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Forrest case leaves open disclosure

04 Oct 2012

Australian Financial Review


The High Court's judgment in Forrest v ASIC is a simplification of a morass of multifaceted, convoluted allegations which appear to have overlooked commercial reality, says Cary di Lernia

Those hoping for a divination of the future application of Australia's continuous disclosure provisions in the High Court's judgment in Forrest v ASIC will be sorely disappointed. In view of the factual milieu and the shifting sands represented by the pleading of Australian Securities and Investments Commission's case through the courts, the judgment is what it is: the simplification of a morass of multifaceted, convoluted allegations which appear to have overlooked commercial reality. For those who delight in a little regulatory schadenfreude on the other hand, the judgment presents ample opportunity.

In a matter which has been suspended in varying states of action/appeal limbo for over six years, the High Court unanimously held that announcements made by Fortescue Metals Group and Mr Forrest in relation to agreements struck with three Chinese companies were not misleading or deceptive. The section of the public targeted by the information releases  those looking at a venture which was little more than an ambitious and "early stage project development concept" - did not, in the words of Justice Dyson Heydon, constitute "an audience in whom the adjectives 'Western Australian', 'mining' and 'Chinese state-owned enterprise' would excite a sudden certainty about the imminent creation of wealth beyond the dreams of avarice".

Given that the information released was held to have accurately represented the agreements made, ASIC's argument that Fortescue had breached the continuous disclosure requirements by misrepresenting their effect and failing to subsequently correct them was not established as there was, in effect, nothing to correct. This leaves unanswered?? important questions relating to the continuous disclosure regime that were widely expected to be considered, leaving the regime in its own state of limbo until further legislative, regulatory or court guidance.

What it does not leave open to conjecture is the way in which ASIC will need to pursue allegations of misconduct in future cases, should it even wish to bother given temporal considerations and their effect on perceptions of enforcement activity, as well as developments in the litigation landscape where class actions and litigation funders have begun to flex their muscle. At trial, Justices William Gummow and Kenneth Hayne were scathing of ASIC's argument, and the judgments delivered on Tuesday were no less derisive of the presentation of ASIC's case.

Statements that ASIC's case was confused, lacking in clarity and definition, and heaping alternative upon alternative to the point where some allegations were characterised as embarrassing to the fair trial of proceedings presumably will not be taken lightly by the regulator.

It will be interesting to see whether this results in a change of focus in the employment of the enforcement armoury up ASIC's sleeve in its pursuit of the ideal of market integrity.

Cary Di Lernia is a lecturer in business law at the University of Sydney Business School.

First published in Australian Financial Review

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