In Forrest v Australian Securities and Investments Commission [2012] HCA 39 (2 October 2012), the High Court (French CJ, Gummow, Hayne, Kieffel JJ, and Heydon J in a separate judgment) was considering whether Fortescue Metals Group ltd (FMG) and/or its chairman and chief executive, Andrew (“Twiggy”) Forrest had breached the Corporations Act 2001 in announcements to the ASX that it had entered into a binding agreement with Chinese corporations to build, finance, and transfer, a railway in the Pilbara.

The agreement was expressed to be binding, but envisaged detailed, further, agreements still to be agreed between the parties.

ASIC argued that the agreement was not a binding agreement, accordingly:

  1. FMG and Forrest had mislead and deceived in relation to a financial product in breach of Section 1041H;
  2. FMG had breached the continuous disclosure requirements of Section 674’
  3. Forrest had not exercised his powers/duties as a director with the degree of care and diligence required by Section 180(1).

On the legal question as to whether the agreement was, in fact, binding, Heydon J said, at paragraphs 92-93:

…. ASIC’s case thus boils down to the question whether Fortescue was right to call the agreement a binding contract. It was certainly a binding contract to negotiate further contracts within the intent of the agreement which would result in the railway being built. …. Was the agreement a binding contract to build the railway? Fortescue advanced numerous arguments for the view that it was because the parties had agreed, or provided for agreement on, all essential terms. There is force in many of those arguments, but difficulty in some….

The High Court concluded that:

  1. FMG’s statements were not misleading or deceptive or likely to mislead or deceive.
  2. Accordingly, ASIC had failed to demonstrate that FMG had breached the continuous disclosure requirements of Section 674.
  3. Accordingly, It was not shown that Forrest had not exercised his powers/duties as a director with the degree of care and diligence required by Section 180(1).