Bloomberg News

Fortescue Wins Court Hearing in Bid to Fight Director Ban

September 29, 2011

(Updates with comments from ASIC in fourth paragraph.)

Sept. 29 (Bloomberg) -- Andrew Forrest, founder of Fortescue Metals Group Ltd., won a hearing before Australia’s highest court in his bid to fight a regulator-sought ban on holding director posts at publicly traded companies.

The High Court of Australia today granted Forrest’s request for the hearing, Fortescue said in a statement to the Australian stock exchange. A date for the hearing of the appeal hasn’t been set yet.

The Australian Securities and Investment Commission alleged that Forrest and Fortescue, the country’s third-biggest exporter of iron ore, misled and deceived investors with a description of contracts with three Chinese companies. Forrest had breached his duties as a director, according to the regulator.

The commission will defend the appeal, Acting Chairman Belinda Gibson said in a notice on its website.

“This case raises important issues which form the bedrock of confidence in the integrity of our markets, including misleading and deceptive conduct, continuous disclosure and directors’ duties,” Gibson said.

Federal Court Justice John Gilmour cleared Forrest and Fortescue on Dec. 23, 2009, after a trial in Perth, saying their opinions were honestly and reasonably held. An appeal panel overturned the decision on Feb. 18 this year, ruling the conclusion was erroneous and referred the case back to the trial judge for determination of a penalty.

Binding Contracts

In 2004, Fortescue said in letters to the stock exchange and media releases that the Perth-based company had binding agreements with China Metallurgical Construction Group Corp., China Harbour Engineering Co. and China Railway Engineering Corp. to build an iron ore mine, a port at Port Hedland in Western Australia and a railway, according to court records.

Fortescue shares rose in Sydney trading following the announcements to 50.5 Australian cents on March 23, 2005, from 5.9 cents on Aug. 23, 2004, the records show.

The stock slumped after the Australian Financial Review reported in March 2005 that the agreements didn’t impose any legally binding obligations on the Chinese contractors, according to the appeals court judgment. Fortescue fell 25 percent to 37.7 cents on March 24, 2005.

The shares dropped 1.6 percent to A$4.45 at the 4:10 p.m. close of Sydney trading, compared with the 0.8 percent decline in the benchmark S&P/ASX 200 Index.

The appeal case is: Australian Securities and Investments Commission v. Fortescue Metals Group Ltd. WAD23/2010. Federal Court of Australia - Full Court (Perth)

--with assistance from Elisabeth Behrmann in Sydney. Editors: Ryan Woo, Rebecca Keenan.

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net.


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