ASIC v Forrest and Fortescue [2012] HCA 39 in the High Court

Due to the way the High Court approached the case - in contrast to the lower Courts - a number of the potentially key issues went by the wayside. Many commentators had hoped (or in some cases feared) that the High Court would opine on: whether the continuous disclosure provisions of the Corporations Act impose an obligation to correct erroneous statements; the materiality threshold under the continuous disclosure provisions; accessorial liability; officers' "quasi-derivative" liability under section 180 where the company has breached the Corporations Act; and the applicability of the business judgement rule in section 180(1) in cases where there had been a continuous disclosure breach.

In the event, the High Court was able to dispose of the matter on a tight point by finding that the announcements in question were not misleading. The announcements said, in essence, that FMG had entered in to "binding" contracts with Chinese state owned enterprises to build mine infrastructure for FMG's then embryonic iron ore project in the Pilbara.

The High Court accepted that FMG and the Chinese SOEs intended that the agreements should be binding. The High Court did not accept that ASIC had made a case that, in effect, FMG had represented something that it did not believe.

The High Court found that the relevant audience (being mainly investors) would have not been misled by the statements - the audience would not have understood that a statement that a contract was binding was tantamount to a statement that the contract was immune from legal challenge. The fact that the contracts were with Chinese SOEs was relevant, as was the fact that the law to be applied to the contracts was not clear. The majority of the Court said it would be "extreme or fanciful" for the audience to understand that the statements about "binding" contracts were directing attention to whether or not the contracts would be enforceable in an Australian Court. It followed that an analysis as to whether or not the contracts were binding and enforceable in an Australian Court was beside the point, in distinct contrast to the decision of the Full Federal Court.

Also in contrast to the Full Federal Court decision, the majority did not find that Andrew Forrest believed that the contracts were not binding; just because Forrest sought to get a better deal during the negotiations of the "long form" agreements, that did not force a conclusion that he believed that the "short form" agreements were not binding, only that he was trying to get a better deal.

The case was widely expected to provide much-needed guidance on the continuous disclosure provisions. Due to the way it was decided, the decision did not say much directly about continuous disclosure.

Despite that, some comfort can be taken from the fact that the High Court necessarily placed considerable weight on the fact that FMG and the Chinese SOEs intended - believed - that the contracts were binding, and did not undertake a legalistic analysis of the enforceability of the contracts in question.

One would hope that this would translate into an approach to continuous disclosure where, what a company and its directors honestly (and not reasonably) believe is given due weight, and where real-time disclosure decisions are not second guessed in the abstract with the benefit of 20/20 legal hindsight rather, are viewed in the real life commercial context where business and continuous disclosure decisions actually take place.