Discuss about the Australian Securities and Investments Commission Corporation Ltd.
Fortescue Metals Group Ltd through its Chief executive officer Forest made public announcements to the Australia securities exchange and the media and in doing so they made representation targeted at the investors and other potential investors. The information contained in the representations was regarding the details in the documents that had been signed by the Fortescue Metals Group Ltd. Fortescue Metals Group Ltd had the legal rights to conduct mining process of iron ore in Western Australia. To utilize the iron ore that was being mined the company decided that it will built a railway that will transport the iron to Port Hedland where they intended to construct a port. To construct the railway Fortescue Metals Group Ltd (FMG) entered into agreement with three entities from China.
Forrest, the chief financial officer of Fortescue Metals Group Ltd sent a letter to the Australia stock exchanging indicating the details of the agreement they made with China Railway Engineering Corporation (CREC) which is one of the three Chinese companies to build the railway to transport the iron ore to Port Hedland (Australian Securities and Investments Commission v Fortescue Metals Group Ltd, 2011). FMG made another representation to the media that the agreement that was made between it and CREC was binding and that it was on a fixed price and CREC accepted all the risks that will follow. It is imperative to note the representation made did not reveal the complete details of the agreement. Furthermore, Forrest asserted that the information concerning the price was confidential and could not be could not be revealed although he admitted that it was competitive.
In undertaking its obligation to investigate the announcement made by companies to the Australia securities exchange and ensure that they are not misleading the Australian Securities and Investments Commission , invoked s 1041H of the Corporations Act by alleging that the information released by FMG amounted to misleading and deceptive conduct contrary to the act (Corporations Act 2001). Sec 181 of the Corporations Act also provides for the duties of the director which ASIC alleged that Mr. Forest had breached.
Under section 180(1) of the corporation act the director has the duty to ensure that the care and due diligence that is expected of a reasonable person in his position (ASIC v MacDonald, 2009). These duties may also breached by the company officer who is regarded as any person who takes part in the decision making process of the company that in the end affects the entire business. In Lagunas Nitrate Co v Lagunas Syndicate (1899) it was held that a director or company officer must act for the benefit of the company and that which is reasonable within his power after exercising his knowledge. The corporations act provides that a person which includes a director within the jurisdiction of Australia may not engage in any misleading and deceptive conduct that may affect any financial product or service (Corporations Act 2001 s1041H (1)). The idea inherent in aforementioned provisions is to protect potential investors and current investors and not consumers (Corones, 2015). The Australian Securities & Investments Commission Act 2001 (Cth) on the other hand, provides that no person is allowed to engage in trade or commerce with relation to a financial service or product which is misleading or deceptive or is likely to be deceiving or misleading (Australian Securities & Investments Commission Act, s 12DA).
It is worth noting that the representations must mislead or deceive, or be likely to deceive or mislead member of the public who part of the target audience (Taco Bell of Australia Inc. v Taco Bell Pty Ltd, 1982). However, the reasonable members of the targeted audience must not make assumption that are fanciful and defeat logic (AstraZeneca v GSK, 2006). It has been held that if the perpetrator of the misleading and deceptive conduct had the intention to deceive and mislead, the courts should ignore the fact that the representation may have never actually deceived reasonable members of the target audience (Australian Competi-tion and Consumer Commission v Singtel Optus Pty Ltd, 2010). It has been held that if the representations have sufficiently been evidenced to be true they can not be regarded to be misleading or deceptive.
During the trail of the case the Australian Securities & Investments Commission (ASIC) argued that the Fortescue Metals Group Ltd (FMG) contravened s 1041H of the Corporations Act through their conduct that was misleading and deceptive and thus they breached the legal and equitable duties that they ought to abide to in relation to the company. There main argument was that FMG misled and deceived investors and other potential investors through the details of the document that was purportedly an agreement between it and China Railway Engineering Corporation (CREC). It argued that the proclamation made by FMG that they had a signed contract with CREC that stipulated that CREC would finance and build a railway was a misrepresentation amounting to a deceptive and misleading conduct and was not contained in the document. ASIC maintained that CREC had no any contractual obligation to construct the railway and that the price was not stated in the document as had been previously asserted in the letter.
The other contention in court was that FMG by stating that it had made a binding agreement with CREC was a misleading and deceiving yet these proclamation were actually false. ASIC further argued that the representation by FMG was ingeniously intended to lure investors to invest in the company since the statements were unequivocal and made in an emphatic manner. ASIC submitted to the court that Forest was not justified to make the announcement to investors and potential investors. FMG chose not to adduce evidence against the allegations made by the ASIC while ASIC argued that it expected FMG to rely on the defense that the assertions made by Forrest were statements of fact which if it was case it could absolve them from liability. According to the ASIC a statement of fact would not be leading but a statement of opinion would be misleading. While it is clear that the intention of the persons alleged to have engaged in the misleading and deceptive is immaterial in proving breach of s 1041H of the Corporations Act, ASIC stood adamant on the claim that FMG had the intention to deceive the targeted audience. Conversely they argued that Forrest had breached the company officer duties of care and due diligence by unreasonably making a misleading and untruthful announcement.
The issues that were presented before the court for determination included whether FMG and Forrest who was its Chief Executive Officer breached the provisions of s 1041H of the Corporations Act following the announcement it made to the investors and other potential investors that the agreement made with the CREC was binding. Another issue was whether by misleading and deceptive conduct they had breached the company officer duty to act with honesty and good faith. Another sub issues that was to be determined emanating from the pleading made by ASIC was whether the representations were statements of fact or opinion. The other issue was whether the conduct alleged to be misleading had an impact on the reasonable persons who could be investors of the company. The primary judge affirmed that the assertion made by forest were mere statement of opinion. The judge justified this position by stating that Forest held the honest opinion that the agreement would legally binding.
The full court held that the argument on statement of fact and opinion was immaterial and only limited the protection offered to investors and potential investors. The court held that the essential factor to be considered in determining a breach of s 1041H of the Corporations Act was not the intention of the alleged party but rather the effect of the representation on the public investors. The court in the in the full court held unanimously that the representation that CREC had accepted full risk and that a fixed price was set had no basis and therefore misleading. The full bench concluded that the a reasonable public investor cannot be placed in the mind of the directors of FMG or forest and a reasonable person would ordinarily understand that the representation implied that the agreement was binding and the details purported to be in the document were actually in the agreement.
Forrest and FMG were found to be liable in the Full court. The High court also disregarded the argument on statement of fact and opinion. The court held that to understand the message that would be reasonably assumed by the public the representation must be investigated with full attention to the fact of the case. The High Court widened the definition of the target audience to include investors and other member of the public in the business community. The court thus concluded that the public would understand the statements made by forest according to what the parties believed they had done. It thus held that the public was not persuaded from the representations by Forrest that the agreement was binding and that there was a fixed price but rather they believed in what Forrest and the directors of FMG considered to be genuine. The court thus found that the conduct of Forrest and FMG was neither misleading nor likely to mislead or deceive. The high court thus held that Forrest had not breached any company officer duties because he did that which is reasonable and fro the best interest of the company. He acted with honest and good faith as is required by the act. The high court ruled that Forrest made the announcement in good faith stating that which the company believed to be true and thus the information was not misleading.
Essentially, the director duties that were in question in this case was the duty to exercise care and due diligence that is expected of a reasonable person and the duty to act with honesty and good faith. The final decision this case was by the high court where it was concluded that the conduct of Forrest and FMG was neither misleading nor likely to mislead or deceive and there fore did not breach any company officer duties. It is a plausible conclusion from the final ruling of the high court that determining the assumptions that are made by the target audience is a question of fact .Suffice to say, it has been observed that the knowledge of the target audience on the subject matter of the alleged misleading is crucial in determining whether the reasonable audience erred in making the assumptions (ACCC v Telstra, 2004).
ACCC v Telstra (2004) 208 ALR 459
AstraZeneca v GSK  ATPR
Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)
Australian Securities and Investments Commission v Fortescue Metals Group Ltd [No 5] (2009) 264 ALR
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364, 375 
Australian Competi-tion and Consumer Commission v Singtel Optus Pty Ltd [No 3](2010) 276 ALR 102
ASIC v Macdonald (No 11)  NSWSC 287 Corporations Act 2001 (Cth)
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Lagunas Nitrate Co v Lagunas Syndicate  2 Ch. 392
Taco Bell Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177,