Fortescue Metals Group Ltd. is “deeply disappointed” after a court ruled that Australia’s third-biggest iron ore miner and its Chief Executive Officer Andrew Forrest misled investors over accords with China.
“The company is now reviewing the judgment before deciding on its next course of action,” Perth-based spokesman Cameron Morse said in a phone interview, declining to say whether the company will appeal the decision. Earlier today, the Federal Court of Australia upheld an appeal from the nation’s corporate regulator, which initiated the legal action.
Forrest and Fortescue have to pay the costs of the appeal by the Australian Securities and Investments Commission, or ASIC, according to a faxed copy of the court orders today by three judges of the Federal Court. The judges overturned a Dec. 23, 2009, judgment in favor of Forrest and his Perth-based company, who both denied the allegations.
The regulator had alleged Forrest and Fortescue engaged in misleading and deceptive conduct in 2004 by overstating agreements with three Chinese companies for the development of its A$2.8 billion ($2.83 billion) ore project. Forrest also breached duties as a director, the regulator claimed.
“It is a curiosity of this case that there was no evidence that any member of the investing public was misled by, or suffered loss as a result of Fortescue’s contraventions,” the judges said in today’s ruling. “Presumably, that is because those who invested in Fortescue have profited handsomely from that investment.”
Fortescue, which earlier reported a sevenfold jump in first-half profit, had its shares halted today on the Australian stock exchange pending a statement on the appeal. It now has a market value of A$21.4 billion.
Fortescue and Forrest contravened parts of the Corporations Act 2001, according to today’s ruling. The matter will be sent back to a Federal Court judge, it said.
“There’s been no decision from the Federal Court in relation to penalties; that will be dealt with at a later date,” Emma Forhan, a spokeswoman for ASIC, said today by phone. Forrest faces possible penalties, including being barred as a director and paying a fine.
ASIC alleged Fortescue had incorrectly claimed in statements between Aug. 23, 2004, and Nov. 9, 2004, when its shares jumped 35 percent, that it had agreed binding contracts with China Railway Engineering Corp., China Harbour Engineering Corp. and China Metallurgical Construction (Group).
“ASIC appealed the Federal Court’s Fortescue decision because the trial judge’s finding raised critical issues about the proper interpretation of the parts of the Corporations Act that govern company announcements,” regulator Chairman Tony D’Aloisio said in an e-mailed statement today. “Today’s result provides important reinforcement to the operation of the continuous disclosure provisions of the Act.”
To contact the editor responsible for this story: Andrew Hobbs at firstname.lastname@example.org