The Fortescue decision: insights from the Commercial Court seminar

As I indicated on my article yesterday, I went to the Commercial Court seminar on the Fortescue decision which was handed down by the High Court of Australia on 2 October 2012.

The insights provided were helpful and interesting.

Justice Robson of the Supreme Court of Victoria noted that the main between the majority decision and Justice Heydon's decision was whether the statement by Fortescue amounted to an opinion. The majority opined that it did not, and Heydon J opined that it did. Justice Robson observed that the majority decision is likely to be used to reject an opinion based approach to the question of whether a statement is misleading or deceptive conduct.

The majority's approach is highlighted at [33]:

33. As has already been noted, ASIC's argument in this Court hinged on the proposition that the impugned statements conveyed to their intended audience a view about the legal enforceability of the framework agreements. ASIC sought to describe what was conveyed as a matter of fact, submitting that "the words 'agreement' or 'binding agreement' convey that it is an agreement containing all of the essential elements that would constitute a contract under Australian law". While it is to be doubted that the proposition which ASIC identified is accurately, or at least sufficiently, described as a statement of "fact", it is ultimately unprofitable to attempt to classify the statement according to some taxonomy, no matter whether that taxonomy adopts as its relevant classes fact and opinion, fact and law, or some mixture of these classes. It is necessary instead to examine more closely and identify more precisely what it is that the impugned statements conveyed to their audience.

Mark Moshinsky, SC, noted the main difference between the decision of the Full Court of the Federal Court of Australia (FCFCA) and the High Court was that the FCFCA looked at the correctness of the statement as a matter of legal enforceability whereas the High Court looked at what the parties did and intended to do. This is highlighted at [37] and [38]:

37. Would they, as the Full Court assumed, ask a lawyer's question and look not only to what the parties had said and done but also to what could or would happen in a court if the parties to the agreement fell out at some future time? Or would they take what was said as a statement of what the parties to the agreements understood that they had done and intended would happen in the future? The latter understanding is to be preferred. 

38. The Full Court's conclusion hinged on the use of the word "contract" or "agreement" in each of the impugned statements. The Full Court assumed that, by using one or other of those terms, the impugned statements conveyed to their intended audience a message about the legal quality (as determined by reference to Australian law) of the contract or agreement referred to in the relevant communication. And the relevant legal quality was identified as future enforceability in the event of a dispute between the parties. That is, the Full Court assumed that the words "contract" and "agreement" necessarily conveyed a message about legal enforceability in an Australian court. But that is too broad a proposition. First, it is necessary to examine the whole of the impugned statements to see the context in which reference was made to the making of a contract or agreement. Second, it is necessary to undertake that task without assuming that what is said must be put either into a box marked "fact" (identified according to whether an Australian court would enforce the agreement) or into a box marked "opinion" (identified according to whether the speaker thoughtthat an Australian court could or would enforce the agreement).

Senior counsel noted the implications of the decision were:

• the reduced relevance of a distinction between what is a statement of fact and a statement of opinion;
• in Justice Heydon's reasons, what principles are applied when there is a statement of opinion; and
• the question of who is the intended audience.

Michael Kingston, the Chief Legal Officer of ASIC, noted that the impugned statements caused an enormous fluctuation in the Fortescue share price and induced a substantial number of share sales, bringing home the enormous effect of the statements on the market.

Mr Kingston questioned whether the standards for market disclosure were now lower than expected. Given the test for disclosure is [by way of broad summary only] what a reasonable person would have expected to have communicated to him or her, he questioned if now the market was required to 'read between the lines' when a disclosure is made, for instance, when a company enters into a 'binding contract' with a Chinese company as Fortescue did.

The Commercial Court seminar series has come to an end for 2012. Many thanks to Justice Davies for her efforts in organising and pulling together such a fantastic cast of speakers for the series.