The High Court has found that neither FMG nor Andrew Forrest breached the Corporations Act 2001 (Corporations Act) by various announcements in 2004 and 2005 referring to three agreements as ‘binding contracts’ to ‘build and finance’ a railway component of its Pilbara Iron Ore and Infrastructure Project.

There are four key messages companies can take away from the decision in Forrest v Australian Securities Investments Commission [2012] HCA 39:

  1. When determining whether an announcement to the public is misleading, the relevant questions are what is conveyed by the announcement to its intended audience, and was it misleading. There are no ‘general rules’ as to what an announcement that an agreement has been entered into will convey to investors.
  2. It is important to consider the particular audience addressed. In the case of an ASX announcement, the intended audience may be investors (both present and possible future investors) and some wider section of the commercial or business community. Such investors will not necessarily ask a ‘lawyers question’ about the information conveyed to them.
  3. In some circumstances (such as those which existed for FMG), an announcement that a company has entered into a ‘binding agreement’ with a non-Australian company may merely convey that the agreement itself states that it is binding and/or that the parties intended it to be binding. It will not necessarily convey the meaning that the agreement constitutes a ‘contract’ which is enforceable in Australian courts under Australian law.
  4. Despite Mr Forrest’s and FMG’s ultimate success in defending the allegations, companies should continue to be cautious when wording announcements, in particular those relating to ‘framework agreements’, ‘heads of agreements’, ‘memorandums of understanding’ and other agreements where further contracts or terms still need to be negotiated. The High Court emphasized the need for a close and careful analysis of the facts and circumstances of each case. Further the legal and operational costs of defending any allegations made by ASIC are high.

A more detailed summary of the High Court decision in Forrest v Australian Securities Investments Commission [2012] HCA 39 is available.