was because the parties had agreed, or provided for agreement on, all essential terms. There is force in many of those arguments, but difficulty in some. It is not necessary to decide the question posed. This is because the impugned statement about the contract being binding was a statement of opinion rather than fact, and ASIC must fail because it did not establish that Fortescue did not genuinely and reasonably hold that opinion.

Opinion

[94] At least in the context of this case, whether an agreement is a binding contract involves a question of law -- that is, a question of opinion. That is the alternative way in which ASIC's case was put -- the way it was put in paras 27(b) and 28(d). It was the way the trial judge approached the case. ^[37] The ASX announcement was not expressly stated in the language of opinion, but what it said about the CREC agreement being a "binding contract" was identifiable as an opinion. The binding quality of an alleged contract is an inherently controversial matter of professional judgment. It is distinct from the historical facts that negotiation occurred and a written agreement was signed. In its early days, the Full Court of the Federal Court, in a judgment to which Bowen CJ was party, said: ^[38]

An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion. At least if those conditions are met, an expression of opinion, however erroneous, misrepresents nothing. (emphasis added)

The Full Court in this case appeared to disagree with this approach when it said that the distinction between "fact" and "opinion" was not drawn by the legislation. ^[39] It is a clich é in the United States to speak of the characteristic vagueness of antitrust enactments, and of their similarity to constitutions in this regard. In Australia, that vagueness extends not only to our antitrust enactments but also to s 52 of the Trade Practices Act 1974 (Cth), which was the model for s 1041H and many other enactments. There are many doctrines applying to the more general enactments of this kind which, though not expressly stated in the legislation, are nevertheless necessary implications in it. ASIC acted on that view in paras 27(b) and 28 of the statement of claim. Whether or not the statement of claim was the place to raise the issue, it was not incorrect to raise it. It is a more controversial question whether a statement of opinion is misleading unless there is some basis for it: the passage quoted above flagged a query or a doubt with the word "perhaps". ^[40]

Did Fortescue believe the agreement was a binding contract to build a railway?

[95] The allegation that Fortescue had no "genuine and/or reasonable basis" for saying that there was a binding contract is not entirely clear, but the word "or" suggests that the allegation is divisible into two parts. The first is that Fortescue knew the agreement was not a binding contract. The second is that while Fortescue believed it was a binding contract, it ought reasonably to have known that the parties had not agreed on all the necessary terms and that hence the agreement was not a binding contract.

[96] The first part of the allegation is an allegation of fraud. It must be approached with the caution appropriate to examining an allegation of fraud. It must fail for the following reasons.

[97] First, the trial judge said that ASIC "conceded that, as a matter of objective inference, the agreements were intended to be legally binding". ^[41] ASIC's supplementary notice of appeal to the Full Court contained 60 paragraphs and was 19 pages long, but no ground of appeal challenged that finding. In a practical sense, it is difficult to contend that where a party to an agreement intended it to be legally binding, it knew it was not legally binding.

[98] Secondly, to allege that a party knew an agreement described as binding was not a binding contract when it claimed in public that it was a binding contract, is to allege dishonesty on the part of that party and anyone responsible for what that party said. The trial judge found that there was "no basis for ASIC to assert dishonesty on the part of [Fortescue], its board and in particular, [Mr] Forrest." ^[42] The Full Court did not expressly overturn that finding. It did, however, point to some efforts of Mr Forrest, both in an internal email of 27 October 2004 and in dealings between Fortescue and CREC, to achieve particular results through an "Advanced Framework Agreement". It also pointed to CREC's response. The Full Court suggested that these facts revealed "subjective beliefs" of Fortescue and Mr Forrest which were inconsistent with a belief in the contractual character of the agreement. ^[43] This conduct involved nothing more than attempts to arrive at the "fuller and more detailed" agreement contemplated by cl 7 -- attempts in which each side sought to advance its own interests. They do not establish dishonesty on the part of Fortescue or Mr Forrest. The Full Court also stated that the trial judge had not referred to a statement by Mr Forrest on 23 August 2004 at a press conference that "the price of the railway line ... is confidential, but ... competitive". It did not say why this showed dishonesty. The background is that a journalist asked Mr Forrest: "What happens if the project is budgeted to spend cost 500 million and it costs 700 million or something?" Mr Forrest replied: "That's all, well if it costs 300 million ... we agree the price and the performance specifications in advance and naturally you would appreciate that further questions along this line aren't going to be answered, they'll be commercial-in-confidence". A little later, in response to another question, Mr Forrest said: "[T]he price of the railway line and rolling stock is confidential but we are pleased to say it is competitive." Read in context, the latter statement was a representation of Mr Forrest's opinion or prediction that the mechanisms in the agreement would ensure that the price, when determined, would be competitive.

[99] Thirdly, the view that Fortescue believed that the CREC agreement was contractually binding is supported by near contemporary minutes of a Fortescue board meeting on 28 August 2004. Those minutes referred to the view that it was a "binding agreement signed with CREC whereby CREC will deliver a fully commissioned iron ore railway on a fixed price, fully warranted basis". Counsel for Mr Forrest took the Full Court to that passage. The Full Court did not refer to it. The view that Fortescue believed that the agreement was binding is also supported by other contemporary internal communications (for example, emails of 20 August 2004, 3 October 2004, 5 October 2004 and 4 November 2004), communications with CREC (for example, a letter of 31 August 2004), communications with other commercial third parties (for example, a letter to GE Commercial Finance dated 2 September 2004 and an email to Wolfgang Pesec dated 2 November 2004), and communications with the Western Australian Minister for State Development (for example, a letter of 13 September 2004). Fortescue's belief was also shared by potential co-contractors of CREC (for example, Barclay Mowlem Construction Ltd's press release of 16 September 2004).

[100] Fourthly, ASIC called Mr Heyting, a former Fortescue employee who had become hostile to the company, as a witness. Mr Heyting had prepared the CREC agreement. He described how he was instructed to draft a contract and described various drafting techniques he had employed to achieve enforceability. One of them was the use in Recital B of the words "offer" and "acceptance". For ASIC this was an unhappy episode. ASIC opened the case at trial by saying: "Mr Heyting will say that there was no offer as such". However, Mr Heyting's written statement of evidence in chief more narrowly said only that "to my knowledge no written or formal offer was made by CREC or accepted by [Fortescue]" (emphasis added). And in cross-examination Mr Heyting conceded that there was an oral offer. Mr Heyting also referred to the agreement as a contract in a communication with third parties. Thus though the ASIC opening suggested that Mr Heyting had been called to demonstrate that not even the author of the agreement believed it to be a binding contract, Mr Heyting in fact gave evidence in cross-examination which was radically opposed to ASIC's case.

[101] Fifthly, the view that Fortescue thought the agreements were contractually binding is supported by the fact that CREC, CHEC and CMCC appeared to share the same view. They arranged and participated in the solemnities of three signing ceremonies attended by important Chinese officials. The Chinese companies never protested about, and probably gave advance approval to, Fortescue's assertions that there was a binding contract in the wide press coverage that the agreements received. And the trial judge found that when, on 17 January 2005, the Chairman of CMCC described the CMCC agreement as only a memorandum of understanding, he was doing no more than adopting a negotiating tactic: what he said did not represent the Chinese view of the agreements. Similarly, the assertion by Chinese interests in an Australian Financial Review article on 24 March 2005 that the agreements were not binding was a commercial tactic, not a reflection of their actual views. The Chairman of CMCC maintained that the agreements were binding as late as September 2005.

Did Fortescue have a reasonable basis for believing that the agreement was a binding contract to build a railway?

[102] It is appropriate now to raise a question which the parties did not raise explicitly. The question is whether Fortescue must fail if it lacked a reasonable basis for its opinion that there was a binding contract to build a railway. It is often said that to state an opinion one does not hold misleads the audience about one's state of mind. That is understandable. It is also often said that to state an opinion which one does hold implies that one has reasonable grounds for holding it. In some circumstances that may be so, ^[44] but why should it be so in all? Assume that two people are asked: "In your opinion, is that document a contract?", one answers "Yes", and the other answers "Yes, and I have reasonable grounds for that view." The two answers are different. The first answer does not imply the second, unless there are special circumstances indicating that it should.

[103] As noted above, the case which originated the fact/opinion distinction in this field offered no support for the requirement that there be grounds, let alone reasonable grounds, for an opinion if it were not to be misleading. ^[45] In passing, Mr D F Jackson QC cast doubt on the existence of the requirement by giving it a less than ringing endorsement. He said that if a statement "conveys a belief, the belief has actually to be held and there is something to be said for the view that it requires that there be a reasonable basis for ... it." The matter calls for examination on some future occasion. Certainly, the creation of a widespread duty to have reasonable grounds if offering an opinion is but one example of the way the model for s 1041H, namely s 52 of the Trade Practices Act 1974 (Cth), has been widened since its inception. Liability has widened. Curial jurisdiction has widened. And the power of judges, in every sense of those words, has widened -- perhaps with Actonian effects.

[104] Because the question just raised was not discussed, little attention was given to whether, and why, Fortescue's statement of opinion implied that it had reasonable grounds for stating it. Even if it is assumed that Fortescue did, the question whether Fortescue had reasonable grounds for saying what it did depends on what it said. What it should be taken to have said depends on what its audience must have understood it to have said. According to ASIC's statement of claim, that audience understood Fortescue to have said that the parties had agreed on all the terms necessary for it to be "practicable to force CREC to design, build, transfer and finance the railway". ^[46] Would that audience have done so?

[105] Fortescue's remarks were not directed to the public as a whole. They were directed to a section of the public. It comprised superannuation funds, other large institutions, other wealthy investors, stock brokers and other financial advisers, specialised financial journalists, as well as smaller investors reliant on advice. This was not a naive audience. It was not an audience in 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 an audience conscious of the difficulties of creating infrastructure for mining projects in the harsh conditions of Western Australia. It was an audience conscious of their vast expense. It was an audience conscious of the problems of doing so in cooperation with a Chinese group described in the ASX announcement as China's largest construction group. And it would have learned -- not from the announcement itself but from the simultaneous media release -- that CREC was "a State-owned enterprise in China", the state in question being the People's Republic of China. The audience was sufficiently tough, shrewd and sceptical to know something of the difficulties of "forcing" a builder to build and finance anything. Whether an agreement can "force" one party to it to do something depends on whether another party can get the state to employ any "force" against that first party to do that thing. While it is easy for the state to inflict pain on people who do not do what it wants, it is in fact extraordinarily difficult for the state to "force" anyone to do anything. It is particularly difficult to force parties to agreements to perform them. Australian courts can grant injunctions and decrees of specific performance. But what if they are ignored? Those courts can fine or sequestrate the property of people who do not carry out injunctions or decrees of specific performance (and, in the case of natural persons, gaol them). Those courts can nominate persons to do what a party to an agreement ought to have done. But it is only exceptionally that the courts will decree specific performance of building contracts. ^[47] ASIC contends that Fortescue's target audience was being misled in being persuaded that the agreement put Fortescue into a position in which it was practicable for it to force CREC to design, build, transfer and finance the railway. But an audience which read Fortescue's statements that way might be expected to ask: how is a State-owned enterprise of the People's Republic of China to be forced 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. It would have known that the idea that CREC would perform the agreement against its will was idle. It would also have known that even if the expression "force CREC to design ... the railway" were used less strictly to mean "sue it for damages for breach of contract", then difficulties of execution would mean that Fortescue could not force CREC to conform with its will by those means. These considerations suggest strongly that Fortescue's target audience would not have understood the representations in the way ASIC wished. It would have understood them as being less high and less intense.

[106] ASIC bore the burden of proving, to use the language of the statement of claim, both "representation"/"impression" and "false representation"/"false impression". What the representation and impression were depended on the audience. ASIC did not establish that the relevant audience had taken from the ASX announcement (or the media release) either the representation or the impression that the parties had entered a binding contract in the sense that they had "agreed on all the terms necessary for it to be practicable to force CREC to design, build, transfer and finance the railway". ASIC's case so far as it rests on the representation inherent in para 28(d) of the statement of claim must fail. That representation is one which Fortescue's target audience would not have understood Fortescue to be making. Strictly speaking, ASIC's case should fail at that point. But even if the representation was less extreme, its case must fail.

[107] It was probable that Fortescue's target audience would consider that Fortescue's representation did not suggest that the agreement had terms which "forced" either the People's Republic of China or CREC to do anything, because even the tightest of terms would not do that. Instead the target audience probably took the representation to be that there was a binding contract containing machinery capable of procuring the result that CREC would voluntarily design, build, transfer and finance the railway even if it was impossible to force it to do so. The agreement was a binding contract containing that machinery -- duties to conduct future negotiations leading to future agreements. Under cl 7, those future agreements had to be consistent with the original agreement's "intent". For that reason there were reasonable grounds for Fortescue's representation, whether or not it thought that it was making a higher and stronger representation. The agreement was not concerned with mechanisms of legal enforcement like choice of law clauses or choice of jurisdiction clauses. It was concerned with practical progress through future negotiations which the parties were contractually obliged to undertake with a view to entering future contracts within the intent of the agreement. ASIC did not establish that any possible construction of the representation more favourable to its case was made out.

[108] It follows that Fortescue's conduct was not misleading, not deceptive, and not likely to mislead or deceive. Accordingly, s 1041H of the Corporations Act does not apply.

[109] Counsel for Mr Forrest complained that the Full Court had failed to refer sufficiently to 122 documents relied on to support the trial judge's conclusion about the honesty and reasonableness of the view that the agreement was a binding contract; to the exculpatory evidence of certain witnesses; and to his submissions on these subjects. In view of what has been said above, it was not necessary to refer to all this evidence, though some has been mentioned. The approach of this court to the case has differed from that taken at trial and in the Full Court.

[110] Because the trial judge and the Full Court were not directing their attention to the narrower representation which ASIC did not plead but which has just been considered, there is no finding about whether Fortescue believed in its truth. But it is encompassed within the wider representation with which they were dealing. The reasoning stated earlier which upheld the trial judge's conclusions and departed from those of the Full Court suggests that Fortescue believed in the truth of the narrower representation as far as it went.

Other ASIC allegations in relation to s 1041H of the Act

[111] The above discussion has concentrated largely on the CREC agreement and the ASIC release of 23 August 2004. ASIC made many more criticisms of the releases by Fortescue, in relation to both the CREC agreement and the other two agreements. Most of those criticisms fail for reasons similar to those advanced above. The balance concern what are on their face statements of opinion -- estimations, predictions -- which were not shown to be misleading to the target audience. It would serve no good purpose to deal with the issues in the detailed way they were presented by ASIC and refuted by Fortescue.

[112] The Full Court also found that Mr Forrest was involved in Fortescue's contravention of s 1041H within the meaning of s 79(c) of the Corporations Act. That finding cannot stand with the rejection of the s 1041H findings against Fortescue.

Section 674 of the Corporations Act

[113] ASIC argued that if s 1041H were contravened, s 674 obliged Fortescue to disclose that fact. But s 1041H was not contravened.

[114] ASIC further argued, in support of an application for special leave to cross-appeal, that even if Fortescue had made no public announcements, it was obliged to disclose the terms of the agreements. Nothing in s 674 supported the existence of any such obligation in relation to the facts of the case as postulated by ASIC. On that case, the agreements were no more than unenforceable agreements to agree. If that were true, they would have been of trivial significance -- not likely to influence the share price. To grant special leave would require an analysis of expert evidence called by ASIC which the trial judge rejected, which the Full Court did not consider, and which was not the subject of detailed submissions in this court beyond a single, near-illegible footnote. In those circumstances, the application for special leave to cross-appeal should be refused.

Section 180(1) of the Corporations Act

[115] ASIC argued that if Fortescue contravened ss 1041H or 674, Mr Forrest was in breach of s 180(1). But since Fortescue had not contravened those provisions, Mr Forrest was not in breach of s 180(1).

Notice of contention

[116] ASIC filed a notice of contention in support of the argument that the Full Court ought to have found that Fortescue and Mr Forrest had no reasonable basis for believing that their public announcements accurately described the agreements. The Full Court did make that finding, at least in relation to the s 674 case, where ASIC did not bear the burden of proof. However, in relation to s 1041H, ASIC did bear the burden of proof. For reasons given above, ASIC did not discharge it.

Orders

[117] The appeals should be allowed with costs and consequential orders made. The application for special leave to cross-appeal should be refused with costs.