Analysis of Business Law Violations in Fortescue Metals Case

This assignment delves into a significant legal case where the Australian Securities and Investment Commission (ASIC) initiated proceedings against Fortescue Metals Group Ltd and Andrew Forrest. The core issue revolves around alleged breaches of the Corporations Act 2001, particularly sections 1041H, 674, and 180(1). These provisions address misleading or deceptive conduct in relation to financial services, continuous disclosure requirements for listed entities, and directors' duties to act with due skill and diligence. The case underscores critical aspects of corporate governance and the legal responsibilities of companies and their directors under Australian law.

Running head: BUSINESS LAWS
Business Laws
Name of the student
Name of the university
Author note

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BUSINESS LAWS
Facts of the case
The Australian Securities and Investment commission initiated proceedings against
Fortescue Metals Group Ltd (Fortescue) along with Andrew Forrest (chairman, CEO and
substantial shareholder of Fortescue: Forrest) in the Federal Court of Australia. The case was in
relation to the announcement made by the company to the broad market and the media in relation
to a number of “Framework Agreements” between three states owned Chinese corporations and
Fortescue1.
The framework was related to financing and building services which were to be given in
relation to Pilbara Iron Ore and Infrastructure Project of Fortescue. There was an allegation by
the Australian Securities and Investment commission that Fortecue and Forrest have violated the
provisions of the CA in the year 2004 and 2005 by giving information to the ASX in relation to a
future mining project in west Australia known as the PIOIP. The project consisted of the
development of a mine in the region of Pilbara located in Western Australia. Letter were sent by
the defendant during August and November 2004 to the ASX along with media release in
relation to such agreements which stated that the defendant had got into a binding contract with
China Harbour Engineering Company CHEC, China Metallurgical Construction (Group)
Corporation CMCC and China Railway Engineering Corporation CREC to finance transfer and
build railway, mine and port in relation to the project. Various other communications had been
made by the defendant which were in relation to the agreements the defendants had with the
three companies.
1 ASIC v Forrest and Fortescue [2012] HCA 39 at [2]

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According to the announcement each of the framework was treated as a binding
agreement between the parties. However upon analysis it was found that the terms contained in
the contract were ambiguous and unclear to be made legally binding and be enforced law. The
claim made by the Australian corporate regulator AISC was rejected by the trail court as Justice
Gilmour allowed an appeal of the decision with respect to the full court of the federal court. The
AISC had thus appealed to the full court against the decision of the trial court. After AISC got
the desired results from the full court an appeal against the order was made by the defendant to
the High court.
The AISC had alleged that the company had engaged in an act which accounts to the
breach of section 1041H of the Corporation Act 2001 (Cth). The AISC also alleged that the
defendant had violated section 674 of the CA in relation to disclosure requirements2. In addition
it was provided by the AISC that the defendant director did not comply with section 180(1) of
the CA as he did not discharge his duties and powers with the proper implementation of skill and
diligence.
Issue
In this case the issue before the court was to determine whether the announcement made
by the defendant company to the target audience who were mainly investors accounted to the
violation of section 1041H of the CA and accordingly the breach of directors duties under
section 180(1) of the CA and section 674 in relation to continuous disclosure obligation of a
listed company.
2 ASIC v Forrest and Fortescue [2012] HCA 39 at [8]

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The relevant law
According to Section 1041H of the CA states that a person is not allowed to indulge in an act
which is deceptive or misleading or is likely to mislead or deceive in relation to a financial
service or a financial product. The provisions of the section include any act in relation to
financial services and products such as providing a financial product which in return provides a
security3.
According to section 674 of the CA the listed entities with the Australian Securities Exchange
have an obligation to make disclosure in compliance with the rules provided by the listing and
also the entities are obligated through the section to give information to the market operator4.
In addition it was provided by the AISC that the defendant director did not comply with section
180(1) of the CA as he did not discharge his duties and powers with the proper implementation
of skill and diligence. Section 180(1) of the CA provides that a person is obligated to carry on his
responsibility towards the company with proper skill and diligence which would have been done
by a reasonable director in similar conditions5.
“At common law the first idea is expressed in the tort of deceit and the second in liability for
negligent misrepresentation”6
In the case of Krakowski v Eurolynx Properties Ltd it had been ruled by the court that in order to
establish a claim for fraud it has to be provided that there was no honest belief in relation to the
3 Corporation Act 2001 (Cth) at Section 1041H
4 Corporation Act 2001 (Cth) at Section 674
5 Corporation Act 2001 (Cth) at Section 180(1)
6 (1889) 14 App Cas 337.

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accuracy of the statement in the same sense through which the representor wanted it to be
understood7.
In the case of Wallingford v Mutual Society8 it had been provided by the court that in order to
mount a case of fraud specific pleading is required along with the element of particularity.
In the case of Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in Liquidation)9 it had
been ruled by the court that no person must be subjected to a detriment without giving him
appropriate opportunity with respect to addressing the allegation which have been made against
him.
In had been provided by the court that even if various number of alternative submissions and
arguments are made they are not adequate to aid coherence and comprehension in relation to
exposition and analysis. In addition the emphasis on the central issue may be distracted through
the use of this approach10. Section 180(1) is said to be violated only when an action was against
the law which a reasonable person would not have done.
7 (1995) 183 CLR 563 at 578
8 (1880) 5 App Cas 685
9 (1916) 22 CLR 490 at 517;
10 (2011) 190 FCR 364 at 371

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Bibliography
ASIC v Forrest and Fortescue [2012] HCA 39
Corporation Act 2001 (Cth)
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 578
Derry v Peek (1889) 14 App Cas 337
(http://www5.austlii.edu.au/au/journals/UNDAULawRw/2011/8.pdf)