forrest have been cleared , page-9

Twiggy cleared of misleading investorsThe West Australian
December 23, 2009, 12:55 pm


UPDATE: Fortescue Metals Group chairman Herb Elliott says the WA iron ore miners decision to launch a strong defence against a civil law suit brought by Australias corporate regulator had been vindicated by the Federal Courts decision today to throw out the case.

Justice John Gilmour dismissed all 22 of the allegations levelled by the Australian Securities and Investments Commission against Fortescue and chief executive Andrew Forrest.

Justice Gilmour also awarded costs in favour of Fortescue and Mr Forrest.

Mr Elliott said Fortescue was now looking forward to focusing on its Pilbara iron ore business.

The Australian Securities & Investments Commission, which pursued the case, had claimed that Mr Forrest misled investors in 2004 when he announced deals relating to the finance and construction of mine, port and rail infrastructure at Fortescue Metals Group's Pilbara iron ore project.

Outside court, a spokesman for Mr Forrest said that justice had been done.

FMG staff and lawyers embraced in court on the delivery of the judgment.

The hearing will resume to hear submissions on the handling of costs for a case that involved up to 20 lawyers, including several QCs.

It is the third loss for ASIC in just over a month, after it failed to prosecute One.Tel executives Jodee Rich and Mark Silbermann and AWB's former managing director Andrew Lindberg.

ASIC had alleged Mr Rich and Mr Silbermann had breached their fiduciary duties and that Mr Lindberg had acted improperly during the Iraqi kickbacks scandal.

During the FMG case, ASIC told the court that its case against Mr Forrest, FMGs chief executive, was much stronger than the landmark action it won against James Hardie directors.

ASIC had claimed that FMG and Mr Forrest misled the market five years ago by promoting preliminary agreements with Chinese investors as binding.

FMG counsel Neil Young told Justice John Gilmour during the hearing that the commissions claims against Mr Forrest had parallels to the James Hardie case heard in the NSW Supreme Court.

In that case, the court found 10 former James Hardie directors and executives misled the public when they approved a 2001 media release describing a multi-million-dollar compensation fund for asbestos victims as fully funded, when it was later found to have a shortfall of as much as $2 billion. ASIC was quick to label the ruling a landmark decision on corporate governance.

ASIC accused Mr Forrest of breaching his duties as a director by failing to correct the allegedly misleading statements.

Referring to a series of internal company documents which included emails sent and received by Mr Forrest, Mr Young said there was clear evidence to show FMG and its senior executives were aware from early 2004 that the agreements signed with Chinese parties were in no way binding contracts.

ASIC claimed FMGs August and November announcements of those contracts, for the finance and construction of mine, port and rail infrastructure at its Pilbara iron ore project, led to material increases in the companys share price.

FMG and Mr Forrest said their announcements were correct at the time.

The deals collapsed in 2006.

Mr Forrests counsel, Allan Myers, told the court that his client did not believe he needed to get legal advice on the agreements with Chinese companies because he had enlisted the help of FMGs then-project manager of infrastructure, Ed Heyting, with the first agreement.

Mr Heyting had said he was familiar with the type of agreement being signed because he had taken a professional course on how to construct commonly used build and transfer contracts, which FMG thought its agreements were.

Mr Myers said Mr Forrest was entitled to rely on Mr Heytings opinion that the agreements were ordinary build and transfer contracts.

Mr Heyting later conceded under cross-examination that the wording reflected that of a memorandum of understanding, but FMG subsequently employed an in-house counsel, Peter Huston, who read each agreement and agreed they were legally binding.

Mr Myers took Justice Gilmour through hundreds of pages of internal company correspondence dating from early 2004 to mid-2006, when the Chinese deals finally collapsed, to show what he said was clear evidence that Mr Forrest and all of his senior FMG executives reasonably, sensibly and honestly believed the agreements they had signed were binding contracts.