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High Court of Australia Transcripts |
Last Updated: 1 March 2012
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P44 of 2011
B e t w e e n -
JOHN ANDREW HENRY FORREST
Appellant
and
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
First Respondent
FORTESCUE METALS GROUP LTD (ACN 002 594 872)
Second Respondent
Office of the Registry
Perth No P45 of 2011
B e t w e e n -
FORTESCUE METALS GROUP LTD (ACN 002 594 872)
Appellant
and
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
First Respondent
JOHN ANDREW HENRY FORREST
Second Respondent
FRENCH CJ
GUMMOW J
HAYNE J
HEYDON
J
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 1 MARCH 2012, AT 10.16 AM
(Continued from 29/02/12)
Copyright in the High Court of Australia
__________________
FRENCH CJ: Yes, Mr Jackson.
MR JACKSON: Your Honours, before I move on may I just mention one matter arising from yesterday in which I see by the transcript that I said something I did not quite intend to say. It is at page 67, lines 2960, around there. Your Honours will see that I said, I think, about line 2964 “the provision of equity . . . was not a term of the framework agreements, nor of the advanced framework agreements”. May I delete the words “nor of the advanced framework agreements”. The point we were seeking to make is one that is contained in the last four lines, difficult to see why the fact that one party sought to introduce the question of equity bore on the enforceability, as it were, of the original agreements.
Your Honour, could I come then to the final matter with which I wish to deal in relation to reasonable believe, and that is the question of Mr Huston’s involvement. This is dealt with in the Full Court’s reasons commencing at page 3552 in paragraphs 68, 70 and 193. It also had been dealt with by the primary judge at paragraphs 358 to 394 and Mr Huston’s involvement was one of the matters on which he placed some reliance. Your Honours, the position, to put it shortly, was this, that Mr Heyting’s evidence was that Mr Huston had been in private practice acting as solicitor for the appellant before he became a solicitor employed by it. Your Honours will see that in the primary judge’s reasons at paragraph 366 in volume 8, page 3139. The relevant reference to that statement, if your Honours wish it, is in paragraph 21 in volume 7 at page 2638.
Now, Mr Huston and Mr Forrest have worked together before, Mr Huston being his solicitor in the Anaconda Case in the year 2000. You will see that referred to by the primary judge at paragraph 368 on page 3140, and you will see the judge’s observations about that. Your Honours, on 3 October 2004 Mr Forrest sent an email to his team, as it were, which is in volume 4 at page 1526. I suspect I have taken your Honours to this before.
FRENCH CJ: Yes.
MR JACKSON: May I just identify a couple of things about it that are of some significance. You will see between lines 20 and 30 that he welcomed Mr Huston to the team, “none too soon” he said. Your Honours will see between lines 20 and 30 that he referred to the CHEC/BT agreement that had been made but subject to board approval. You will see, your Honours, between about lines 30 and 40 that he referred to the importance of the visit of CMCC on 10 October and he wanted a similar BT contract to be set up with that company and wanted it to be signed by 20 October. Your Honours, under the heading “3. Legally binding contracts” on page 1527, he said pretty plainly, with respect, that everyone in the team should:
please ensure with Peter complete legal enforceability on the agreements that we are all relying to construct FMG.
Then, your Honours, on page 1528, between lines 10 and 20, he said he was happy with a press release as to the Hebei agreement but this was subject to an email – his email said to be subject to P. Huston signing off on the enforceability. Now, what is apparent, in our submission, is that from the beginning of his involvement with the company Mr Forrest had tasked him, as it were, to ensure that agreements were legally enforceable. That document – that email – was dealt with by the primary judge in his reasons in paragraphs 370 and 371 in volume 8 at 3140.
Your Honours, on 21 October 2004, in an email that is at volume 5 at page 1602, Mr Forrest sent an email to his team, including Mr Huston. He referred to the three contractors at the top of the page – page 1602 - and he said there were “Some big contracts getting written up here”. That is at about line 21. He then thanked Mr Huston for his help on the drafting of some contracts. That is between about lines 28 to 30.
Your Honours, that, in our submission, would be evidence in support of the contention that Mr Forrest had given him the task of ensuring legal enforceability of the agreements that it was making and the judge made a finding to that effect at paragraph 373 at page 3141 of his reasons. Now, Mr Huston was involved in a meeting with Mr Walsh of the ASX who wanted more information to be provided to it following the announcements of 4 November 2004. The events that took place are set out by the primary judge in his reasons at paragraphs 374 to 380 commencing at page 3141.
Your Honours, if I could just pause at that point. The position which emerges was that we had employed a well-experienced, commercial lawyer and asked him to ensure that agreements that were entered into were legally enforceable. The lawyer was personally involved in attending the meeting with Mr Walsh from the ASX when queries were raised and, your Honours, that supports, in our submission, the conclusion that the appellant had a reasonable basis for thinking that the three agreements were enforceable agreements under which the Chinese companies had agreed to do what we have said.
Your Honours, that is all the more so, we submit, when the November 2000 announcements each confirmed that the agreements were binding agreements. Your Honours, could we say that we would submit that from the view point of officers of the appellant they would have drawn, if I could the expression, comfort from Mr Huston’s involvement to maintain their reasonable belief that the three agreements were effective and consistent with our announcements. Could we, your Honours, in this regard refer also to the advice that he had given in January 2005 and then in March 2005 to support his conclusions. Your Honours will see that referred to by the primary judge in paragraphs 381 to 388 commencing at page 3143.
Your Honours, may I say one last thing about this. It involves going back for just a moment to the email of 3 October 2004, which is in volume 4 at page 1526. Your Honours, I know have been there twice, but, your Honours, may I just say one thing about it. You will see that at about line 27 Mr Forrest said that the appellant had:
signed a very similar BT deal with China Harbours –
which of course is the CHEC company –
as we did with Rail. It is at this stage non-binding, but is intended to become binding on the 20th of this month at a signing ceremony in Beijing.
Your Honours, a little later, under the heading “On Finance” at about line 45, you will see that he said:
That means that on the back of our signed MOU with Harbours, we go and approach all the usual sub contractors to get them excited -
Your Honours, could I just say at least in the Full Court the use of the term “MOU” excited also ASIC and what would simply - as an indication it was said that the document was indicative of his belief that it was not binding, but the probability, we would submit, is one looks at the whole of the document and the earlier reference to it that he referred to it as an MOU on 3 October because it still required board approval, which had not yet been given. Of course, your Honours, it is that email of 3 October in which he also refers and asked Mr Huston to ensure all the agreements were enforceable.
May I come then to the question of section 674(2)? Now, your Honours, as we submitted earlier the approach taken by the Full Court was to hold that once it appeared that our announcements had contravened section 1041H by making misleading statements, we were then obliged by section 674(2) to correct the position. You will see that in paragraphs 181 and 189 of the Full Court’s reasons, commencing at page 3591.
Your Honours, the Full Court’s approach, in our submission, on this issue was not correct. It was not correct, we would submit, because it failed to have regard to the specific elements of section 674(2) and, in particular, because section 674(2)(b) required notification to the ASX, only if the appellant had information required by the listing rules to be so notified. Your Honours, listing rule 3.1 required notification only if the:
entity is or becomes aware of any information concerning it –
et cetera. Now, the term “aware” is defined by listing rule 19.12 and amongst a number of definitions and it provides that:
an entity becomes aware of information if a director or executive officer . . . has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of that entity.
Now, your Honours, the information that it was claimed, relevantly –and I will come back to that in a moment – the information that it was claimed, relevantly, that we had to disclose was information that the three agreements were not enforceable to oblige the Chinese contractors to build, finance and transfer the infrastructure. Now, your Honours, in circumstances where – and I put it this way, your Honours – in circumstances where the position was that we reasonably believed, or believed on reasonable grounds, that the three agreements did oblige the Chinese contractors to build, et cetera, we would submit the obligation did not arise. May I elaborate upon that a little.
The first position, your Honours, is this. If Justice Gilmour was correct in arriving at the view or if this Court was correct in arriving at the view that we reasonably believed that the three agreements did have that effect – and your Honours have seen primary judge’s reasons at 465 to 467 – in circumstances where we reasonably believed that the agreements did oblige the Chinese contractors to build, finance and transfer the infrastructure, we would submit it could not be concluded that the directors and executive officers ought reasonably to have had in their possession the opposite view or conclusion.
Now, your Honours, one recognises that there may be occasions when a person can recognise that there may be two reasonable but differing views about matters, but these are circumstances, we would submit, where there was reasonable belief on the one hand and nothing to suggest the absence of reasonable belief and, in those circumstances, your Honours, the awareness contemplated by the rule did not arise. Your Honours, the Full Court did not address the specific requirement to show the requisite awareness, although, your Honours, it is right to say that at paragraph 94 at page 3560 it knew about the issue or it referred to the fact that there was such an issue.
Now, your Honours, the Full Court, however, attempted, as it were, to make good the awareness requirement by asserting that we were in possession of information about the contents of the agreement. Your Honours will see that at paragraph 185 at page 3593 and your Honours will see particularly in the last few lines:
This approach overlooks the terms of each of the framework agreements. The terms of each of the - - -
GUMMOW J: Which paragraph, Mr Jackson?
MR JACKSON: I am sorry, your Honour, paragraph 185, the second half of the paragraph, your Honour:
This approach overlooks the terms of each of the framework agreements. The terms of each of the framework agreements were information in the possession of each of the directors and of which they were aware.
Now, your Honours, we would submit that if a person to whom the provisions would otherwise apply is in possession of information about the contents of a legal document in terms of the wording used in it, to put it shortly, but has a reasonable belief as to its particular effect and the person cannot be said to be in possession of information or reasonably to have been in possession of information which is to the opposite effect.
KIEFEL J: How does the reasonable belief fit into listing rule 3.1? How does it arise?
MR JACKSON: It arises, your Honour, because the term of 3.1 requires that there – speaks of awareness and “awareness” is a defined term.
KIEFEL J: It is awareness of the existence of information?
MR JACKSON: It is awareness of information.
KIEFEL J: Which is the existence of information.
MR JACKSON: Yes, it depends - - -
KIEFEL J: I gather you are talking about “awareness” as if there is some sort of judgment to be formulated. Do you say a judgment arises under the reference to “that a reasonable person would expect to have” or is that just a description of the information?
MR JACKSON: Your Honour, if one goes to listing rule 3.1, it speaks of “awareness of information” - may I come back to that phrase in just a moment - that is information concerning the company. The second aspect of it is that that information has to have the quality later referred to which – that is, tested by reference to the reasonable person.
The term “information” is one which carries within it a number of possibilities. It may be awareness of the words in a document. It may be the awareness of information entirely unrelated to documents. If one took a mining context, it might relate to information of latest drillings which tended to show either the deposit was either better than or not as good as previous views or confirmed a previous view. But the information is of various types.
It becomes a little more difficult to identify quite what is involved when one is speaking of information which one can put at, say, two levels. One level is in relation to documents of the kind we are talking about here. One level is to say the wording of the document. A second level is to say the meaning of the words of the document and - - -
FRENCH CJ: Both those levels were pleaded against you, were they not, in paragraph 136 of the statement of claim just dealing with the CREC Agreement and the information pleaded by ASIC? There were the terms of the agreement - that is paragraph (a):
had the terms set out in paragraph 19 above –
which actually just recited what was in the agreement. Then there is the legal effect of the agreement, so they are both put as items of information of which FMG was aware.
MR JACKSON: Your Honour, there is also, really, I think you could say, the third level – that is the question of the legal effect.
FRENCH CJ: Yes.
MR JACKSON: Now, your Honours, just dealing with the legal effect for the moment, but if one goes then to the definition of “awareness” in 19.12, it says that “an entity becomes aware of information” if the person might “reasonably to have, come into possession of the information”. Now, your Honours, so far as the question of the legal effect, which is the issue I am immediately dealing with which is, in effect – there is also a question on the cross-appeal to which I will come – but so far as the legal effect is concerned, our submission is that that is a matter in relation to which we – unless we knew or ought to have known that the three agreements did not bind the contractors to construct the infrastructure, then the Full Court should not have concluded that we were aware of material information, regardless of our awareness of the contents of the document.
Now, your Honours, if a person has information about the contents of a document, then unless they possess information about its legal effect where, ultimately, the case is won which is said to be one where we should have given information to the ASX, we would say that one cannot say that they are obliged to disclose information about the effect of the document or about the contents of the document simply because one has the position of the contents of it.
GUMMOW J: It would be different if there was legal opinion that they acquired.
MR JACKSON: Quite, your Honour. A legal opinion. If I can just say this. Your Honours there was, of course, some legal opinion about it. I dealt with that with Mr Huston. But having said that, if one had a situation that a legal opinion was given saying this document does not amount to an enforceable agreement or, arguably, does not amount to an enforceable agreement, then - - -
GUMMOW J: Well, the opinion is information.
MR JACKSON: Yes, your Honour.
GUMMOW J: Which can be possessed?
MR JACKSON: Yes, indeed. Your Honours, we would submit, that the suggestion that we were possessed of information about the contents of three agreements without more does not make good the claim that there was information that required disclosure and, your Honours, it was not the words used in the document which might give rise to a need for disclosure, but, rather, what they meant or what they provided was the thing that might be material. Your Honours, could I just say also that the listing rules, neither listing rule 3.1 nor section 674, imposes an obligation on a listed entity always to seek legal advice. Companies make many announcements and the disclosure has to be immediate in the case of material information.
Could I just say something, your Honours, about another aspect of this and that is the aspect which is reflected in our learned friend’s notice seeking leave to cross-appeal and, your Honours, the gravamen of the notice of cross-appeal is to the effect that we had material information which should have been disclosed at the time when the agreements were made, even if it be accepted that the three agreements were not enforceable to build, et cetera, the infrastructure, but were only agreements to negotiate. To put it shortly, we should have disclosed that fact that we had entered into agreements which were not enforceable agreements but a memorandum of understanding, if one likes, when that happened.
The question that arises in relation to that is whether, in terms of section 677, the information was information, which in the known circumstances of the appellant in August and November 2004, was information that would or would be likely to influence common investors in securities in deciding whether to acquire or dispose of the appellant’s shares. The judge held on two bases that that was not the case. You will see the first basis was, as he described it, a common sense test at page 3169 at paragraphs 485 to 486 and he then considered the expert evidence on the
question, which came from three sources. May I name them first and I will give your Honours a reference in a moment; Dr Watson, Mr Sisson and Mr Keene. Your Honours, he considered the expert evidence of those three persons on an issue and did not accept it. You will see that referred to in paragraph 504, Dr Watson, paragraph 521, Mr Sisson, and paragraphs 528 to 529, Mr Keene.
Now, your Honours, we would submit that the common sense test appears to be the test that is relied on, so far as one can tell, by the respondent. Your Honours, this was a company that had a project in its early stages and would not have information that would likely influence decisions if all that was done about it was that the company had made agreements for negotiation. Your Honours, could I just say in relation to that, this is an issue which - - -
HAYNE J: Agreements for negotiation with three large Chinese State entities.
MR JACKSON: Your Honour, could I just say this, that this is an issue of fact, an issue of fact on which there was a great deal of evidence, evidence considered by the primary judge and the point that I am seeking to make at this stage is that the cross-appeal would essentially seek to raise a factual issue that we contravened section 674(2) by not correctly notifying the ASX that we made agreements to agree. Your Honours, what I am seeking to say is that this is a case where to determine a question a court would need to go into a considerable body of evidence perhaps and we would submit it should not do so at this point. Your Honours, it would involve, of course, laying us open now to six rather than three contraventions, each of which creates a substantial potential liability. Your Honours, those are our submissions.
FRENCH CJ: Thank you, Mr Jackson. Yes, Mr Myers.
MR MYERS: Thank you, your Honours. First, may I say this. We adopt the submissions on behalf of FMG and we did not intend to say anything further about those submissions.
FRENCH CJ: Let us just see if we can get this fixed.
MR MYERS: Shall I continue, your Honours?
FRENCH CJ: I think you should perhaps do your best.
MR MYERS: If the FMG submissions are accepted, the case against Mr Forrest must fail. If the FMG submissions are not accepted, under section 674 there are two questions; first, was Mr Forrest involved in the FMG contraventions and if so, did Mr Forrest prove the defence provided for in subsection (2)(b)?
Under section 180, the question arises whether Mr Forrest was in breach of section 180 by reason of the contraventions by FMG or by himself of section 674 and section 1041H and it is to those questions my submissions are directed. The learned trial judge upheld FMG’s submissions and therefore did not need to consider in relation to Mr Forrest section 674 or section 180. Nonetheless, he dealt with the case in relation to section 180 at paragraphs 855 and following of his reasons for decision. I would like to take your Honours in particular to paragraph 904. His Honour said this – this is at page 3280 of the appeal book:
I consider that Forrest exercised his powers and discharged his duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of FMG in FMG’s circumstances; and if they occupied the offices of Forrest within FMG and had the same responsibilities within FMG as Forrest. Forrest, as I have explained earlier in detail, as a consequence of his own appreciation of the decision in Anaconda; his reliance on the legal oversight and advice of Huston; and his appreciation that the Chinese Contractors held the same view that the framework agreements were legally binding, had reasonable grounds for approving or permitting to be made the disclosures, complained of by ASIC, by FMG between August 2004 and March 2005. I am well satisfied that Forrest acted reasonably to ensure that FMG both complied with s 674 of the Act and did not contravene s 1041H of the Act. He did not breach s 181(1) of the Act as alleged by ASIC or at all.
His Honour did not consider the defence. We say that the learned trial judge was correct. Your Honours, the way the case was put below on behalf of ASIC in relation to Mr Forrest was to contend that he acted dishonestly and unreasonably, and that is the case that we met. The case that was put on behalf of Mr Forrest from below from the very beginning was that in all that he did he acted honestly and reasonably and thus was not involved in any contravention by FMG. If, contrary to that view, he was, he established his defence under section 674(2)(b) and that he was not in breach of section 180.
If I can take your Honours to the way in which the matter is pleaded in relation to Mr Forrest, it is not simple, but it is regrettably important to look at. The best way to understand it is to go to the end. If your Honours would look in volume 1 at paragraph 177 of the statement of claim as it was at the trial, which is on page 111. It says simply this:
By reason of the matters pleaded in paragraph 176 the Second Defendant contravened section 180 of the Act.
The particulars are:
The Second Defendant contravened s180 of the Act:
(a) on each of the occasions when the First Defendant contravened s1041H of the Act alternatively s52 of the Trade Practices Act 1974 (Cth) (16 contraventions); and
(b) on each of the occasions when the First Defendant contravened s674 –
So the case is simply that Mr Forrest contravened section 180 of the Act on the occasions that the first defendant contravened the Act. One then goes to paragraph 176, which is back on page 109:
In causing, authorizing, permitting or not preventing the First Defendant to act, or acting, as pleaded in [certain paragraphs] above the Second Defendant failed to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the First Defendant’s circumstances, and occupied the office held by, and had the same responsibilities within the corporation as, the Second Defendant.
Then there are some particulars which I do not need to take your Honours to. Then one must go to paragraphs 164, 165, 166 and so on. Paragraph 164, the first defendant published information, and they are the complaints broadly speaking about 1041H. Paragraph 165, the first defendant made the representations in publishing the information. Paragraph 166, the first defendant in publishing the information created certain impressions referred to in paragraph 165.
FRENCH CJ: Now, common to all of those allegations in the earlier pleading is the allegation that one of the representations conveyed or impressions created by the various publications which are set out was that FMG honestly and reasonably believed what it said about the terms and legal effect of the agreements.
MR MYERS: Yes. I will establish that and her Honour Justice Kiefel really touched upon it yesterday early in the address by my learned friend, Mr Jackson. If I can just go back, without taking too much time, 168:
The Second Defendant acted on behalf of the First Defendant in publishing the information as pleaded in [certain paragraphs] –
Paragraph 169:
The Second Defendant authorised the First Defendant to publish the information –
If one can go back to paragraphs 35, 36 and 38, a little bundle of paragraphs. Paragraph 35, which is on page 22:
On 23 August 2004, the Second Defendant conducted a telephone press conference with media representatives who the First Defendant had invited to a telephone press conference –
and so on. Paragraph 36:
During the press conference, the Second Defendant in effect stated that:
(a) the “build transfer agreement” with CREC was analogous in nature to purchasing a car from a manufacturer;
. . .
(c) the First Defendant and CREC had entered into a binding agreement by which the First Defendant had agreed to purchase the railway facility once all performance specifications had been met.
Then, if one looks at 38:
In the circumstances pleaded in paragraphs 36 and 37 and against the background pleaded . . . the First Defendant represented to, further or alternatively, created the impression . . . that:
(a) the First Defendant had entered a binding contract with CREC obliging CREC to build, finance and transfer the railway component of the Project;
(b) the First Defendant had a genuine and reasonable basis for making the statements in paragraph 36 above.
So that if one goes through all those paragraphs, 46 and 47 go together and 113 and 114 and so on go together, one sees the same sort of pleading and that is how the case was put in the pleadings. If I could then go, just taking up the 169 paragraphs by way of example, to paragraphs 26 and 27. At 26:
The Second Defendant participated in drafting the terms and authorised the release of the 23 August Letter to the ASX for the purpose of, and with the expectation that, it would be published by the ASX.
Paragraph 27:
In the circumstances pleaded . . . created the impression for, reasonable investors . . . that:
(a) the First Defendant had entered a binding contract with CREC obliging CREC to build and finance the railway component of the Project;
(b) the First Defendant had a genuine and reasonable basis for making the statements in paragraph 24 above.
So the same sort of plea again.
HAYNE J: Do I understand the particulars to somehow shell out or differentiate between 27(a) and 27(b)? They are connected with “further or alternatively”.
MR MYERS: No, they do not really, your Honour. It is very much at large. This is the case that one grappled with.
HAYNE J: You say that the case you were grappling with was a case where ASIC set out to establish that Fortescue had made a compound statement consisting of elements (a) and (b)?
MR MYERS: Yes, your Honours.
HAYNE J: And that the either succeeded in demonstrating both or they failed wholly?
MR MYERS: Yes, your Honour.
FRENCH CJ: So (b) was not a fallback position?
MR MYERS: No. Well, no, it was not. The case that was put was a case of dishonesty from the beginning. It was a case that, at least concerning Mr Forrest who was a principal actor in all this, that he had acted dishonestly and did not have an honest belief. If I could go, just quickly, for example, to paragraph 68 of the submissions on behalf of Mr Forrest in this Court. It is on page 12, paragraph 68:
ASIC’s submission at trial was summarised by the primary judge as being that ‘FMG engaged in a concerted and designed course of conduct in which it made false, misleading and exaggerated statements to the ASX of which Forrest was the architect’. More particularly, ASIC contended at trial that:
68.1 “[Forrest] knew full well that the statements were false, misleading and deceptive and that unqualified and emphatic statements could not be made concerning the execution of binding, build and transfer contracts by the three Chinese contractors. He knew that the ASX announcements and the company presentations had been crafted to induce a positive effect on the price or value of FMG shares by positively influencing investors.”
The case was put like that.
KIEFEL J: Section 1041H does not refer to false statements.
MR MYERS: No, it does not.
KIEFEL J: It refers to statements having the effect of misleading.
MR MYERS: That is true.
KIEFEL J: Were the allegations against Fortescue and Mr Forrest that they conveyed a reasonable belief and failed to have that belief and did not, in fact, have that belief? Were they challenged by Fortescue or Forrest on the basis that they were not relevant to the contraventions alleged?
MR MYERS: No, they were not. They were not. As far as Mr Forrest was concerned, the way in which the trial was conducted meant that he did not tender any evidence and the first time the Forrest case was put to the Court orally, apart from some written submissions that had been filed, was when the counsel for Forrest addressed the judge towards the end of the trial. Could I then just go back to the pleadings just to show your Honours how section 674 was dealt with and that requires one to look first of all at paragraph 136.
GUMMOW J: Paragraphs 136(c), 136(f), 136(i) all speak of awareness of a “legal effect”.
MR MYERS: They do.
GUMMOW J: As information.
MR MYERS: As information.
GUMMOW J: Possessed.
MR MYERS: Possessed. It appears to be accepted, although perhaps it could be debated, that one’s own cogitations about a matter are not information, but certainly that is the way in which the case was put by ASIC and it was accepted by the respondents.
FRENCH CJ: The Full Court, at paragraph 187, seems to have collapsed these two concepts of information constituted by the terms of the contract and information constituted by their legal effect into one. It said:
It is important here to appreciate that there was one contravention of s 674, in relation to each of the framework agreements . . . and that was the failure to disclose the terms or the true effect of each of the framework agreements.
MR MYERS: Yes, but they are distinct conceptions.
FRENCH CJ: That is right.
MR MYERS: That really does not admit a debate, one would think.
FRENCH CJ: So what is it? Is it an alternative case that is being run on non-disclosure? You should either, as it were, disclose the contracts themselves or their true legal effect.
MR MYERS: What the Full Court decided in the end, or at least the Chief Justice and others agreed with him, was that the contents of the contracts themselves being information possessed, what should have been disclosed were the contracts. Now, that was not a case that was pleaded. That was not a case pleaded at all. One can understand how one gets to that conclusion if one goes back to the terms of these contracts themselves. They say they are constituted by an offer and acceptance and they are binding.
What belief is one supposed to have concerning the contracts? Is one supposed to have a belief that the contracts are not binding, notwithstanding that they say they are, and to disclose an opinion that they are not binding? That would be a rather extraordinary result and it is unlikely that anyone who had entered into the contracts or caused the contracts to be entered into, such as Mr Forrest, would have been of such a belief. You would have to propound a large scale conspiracy of a rather villainous kind in order to reach the conclusion that Mr Forrest had entered into on behalf of - - -
GUMMOW J: Well, you would be getting into the territory of sham, would you not?
MR MYERS: You are, you are, your Honour.
FRENCH CJ: Can I just take you up on what you said about the way in which the Full Court approached it. If you look at paragraph 136 at the bottom of page 85 in the appeal book at volume 1:
The information set out in the whole of, alternatively separately in each of, paragraphs 136(a) to 136(c) above, is called “the CREC Information” -
So on one view it seems to be running alternative or parallel cases. One is that the CREC information is the terms of the contract – the terms of the framework agreement because that is what is referred to in paragraph (a) and then if you go to 139, required:
to notify the ASX of the CREC Information –
So one head, if you like, of that multi-headed case is that you should have disclosed the terms and that is a separate head.
MR MYERS: That is what the Chief Justice said in the end.
FRENCH CJ: Well, I am asking whether – is that not how it is pleaded?
MR MYERS: No, it is not how it is pleaded. It is not how it is pleaded and that is what I was going to - - -
FRENCH CJ: Perhaps you can demonstrate how I am wrong there.
MR MYERS: - - - one of the things that I was going to demonstrate. If one looks at 136 – I will just take the CREC information – it refers one back to paragraphs 19 and 20, and those paragraphs are at 12 and 14 of the book. The CREC Framework Agreement sets out a good deal of the contract but not the entirety of the contract and does not employ the words of the contract. For example, it does not refer to clause 1.2. It does not refer to clause 4. It is some sort of summary of the contract. It is not a requirement to disclose the contract. And 20, over the page, says:
In the circumstances pleaded in paragraph 19 above, the legal effect, if any, of the CREC Framework Agreement was materially as follows:
(a) it did not by its terms oblige CREC to build or transfer a railway facility -
and so on. A curious plea actually because that is what it says. It was binding. It may be ineffective but it said it was binding. So the obligation was to disclose the CREC information which was an epitome of the contract and not the entirety of the contract - - -
FRENCH CJ: A term set out in 19.
MR MYERS: Term set out in 19, and same with CHEC and same with the CMMM terms. If your Honours go to – before I get away from this – paragraph 154 on page 96:
The Second Defendant was a person involved within the meaning of section 674(2A) of the Act in the contraventions of section 674(2) of the Act by the First Defendant pleaded in paragraph 140 above –
and in paragraph 140 the contraventions pleaded are those in relation to the CREC, CHEC and CMC information.
So that in relation to Mr Forrest, paragraph 136 goes with paragraph 154, paragraph 140 and 145 go with paragraph 156, paragraph 146 goes with paragraphs 153 and 159. While your Honours have the pleadings could I refer to paragraph 136(3), which is on pages 86 and 87? It is the one reference to legal advice in this pleading:
Further, and in the alternative to paragraph (2), the First Defendant became aware of the information in paragraphs 136(c), 136(f) and 136(i) –
That is the legal effect –
because the executive officers and members of the board of directors of the First Defendant who participated in [certain events] ought to have come into possession of the information by first obtaining competent legal advice about the legal effect of the Framework Agreements given their importance to the First Defendant.
So it was not pleaded that there was an obligation to seek legal advice. I am not making too fine a point here I am sure. There was not an obligation to seek legal advice, but a plea that if you had sought legal advice you would have received advice that the agreements were not binding and that is not pleaded in relation of section 180, I want to draw that also to the Court’s attention. As a matter of fact, having regard to what Mr Jackson said, one can say with more or less complete certainty that the legal advice that was received was Mr Huston’s advice, which was that the agreements were binding. ASIC opened its case by saying that Mr Heyting - - -
GUMMOW J: Sorry, Mr Myers, I still do not understand this pleading. Paragraph 136(a) says became aware of certain things including legal effect, became aware that the documents had the legal effect and then the particular is became aware of the information that the documents had the legal effect because - - -
MR MYERS: Someone should have read them or someone should have - - -
GUMMOW J: Because they ought to have come in possession of it.
MR MYERS: That is right.
GUMMOW J: That is a bit Orwellian really.
MR MYERS: It is a bit Orwellian and it is in the context of a case that was opened and conducted as one of dishonesty, as I pointed out that reference in the judgment of the trial judge.
Now, ASIC opened its case by saying that Mr Heyting would say that there was no offer and acceptance. The significance of that was that the recital to the CREC Agreement records an offer and acceptance and Mr Heyting was the author – the principal author, at least – of the CREC Agreement. The opening suggested, therefore, really dishonesty that the recitals to the CREC Agreement had been composed so as to give an impression – maybe it was naively devised – of offer and acceptance to create the impression of a binding contract.
When Mr Heyting was cross-examined, he recanted of any such position and, in fact, he said that there was an offer and acceptance. If I can take your Honours to what was said below by the learned trial judge in volume 8 at page 3154, it begins at paragraph 428 and it goes over the page:
Heyting framed the CREC Framework Agreement in terms of offer and acceptance. In cross-examination he departed from his evidence foreshadowed in opening by ASIC. He agreed there was an oral offer by CREC to execute the works. The transcript records the following exchange between Heyting and senior counsel for FMG, Mr Karkar QC.
So, there was an offer by them to execute the work and so on. Mr Heyting gave evidence that was directly contradictory of the evidence that had been opened.
HEYDON J: Is there any evidence-in-chief on the point?
MR MYERS: Mr Heyting’s evidence-in- chief was on that point – yes, there was evidence-in-chief by Mr Heyting about that. It is in volume 7. It is at 2627 – it is his witness statement. He deals with the CREC Framework Agreement from paragraphs 34 through to 57. He does not directly refer to offer and acceptance.
HEYDON J: I think paragraph 43 on page 2643.
MR MYERS: Yes.
HEYDON J: He says it was inserted - - -
MR MYERS:
To my knowledge no written or formal offer was made - - -
HEYDON J: Yes, non constat that it was not made outside his knowledge.
MR MYERS: Of course, and his oral evidence is in the same volume at 2809. It was just to identify his statement, but if your Honours look at 2836 at the bottom of the page, line 45, there is further evidence about the subject:
You see, what I want to put to you, Mr Heyting, is that you, in drafting this document, wanted to ensure that the document recorded an offer by one party and an acceptance by the other?---Yes.
And you had done that because you had learned in your contract course that you did that a contract or an agreement is constituted by offer and acceptance?---Yes.
Then at 2844 to 2845 – perhaps I will deal with 2839 first:
Do you recall during your section 19 interview by ASIC you were asked a question to this effect: what did you believe the situation would be if, for example, FMG didn’t want to go ahead and build the railway? That was the question that was put to you. And you answered, “Then we had a problem on our hands.” Do you recall that?---Yes.
And that was a true answer?---Okay.
And then you were asked, “Why was that?” That is to say, why we had a real problem on our hands, and you answered, “Because we had an agreement that there they were going to build a railway line.” That is a true answers, isn’t it?---Yes.
If I could go back to 2836, this is at the top of the page, it being framed in terms of offer and acceptance, and then at line 10 or perhaps line 7:
Look, when that was written, CREC had expressed a keen interest in carrying out the work?---Yes.
And said, “We want to carry out the work”?---Yes.
They didn’t give you a letter saying, “We are keen. We’re offering to do it,” but they expressed it orally?---Yes.
This is Justice Heydon.
So there was an offer by them to execute the work, wasn’t there?---Yes.
In any event, your Honours will see – if I can just go back to the reasons of the learned trial judge at paragraph 429 through to really 441 – the learned trial judge deals with Heyting’s evidence in cross-examination concerning this question of whether there was a contract. It is really clear that the way in which the case had been opened by ASIC, in relation to Mr Heyting, could not be sustained.
Really, Mr Heyting’s evidence destroys what ASIC called the gravamen of its case – it was that everyone knew that this was not a binding contract or anyone who read it ought to have known that because Heyting, who was an engineer, but had done a course in drafting contracts for engineers and who was given the job of drafting this contract clearly set out to make it a binding contract, and believed he did. The other witness who was open by ASIC as being important and who would help ASIC establish the gravamen of its case, as they put it, was Mr Kirchlechner.
Now, Mr Kirchlechner’s evidence is dealt with by the learned trial judge just before he deals with Mr Heyting’s evidence. Like Mr Heyting, Mr Kirchlechner, at the time he gave evidence, was a former employee and hostile to FMG and in some documents that I am going to take your Honours to your Honours will see Mr Kirchlechner’s important role in 2004. He was a fluent Chinese speaker and participated in a great deal of the negotiations with the Chinese.
Both Mr Heyting and Mr Kirchlechner were asked about the releases, of which ASIC complained, that is to the stock exchange and the media, saying that these were binding build and transfer agreements or this was a binding build and transfer agreement and Mr Heyting, as your Honours have heard, when he looked at the release he made some little changes, but agreed that it was accurate. Mr Kirchlechner did the same. He agreed that the releases reflected his understanding of the agreement. If I could ask your Honours to take up volume 8 again and look at page 3154.
HAYNE J: Paragraph?
MR MYERS: Paragraph 427.
HAYNE J: Thank you.
MR MYERS: The learned trial judge found:
Kirchlechner received a copy of the 23 August Media Release before it was published. He agreed, in cross-examination, that the statement in the opening paragraph referring to CREC’s execution of a binding agreement to build and finance the railway accorded with his understanding of what had occurred at the Joint Statement signing ceremony in Beijing.
GUMMOW J: What is the significance of the last sentence of 426?
MR MYERS: Your Honour, it appeared that both Heyting and Kirchlechner – it appeared from their cross-examinations by Mr Karkar that they had prepared their evidence without being shown a considerable number of documents that were relevant to the circumstances about which they gave evidence and it might be inferred that that was possibly the basic reason why they retreated from the evidence that they gave in cross-examination.
There was one other matter or, from a certain point of view, two other matters that got a lot of prominence at the trial. One was whether a Chinese supervisory authority called the NDRC throughout the evidence – and I cannot remember exactly what that acronym stands for – needed to give its permission for entering into the agreements and whether it had given its permission. It was not a matter that was pleaded, but in the end the trial judge decided that it had given its permission and the Chief Justice of the Full Federal Court agreed in the judgment of the Full Federal Court. Similarly, there was an issue which affected the way the trial was conducted concerning the Chinese requirement for equity. It was suggested at a certain point in the trial below that there was, in effect, a condition imposed upon legal enforceability that the Chinese bodies should receive a certain equity in the businesses. Now, that was also resolved really in favour of FMG and Forrest and it has not played or did not play a role in this appeal.
Could I turn then to section 674. I have referred your Honours to paragraph 68 of our written submissions as to the way in which the case was put below. We adopt the submissions made on behalf of FMG concerning the construction of section 674. In order to establish a breach by Mr Forrest of 674(2A), being knowingly involved, ASIC had to show in substance that Forrest was guilty of deliberate dishonesty and we say that because what was relied upon by ASIC to show Forrest’s involvement in terms of section 79 of the Act – if your Honours would look at it – was that Forrest had been knowingly concerned in the contravention. That is the broadest portion of the extended conception of involvement created by section 79.
GUMMOW J: Section 79?
MR MYERS: Yes, section 79. Section 674(2A) refers to involvement:
A person who is involved in a listed disclosing entity’s contravention of subsection (2) contravenes the subsection.
Section 79 deals with what constitutes involvement in a contravention. Your Honours were, I think, directed to this.
GUMMOW J: Yes.
MR MYERS: If one looks at paragraphs (a), (b) - - -
GUMMOW J: It is the old Trade Practices section.
MR MYERS: It is the old Trade Practices section, your Honour is quite right.
FRENCH CJ: And before that the Crimes Act, I think.
MR MYERS: Knowingly concerned. Really, that is the broadest part of the definition of involvement.
FRENCH CJ: Does that necessarily bring in dishonesty?
MR MYERS: We say, with respect, that it does. This is a provision that creates an offence and civil penalties. The matter was considered in Maxwell. We quote in paragraph 81 of our submissions the portion of the decision of Justice Brereton, single judge of the Supreme Court of New South Wales, who dealt with this quite exhaustively. It is at paragraph [92] of his Honour’s judgment that is substantially quoted in 81:
The widest of those concepts is that of being “knowingly concerned” in a contravention, and even that involves: (a) knowledge of the essential facts which constitute the contravention which, in the case of provisions such as those in issue here, requires knowledge that the relevant representation is being made and is misleading –
Now, that is tantamount to dishonesty. That is paragraph [92] of Maxwell. While your Honours are referring to Maxwell, could I draw attention to another portion of his Honour’s reasoning. His Honour in this case also considered a situation akin to the case here in relation to section 180 where declarations or decisions about contravention of other provisions are used as a platform to launch a case based upon section 180 and that is what happened here and his Honour deals with this at paragraphs [104], [105], [107] and [110] and at paragraph [110] he says this:
Generally speaking, therefore, ss 180, 181 and 182 do not provide a backdoor method for visiting, on company directors, accessorial civil liability for contraventions of the Corporations Act in respect of which provision is not otherwise made. This is all the moreso since the Corporations Act makes provision for the circumstances in which there is to be accessorial civil liability. Whether there were in this case breaches of the directors’ duties – and, in particular, of their duty of care and diligence – depends upon an analysis of whether and to what extent the corporation’s interests were jeopardised, and if they were, whether the risks obviously outweighed any potential countervailing benefits, and whether there were reasonable steps which have been taken to avoid them.
In paragraph [144], the learned judge expresses his conclusion at line 30:
Broadly, the breaches of duty relied upon involve failures to prevent the relevant corporations from contravening other provisions of the Act (which other provisions are not civil penalty provisions).
Such as section 1041H –
Above, I have explained that in my view it is not the role of directors’ duties provisions to make officers liable for breaches by corporations of provisions that do not themselves provide for accessorial civil liability.
In any event, returning to section 674, we say that what was said in paragraph [92] of Maxwell does represent the law and it requires dishonesty, or something that is tantamount to dishonesty, to be knowingly concerned. In this regard, we challenge the correctness of the observations in paragraph 191 of the Chief Justice’s decision below:
Forrest’s knowing participation in the relevant events leading to FMG’s contravention of s 1041H of the Act established that Forrest was involved in FMG’s contraventions . . . Forrest knew of the terms of the framework agreements; and it can reasonably be inferred that he knew of the disparity between these terms and FMG’s representations about them.
Now, we take issue with that and I am going to take your Honours to some documents that your Honours have not yet been taken to which enable one to infer, with a great deal of confidence that Mr Forrest was not so aware.
HEYDON J: One thing before you do that. It is said “it can reasonably be inferred that he knew”. From what can it be inferred?
MR MYERS: The terms of the agreements. That is all. All the Chief Justice is saying there is one looks at the terms of the agreements, one concludes that they are not, as a lawyer, legally binding and therefore it can be inferred that Forrest must have known that. We contest that.
MR YOUNG: Would the Court excuse me from making one point? This argument challenging paragraph 191 is not a ground of appeal.
MR MYERS: Your Honours, I can go to the notice of appeal. I think there are at least four grounds of appeal that deal with section 674(2A) - ground 2, ground 4, ground 7 and probably ground 8. Before going to the documents to which I adverted, could I now say something about section 674(2B)? If a person who was involved in a contravention, or would otherwise be involved in a contravention within the meaning of (2A) establishes a defence in (2B) the person does not contravene (2A) and the person has to prove two things; that the person:
(a) took all steps (if any) that were reasonable in the circumstances to ensure the listed disclosing entity complied with its obligations under subsection (2); and
(b) after doing so, believed on reasonable grounds that the listed disclosing entity was complying with its obligations under that subsection.
We deal in our written submissions with the first of those requirements in paragraphs 61 and 62. Your Honours will see that we say there that Forrest took a numbers of steps with respect to the representations. The one thing that your Honours will notice at once is lacking in relation to each of the paragraphs of section 62 is that there are no references to the appeal book. I propose to hand to your Honours a copy of that document, of that page or the pages, which provides the references. We have prepared this in view of the shortness of time and I am not going to take your Honours to each of those references unless I am asked to do so. It would take rather a long time I fear.
Mr Forrest took these steps. The person asked to prepare the agreements, Heyting, had drafting experience and had undertaken a course in contract law. Now, one might say that is a rather big task to give to a person who is not a lawyer. As paragraph 61 points out, at the time Fortescue was not the company it is now. It was a very small company, “a corporate minnow” I think it was described as in the evidence, with few employees and certainly no legally qualified employees.
Secondly, Mr Heyting was asked to check the accuracy of the first release. He suggested some changes which were accepted and they appear from his witness statement, to which I have taken your Honours. A number of other persons were involved in drafting the release - Mr Kirchlechner in particular and their involvement is there identified. The board was given the agreements prior to the release. Forrest checked directly with the CREC Vice President, Mr Bai who approved the release, as found by the learned trial judge.
The other releases regarding the CHEC Framework Agreement and the CMCC Framework Agreement were provided to the respective companies and no problems were raised. The primary judge found that Mr Forrest was at pains to ensure that there was no ambiguity concerning government approval. This was in relation to whether the NDRC had to give its approval. His Honour found that this cautionary approach would also have been taken to the matter of the media release and later a fulltime in-house lawyer, was employed. That was Mr Huston and his employed solicitor, Ms Tan, was also engaged.
When the ASX wanted to speak with FMG about the November release, Mr Huston was part of the FMG delegation. That was referred to by my learned friend this morning. Now, we say, with respect, that the Full Court decision in paragraph 193 of the reasons is simply wrong. The sixth line:
Forrest was unable to point to any steps he took to ensure that the framework agreements were, in law, binding agreements to the effect represented by FMG.
Mr Forrest did take such steps and the steps that were taken, we say, were reasonable steps given the position of the company and the fact that the Chinese counterparty was of the same opinion concerning the effect of the agreements, as was FMG.
Could I go now to some documents that deal generally with Mr Forrest’s honest belief? I would like to take your Honours first of all to volume 4 at page 1193. This is a report by David Liu of the trip to China from 16 to 24 August, when the CREC Agreement became binding. If your Honours go to page 1203 - I should start at the preceding page, right at the bottom, the last three lines. “Both AF” – that is Andrew Forrest – “and Mr Qin”, who was the chief executive of CREC:
signed on the Statement on behalf of the boards, to formalise the previous signed Framework Agreement between FMG and CREC. Mr Qin accompanied AF downstairs to have more photos taken together, to as he put it “solidify the marriage”.
I should have mentioned Mr Liu was Mr David Liu, who was an employee of FMG, a Chinese speaker and possibly a Chinese national, who was engaged in negotiations. “Mr Bai”, who was the vice president of CREC:
invited FMG delegation on three occasions for meals and was anxious to find out what other companies FMG was seeing in Beijing. In addition, he would like AF to provide answers in time to his three concerns, which are the real expediters for the project as far as Chinese companies are concerned:
– FMG needs to reach agreement with major Chinese steel mills for minority equity on its mines.
– FMG needs to demonstrate its capability to pay 10% deposit on commencement of Rail, Port and Mines.
– FMG needs to provide “legal and effective” security of its mines for Chinese lending banks on BT.
Mr Bai also indicated that FMG should help push China Metallurgical Construction and China Harbour Engineering into early agreement. In the meantime CREC does not exclude the possibility to undertake the total project as general contractor.
Then at 1238 - this is Mr Forrest on Friday, August 30 - - -
FRENCH CJ: 20th, I think.
MR MYERS: I am sorry, 20th. If your Honours will look at line 20, this is the email to which Mr Forrest is replying at the top of the page:
See reference below to Govt approval. Is our CREC deal binding yet, or should we wait for NDRC involvement before announcing?
And then Mr Forrest confirms:
Confirmed with Mr Bai direct. Ours is binding.
Your Honours, at 1258 at the top of the page from Juliet Morrin - that is Mr Forrest’s secretary - to Chris Catlow, Andrew Forrest, et cetera:
Andrew, let me know when I need to send this to CREC for their approval, David will then need to ring them to discuss.
Now, his Honour found on the facts that the approval had been given. If I could then go to 1264, this is from Chris Catlow:
Juliet,
Please see below – I have now sent to Mr Bai. Could you please ask David to call him and respond ASAP – preferably within the hour for the Oz media.
They are getting restless on the back of the trading halt!!
So that was the approval of the release it is inferred that was given. Page 1314, this is a letter of intent with Sinosteel dealing with one of the three matters that Mr Qin had raised with Mr Forrest. This is getting Chinese steel mills involved. Notice the obvious point, one might say, this is described as a letter of intent. It is a document of a different character. Page 1343, this is the minutes of the director’s meeting held on 27 August after Mr Forrest has return from China. At the top of page 1345:
Update from Chairman on recent China trip.
Mr Forrest gave an overview –
FRENCH CJ: We were taken to this yesterday, I think.
MR MYERS: You were taken?
FRENCH CJ: Yes.
MR MYERS: I am sorry, your Honour, I had overlooked that. I shall not read it again then. Page 1362, this is a letter from Mr Forrest to Mr Bai thanking him for his hospitality and so on, and over the page:
The Board of Directors of Fortescue has no doubt that the Company has the capacity to pay to CREC not only the deposit on the Build Transfer contract but all of its obligations pursuant to that contract and all other contracts associated with developing the project.
Then in answer to the third point, these are the issues that have been raised by Mr Qin, halfway through the paragraph under point 3:
All agreements will be legally binding contracts under Australian laws.
Page 1365, memorandum of understanding between CREC and Barclay Mowlem. This is a document that CREC has executed. The third recital:
Whereas CREC has entered into an agreement with FMG on 19th August 2004 for the build and transfer of the Project as attached hereto –
This is a representation by CREC to Barclay Mowlem which is only consistent with a legally binding agreement and if your Honours look at 1368, it is signed by Mr Bai, the vice president. Page 1373, this is a letter from Christopher Catlow to GE Capital:
Dear Margaret and Jeff
. . .
We have now signed a binding build, transfer and finance contract with China Railway Engineering Corporation (CREC) –
et cetera. A serious piece of commercial correspondence. Then if I may take your Honours to 1378. This is some correspondence between Mr Liu and someone at CREC and Mr Liu is Xiaodong, that is his Chinese name, third paragraph:
FMG and China Railway have signed binding agreement furthermore it was signed by the presidents of both companies so every single thing will be executed based on the agreement.
Then if I could go to 1427, a letter from Andrew Forrest to the Minister for State Development, a serious piece of correspondence. Line 40:
The proposed arrangements between FMG and China Railway Engineering Corporation (CREC), whilst legally binding are still evolving in their detail.
Again, that is not to abrogate the idea that they are legally binding, there was to be a further detailed agreement and the parties to any contract are masters of the contract and they can negotiate to vary it as to the manner of its implementation.
FRENCH CJ: But this is all going to the honesty question is it?
MR MYERS: Yes, it is. Page 1466, this is from Juliet Morrin, the PA of Mr Forrest, to a Mr Skinner, who is a public relations consultant who did some work for FMG:
Hi Kevin, this was the Barclay Mowlem release I was talking about yesterday –
Then there is the release. Barclay Mowlem they say, in paragraph 2:
Australian-based Fortescue Metals had signed the “Build and Transfer” (BT) contract in Beijing with CREC, one of the world’s largest rail construction groups, last month.
So Barclay Mowlem had reached their views about the contract, and over on page 1470, line 27:
CREC’s contract with Fortescue Metals Group Ltd covers [various things].
Page 1525, you have been taken to this document today, I think, your Honours, and it is redolent of contractual agreement. Page 1535, this is from Mr Heyting to John Field, who is a consultant on public relations for Fortescue:
John
My limited comments -
This is about a press release in relation to the proposed MCC Framework Agreement.
To use the word “binding contract” is almost a double negative, ie it’s a contract which is by its name binding so using the phrase binding contract implies we are uncertain that it is actually binding.
Why mention only Shanghai Baosteel Group Corporation for the MOU . . .
Regards
ED Heyting
Page 1543, this is a significant document. No, I withdraw that. I am not saying it is an insignificant document, but it is a meeting to introduce Worley who were going to undertake the definitive feasibility study to FMG and I refer to page 1544, item 3:
FMG began in July 2003 and now has $100 million capitalisation.
So even in October it was not a big company and their aim was to produce iron ore, et cetera:
Also involved are Chinese contractors (build and transfer) who are providing finance and construction.
If I can now to volume 5 to 1601?
HAYNE J: Sorry, what page?
MR MYERS: Page 1601, your Honour. This is an email from Andrew Forrest.
FRENCH CJ: Again, this is one we were taken to yesterday.
MR MYERS: You were taken to it yesterday, yes. I remind your Honours of that. Page 1612, Friday, 22 October from Catherine Li to Graeme Rowley and Mr Watling and we see here in point 4:
Due to the rule from Ministry of Commerce, for CREC to be able to carry out the BT contract with FMG, it needs to see some Chinese company to be the share holder of the mine.
It is not denying that there is a contract, but just saying we want equity, and your Honour Justice Hayne has been referring to the difficulties of dealing with sovereign entities and it is now emerging. Page 1622, this is from Mr Kirchlechner, 26 October:
Mr Zhang from the Chinese Consulate has been in touch with us about this delegation from the Ministry of Commerce. Zhang is only organizing two things for them in WA: Northwest shelf and FMG. As you may recall, support from this ministry is important for the implementation of the BT contract –
So again there is some hint of difficulty in the background with the Chinese Government, but no suggestion that it is not a contract. Page 1625, your Honour has been taken to this document of 27 October. This is a document that is the only document which the Chief Justice referred to in concluding whether Mr Forrest had an honest belief in the binding character of the contracts and this is the one document he said that demonstrated that he did not have an honest belief in the binding character of the contracts.
I adopt what was said by my learned friend towards the close of his submissions yesterday. I do not refer to the document again. We say this: that the Chief Justice was directed to very many documents including all those that I have referred your Honours to, and some more that I am going to refer your Honours to, and referred only to this document. This document is written in a very informal way. It needs to be understood in its wider context. But even taken alone, for the reasons advanced yesterday, on balance it supports Mr Forrest.
Could I go then to 1627. This is a document from Mr Heyting, Mr Campbell and Mr Watling. Again, on the first page, it is an internal document but it is circulated within FMG and one can see written by the author of the agreements that it is redolent of the language of contract, build and transfer contracts, Chinese contractors. At 1631 Mr Forrest communicates with Mr Heyting and Mr Huston:
Subject: Fw: Contract Rail
Tried to call, now got to go. Have told Ed having just read the final agreement to send them both to you immediately for comment. I have nothing further to add.
So this is the proposed contract, the further framework agreement, further agreement to give effect to or further effect to the CREC Agreement being sent to Mr Huston for his comment. It shows that Mr Forrest was having direct contact with Mr Heyting and Mr Huston concerning enforceability of contracts. Over the page 1634 from Mr Forrest to various members of his team, lines 30, 31:
and once Rail has signed to put the same one in front Harbours and Metalurgy, if they operate withe the heard mentality they may all sign the detailed agreements, on say the 8th -
again, talking about legally binding agreements. At 1338, the November monthly report that circulates within - - -
FRENCH CJ: You mean 1638, do you?
MR MYERS: I am sorry, your Honour, I mean 1638. I am sorry, your Honour, I am a bit punch drunk. The key highlights, the formal signing ceremony. It is clear that these are contracts that are being discussed and this is from Mr Heyting as you will see from the footer, “Ed Heyting\Reports\Monthly\”. Page 1644, this is a report of a visit to China, Mr Wang, who is a senior Chinese official, at the bottom of the page, line 38:
Wang: this is unheard of and a renowned company like Anshan should not have to prepay. We also don’t understand the need for it. It’s very strange. You have already all your financing lined up with the BT contracts so what do you need the money for?
This is from the Chinese side. The BT contracts which provided for the financing of the project. Page 1730, this is from Heyting, line 20:
In parallel we have signed a build and transfer contact for the railway with a large Chinese construction firm . . .
Further like all contracts there is potential to build and transfer contract to fail at the last minute –
But it is not to say that it is not a contract. Page 1764, From Julian Tapp - he was the Government relations person at FMG:
Just a few comments -
This is to Kevin Skinner, the PR man.
I think the statement ?These binding commitments mean that Chinese interests will now cover 90% of the financing and construction risk for the total project? is actually an understatement! The contracts cover 90% of the financing and 100% of the construction risk.
That is the view within the company. Page 1791, this is a document that pertains to the inquiries that were made by the stock exchange concerning the November announcements and on 5 November Mr Campbell wrote to FMG asking for information. The handwriting is Mr Campbell’s also, and he asked – I am sorry, the handwriting is Mr Walsh’s, of the stock exchange, noting on the letter from Mr Campbell:
Asked RC
It was in the context that Mr Huston became involved in the matter. Page1801, this is from Mr Heyting to Louise OReilly at FMG, second paragraph:
My apologies about no ringing your on Thursday or Friday about the recent ASX announcement indicating that FMG signed at build and transfer (BT) contract similar to our rail BT for the port on Friday afternoon.
Then two paragraphs down:
In parallel we have now signed a build and transfer contract for the port -
At 1813, this is from Mr Forrest, one should start perhaps at the bottom of 1815:
Dear All,
I’ve attached a draft of a release for Monday. The assumption here is that the ASX does require more information on the deals signed on Friday (to be confirmed on Monday after an initial discussion with Tony Walsh and Peter Huston).
So, Mr Huston is involved in the discussions with the ASX concerning the material terms of the contract and one can only infer their enforceability. Any other inference will be absurd. Then, if we look at the original message on 1814 from Andrew Forrest commenting on the releases:
There is no price because we don’t want a price (unless it is unbelievably low) as we want a feasibility study to give us the argument to make sure we get a fair price. The 3 contracters have an obligation to give us that.
Our contracts are written to allow that to happen, and I don’t want the ASX to screw it up.
Then 1891, this is a letter to Bosteel by Mr Heyting, the third paragraph:
In parallel we have now signed a build and transfer contract for the port –
1988 - this is from Mr Campbell. This is all internal:
Dear All
I have attached a copy of the latest presentation currently being given by Chris Catlow to brokers in Syd/Melb and also separately was given by Graeme Rowley to China Metallurgical in Perth yesterday.
If your Honours would look at 2012, it has the logos of the three Chinese companies - second dot point:
CREC, CHEC & MCC to assume 100% completion risk -
Then the next page, CREC and Mr Forrest - not a very good photo of him - with all sorts of important people. At 2015, “FMG Funding - Forecast Sources and Uses” –China Metallurgical, 306 million under agreement; 316 “Forecast Sources and Uses” for infrastructure - China Rail and China Harbour under agreement and the uses are set out. Page 2027:
Rail Construction
18 Months Fast Track
CREC Build, Transfer, and Finance binding contract
This is to the people who wanted the same thing or by this stage had received the same thing. Such a presentation could not possibly be made to the Chinese counterparties unless it was agreed between them.
FRENCH CJ: So all this comes to a large number of statements made internally and in circumstances of serious external communication consistent with a view or consistent with a premise or expressly stating the view that the framework agreements were binding.
MR MYERS: Yes.
FRENCH CJ: We can multiply examples of it but, I think, that - - -
MR MYERS: I accept what your Honour is saying. I can multiply examples and there are about another 20 that I could take your Honours to. If I could just mention this. I will not ask your Honours to read them. Volume 7, 2565, 2769 and 2572 are the termination agreements, the letters of termination of these three agreements when everything fell apart after Mr.....had intervened.
HEYDON J: What were those references again, please?
MR MYERS: Page 2565 was the first I gave. This is to China Metallurgical from Mr Forrest and the second page just above line 30:
Accordingly, for the avoidance of doubt, Fortescue has no choice but to now formally terminate the Contract.
Now, it sent similar letters to each of the Chinese companies and it did so because the Chinese companies were asserting that the agreements were still on foot. I will just give your Honours some references; 6-2452, 6-2462, 6-2469, 6-2472, 7-2547 and 7-2553. Your Honours will see correspondence or communications at least evidenced there which show that the Chinese were asserting that they still had contracts, even though they were not performing up to standard. The last matter concerning 674(2B), if I could take your Honours back to paragraph 193 of the Chief Justice’s reasons, we take issue with the statement that:
the only available evidence on this point shows that Huston examined the agreements in January 2005, that is to say, well after FMG and Forrest had made the impugned announcements. There is no evidence Huston was consulted by Forrest before this time.
We say, with respect, that is wrong and we therefore say that the conclusions in paragraph 194 are also wrong.
HEYDON J: You have or someone has incorporated into the appeal book as page 3511 a transcript of the Full Court argument where you handed up an aide-mêmoire referring to 122 documents. Is that in the appeal book?
MR MYERS: Yes, it is and it is in volume 8 towards the end. An aide-mêmoire.
HEYDON J: I found it, yes, thank you.
MR MYERS: It is document 687, 3492.
HAYNE J: Sorry, what reference? Where do I find the document?
MR MYERS: I thought it was in volume 8?
HEYDON J: It starts on page 3493.
MR MYERS: Page 3493. The document has been added to. If your Honours look at 3493 and you take the extreme right-hand column, it has been added to by inserting the High Court appeal book reference to the documents that were in the aide-mêmoire that was handed to the Full Court. The last word on Mr Huston. Our written submissions concerning Mr Huston are at paragraphs 53 to 57. Can I turn now to section 180. In the Full Court the matter was dealt with very, very briefly indeed and the entirety of the reasoning appears on page 3597. That is paragraphs 196 to 200 of the reasons.
Now, ASIC put its case, and we accept that this is correct, on section 180 on the basis that it must succeed in proving that FMG or Forrest breached sections 674 and 1041H and that those breaches were serious in order to succeed in relation to its contentions concerning section 180. I have referred your Honours to what the learned trial judge decided. We say that the Full Court made several errors concerning section 180 and the first is this. It assumed, without actually deciding, that if FMG’s contraventions were made out, Forrest’s involvement was sufficient to constitute a breach by him of section 180, that is that the Full Court conducted no separate examination to see whether the requirements of section 180 were satisfied in relation to Mr Forrest. Even our friends in their submissions, paragraph 60 of their submissions in our matter, appear to, I would not go so far as to agree with us, but say this:
Contrary to Forrest’s submission (at par 100), this line of authority does not result in s 180(1) of the Act becoming “a backdoor method for visiting on company directors civil liability for contraventions of the Act . . . The nature of the conduct which constitutes a lack of due care and diligence on the part of a director is distinct from that which constitutes involvement in a contravention of provisions such as ss 674(2) or 1041H of the Corporations Act.
We agree. There is no analysis of that at all in the Full Court. The second matter is this. The Full Court decided that – this is in paragraph 197, third line:
The absence of evidence from Forrest makes it difficult to see how Forrest could discharge the onus which he bore to establish these elements of this defence.
I will come back and say something about this notion of an onus in a moment –
The absence of evidence from Forrest makes it difficult to see how Forrest could discharge the onus –
Well, we say, with respect, that if one looks at the requirements of section 180(2), all the matters in paragraphs (a) to (d) are matters which must be the subject of objective evidence. Hard swearing by the director is not going to solve the matter. You want objective evidence of a judgment in good faith for a proper purpose, of no material personal interest, that he informed himself about the subject matter of the judgment to the extent they could reasonably believe appropriate and they rationally believed that the judgement was in the best interests of the corporation. I am not saying that evidence from the director may not be relevant, but certainly it is not necessary. Then if I could go back to paragraph 197:
This difficulty apart, the decision not to disclose the true effect of the agreements cannot be described as “business judgment” at all. A decision not to make accurate disclosure of the terms of a major contract is not a decision related to the “business operations” of the corporation. Rather it is a decision related to compliance with the requirements of the Act.
Well, the very way in which in the second sentence “A decision not to make accurate disclosure” is described or characterised prejudices the issue entirely. The judgment that was made was about whether what was disclosed was correct. It was not a decision to disclose something that was not correct. The relevant judgment was a judgment about, in this case, what was a true effect of the contract or the agreement. Was it binding in the terms that the debate has been conducted? Secondly, the distinction drawn in the last sentence between “a decision related to compliance with the requirements of the Act” and a “business judgement” is simply a false dichotomy. A business judgement may relate to compliance with the terms of the Act. The next issue with which we take exception is the observation in paragraph 199:
A separate but related answer to Forrest’s attempt to rely upon the business judgment rule is that s 180(2) cannot be construed as affording a ground of exculpation for a breach of s 180(1) where the director’s want of diligence results in a contravention of another provision of the Act and where that other provision contains specific exculpatory provisions enacted for the benefit of the director.
One asks rhetorically, why so? But, in any event, the factual basis of that statement is completely erroneous because 1041H does not provide a ground for exculpation at all, nor does section 674(2) because it was the company’s breach that was in issue. So the observation made there is wrong as a matter of the meaning of the Act and it is based upon a misconception of the operation of the legislation. Section 1041H does not contain any exculpatory provision nor does section 674(2).
HEYDON J: What about 674(2B)?
MR MYERS: Yes, it does, but this was the company’s breach.
HEYDON J: The company is in breach of 674 is your point.
MR MYERS: Section 674(2), yes.
HEYDON J: I follow the reasoning.
MR MYERS: Yes. I would have to concede this, your Honour. So far as, and this was not really sorted out anywhere, so far as there was reliance placed upon Mr Forrest’s breaches himself of 674(2A), there would be a basis for that observation, but primarily the provisions that are relied upon are those dealing with the company’s breach of section 674(2), no exculpatory provision, and 1041H, no exculpatory provision.
GUMMOW J: Now, Mr Myers, the primary judge, we see from paragraph 905, did not get to the business judgment rule.
MR MYERS: No, he did not.
GUMMOW J: The Full Court decided it against you. What would we do if we got to that situation being presented with it?
MR MYERS: What you would do is look at the facts, and I would like to identify just some of the facts that your Honours would look at, to make a decision.
GUMMOW J: We would decide it, would we?
MR MYERS: You have before you the facts on which you can decide it. The other thing that I would say, and I concede at once that we did not raise as a ground of appeal this question of onus, but, in my respectful submission, the High Court would not accept that the onus is on the director to establish the exculpatory grounds of section 180(2). Can I just mention that because it is a matter that one cannot simply pass over. There are two decisions of single judges of the Supreme Court of New South Wales that have dealt with this, Justice Austin, in Rich’s Case, which is in the book, and his conclusion is at paragraph 7265 and he refers to Justice Santow’s decision in Adler, which is also in a supplementary bundle that was provided to your Honours.
I do not want to take your Honours to those cases, just to flag them. In Adler, Justice Santow said that he thought the onus was on the director but however the onus fell, he would decide the case the same way. So his observations on onus were pure obiter. At 7265 in Rich, Justice Austin said with hesitation he comes to the conclusion that the onus is upon the director. I should like to point out a few matters which – I think it was 7265.
HEYDON J: Paragraph 7269.
MR MYERS: Paragraph 7269, I beg your Honour’s pardon, I cannot read my writing. Paragraph 7265 is the explanatory memorandum. Could I just mention some of the textual considerations concerning this question of onus. Subsection (2) provides:
A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1) . . . in respect of the judgment if they –
do certain things. Now, the expression is “taken to meet the requirements”. They are not naturally the words of casting an onus upon a particular party. Elsewhere in this Act, when an onus is cast upon a party, it is made very clear. For example, 674(2B), the onus lies upon the otherwise contravening person to prove. The language here is not the language of casting an onus upon a particular party. Then if one looks at the concluding words of subsection (2):
The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
Again we say that that is not the language that one would expect if the onus is cast upon a director. The other consideration that bears upon this matter is that this business judgment rule is derived from an American statutory rule which creates a presumption in favour of the director that what he is doing is in the interests of the company, the reason being not to inhibit reasonable risk taking by directors, not to inhibit directors making decisions in the interests of the company.
In the supplementary bundle that we have provided for the Court – and, again, I do not want to read parts of it – we have reproduced Aronson v Lewis, a Delaware decision of the Court of Chancery there considering the US rule and describing it as a presumption. In Justice Austin’s decision in Rich, he considers both the explanatory memorandum and the second reading speech, neither of which, it would be no surprise to the Court to learn, establish the matter beyond that. Could I say something about the consideration - - -
GUMMOW J: The business rule was invented in the United States, as it were, to assist directors?
MR MYERS: Yes, to assist directors.
GUMMOW J: Against over technicality?
MR MYERS: Over technicality by enforcement authorities or by persons who might bring actions against them for large sums of money.
HAYNE J: Well, just because something had gone sour, did not mean that you had breached your duty.
MR MYERS: Exactly.
GUMMOW J: Yes, as an expansion of the qualification of what otherwise might be over rigid fiduciary ideas. But here in 180 it has been turned into some offence if you do not comply with it. It seems to have taken the US situation and turned it upside down somehow.
MR MYERS: The US situation is what is found in subsection (2) rather than subsection (1), but subsection (2) is just an explication of subsection (1). It is not, in a sense, a defence. If you would otherwise be a contravening person under subsection (1), you can get out of it by establishing this and that. It really tells you about what is involved - - -
FRENCH CJ: Well it qualifies the reach of subsection (1), does it not?
MR MYERS: It qualifies an explication or a sort of an exegesis of subsection (1). Can I refer to the factual matters that we particularly rely upon. We say in the first place that Mr Forrest made a judgment in good faith for a proper purpose. It is not a matter for subjective judgment. One should look at what he did and we say throughout that what he did was both reasonable and honest. I just take as an example the evidence that I have taken your Honours to concerning 23 August and the stock exchange announcement and the media release.
He waited to find out that the agreement was binding and there was no overriding rule of the Chinese Government that would prevent it from being carried out. He checked the media release with CREC, he checked it with Mr Heyting and he checked it with Mr Kirchlechner. Everything he did bespeaks honesty and it undertook reasonable steps to observe the provisions of the Corporations Act and the listing rules while properly promoting the interests of FMG. On 5 November he provided the media releases to the Chinese parties and the NDRC. You have been taken to the evidence of that.
Before the 8 November letter was sent to the ASX at their request he consulted Mr Huston and the company secretary, he had them attend a conference with Mr Walsh who at the time was the ASX senior company advisor. On 22 January when it was noted that the Chinese parties were being slow to fulfil their obligations under the framework agreements, he took legal advice from Mr Huston, to which you have been referred, to have it confirmed that that agreements were enforceable.
The requirement that Mr Forrest have no material interest was denied by the Full Court because it was said that Mr Forrest was a shareholder, but that is not what that requirement refers to at all. If it did, no director who was a shareholder could take advantage of subsection (2). Surely that is not the purpose of the provision. The purpose of the provision is to deal with cases where the director has a conflicting interest contrary to the interests of the other shareholders. If Mr Forrest was entering into agreements with his wife, that would be a relevant material interest and, with respect to the learned Chief Justice below in saying that Mr Forrest cannot take advantage of it because he is a shareholder is simply to misunderstand the effect of the provisions.
The basis of rational belief is evident from the submissions that we have already made and that Mr Forrest informed himself to the extent appropriate is again apparent from the submissions that we have already made. I should say as regards section 180(1) that in the end the question for this Court will be whether on the evidence they are satisfied that Mr Forrest acted reasonably and honestly as a company director and we say for the reasons that we have already advanced that there is ample evidence to support that conclusion. If the Court pleases, they are the submissions on behalf of Mr Forrest.
FRENCH CJ: Yes, thank you, Mr Myers. I see the time. The Court will adjourn until 2.15.
AT 12.45 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.16 PM:
FRENCH CJ: Yes, Mr Young.
MR YOUNG: If the Court pleases, I propose to start with the arguments relating to section 1041H of the Act. In our submission, the analysis of whether the relevant statements were misleading must start with the conduct in question and in particular the question is what was conveyed by those statements to ordinary and reasonable members of the intended audience. That approach is firmly established by the authorities. We have referred to the leading cases in our outline and I will not repeat the references.
The answer to that question is a matter of fact. That has been said by this Court on two occasions: in Campbell v Backoffice at paragraph 102 and in Butcher at paragraph 109. I do not need to go to the passages. The appellants do not mount any challenge or any real challenge to the applicability of that principle. It appears to be accepted at least by Fortescue in its submissions at paragraphs 88 to 90 and in its reply at paragraphs 7 to 11.
The trial judge did not analyse the issue in that fashion. It has already been pointed out that his Honour’s starting point was the proposition that the statements were necessarily an opinion. There are two passages I wanted to go to in the trial judge’s judgment. Firstly, at paragraph 253, 3109 of the appeal book. The same approach is adopted in relation to the section 674 issue as in relation to 1041H. Paragraph 253 relates to the awareness question under section 674. His Honour there concludes that the information in question was both fact and an opinion and even if the statements were:
assertions of fact they were assertions necessarily underpinned by an opinion –
The same approach is adopted to section 1041H in several parts, but most clearly at 684. That is page 3225. His Honour considered the issue, which had been the subject of substantial argument, whether the statements should:
be characterised as statements of fact rather than opinion. Certainly, they were assertive in nature and were not expressly said to be expressions of opinion. However, I consider that they constitute mixed fact and law -
but makes the same observation that they were necessarily underpinned by or “the product of an opinion”.
In our submission, that approach was erroneous. What is in issue is what was conveyed to recipients, not what underpinnings might exist in the mind of the maker of the statement. Justice Hayne made that point by the first stage, second stage distinction. I did want to give the Court a reference to a passage in a judgment by Justice Davies in the Federal Court where the same point is made very crisply. It is the RAIA Insurance Brokers Case [1993] FCA 92; 41 FCR 164. It is in the appellant’s authorities. The passage is at 166 point 5. I do not need to read it but it is the middle paragraph commencing “That is not to say”.
The consequence of that analysis is that the trial judge made no findings at all as to what the statements conveyed to a reasonable member of the intended audience. That question of fact was addressed comprehensively by the Full Court for the first time and they determined it unanimously in favour of the first respondent to this appeal. Chief Justice French summarised his conclusions at paragraphs 117 and 188.
FRENCH CJ: It was Chief Justice Keane, I think.
MR YOUNG: I am sorry. I apologise, your Honour. My notes simply said “CJ”. That is page 3569 in volume 9.
HAYNE J: What paragraph
MR YOUNG: Paragraphs 117 and 118, your Honour, especially the end of 117. His Honour’s conclusion is that the statements:
would not be understood as statements of opinion . . . Rather, they would have been understood as conveying the historical fact that agreements containing terms accurately summarised in the announcements had been made between the parties.
Justice Emmett reasoned in the same way. If the Court turns to 3604 to 3605, paragraph 214 at the bottom of the page and in paragraph 215 the reasoning is elaborated. In particular, there was an explicit finding by his Honour three sentences in:
An ordinary and reasonable reader of the announcements would understand them to say that a binding agreement has been entered into between Fortescue and Railway Engineering and that that agreement imposed upon [CREC] a binding obligation, enforceable by Fortescue, to construct and transfer to Fortescue a railway -
The framework agreement did not have that effect. Justice Finkelstein agreed in that analysis. Our submission is that the conclusions reached by the unanimous Full Court in this regard were entirely correct. It is confirmed by a large number of matters. The first matter we wish to point out is a rather obvious or trite one, that is the content of the relevant statements need to be read as a whole because the surrounding statements lend weight to the particular statement about build and finance obligations that has been the focus of discussion.
Can I illustrate what I mean by reference to the 23 August media release? If the Court takes up the key documents folder, that is the most convenient, alternatively it is in Chief Justice Keane’s judgment at paragraph 25 at page 3531.
FRENCH CJ: Just before you go to that, can I ask you what role then was played in your case by the pleading in each of the misleading or deceptive conduct pleas that FMG had a genuine and reasonable basis for making the statements, that that was a representation or impression?
MR YOUNG: That was an alternative way in which the case was put. To use your Honour’s word, it was a fallback position. The fact that it is a clear alternative appears in the pleading itself and it is the way in which the case was presented.
KIEFEL J: Does the alternative basis that you have just referred to assume that it might amount to an opinion because it looks rather like that? Having a reasonable basis usually is something which underpins an opinion rather than an assertion of a state of affairs, which was your primary position.
MR YOUNG: Yes, your Honour is correct that that alternative plea assumes that it might be subjected to a different characterisation. That is why it is an alternative.
KIEFEL J: But of an opinion?
MR YOUNG: Yes, I think the answer is yes, your Honour.
KIEFEL J: So you are running an alternative case of assertion or opinion?
MR YOUNG: The case was put in this fashion. It is an assertion of fact and it is wrong because those are not the facts. Alternatively, if that is the incorrect characterisation, and it is to be regarded as an opinion, there was no reasonable basis for it.
KIEFEL J: What would the reasonable basis for the opinion have had to do with a contravention of section 1041H? The subjective state of mind is not relevant?
MR YOUNG: Well, it depends on what is conveyed. If the correct analysis is that what is conveyed is a mere opinion, and that was not our primary position, but if that is the analysis that what is conveyed is mere opinion, then there is still an argument about whether it is misleading on the grounds that there was no reasonable basis for that opinion.
KIEFEL J: Yes, but it is misleading in terms of the reader.
MR YOUNG: Yes.
KIEFEL J: That what the reader comprehends is not the fact.
MR YOUNG: If the reader comprehends that it is mere opinion - - -
KIEFEL J: Yes.
MR YOUNG: - - - then there is the further question to be addressed whether there was a basis for that opinion because the reader will also comprehend, if it is mere opinion and that is his understanding, that there was a reasonable basis for it.
KIEFEL J: If there is mere opinion it is assumed that the reader will place less reliance upon it. That is the importance of it being an opinion.
MR YOUNG: No, not so. We would not accept that, your Honour.
KIEFEL J: All right. But would you mind just clarifying for me then what was the representation – you might need to re-plead, so to speak, one of these paragraphs to say what was the representation under (f) if, as you acknowledge, there is something of an opinion being conveyed. What is the opinion being conveyed in (f) for which the first defendant, you say, did not have a genuine and reasonable belief?
MR YOUNG: Well, it is broad, your Honour, because it is a representation that the first defendant had a genuine and reasonable basis for the statements in the announcements. Those statements included, but were not limited to, the fact that the first defendant had entered into a binding contract to build and finance. Can I give your Honour a further elaboration of what I am submitting my reference to the pleading, if I may?
HAYNE J: Just before you do that, while you are doing that, you can perhaps explain how a case of fraud is pleaded as a fallback alternative because it seems to me that that is what you are saying.
MR YOUNG: Well, it is pleaded as an alternative, your Honour, dependent on the characterisation of what has been conveyed being an opinion, because the case is put that in point of fact - - -
HAYNE J: This is a fallback, is it?
MR YOUNG: Well, it is an alternative, your Honour. It is pleaded in the alternative.
FRENCH CJ: It is not actually pleaded in the alternative, is it?
MR YOUNG: Well, that is what I - - -
FRENCH CJ: I am looking at paragraph 114(e), just by way of example.
KIEFEL J: One thing we can be clear about is, as it has been said from the Bar table in the last day and a half, that that plea has had the effect of bringing questions of dishonesty in relation to the company and a director as a principal issue in these proceedings and may have somewhat distracted from what appears to be the more central issue about the nature of the contract.
MR YOUNG: No, your Honour. The case always presented by the respondents was that what was conveyed was mere opinion. They ran the argument exactly mirroring ASIC which was the statements are factually correct because it is a binding agreement and if that is wrong there was a reasonable basis for the statements being mere statements of opinion. But can I answer the Chief Justice’s question? The fact that these pleas are in the alternative becomes apparent when you turn to the matching provision 115.
FRENCH CJ: At 115(c):
(c) . . . further or alternatively,
(d) the First Defendant, did not have - - -
MR YOUNG: Yes, but can I start with 115(a), your Honour?
FRENCH CJ: Yes.
MR YOUNG: The allegation there of the grounds on which it is said to be misleading is that the:
Agreements did not state –
a fact, did not state that the:
companies would, nor did it have the legal effect of obliging those companies to, design, construct and finance –
and your Honour will see parenthetically that is alleged to be contrary
to paragraphs 114(a), (b) and (c). No reference to (e).
Then it is followed by
“further or alternatively”. That is true of every one of these
paragraphs. If I go back to the first set of paragraphs,
27 and 28 at
pages 16 and 17 – if I take your Honour the
Chief Justice to paragraph 28(a), the allegation is that the
statements
are misleading because:
the CREC Framework Agreement did not state that . . . CREC would - - -
FRENCH CJ: I accept you have adopted the same logical model for each of the paragraphs.
MR YOUNG: Yes, but it is clear, your Honour, from the pleading, that alternative allegations were made, that is, there was a factual representation which was misleading because the facts were not as stated and in the alternative it is put there was no genuine or reasonable basis for making the statements and it is implicit in that that the alternative characterisation would be their opinions. There are other matters and I will give another example: in paragraph 30 at the top of page 19, one of the misrepresentations alleged about the 23 August media release was paragraph (j). That statement said:
under the terms of the contract, CREC would take full risk under a fixed price agreement –
et cetera. The allegation is that that is misleading for the reason given in paragraph 33(c) at page 21, and then what follows in (d) is an alternative.
FRENCH CJ: Well, it is actually “further or alternatively”, is it not?
MR YOUNG: Yes, your Honour. The other submission I wanted to add is that the case was presented, opened, closed, et cetera, on the basis that these statements were misleading at the factual level. They conveyed facts and those facts were not accurate. We have provided to the Court over the adjournment some pages that go to two issues that have been raised. The top page is simply an extract from the oral opening. The passage is between lines 7 and 15 and it is clear from what appears towards the end that the misleading and deceptive conduct case was based on a misdescription of actual terms in effect in the first way in which it is put. I could multiply these references but that was the very outset of the case - - -
HAYNE J: Well, was the absence of genuine and reasonable belief case not opened?
MR YOUNG: It was, your Honour, yes, but the point I am making is that that was put as an alternative case not, as I think Mr Myers submitted, as the sole case.
KIEFEL J: Just so I am clear about this, Mr Young, the allegation that there was conveyed that Fortescue had a genuine and reasonable belief for making the statements in paragraph 30, paragraph 30 does not include any statement about the nature of the agreement. It refers to other matters conveyed in the media release. I know that there are mirror allegations. Is there an allegation which actually picks up the state of mind about the - - -
MR YOUNG: Yes, your Honour, it is paragraph 32 in the portion that appears at the top of page 20 and it is in the same form as paragraph 27.
HEYDON J: Does it follow from what you are saying that the trial judge failed to deal with your primary case because he dealt with the fallback, or the alternative case?
MR YOUNG: Yes, your Honour, yes. That is apparent from the very outset of his Honour’s judgment because he takes the view that an underpinning opinion alters the inquiry. It appears at the very outset of his Honour’s summary, for instance, in paragraph 41 in similar language to the other passages I took your Honours to. Now, that is in the context of section 674, but the same analysis figures in the outset of the reasoning on 1041H, which commences at paragraph 681, 3224.
HEYDON J: Is his Honour there saying he does not characterise – whether it is formulated in the correct test or not – he does not characterise the message being transmitted as being “There is a binding contract”, but rather a message “Our opinion is that there is a binding contract and we have some reason for asserting that opinion”.
MR YOUNG: No, your Honour. When all the passages are reviewed his Honour is not analysing what is conveyed. He never looks at the totality of what appears in the statement and asks how it would be understood. He starts with a proposition that the statements are the product of a judgment or opinion.
GUMMOW J: Are these matters taken up in your grounds of appeal to the Full Court, volume 8, page 3326, starting at paragraph 9:
failing to reach a determinative conclusion as to whether the Framework Agreements were legally binding - - -
MR YOUNG: Yes, that was one of the grounds but it really starts at paragraph 2, your Honour – the previous page, 3325 in paragraph 4.
KIEFEL J: With so much emphasis upon the particulars relating to the belief of the first defendant, it may be that the simpler point was lost sight of.
MR YOUNG: Well, we submit not, your Honour. There are extensive submissions that go through each of the representations and quite distinctly and separately allege that the representations conveyed facts and they were misleading because they were not the facts.
KIEFEL J: While we were discussing the primary judge’s judgment, I think I asked Mr Jackson about this, at paragraph 343 - - -
MR YOUNG: Paragraph 343, your Honour?
KIEFEL J: Paragraph 343 of his Honour’s judgment is the reference to the concession by ASIC:
that, as a matter of objective inference, the agreements were intended to be legally binding -
Could you expand on what that concession was?
MR YOUNG: Yes. I was definitely going to do that, your Honour. The Chief Justice asked a question about the same paragraph. The position is accurate in 343. The only concession made was as to the objective inference that the agreements were intended to be legally binding. There was no concession that the agreements were enforceable. The trial judge noted that at the outset of his judgment in paragraph 19 – that is at page 3038. His Honour states the position accurately that the:
agreements . . . at best, merely bound the parties to negotiate . . . or, alternatively, were not binding at all.
The trial judge addressed - - -
KIEFEL J: Sorry, how does that fit with paragraph 343?
MR YOUNG: It fits in this fashion, your Honour, that the finding of objective intention based on clauses like 5 and 7 of the framework agreement does not answer the legal question whether it is an agreement that the law would enforce. That requires an analysis of whether the agreement is complete in the sense that there has been agreement on all of the essential terms. We maintained the position, and his Honour analysed it at some length, that an agreement to negotiate is not enforceable. The other position we maintained is that an agreement – here alleged to be an agreement to build, finance and transfer major infrastructure – was not enforceable when there had been no agreement on essential terms such as price and subject matter.
GUMMOW J: This seems to be a fact that could only be determined by an ultimate Court of Appeal.
MR YOUNG: The existence of an agreement - - -
GUMMOW J: Whether this document has this legal effect.
MR YOUNG: No, your Honour. The character of the agreement is a fact. It is either enforceable or not enforceable.
GUMMOW J: No. That is a debatable question, is it not, which can only be ultimately determined by an exercise of judicial power?
MR YOUNG: Your Honour, the issue is what is conveyed to the reasonable recipient. If you say “I have an agreement to build and transfer”, what you convey to the reasonable recipient is an understanding that an agreement exists containing terms that one party will build, finance and transfer the relevant infrastructure. That is what is conveyed. If that is what is conveyed, that is the critical issue for section 1041H. It does not alter the position to say we are going to include the adjective “binding” agreement rather than simply saying we have an agreement to build, transfer and finance. They are statements concerning the effect and content of the agreement and would be so understood by reasonable recipients.
GUMMOW J: But they have to be misled or be likely to be misled.
MR YOUNG: Yes, and that is demonstrated by - - -
GUMMOW J: How is that demonstrated?
MR YOUNG: You demonstrate it by looking at the agreement and concluding that - - -
GUMMOW J: Who is the “you”?
MR YOUNG: I am sorry, your Honour.
GUMMOW J: You said “you”.
MR YOUNG: I know, your Honour.
GUMMOW J: At the moment it is “us”. That is why we are here.
MR YOUNG: The answer to the question is - - -
GUMMOW J: That seems an odd way of going about it.
MR YOUNG: Well, it is a question to be answered by applying the governing legal principles.
GUMMOW J: Who applies them?
MR YOUNG: If there is a dispute, the Court. But if there is not a dispute - - -
GUMMOW J: How do you know whether there is a dispute?
MR YOUNG: At the moment the representation is made, your Honour, there is either an agreement in fact or there is not. If the Court ultimately declares that there is no agreement - - -
GUMMOW J: Whether there is an agreement or not is a conclusion of law. You can translate that into a fact if you like to call it that. It is not an ordinary understanding, I do not think.
MR YOUNG: Your Honour, with respect, what would be conveyed is, in our submission, a statement as to the effect of the agreement. Even if it is regarded as a statement of legal effect, that does not amount to a mere matter of opinion, as understood by representees. Section 1041H does not draw a dichotomy between fact and the law in the way in which the tort of deceit did. If you make a statement that conveys a particular matter and that leads the recipients into error, there will be misleading conduct.
We do maintain the position, your Honour, that the legal character of a document – there is a right or wrong answer, right then and there at the time that the announcement is made. If a court later makes a declaration, it does not change the nature of the agreement. It simply recognises the character that the agreement always had. There is no changed position.
To finish my answer to Justice Kiefel, if I may come back to that - I was going to direct your Honour to the passages where the trial judge also deals with the unenforceable agreement to agree argument. It is at 328 to 334 and it commences at page 3129. It is in the course of that discussion that paragraph 343 appears, your Honour, at page 3133. So we did submit that there were no enforceable obligations to build, finance and transfer and if that were decided our way there was no need to consider the deeper question whether, as an agreement to negotiate, it was enforceable. If the first question were to be decided against us it would be necessary to consider the second question.
Now, that is the way in which we put it to the trial judge so we made no concession that the agreement was binding as an agreement to negotiate. What we accepted was that there was an objective inference that the parties intended the agreement to be legally binding but that does not resolve the character of the agreement, and we put the case in the same way to the Full Court.
In the Full Court judgment Justice Keane noticed the issue at paragraph 177 - that is at page 3590. There is an earlier passage in the Chief Justice’s judgment that I should draw attention to. It is paragraph 120 at page 3571. In the first sentence of paragraph 120 his Honour uses the word “although”. That did not reflect our submission to the Court. If the words “even if” were to be substituted that would reflect our submission. In the pages we - - -
FRENCH CJ: What about the statement:
It is submitted by ASIC that the binding effect of the agreements was limited to an intention to negotiate towards a final agreement?
Does that not reflect your submissions either?
MR YOUNG: No, your Honour. We have provided the Court, in that small number of pages, with the submission we made and it is the same submission we made to the trial judge from the written submissions at page 31, paragraphs 58 to 61, particularly paragraph 61. We have included two pages of the transcript of discussion between myself and the Court, page 14, last passage, and more particularly page 64 commencing at about line 7 and running to line 44.
Can I turn back to the section 1041H analysis of the statements. I think I commenced to put a submission that the relevant statements need to be read as a whole in assessing what was communicated to recipients and consideration needs to be given not just to the central statement but to the surrounding statements. Can I illustrate that by reference to the 23 August media release. In the core book it is under tab 5. In the appeal book it is page 1322. That is volume 4.
I wanted to draw simply attention to three features beyond the opening passage. In combination, the second and fifth paragraphs convey a statement that the agreement in question was a build and transfer agreement of the kind common in the international engineering and construction industry. That is the message that would have been understood by recipients. The next passage is one that Chief Justice Keane refers to. It is in the second-last paragraph at 1322. It commences with the words “Finalising this contract”. That is language conveying that finance has been secured by “finalising this contract”. The other passage is the passage concerning “risk” and “price” on the next page at about line 29. What is conveyed there is a description of the actual terms of the contract:
Under the terms of the contract, CREC will take full risk under a fixed price agreement on the rail project –
That again, we say, was a factual assertion. When Mr Jackson went to this aspect of the media release, he said that it was to be understood as referring to what would occur under a future agreement. But the only contract mentioned in the media release is the single finalised contract. The author or the makers knew the actual provisions of the framework agreement but the recipients did not. They would have understood this as conveying a description of the actual terms of the framework agreement.
As for the words “full risk”, to say that the terms provide that CREC will take the full risk conveys that all matters that might bear upon risk, price, definition of practical completion, identification of works, perhaps warranties, that all relevant matters bearing upon risk have been finalised and resolved and are in the contract. They are factual matters conveyed by that statement.
Now, the other – I will not go to them – but the other statements can be analysed similarly. There are various surrounding statements in them that lend support to the message that the agreements in question contain obligations to build and finance, et cetera. But 5 November was said to be substantially in the same terms and the media release in that case – that is under tab 6 – repeatedly refers to commitments having been given. Under tab 7, second paragraph; fourth paragraph – “construction commitments”; last paragraph with the bullet points:
a total project construction and finance solution –
and there is reference to what will be provided and what has been committed. On the second page, 1784, another reference to “commitments” in the second paragraph and then in the third paragraph there is a reference to:
construction risk is carried by the contractors –
and five paragraphs from the end:
de-risking the development phase –
They would all be understood as statements about the contents and effect of the agreement, not matching - - -
HAYNE J: Would they be understood as representing what the parties understood – parties to the agreements understood to be the content and effect of the agreement?
MR YOUNG: No, it goes beyond that. They would be taken by recipients as representing the actual contents, in effect, of the sole agreement being referred to.
HAYNE J: When it is said that - if we go back to the letter with which we began at tab 4 - FMG has entered into a binding contract with CREC to build and finance, there are at least, I think, two possible ways in which that statement might be understood. Perhaps there are many more. The parties have made an agreement which FMG and CREC regard as binding; CREC to build and transfer and FMG to pay for, in the manner described - one way - or, I think, which underpins the whole of your argument, the parties have made an agreement which a court, I interpolate which court where, will treat as binding, I interpolate, by granting what relief and how, as binding CREC to build and transfer. Is not your argument founded on the second?
MR YOUNG: No, your Honour. Our argument is that a message is also conveyed about the actual contents of the agreement, that is to say, it contains provisions by which CREC undertakes to build and finance a railway and the nature of those obligations, the nature of those undertakings in the agreement is conveyed by that statement, aside altogether from the use of the adjective “binding”. We do not shy away from the fact that what is conveyed is that contract has been made. That is itself, in our submission, something that would be understood by recipients as referring to an event. If in another field of commerce somebody says – I think the Chief Justice Keane gives this example – I entered into an agreement to sell my car and there is no agreement at all, that would be regarded and that type of thing has been regarded by the courts as conveying a misleading state of affairs as to the existence of such an agreement.
There are cases I will mention but there are a number of cases about the existence of insurance cover; SWF Hoists is one case, Middleton is another. In those cases, a statement to the effect that the vehicle or the employees are or are not covered by insurance was regarded as conveying the existence of a policy under which there were provisions covering the particular matter, and those cases are approved by your Honour Chief Justice French in the Inn Leisure Case, that analysis in SWF Hoists. So there is nothing novel about the proposition we advance.
Before I come to the whole issue about the only thing being conveyed as a mere opinion, as the appellants would have it, I wanted to complete a very quick reference to the other statements that would be taken into account by recipients informing their understanding of what was being conveyed.
FRENCH CJ: You had a three-way pleading on the misleading deceptive conduct, am I right, its actual terms, legal effect and genuine and reasonable belief
MR YOUNG: Yes, your Honour. I was going to refer to intervening statements by FMG, effectively, at the time of the first announcement – 23 August and then in the period between 23 August and the 5 November announcements because they would affect the understanding of actual and potential investors or brokers or analysts seeing the ASX announcements. The first associated event is the press conference. That is at volume 4, page 1283. It is in the key documents folder under tab 9. At 1284, the transcript of the press conference commences with Mr Forrest saying:
I just wanted to describe briefly the contract reached with CREC.
The Court has been taken to this, the statement at the middle of page 1289 and the top of 1290 where there is the statement:
you can be assured this is a binding agreement whereby we purchase –
and then there is the statement about the price being confidential “but we are pleased to say it is competitive” at 1291 at about line 26. That statement concerning the price not being disclosed was widely reported and published in conjunction with the publication and media reports of 23 August media release, and that appears in, I will not go to them, but these references, volume 4, pages 1310, 1333 and 1342. What Mr Jackson said about that statement was that it was an opinion referring to the fact that the mechanisms in the framework agreement meant that the price when arrived at would be competitive.
Now, the recipients knew nothing about the actual mechanisms in the franchise agreement. They are receiving a message that a contract has been entered into containing build and finance obligations and in that context a statement is made by Mr Forrest that the price is confidential but we are pleased to say it is competitive. So that is part of the surrounding statements that would influence the way in which the message is received. There is one other example I will give. In the period between 23 August and 5 November there was a television interview, Business Sunday, that is in the same key documents folder. It is under tab 11 at page 2604. Mr Forrest is recorded as making the statements that:
The difference between what I did with Fluor Daniel and what I’m doing with China Rail is that I don’t actually pay for that railway system, until it’s operating at least 90 per cent of its design specifications.
Again we would say that recipients would understand that to be a description of provisions contained within the agreement, but we know from the framework agreement that it is not. It is no answer to say that Mr Forrest may have been thinking about how the agreement would work out, as Mr Jackson said, because that is not what is conveyed and the audience know nothing of the provisions of the framework agreement beyond what is being described by Mr Forrest. All these statements, in our submission, are in the nature of statements concerning accomplishments, events that have been achieved.
Can I turn to the argument by the appellants that what was conveyed was merely an opinion held by FMG concerning the agreement. There are numerous considerations that are relevant to that argument, the first is the form of the expression in the relevant public statements and ASX announcements. They were not expressed as opinions and they were not identifiable as such. They were expressed in unequivocal and unqualified terms and could have been, but were not stated to be matters of opinion.
Another thing to note generally at the outset of this is that none of the public statements made reference to the heading and description of this agreement within it as a framework agreement. We know that the agreement is headed “Framework Agreement”, the numbered clauses are introduced by saying, “This Framework Agreement Witnesses” and the heading to clause 1.1, which we have described as the main operative provision, is “Framework”. I am looking under tab 1 of the core documents. More than that, the framework set out in 1.1 is that:
The parties will jointly develop and agree on the following:
The first bullet point is:
a General Conditions of Contract suitable for a Build and Transfer type of contract in good faith.
So the agreement itself distinguishes between this agreement, which is a framework agreement with framework provisions, and the destination, which is a suitable build and transfer type contract. The public statements purporting to describe the framework agreement are not describing it. They are describing the end of the line, as it were, once the parties have jointly developed and agreed the relevant essential terms. None of the announcements refer to the central obligation in the framework agreement which is to jointly develop and agree terms and conditions including identification of the works and the price.
The second category of matters that I want to draw attention to concerns the circumstances in which the ASX announcements and later statements were made. As Justice Gummow said yesterday, there is a special aspect to these statements. They were statements, serious statements made by a public company to the ASX for publication to all actual and potential investors. Now, a very serious context but, more than that, the framework of the ASX listing rules created the situation in which recipients would understand the message to be a factual one, not a mere opinion for the reasons I am about to mention.
The Court knows, and there are findings, that a trading halt was called by FMG under the provisions of the ASX listing rules immediately before the 23 August announcement and immediately before the November announcement. When one looks at the rules, and I do not ask the Court to go to these provisions but I will mention it, trading halts are dealt with in listing rule 17.1 and ASX guidance note 16, particularly paragraph 7. The effect is that a trading halt is to be undertaken to enable the company to manage its disclosure obligations under listing rule 3.1. So the fact that the announcements were made during a trading halt conveyed a message of itself.
These were statements being made by a company in pursuance of its disclosure obligations under the listing rules and therefore, by definition, recipients would know that they were important statements likely to influence decisions about buying and selling shares, the materiality concept. The statements, on their face, that FMG made asserted that the announcements were important for investors, and I will not go through the passages of the statements that convey that. I do want though to refer - - -
FRENCH CJ: This is all to negative any contextual characterisations opinion?
MR YOUNG: Yes, your Honour. It is part of what needs to be taken into account when you are dealing with the argument that all that was conveyed was a mere opinion. The listing rules context is important for recipients who are going to go to the ASX announcements page and see announcements and then rely upon them. In the listing rules, I did want to draw attention to a couple of matters as swiftly as I might. Chapter 19, clauses 19.1 and 19.2, state that:
The listing rules are based on the principles set out in the Introduction.
and are to be interpreted in a way that promotes those principles. The principles appear in the introduction. The Court has the same print we have. It is page 2 of the introduction. Of the bullet points where the principles are set out we draw particular attention to bullet points 6 and 7. The other matter is that the listing rule operates - - -
FRENCH CJ: How does this work in your argument? Is this meant to inform some kind of – I hesitate to use the word – legitimate expectation on the part of ordinary investors?
MR YOUNG: Well, I do not know that I need to put it in quite that way, your Honour. It is part of the framework or context within which investors would receive the information. The framework of the listing rules do impose obligations on companies about the standard – the factual accuracy of the - - -
FRENCH CJ: Was the logic of that that one assumes the listing rules are known to the ordinary investor and that that informs the investor’s view of a statement that is made for the purposes of disclosure?
MR YOUNG: At least for a substantial segment of the class of recipients. I will go to a case. The class here is wide. Its actual and potential investors, its brokers, financial analysts, at least a substantial part of the relevant class could be anticipated to be relatively sophisticated individuals who would have an awareness of the strictures that apply under the listing rules and have an appreciation of the kind of information that companies are expected to provide. I do not think I have to put it at the level of an expectation for each investor, your Honour.
FRENCH CJ: Do you need to really go any further, for your purposes, than the proposition that a disclosure to the market by a company involves the discharge of a serious obligation imposed by both listing rules and by statute?
MR YOUNG: Well, a little further, your Honour, because the nature of that obligation includes obligations to ensure that the information is complete and factual for reasons I am about to go to. The obligation, as the Court knows, is to disclose information that an entity has or becomes aware of, and the awareness definition at 19.12, page 1907 in the print includes information that officers have or ought reasonably to have come into possession of. So it is not just a question, when we are talking about ASX announcements pursuant to the listing rules, of coming up with an idea or an opinion without being founded in the kind of information that the company ought reasonably to obtain when they make an ASX announcement. So that is part of the framework.
The other matter is guidance note 8 of the ASX. That will not be in that same bundle. It is separately on our list of authorities. It is a publication by the ASX about compliance with the continuous disclosure obligation. We rely upon paragraph 49 at page 7, particularly the statement:
The information contained in a market release or announcement should be factual and relevant and expressed in an objective and clear manner.
GUMMOW J: There is no definition of “information”, is there?
MR YOUNG: There is in the Corporations Act, your Honour.
GUMMOW J: No, but I mean in these rules.
MR YOUNG: Not in the rules. It is widely defined in section 676 of the Act as including readily observable matter, but there is no doubt, as your Honour Justice Gummow said, that if the nature of the statement and the kind of contract and the claims being made about it are such that the company ought reasonably to obtain a legal opinion before making statements, that would be caught by the concept of awareness of information. It would be caught by the constructive limb of it.
FRENCH CJ: Section 676 is actually a definition of the concept of general availability, is it not?
MR YOUNG: It is, your Honour, yes, but - - -
GUMMOW J: It links into 674(2).
MR YOUNG: Yes, it does. I should not have said it defines, perhaps shed some light on the width of the concept of information. The next matter has been regarded as important in cases where statements are made about the legal effect or the terms of a particular agreement or insurance policy. The factor is that the actual contents here of the framework agreement were known to Mr Forrest and FMG but were not available to the recipients and further, in making the statement, FMG would know that recipients would rely on the accuracy of the statement in making decisions about whether or not to make particular investments in Fortescue shares or perhaps, in the case of brokers and analysts, whether or not to proffer particular advice to their clients.
GUMMOW J: There is a line that runs through this regulatory system, is there not, that certain things have to be disclosed but there will be certain terms that are entitled to remain confidential?
MR YOUNG: Yes. It is in listing rule 3.1A, there are exclusions, but the requirements for an exclusion or exception to operate are cumulative, your Honour Justice Gummow, 3.1A, all of the following are satisfied and so they are:
3.1A.1 A reasonable person would not expect the information to be disclosed.
3.1A.2 The information is confidential . . .
3.1A.3 One or more of the following applies –
They are not applicable here and nothing in the framework agreements was confidential, the Full Court so found and a reasonable person would have no expectation that the framework agreements cannot be disclosed, they are a framework. Indeed, they were disclosed by Fortescue when issues arose about these matters in March of 2005.
The next factor I wanted to point to was the guidance available from the authorities both on cognate statutory provisions in Australia and on general law matters especially concerning the law of deceit or negligent misstatement. The relevance of those authorities has been acknowledged by this Court in both Campbell and in Butcher at, respectively, paragraphs 102 and 98. Chief Justice Keane reviewed the relevant authorities and I draw attention to those passages at 3562, commencing at paragraph 101. His Honour first deals with the general law position. In 101 his Honour refers to Spencer Bower. The emphasis in all the cases is on the distinction between a mere opinion recognisable as such and on the other hand statements about the effect of an agreement, the character of an agreement, the contents of an agreement and so forth. Within that passage from Spencer Bower there is a statement that:
if a person chooses to express in a statement of fact what he merely believes as opinion, or information, that statement will be a representation.
And the context is a representation of fact. His Honour refers to the Global Sportsman Case at 107 to 108 where the opinion characterisation only relates to an opinion which is identifiable as such. His Honour refers to the Court of Appeal decision in Western Australia in Middleton. The analysis in that case is very helpful, in our submission. I will not take the time to go to it, but in addition to Justice McLure now President McLure, there are passages in Justice Buss’ judgment at paragraphs 55 and 56. That was a misleading and deceptive conduct case. The question was whether insurance coverage was available and whether an affidavit swearing that it was not available was misleading.
The Court unanimously held that the affidavit claimed that the insurance coverage did not apply in an affidavit filed in proceedings was misleading. There is another passage from Spencer Bower at paragraph 110 and that summarises the established general law position that a statement as to the character, contents or effect of a document is a representation of fact. That is under the first heading. At about line 32 there is a similar statement of principle.
I mentioned earlier another insurance case reaching the same result as Middleton is SWF Hoists v SGIC, which is in our authorities and the analysis is approved in the Inn Leisure Case. We also included in our authorities a much older authority, explaining why it was that the general law had taken the view that if you mistake the character of a legal document that will be regarded for recipients, as a representation of fact. That is Hart v Swaine (1877) 7 Ch D 42 at 46 to 47. The passage, if the Court has it, is at about 12 lines from the end of 46:
The Defendant took upon himself to assert that to be true which has turned out to be false –
It continues for about five lines on the next page. The statement in question was that land was freehold when it was really copyhold. The next point I wanted to make I have touched upon. The class of reasonable - - -
GUMMOW J: The critical point is in Justice Fry’s reasons at the bottom of 46, is it not, of.....:
he takes upon himself to warrant his own belief of the truth of that which he so asserts.
MR YOUNG: Yes, your Honour.
HAYNE J: If a man having no knowledge whatever on the subject, hardly surprising that if they say Blackacre is freehold and they do not have any knowledge that somebody reaches the conclusion that that is just a mite fraudulent.
MR YOUNG: The point I was about to move to is that the class of reasonable recipients includes the sophisticated and the unsophisticated. You, of course, exclude reactions or assumptions that are extreme or fanciful as this Court said in the Nike Case. But the class is not to be reduced to single perception, necessarily. The Tobacco Institute v AFCO Case [1992] FCA 630; 38 FCR 1 is the case I wanted to refer the Court to. It is in our authorities. The statement in question there was a far cry from the statement here. It was the statement about little evidence proving scientifically the connection between cigarette smoke and disease. But the judgments of the Full Federal Court contain a useful analysis of what needs to be established to succeed in an argument that there is a mere statement of opinion. First, in the judgment of Justice Sheppard there is a passage at pages 25 to 26.
FRENCH CJ: It is Justice Foster, I think.
MR YOUNG: I am sorry, Justice Foster - particularly, the middle passage at page 26, commencing “It is important to bear in mind” and the top of page 27, first paragraph. There is useful discussion, as well, in the judgment of Justice Hill, commencing at page 46, last paragraph. I wanted to draw particular attention to page 47, second paragraph. The principle his Honour identifies is that you need to consider whether any reasonable interpretation of the statement:
by a not insignificant section of the public –
would be one in which they treated it as a matter of fact and were thereby led into error. In our submission, when account is taken of all of the circumstances, ordinary and reasonable members of the class of recipients would have understood Fortescue’s unqualified statements to say that build and finance undertakings or obligations had been assumed in these contracts by the Chinese counterparties. It breaks down as you move from announcement to announcement because there are other aspects of each. But, can I refer to the CREC announcement by way of example?
There is not only a message conveyed that the company and CREC had entered into an agreement whose terms imposed obligations to build, finance and transfer the railway, but there are representations that would be understood as conveying that this is a build and transfer contract of the kind common in the international construction industry and further, that the terms of the agreement contained terms fixing a price and allocating full risk to CREC.
The converse, of course, is that, in our submission, the statements would not have been understood as mere expressions of opinion or belief about the contents or effect of the agreement, especially given the ASX announcement context of the statements. So, for those reasons, in our submission, the Full Court was correct when it addressed the relevant question of fact and found as the Court did, that the statements conveyed factually erroneous matters.
I want to turn to the contract position that Mr Jackson addressed at some length. The submission we make is that the Full Court was correct in its analysis of the contract. Chief Justice Keane’s conclusion appears first at paragraph 135 at page 3576. His Honour in that paragraph finds that:
The content of the agreements as to subject matter, scheduling and price, was explicitly left to be agreed between the parties.
His Honour repeated that finding at 161, and I do not need to go to it.
GUMMOW J: Now, in a way that second sentence of 135 throws up a point I think you are making which is that it was misleading to say that there was a binding agreement without going on to say that there were these matters left for future determination.
MR YOUNG: For further agreement, yes, your Honour, even on Mr Jackson’s argument.
GUMMOW J: Even if there was now an agreement, it left other matters open, which a recipient of this information might like to know.
MR YOUNG: Yes, your Honour, and the contrary was very much the message conveyed, that is, this agreement has been finalised and it addresses all of those essential matters: performance, specifications, price, risk and all matters relevant to the allocation of risk.
KIEFEL J: In relation the question of price, we were taken to an email at volume 1, page 348, from Mr Heyting, at about line 25, to the words:
Our cost estimate is net cost without contractors margin (normally 8-10%) -
Does the part in parenthesis relate to the contractor’s margin or is it an expression of pricing, or is it unclear?
MR YOUNG: I would assume the former, your Honour, but this is simply an internal estimate.
KIEFEL J: I think it was relied upon as a mind having been brought to bear in relation to the question of price.
MR YOUNG: I do not think it was put so high, your Honour. I think this was gone to by Mr Jackson I think to indicate that the price for the build and transfer of the - - -
KIEFEL J: Is capable of ascertainment.
MR YOUNG: It was capable of ascertainment.
KIEFEL J: Yes, you are quite right, yes, it was capable of being determined, but what that suggests is that there could be quite a margin.
MR YOUNG: Well, there is likely to be as many views as you might have competing contractors about what would be an appropriate price, but the fact is, your Honour, the fact that one individual internal to FMG can make an estimate as of February 2004 does not indicate anything about the parties themselves, in this instance CREC and Fortescue, having agreed either on a price or on a reasonable price or a mechanism for determining price.
KIEFEL J: As to a mechanism, you would say you would be approaching something closer to certainty if you had, say, a range within which reasonableness was to be assessed and/or you nominated the body or person to determine it, according to some kind of criteria.
MR YOUNG: Yes, we would say you do need standards to be applied. You do need a third party appointed to determine. None of those things are provided for in the agreement so you do not get to first base. But beyond that, your Honour, the parties have actually reserved the determination of the price for themselves, for their own future discussion, development and agreement. What has happened in the past? There is no evidence, no material indicating a past agreement.
The framework agreement itself says that is a matter for the future. We are going to develop and agree that ourselves, with the assistance of technical reviews. I am sorry, I said a document internal to Fortescue. This is Barclay Mowlem, Mr Spragg. But, be that as it may, it is simply one individual’s ideas in February of 2004.
His Honour the Chief Justice in the Full Court deal separately with the third party determination provision and I will come to that. But his Honour rejected the proposition that there was a contract to build and finance on two grounds: one, the essential terms were not agreed, and secondly, there was no third party determination process.
His Honour’s starting point was that you need agreement on the essential matters. That is at 123 and 124. His Honour noticed in 125 that the critical issue argued by Fortescue and Mr Forrest on the appeal was that there was as third party determination provision in clause 1.2. There was no challenge to the legal principles emerging from Hall v Busst and other cases that you have to agree the essential matters to have a contract and there is still no challenge to that. It was, I think, briefly alluded to at the special leave stage but there is no pursuit of the principle or the argument that Hall v Busst is wrong and you do not need to agree essential matters. Just before I go to the different aspects of the contract argument - - -
FRENCH CJ: I think there is something in one of the replies, is there not, about maintaining an attack on Hall v Busst, if necessary.
MR YOUNG: I was about to turn, your Honour, to the trial judge. I know it has been canvassed that he did not decide anything beyond reasonable arguability about the contract point. I do want to make a submission about that and can I use two paragraphs of his Honour’s judgment as the basis. The first is volume 8, page 3114, paragraph 274. That is to be read with 271. So all his Honour considered is the question of whether the contractual position we asserted was the only reasonable opinion available. The argument, or the position, is expressed in similar, but perhaps even more striking manner, at page 3128, paragraph 324. There the bar is, perhaps, lowered a little bit further. The proposition is put that:
the issue is whether FMG’s opinions as to the legal effect . . . were not capable of being reasonably held.
His Honour’s conclusion is expressed in this language:
I am not satisfied that it is unequivocally correct to say that the absence of –
what we said were essential matters -
renders the agreements uncertain or incomplete –
In reaching that conclusion, we do submit that his Honour has applied a concept of reasonableness that is an extremely low one. That is apparent when one goes through, step by step, his Honour’s analysis of the various contractual arguments – to take an example, on the opposite page, paragraph 320 at page 3127:
Again, reasonably arguably, the scope of work was well capable of being identified.
His Honour refers to a technical review of the works in 322.
FRENCH CJ: You are not meeting Mr Jackson’s argument here, are you, because - - -
MR YOUNG: No, I am not yet, I am about to come to the detail of those matters, your Honour. I am just saying that his Honour has gone on to make findings about a reasonably based opinion. But in reaching those conclusions it is our submission that his Honour has applied a very low or extremely generous conception of what is reasonably arguable and that creates a gap between that kind of notion and the requirements of section 674, for instance. What information ought the company reasonably to have obtained before making statements in this assertive and unqualified form for announcement to the market? The mere existence of debatable arguments is not going to suffice to satisfy the standards of section 674, nor, we say, the standards properly applying if it be characterised as an opinion that has been conveyed under section 1041H.
I will turn to meet Mr Jackson’s arguments about the particular aspects of the contract. I want to deal with a question of works, the identification of works. Of course it is more than identification. You need to find an agreement upon the subject matter of the contract for this to be an agreement. Can I ask the Court to turn to the framework agreement in the core bundle at tab 1? I will deal separately with the recital.
The works in question are by the terms of clause 1.1 reserved for the future agreement of the parties. Clause 1.1’s second bullet point is incompatible with the proposition that the parties have already agreed upon the works. On the contrary, they are to jointly develop and agree on “The Scope of Work to be included in the Contract” in the future.
Clause 2 does not address that fundamental problem with the appellant’s argument. It contains no more than the broadest and most obvious set of categories of works, earthworks, et cetera. The descriptions themselves provide no certain content. Clause 2.1 is only inclusive, not definitive. Clause 2.2.1 refers to “Procurement, construction and commissioning” but there is no definition of what is meant by “commissioning”, for instance. We know that that was later the subject of substantial disagreement. Indeed, Mr Forrest’s hard asks 27 October email said that he was pressing CREC to assume full responsibility for commissioning, which is hardly consistent with this being an agreement about commissioning.
At the Full Court stage, but not at trial, Fortescue argued that the works could be identified and defined by the preliminary feasibility study. The Court has been referred to this matter. Chief Justice Keane rejected any reliance on the preliminary feasibility study at paragraphs 128, 129 and 130. The argument was not raised at trial. As his Honour says at paragraphs 18, 52 and 93. The evidence was that CREC obtained a copy of the preliminary feasibility study after 7 September 2004. That is volume 4, pages 1380 and 1382 and, of course, the project changed location very substantially from the project that was addressed in a preliminary way in the preliminary feasibility study, as Chief Justice Keane pointed out.
Now, the significance of the abandonment of the reliance on the PFS is that there is no document. No document is pointed to outside the framework agreement as recording the parties agreement as to the identity and scope of the works that CREC has allegedly agreed to perform. There is no evidence of any agreement about that matter and the framework agreement demonstrates the parties reserve that for future agreement. What Fortescue argues is this. They say the scope of works can be identified from rather vague extrinsic discussions. They do not suggest an agreement defining the contractual scope of works can be identified in the extrinsic evidence.
All they say amounts to the fact that the parties have discussed information that might bear upon what works are ultimately by agreement included. Hence they point to discussions in January 2004. They point to brief discussions in August of 2004, I think an hour in a data room, plus a slide presentation that Mr Jackson took the Court to. The slide presentation is all about the PFS and its consideration of a rail line to Mt Nicholas and to Mindy Mindy. Mindy Mindy is far south. The Christmas Creek development is not referred to by name in the slide presentation. There is only the briefest reference to newer areas proving better than Mt Nicholas.
I should have given the reference for the record. I did not want to take the Court back through the slides. It is volume 4. Mr Jackson particularly relied upon pages 1331 to 1333. But all that amounts to is a sharing of some information in an illustrative way about the kind of works that were being considered. There is no evidence of any agreement by which the parties agreed the essential subject matter of the framework agreement and the fact that CREC had access to information falls well short of saying that it agreed to a particular scope of works.
FRENCH CJ: The framework agreement is written as though they know what they are talking about, is it not?
MR YOUNG: Well, in a general way, that they know they are talking about a railway project, your Honour, but no more than that. Your Honour is referring, no doubt, to the recital, but the operative provision immediately reserves agreement upon the precise scope of work to the parties and recital B takes one simply to the later provisions because it says “the parties now wish to evidence their agreement” and their agreement is no more than the parties will jointly develop and agree on the scope of work, amongst other unresolved matters.
There is another aspect of this I wanted to mention. No reference has been made to the other framework agreements in the context of the scope of works. If the Court looks under tab 2 in the core bundle, one finds the CHEC, the Harbour related agreement. Recital A refers to “port related work”. The CMCC Agreement under the next tab, tab 3, page 1596 of the appeal book, refers to “the mines and the process plant”, but the only reference in the presentation to CREC, according to the slides, was that newer areas look more promising than Mt Nicholas.
The contacts with CMCC and CHEC were much more limited than those with CREC. There is no evidence of any discussions about the scope of the works whereby the parties agreed on something to include in a contract in the case of those two parties. Rather, the evidence is that they were prepared to sign a framework agreement without discussion in the same form as CREC.
The trial judge made that finding at 3078 in volume 8, paragraph 169. There was no evidence of any discussion or negotiation about works or value or anything else in the case of those two counterparties. They simply said they would sign the same kind of framework agreement and no doubt because it was a framework agreement.
Mr Jackson referred to the State agreement in the context of arguing that works were identifiable. There was no evidence that it was provided to CREC, CHEC or CMCC. It provides information that no doubt would have to be taken into account, but it provides no evidence that, extrinsically to the framework agreement, the parties have reach any agreement about the works to be included in the relevant contracts should the parties be able to reach agreement as a result of their framework discussions.
Can I turn to the third party determination argument, which focuses on clause 1.2 of the agreement? Chief Justice Keane rejected the reliance on the alleged third party determination provision in a series of paragraphs running from 168 to 176 at 3588 to 3590. I will not take the Court through those paragraphs. The Court has already been taken through most aspects of them, but can I put a series of reasons as to why the argument relying on clause 1.2 is really without merit?
The first reason is that clause 1.1 reserves various matters including the works, the scheduling of the works and the value of the works for the parties themselves to agree in future. Clause 1.1 in the last bullet point uses the word “Determination”, so the only ones who are going to determine the value of the works are the parties. Clause 1.2 does not speak about a third party determination at all.
Next, turning to 1.2, 1.2 is concerned with a scope of work, not a resolution of disagreement. The point that the Chief Justice made about it operating immediately is that it is not contingent on a failure to agree. FMG is to, as soon as this agreement becomes binding – if it does, but as soon as the parties signed it and treated it as having effect – FMG was to undertake a particular kind of work, which was obtaining a technical peer review and an independent review of the schedule and the value of the works.
The provision says that CREC shall co-operate in that work – not that it shall be bound by some third party determination. CREC’s only obligation is to co-operate in the technical review process.
FRENCH CJ: There must be assumptions as to what that means embedded in the language.
MR YOUNG: Yes. Chief Justice Keane addresses the matter at 173. The technical review or a peer review, or a review in the engineering world, is a procedural process for correcting errors and effectively providing information to assist the contracting parties to reach agreement.
FRENCH CJ: Was that a matter of evidence, or a matter of, simply, submission to his Honour?
MR YOUNG: The reliance on texts like Ricketts was a matter of submission. There was some evidence, though, as to how in other documents Fortescue itself used the expression “peer review”. The Fortescue documents are referenced in paragraph 65 of our submissions on the FMG appeal. So there was a usage by FMG in the sense of a technical review to assist the parties to formulate the project. That reading of it is consistent with the reference to technical review in 2.2.2.
Your Honour the Chief Justice mentioned that to Mr Jackson and Mr Jackson said he accepted that no distinction was to be drawn between the kind of exercise in 2.2.2 and the kind of exercise in 1.2, whether it went under the label of “Technical peer review” or “Independent review of the schedule and value of the works”. They are all of the same kind of process. The same points can be made about 2.2.2. It is a scope of work to be undertaken by FMG. The reasonable commercial party in the shoes of the parties reading this would think it is a facilitative exercise to assist the
parties to fulfil their core agreement – that is, that they, themselves, are going to jointly develop and agree all these matters.
The provision in 1.2 does not identify the independent reviewer or technical reviewer. It is simply part of FMG’s scope of work. If you ask yourself the BNP Paribas question, how would reasonable commercial parties in the position of these parties understand and construe this provision, it would be a rather uncommercial proposition that CREC had agreed to be bound by the result of whatever the reviewer said as to value or works notwithstanding 1.1 and, in the absence of any words saying that CREC will be bound.
I will give one example about peer review, your Honour. I am grateful to Mr Pound. It is volume 5, 1577. That is the third-last passage perhaps. It is a peer review of concepts, a technology exchange. Another example is at 1611. There is going to be a bridge reviewer, a different person to provide information about bridges.
FRENCH CJ: How much longer will you need, Mr Young?
MR YOUNG: I have almost finished the contract point, your Honour. I think I will take about three hours. Mr Myers raised quite a number of what we say are new issues.
FRENCH CJ: All right. Well, I think you have all been advised this has been relisted to 10.00 am on 30 March, so I think we will now adjourn.
MR YOUNG: If your Honour pleases.
FRENCH CJ: So the Court will adjourn until 10 o’clock tomorrow morning.
AT 4.15 PM THE MATTER WAS ADJOURNED
UNTIL FRIDAY,
30 MARCH 2012
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