Fortescue Metals Group chief executive Andrew Forrest's tenure is under a cloud after the corporate regulator won the latest leg in its battle with him over his duties as a director.
Fortescue Metals Group chief executive Andrew Forrest's tenure is under a cloud after the corporate regulator won the latest leg in its battle with him over his duties as a director.
The Australian Securities and Investments Commission's (ASIC) case relates to public statements by Fortescue in 2004 about "binding" infrastructure deals with Chinese parties that were never completed.
The 2009 decision cleared the iron ore miner of misleading and deceptive conduct, and of failing to comply with its continuous disclosure obligations.
But on Friday, the Federal Court in Perth ordered that the decision made on December 23, 2009 by Justice John Gilmour be set aside.
ASIC's appeal last year was before the Full Bench of the Federal Court, comprising Chief Justice Patrick Keane, Justice Arthur Emmett and Justice Ray Finkelstein.
The court on Friday said Fortescue had been found to have contravened the misleading and deceptive conduct obligations, and continuous disclosure obligations of the Corporations Act.
Mr Forrest was found to have breached the care and diligence obligations incumbent on directors under the Corporations Act.
Fortescue and Mr Forrest has been ordered to pay the applicant's costs.
The ASIC statement is pasted below:
DECISION IN FORTESCUE METALS GROUP APPEAL
The Full Court of the Federal Court of Australia today upheld ASIC's appeal against the Federal Court's decision of 23 December 2009, in which the Court dismissed ASIC's application against Fortescue Metals Group Ltd (FMG) and its CEO, Mr Andrew Forrest.
The proceedings arose out of Australian Securities Exchange (ASX) announcements and other statements made by FMG in respect of framework agreements entered into with Chinese companies relating to the development of a mine, railway and port for the mining and export of iron ore from Western Australia's Pilbara region.
Today, the Full Court of the Federal Court ordered that the appeal be allowed and the orders made on 23 December 2009 be set aside. The Full Court found that:
FMG contravened s1041H of the Corporations Act 2001 (the Act) in that FMG's ASX announcements, media releases and investor presentations about the framework agreements were misleading and deceptive.
FMG contravened s674(2) of the Act as it failed to correct the misleading statements it had made to the market.
Mr Forrest breached his duties as a director in contravention of s180(1) of the Act and breached s674(2A) of the Act for his involvement in FMG's contraventions of the Act.
The Full Court has remitted the matter to a judge of the Federal Court of Australia to determine the penalties to be imposed against FMG and Mr Forrest.
"ASIC appealed the Federal Court's Fortescue decision because the trial judge's findings raised critical issues about the proper interpretation of the parts of the Corporations Act that govern company announcements . Today's result provides important reinforcement to the operation of the continuous disclosure provisions of the Act which are the bedrock of confidence in the integrity of our markets," said ASIC chairman Tony D'Aloisio.
ASIC appealed because the case raised important issues concerning:
a listed entity's obligations to disclose information under the continuous disclosure provisions of the ASX Listing Rules and the Corporations Act; the operation of the misleading and deceptive conduct provisions of the Corporations Act, particularly statements concerning the contents,effect or enforceability of commercial agreements;
and the role and duties of directors and officers in making statements to the ASX and the investing public, particularly those concerning the contents, effect or enforceability of commercial agreements.
Background
ASIC's case against FMG and Mr Forrest which was first heard in April 2009, centred on a series of announcements FMG made to the market and investors between 23 August 2004 and 1 March 2005 concerning certain framework agreements with three major state-owned Chinese companies.
ASIC alleged FMG engaged in misleading and deceptive conduct by overstating the substance and effect of agreements with the three Chinese companies, in ASX announcements, media releases and investor presentations.
ASIC also alleged FMG failed to comply with its continuous disclosure obligations under the Corporations Act by failing to disclose the contents of the agreements and by failing to correct the misleading announcements.
In relation to Mr Forrest, ASIC alleged Mr Forrest was involved in FMG's alleged contraventions and also, that he breached his duty as a director to exercise care and diligence under the Act, by failing to ensure FMG complied with its obligations under the Act.
ASIC claimed Mr Forrest knew that there was a material difference between what the market had been told and what actually appeared in the agreements, but did nothing to correct the position and instead continued making misleading statements over the six month period - the true content of the agreements was not disclosed until March 2005.
ASIC also claimed the alleged conduct of FMG and Mr Forrest resulted in the markets being seriously misled as to the true status of FMG's project for over six months.
