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Business And Corporation Law Forrest V Australian Securities

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Question:

Discuss about the Business and Corporation Law Forrest v Australian Securities and Investments Commission.
 
 

Answer:

Introduction

The aim of this report is to provide an understanding of the business and corporate law. Mainly, the report analyses the case related to Forrest v Australian securities and investments commission.  The report provides an outline of the case in which it describes brief of the case. Along with this, the report analysis the various duties and responsibilities that have been breached by FMG and Mr. Forrest and also explains the reason for the duties breached the sections of corporation act. In addition to this, the report discusses and analyses the court and decision of the tribunal and also describes the reason for the decision of the court as per the corporation act.

Case outline

Forrest v Australian securities and investments commission, the case concerned on proceeding in the Australian federal court against the FMG Ltd and Forrest (CEO and chairmen and Fortescue’s shareholders), Forescue’s make an announcement to the border market and to the media regarding the framework series among the three state-owned Chinese companies and fortescue.

The announced framework agreement consists of the financing and building services that have been provided in the connection with fortestcue infrastructure and Pilbara iron project. In 2004, FMG signed a series of the framework agreement with the various members of the Chinese companies that have been owned and managed by the government of china. Along with this, the framework was concerned on the infrastructure project related to mining in the Western Australia (Butt, 2013).  Each of the agreement was outlined with the help of broad terms that what type of work was to be completed with the help of this project and how the payment of the project would be operated. There are some clauses that have been contained in the agreement that provide various information as under-

It would become binding as on the sanction of the each company board of directors that has been given before a specified date.

All the parties of the project recognized the agreement at the fuller manner with the more detailed in the intent of the agreement framework that will be developed later.

Along with this, the announcement of the project described all the framework of the agreement that is concerning as a binding contract. On the other hand, there was some lacking point in the agreement that was likely legally enforceable.

 


After the agreement approved from both the parties, the company announced their agreement to the Australian stock exchange that it has been entered into a binding contract with the corporation of china railway Engineering Corporation to build an infrastructure project.

There was an allegation made by the company and announced the report in the press that framework agreement may not be binding. After that, ASIC carried case against FMG and Mr. Forrest that they breached a various provision of the corporation act 2001. The trial judge held the decision in the favor of FMG and Mr. Forrest but the decision was revised by the Full Federal Court according to the various points (Bryans, 2012). The court held that there has been breached the continuous disclosure obligation within the framework agreement. The Australian market will able to understand the framework agreement to mean that the agreement was enforceable as per the court of Australia (But there was misleading because they were not enforced the agreement in a proper way). Along with this, Mr. Forrest had not completed their duties and care of the director at the time of making financial statement.

At the end, FMG and Mr. Forrest appealed this matter in high court and the high court reversed the full court decision and criticized the manner in which ASIC ran its case. The high court held that the announcement accurately reflected the terms of the framework agreement. Along with this, it can be held that reference to the binding contract indicated only that the parties entered into the agreement which the company had indented to be binding that is found true (Spencer-Laitt, 2013). In this case, there was real and lively possibility that the framework agreement was depended on Chinese not as per the Australian law.

 

Outline of duties and responsibility breached and explain the reason for the duties breached

ASIC was successful in obtaining orders that FMG and Mr. Forrest has breached some section of Corporation act 2001, which can be described as below-

Section 1041H

Section 1041H stated that a person must not engage to conduct with the relation to the financial service and financial product that deceptive and misleading or likely to deceive and mislead. Along with this, this section increase to conduct in the relation to the financial product (Humphrey and Corones, 2014). It also includes the issue of the financial product and in turn includes a security. 

Section 674

Section 674 is related to the continuous disclosure. The listed entity bound by the disclosure requirement in the market listing rules. Along with this, with the help of this section, the company notifies the market operator for the information related to various matter and events.

Section 180(1)                    

Forrest has been failed to exercise their duties in a proper manner and did not discharge their duties with reasonable diligence and due care and breached the section 180(1) of the corporation act 2001.

Reasons behinds the breached of the duties

There are various reason behinds the breached of the duties of both FMG and Forrest in March 2006 because the FMG was engaged in the deceptive and misleading in the relation to the financial product and service (Corones, 2014). The financial product defines the as a facility by which a person manage the financial risk and makes a financial investment. In addition to this, FMG and Mr. Forrest breached the section 180 to 184 because they did not exercise diligence and due care to exercise their power and discharge their duties.

There were complexities in the pleading and the communication claimed to deceptive and misleading. Mr. Forrest has been breached the section 180 because it was allowing FMG to breach legal requirement that to be exposed the penalties by which the FMG and Mr. Forrest breached diligence and due care to the organization. Along with this, the case of ASIC has been rejected by the judge, which led to appeal before in the Full court and Federal Court of Australia.

 

Discussion and analysis of court and tribunal decision

In the case Forrest v Australian securities and investments commission, the high court held that representation of agreement was neither misleading nor false (Pelling, 2015). In addition to this, the court held that there was no evidence basis for assuming that a person reading the framework agreement that would understand that the parties have been entered into the framework agreement which enforced by an Australian court.

It has been analyzed by the court that FMG did not need to release the full text of the framework agreement that complies with its obligation of the continuous disclosure. The court found that FMG breached various provision of corporation act 2001 as results of the public statement. Along with this, the misleading statement in the framework agreement has been made with the help of section 674 of the corporation act 2001 as it is required to be corrected. The court stated that FMG’s argument had been rejected as it was only if the actual notification that has been made by FMG and Mr. Forrest has a positive effect on the share price.

Along with this, the court emphasized that it was not suggesting that section 674 of the corporation act has an obligation to right information that was already provided on the ASX. On the other hand, it has been viewed that corrective information is mandatory because it would be influenced the investor to dispose and acquire the shares (Comino, 2014). The court held that the term of the binding contract was not necessary to convey for the agreement will be legally enforceable. Along with this, the court held that the announcement of the framework agreement was summarized all the content which was necessary. Moreover, the announcement conveyed that all the parties were intended each agreement for constituting the binding contract. The court relied on their finding as per the primary issue and court rejected the submission of the ASIC that the term of the binding contract has been implied as the framework agreement will be governed as per the Australian law (Latimer, 2012).  In the case, the contract involved foreign state-owned entities that have been executed in china and it were not contained the choice of forum.  The court rejected the argument of ASIC and held that post- contractual negotiations were not responsible for the prior agreements (Omar, 2016). The high court upheld the appeal and stated that Fortescue has not been engaged in the deceptive and misleading conduct as per the corporation act section 1041 Hthe claim by ASIC on FMG and Mr. Forrest of breaching the section 674 (continuous disclosure) and section 180(1) (for directors duties of diligence and due care) has been dismissed accordingly.

 

Reason for the decision of court as per the Corporation Act

The court implied that decision because ASIC pleading and stated that the claim related to the absence of a genuine basis for belief was not established a necessary element for claiming deceptive and misleading and will concurrent claims in tort. On the other hand, as the Australian court stress the limited transferability of the principal that has been relied in the present matter (Plessis et al., 2010). In addition to this, as per the section 79(c) of the corporation act 2001, Forrest was found itself to be involved in the FMG contravention related to section 1041H and 674 as per the corporation act. As Mr. Forrest was known all the terms of the framework agreement and the difference between FMG representation and them related to the framework agreement.

In addition to this, the court held the decision because the term of the binding contract may be deceptive and misleading if it was used to describe the contract that has been unenforceable agreement related to the communication with an intended audience which was unsophisticated with regard to the matter and they concerning the financial statement and business. Along with this, the court has been taken decision in the favor of FMG and Mr. Forrest because the announcement of the framework agreement contained the term of the binding contract must be described on the accurate basis (Adams, 2011). It was also supportable with the help of evidence that the parties intended the agreement to be binding.

The court also made expression mention that the decision of the court not to disclose the true effect of the agreement and also cannot describe the business judgment. The decision made accurate disclosure related to the various terms and condition to the business operation of a company. It can be stated that Forrest breached the section 674 and 180(1) of the corporation act that were contingent of the section 1041 and has been dismissed accordingly.

Conclusion

From the above discussion, the report can be concluded that the court conducted a close analysis related to the term binding contract to understand as per the reference of the intended audience. The court held that term binding contract did not convey that the agreement would be legally enforceable. From the above discussion of case, the court analyzed that the framework announcement was accurately summarized the content which is necessary. In addition to this, it is also analyzed that announcement conveyed that all the parties of the contract have been intended the each framework to constitute a binding contract. Along with this, the high court upheld the decision of the full court and stated that FMG and Mr. Forrest was not engaged in the deceptive and misleading as per the section 1041H of the corporation act 2001. The claim that the Fortescue and Forrest were breached the section 180(1) and 674 that were contingent with the breach of section 1041 has been dismissed accordingly.

 

Reference

Adams, M. (2011) ‘Latest developments in officers’ duties of SMEs,’ Journal of Business Systems, Governance and Ethics, 6(3), p. 31.

Bryans, P. (2012) ‘Continuous disclosure: when and what?’, Keeping good companies, 64(10), p. 606.

Butt, P. (2013) Modern Legal Drafting: A Guide to Using Clearer Language. Australia: Cambridge University Press.

Comino, V. (2014) ‘James Hardie and the problems of the Australian civil penalties regime’, UNSWLJ, 37, p. 195.

Corones, S.G. (2014) ‘Misleading conduct arising from public statements: establishing the knowledge base of the target audience.’,Melbourne University Law Review, 38(1), pp. 281-315.

Humphrey, J. and Corones, S.  (2014) ‘Forrest v ASIC: a ‘perfect storm’, Australian Law Journal, 88(1), pp. 26-37.

Latimer, P. (2012) Australian Business Law. Australia: CCH. 

Omar, P. (2016) International Insolvency Law: Themes and Perspectives. UK: Routledge.

Pelling, L. (2015) ‘Fulfilling parliament's intention: A business judgment rule to stimulate responsible risk-taking and economic growth,’Governance Directions, 67(6), p. 344.

Plessis, J.J., Hargovan, A. and Bagaric, M. (2010) Principles of Contemporary Corporate Governance. New York: Cambridge University Press.

Spencer-Laitt, D. (2013) Forrest in the High Court: What Lessons Does FMG v ASIC & Anor [2012] HCA 39 Hold for the Future’, UW Austl. L. Rev., 37, p. 146.

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