Forrest v Australian Securities and Investments Commission & Anor; Fortescue Metals Group Inc v Australian Securities and Investments Commission & Anor
[2012] HCATrans 48
[2012] HCATrans 048
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Perth No P44 of 2011
B e t w e e n -
JOHN ANDREW HENRY FORREST
Appellant
and
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
First Respondent
FORTESCUE METALS GROUP LTD (ACN 002 594 872)
Second Respondent
Office of the Registry
Perth No P45 of 2011
B e t w e e n -
FORTESCUE METALS GROUP LTD (ACN 002 594 872)
Appellant
and
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
First Respondent
JOHN ANDREW HENRY FORREST
Second Respondent
FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 29 FEBRUARY 2012, AT 10.22 AM
Copyright in the High Court of Australia
__________________
MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR B. DHARMANANDA, SC, for the appellant in P45 of 2011 and for the second respondent in P44 of 2011. (instructed by Corrs Chambers Westgarth)
MR A.J. MYERS, QC: May it please the Court, in each of the appeals, I appear with MR M. THANGARAJ, SC on behalf of Mr Forrest. (instructed by Gadens Lawyers)
MR N.J. YOUNG, QC: If the Court pleases, in each of the appeals I appear with MR M.K. MOSHINSKY, SC, MR J.A. THOMSON and MR A.D. POUND for the first respondent, ASIC. (instructed by Mallesons Stephen Jaques)
FRENCH CJ: Yes, Mr Jackson.
MR JACKSON: Your Honours should have a copy of our outline of submissions. There is another document that I will come to shortly which is a bundle of the core documents that we have given to your Honours, but may I indicate it in a few moments. Your Honours, could I go first to the basic structure, as it were, of the matter as it is before the Court. The appellant was held by the Full Court to have contravened two provisions of the Corporations Act, namely, section 1041H and section 674(2). Your Honours, as to section 1041H it says – and, your Honours, I am simply paraphrasing it for the moment – it says that:
A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
The relevant financial product, your Honours, was shares in the appellant. That was not the matter in issue. Your Honours will see that referred to by the primary judge in volume 8, page 3212 in paragraphs 643 to 646 and the appellant in the Full Court was held to have contravened section 1041H in the manner which is referred to in that court’s order, order 2.2, which your Honours will find in volume 9 at page 3632.
Your Honours will see that order 2.2 refers to three agreements and that referred to in order 2.2(a) is the first and earliest in time of the three agreements. It is described as the CREC Agreement. Your Honours, that agreement can be found in volume 4 at page 1109. Order 2.2(b) refers to the CHEC Agreement. That can be seen in volume 4 at page 1520 and order 2.2(c) refers to the CMCC Agreement which is in volume 5 at page 1595. Could I just invite your Honours to look for a moment at order 2.2. Your Honours will see that paragraph 2.2(a) refers to a period commencing on 23 August 2004 and ending on 28 February 2005, whereas paragraphs (b) and (c) commence with a different date, 5 November 2004. Your Honours, that difference in date reflects the fact that the announcement as to the CREC Agreement, the first, was made on 23 August 2004. The first announcement in relation to the other two agreements was made on 5 November 2004. Your Honours, each order in 2.2 referred to documents in a schedule A, that is schedule A to Chief Justice Keane’s reasons. It is at volume 9, page 3599.
Your Honours, the relief granted against the appellant in respect of those breaches was declaratory. It was granted pursuant to section 21(1) of the Federal Court of AustraliaAct 1976 and that that was the basis upon which relief was sought is at apparent from the originating process in volume 1, page 2. Your Honours, there is not provision for a pecuniary or other penalty for a breach of section 1041H, although there is the ability to sue for loss because of it and it is not a provision which is listed in section 1317E of the Corporations Act as being a civil penalty provision, whereas section 674 is.
May I come for a moment then, your Honours, to section 674(2). Perhaps I need to take your Honours to the provision at this point. Your Honours will see that the starting point in the possible application of the section is to answer a question which is posed by section 674(2)(a) and that is, does the subsection apply to a listed disclosing entity? It will apply, your Honours, if section 674(1) is satisfied, namely, if the provisions of the relevant listing rules contain the requirement referred to in section 674(1) and that is, your Honours, a requirement to notify the market operator of specified events or matters as they arise for the purpose of making that information available to participants in the market.
Your Honours, I will come to the relevant listing rule in just a moment, but may I say the second requirement of section 674(2) is found in paragraph (b), and it requires that:
the entity has information that those [listing rules] require the entity to notify to the market operator –
and section 674(2)(c) then requires:
that information:
(i)is not generally available; and
(ii)is information that a reasonable person would expect . . . to have a material effect on the price or value of ED securities of the entity –
If those requirements are satisfied:
the entity must notify the market operator of that information –
Your Honours, a contravention of section 674(2) is described as a financial services civil penalty provision, which your Honours will see from a combination of two provisions. One is section 1317DA which defines the term and, secondly, section 1317E(2)(ja) and such a contravention, your Honours, gives rise to a liability for a pecuniary penalty which your Honours will see in section 1317G(1A)(i). Your Honours, all that depends on the terms of the listing rules and the relevant listing rule was listing rule 3.1 and your Honours will see that it comes into operation:
Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities –
and when that occurs –
the entity must immediately tell ASX that information.
Your Honours, the term “aware” in that phrase “is or becomes aware” is defined by rule 19.1 and rule 19.1, your Honours will see, provides that aware means an entity is or becomes aware of any information:
if a director or executive officer . . . has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties –
as such, to put it shortly. Your Honours, the orders made – or the orders so far made, I should say, because no penalty has yet been applied – in relation to the contraventions of section 674(2) appear in volume 9 at page 3630 and your Honours will see, to take order 2.1(a) as an example, that they amount to declarations that the contravention is the failure to notify the ASX of information held, et cetera, being “information disclosing the material terms and effect of”, in this case, “the CREC Framework Agreement”, and orders 2.1(b) and 2.1(c) relate respectively to the other two agreements. Again, for similar reasons, there are different dates.
FRENCH CJ: Just to get a sense of the general structure of the case – about the relationship between the misleading or deceptive conduct case run by ASIC and the non‑disclosure case, is it your position that in the circumstances, the way in which this case was run, if ASIC maintains the misleading or deceptive conduct case, it still has additional elements to demonstrate in order to maintain the non‑disclosure case? That is the awareness element, I think, identified in your submissions.
MR JACKSON: Yes.
FRENCH CJ: Do you say that if ASIC fails on the misleading or deceptive case, that the non‑disclosure case necessarily collapses with it?
MR JACKSON: Yes, we do. We do, your Honour, yes. ASIC, I think, may say the contrary, but that is what we say. Your Honour, I am going to come to those aspects in just a moment, if I may but I am just going to say one further thing before coming to them. Underlying the Full Court’s view in relation to section 674(2), there appears to have been the view that because there was a contravention of section 1041H, there necessarily was a contravention of section 674(2) in not correcting the information held to be misleading. Your Honours will see that in two passages; first of all, paragraph 181 of the Full Court’s reasons in volume 9 at 3591 and also, your Honours, a little further on in paragraph 189 at the bottom of page 3594.
HEYDON J: Is that implicit in those conclusions that if a defendant in this type of litigation were held strictly liable, as it were, for some misleading conduct in the nature of an opinion which that defendant, nonetheless, sincerely believed to be the case but lacking reasonable grounds for that belief, would it be your submission that ASIC does not win under 674 on a basis of strict liability? In other words, if one does not appreciate the falsity of what one said, or the misleading nature of what one said, how can one be said to have failed to disclose it?
MR JACKSON: Yes, your Honour, that is one of the things we say.
HEYDON J: So that is one of your ‑ ‑ ‑
MR JACKSON: Yes, and it touches both on the question of existence of belief and the reasonableness of that existence and I will have to come to that, of course, but the answer to what your Honour said is yes. Your Honours, may I come then to some background matters, and I will do so as briefly as I can indicating, in effect, something about the course of the matter. The three agreements, your Honours, were made against a factual background where, as the Full Court said in paragraph 1 of its reasons, at page 3521, the appellant had a project, which was the Pilbara Infrastructure Project. The Pilbara Infrastructure Project had three elements: one was an iron ore mine in the Pilbara, the second was a port at Port Hedland and the third was a railway to connect the two.
Could I add three things, your Honours. In the various public statements made, to which I will come, you will find references to a desire to have a third force in mining in iron ore in the relevant part of Western Australia. That was the appellant’s intention to stand alongside, perhaps in front of, perhaps a little behind, Rio Tinto and BHP. You will also find references to the railway giving access to all, not just to the appellant. That was a belief, desire, however one likes to describe it, of Mr Forrest. You see it on a number of occasions. The third thing, your Honours, was that the original proposals by the appellant had been for the mine to be located at Mt Nicholas, but before the agreements were entered into the decision was made to change the location to Christmas Creek.
Now, the last of those matters, the change to Christmas Creek, is relied on by the first respondent as a matter of demonstrating that these were not concluded agreements. You will see it referred to in the respondent’s submissions at paragraph 7.
FRENCH CJ: That is the reliance on the preliminary feasibility study.
MR JACKSON: Well, your Honour, that is the way the Full Court put it and that rather constrained the case we were making. I think I will just say this about the preliminary feasibility study for the moment and I will come to this a little later, but what we were saying was that if you were looking to see what was being spoken about in the project there were various things you could look at. One was that there was a preliminary feasibility study. Undoubtedly it referred to mining at Mt Nicholas, but before the first agreement was entered into the decision had been made to make it somewhere else and so that was being discussed and that was the subject of the first and later agreements.
Your Honours, could I just say this. The change to Christmas Creek is relied on by the first respondent in their written submissions at paragraph 7. It was also relied on by the Full Court at paragraph 129 of its reasons at page 3574 in volume 9, but, your Honours, could we just say, as we have in paragraph 2 of our submissions in reply, that that occurred before any of the three agreements had been entered into and the change can be seen in, for example, two documents.
One is in volume 2 at page 598 and you will see - this is on 29 June 2004 - a heading “Christmas Creek” and then, your Honours, that the matter firms up a little when one comes to 20 July 2004 which - and one can see that from volume 4 at page 1053. You will see a letter to the Stock Exchange at page 1054 and then you will see at page 1055, the document, “New Results Enhance Economics for Australian Ore Project”. The third paragraph, your Honours, refers to the Christmas Creek deposits:
a decision to focus initial mine and processing development on Christmas Creek . . . rather than the previously selected Mt Nicholas ore body.
The second‑last paragraph on page 1055 is the focal point of the development. Your Honours, one can also see in the last two paragraphs on page 1057 the reference to the third force – I am sorry, one can also see on page 1057, the last two paragraphs:
Mr Forrest has been vocal in 2004 in driving a campaign to deregulate what he says is the current duopoly . . .
an advanced $970 million railway open to all users –
Your Honours, the statements impugned by ASIC made reference to the agreements as being binding agreements to build and transfer or build and finance the relevant part of the infrastructure. At the heart of the case for the respondent was the contention that the three agreements were agreements to agree and no more. You will see that referred to by the Chief Justice in the Full Court at paragraph 120 page 3571. Our contention, your Honours, was that the statements were statements of the appellant’s belief that the agreements were binding agreements to build, finance, transfer, et cetera, the relevant infrastructure and we also contended that, as a matter of law, the agreements were binding agreements of that kind.
GUMMOW J: A matter of what law?
MR JACKSON: Is your Honour is speaking about which nationality or – Australian, your Honour.
GUMMOW J: This is an international contract.
MR JACKSON: Yes, it is, your Honour, that is true but it was – well, the position, your Honour, was this. One could see from the agreements that they were first entered into subject to agreement of the boards of directors. They were first entered into in Australia. Then there was the signing ceremony or the confirmation given in China.
There was a recognition that both Australian and Chinese law might apply to them, but there was no suggestion, in our submission, that the statements being made about them were other than statements relating to them being binding according to Australian law. As the matters have developed there is nothing to suggest that they were not binding in Chinese law, so that one is left in a situation that the relevant law would be Australian, in our submission.
Your Honours, the primary judge did not find it necessary to decide whether the agreements were binding as a matter of law and that was because he thought the statements to that effect involved a statement of an opinion which was honestly and reasonably held and thus there was no contravention of section 1041H and, there being awareness of a different position, no contravention of section 674(2). The Full Court took a different view on ASIC’s appeal, holding that the statements were not of opinion, but rather of an absolute, namely that the statements were binding ‑ ‑ ‑
GUMMOW J: Where do we find the critical passage in Justice Gilmour’s conclusion?
MR JACKSON: May I give your Honour a reference to that in just a moment? He says it on a number of occasions and there is a summary of his reasons at the start and then he elaborates upon them. I will give your Honour a reference, if I may, in just a moment. Your Honours, the consequence of the Full Court’s approach was that the statements would be misleading and deceptive conduct unless the agreements were, as a matter of contract law, binding as between the parties to them.
Your Honours, that can be seen from the Full Court’s reasons in volume 9 at page 3561 at paragraph 99 and also at paragraph 117 at page 3569. Your Honours will see particularly the second half, in effect, at paragraph 117. In answer to your Honour Justice Gummow, could I refer to paragraph 59 of the primary judge’s reasons? It is in volume 8, page 3048. Your Honour, there are a number of other references to the same thing and perhaps I can give your Honour a list of them a little later.
Your Honours, could I just say something - just interpolate one thing about the way in which the Full Court, in the two paragraphs to which I just referred, 99 and 117, describe our contentions? At paragraph 99 - and your Honours will see our argument is put as being a belief – and this is at the bottom of page 3561:
as opposed to assertions of FMG’s belief that the framework agreements could arguably be regarded as –
having that effect. Now, your Honours, there is a similar concept in paragraph 117. Could we just say this, your Honours, that to put the argument or to put our case in that way both, with respect, skews and diminishes our case.
KIEFEL J: This arose from the way in which ASIC pleaded the matter. Is that right?
MR JACKSON: Your Honour, I do not know that that arises quite from that.
KIEFEL J: I have interrupted you.
MR JACKSON: No, what I was going to say, your Honour, I think it arises from the fact that the primary judge at some point might have said it could arguably be regarded – and also the argument on behalf of ASIC in the Full Court I think attributed an argument of this kind to us. Could I just say, as we have put in paragraph 91 of our written submissions, we are not saying that what we believed was that the agreements could arguably be regarded as something. What we were saying was that we believed they did have that effect. Our belief was that they did have that effect. We were not saying these are agreements that could arguably have this effect.
KIEFEL J: But when you were saying that, were you saying that as relevant to the allegations in relation to section 1041H or in relation to the penalty provisions?
MR JACKSON: Your Honour, in relation to 1041H, the rest in a sense follows on from that. Could I just say a couple of things, your Honour, in relation to that? We were saying that they were not misleading or deceptive in terms of 1041H because we believed they were true and we believed on reasonable grounds. The complaint that I make about the two paragraphs of the Full Court’s reasons, to which I have just referred, was that they were saying that our argument was that we believed that the agreements could arguably be regarded. What we were saying was we believed they were binding agreements, and we had reasons for that belief.
FRENCH CJ: That terminology of “reasonably arguable” was that applied by his Honour in assessing whether price was able to be determined under the agreement and whether the scope of works was able to be determined by procedures set up under the agreement.
MR JACKSON: Yes. Your Honour, that is way in which his Honour ‑ ‑ ‑
FRENCH CJ: That is where it came in.
MR JACKSON: I think so, your Honour. I think that is right, although I think his Honour might have been led along the path a little. Our learned friends were – I suspect this is so - to be going to give your Honours a particular point. This puts an argument really of the other side. Our argument is, as I said before - my complaint is that the Full Court has taken our argument and made it seem one of inherently less merit than it would otherwise have, and inherently less relevance too, with respect.
HAYNE J: Can I take you back to paragraph 59 of the primary judge’s reasons?
MR JACKSON: Yes, your Honour.
HAYNE J: Do I read that aright as suggesting two stages, the two stages being:
disclosures concerning the binding nature of the framework agreements were assertions –
Stage one. Stage two –
necessarily underpinned by a –
a belief. Is that a fair reading of what his Honour has said?
MR JACKSON: Yes, I think so, your Honour, yes.
HAYNE J: Of what relevance is the second stage to the determination of what was the assertion and whether that assertion was misleading or deceptive?
MR JACKSON: Well, your Honour, his Honour is there speaking in relation to the first of those things – this is part, I think, of his summary of what went on and what took place in the case. As to the first of those things he is simply saying that the disclosures were assertions, contentions, expressions of a view if one likes, about the binding nature of the agreements. In relation to the second aspect of it he is expressing the fact that they were expressions in a sense of an opinion underpinned by an opinion, but that is what he saying. From there it does not determine, except to the extent that one sees from later parts of the reasons, there is no determination of whether they were actually correct clearly.
KIEFEL J: I think his Honour appears to be addressing the way in which it was specifically pleaded by ASIC. ASIC pleaded, for instance, in relation I think to the first representation at volume 1 page 20, paragraph 32(e) and (f), that Fortescue represented and created the impression to certain people that, at (e):
the First Defendant had entered a binding contract -
and (f) –
the First Defendant had a genuine and reasonable basis for making the statements -
ASIC appears to have shaped the case so that his Honour was obliged to direct attention to this. So if somewhere in this I think the way in which Fortescue were putting it was either to meet the way ASIC was raising it or to elide the awareness question that it was trying to run for section 674, and it is not entirely clear to me what Fortescue’s position really was.
MR JACKSON: Well, your Honour, Fortescue’s position was – of course we were a respondent to it and we have mentioned in our written submissions that we did but the other side bore the burden of proof in the end. Having said that we had to respond to the contentions that were made and the responses really fall into the two broad categories that I have referred to already. One was that we said the statements that we made are ones that we believed to be true and believed them to be true on reasonable grounds and that they were matters that inherently involved an expression or assertion of a view which was an opinion as to the legal effect of the agreements.
That was what we were dealing with your Honours and we also had the argument, which the judge did not feel he needed to decide, that in fact it was true; the agreements were binding agreements. Your Honour, that is really how the matter ‑ ‑ ‑
HAYNE J: But is an essential element of that argument the proposition that the various public statements that were made were statements of opinion, and were to be understood as such?
MR JACKSON: Yes, your Honour, it is, but it is not actually essential in relation to the question whether they were or they were not. If the position were that the agreements were binding agreements, then nothing that was said would be misleading or deceptive. That is where one comes. Your Honours, could I just say this that we attack the holding of the Full Court that the agreements were not binding as a matter of contract law.
To go back to what your Honour Justice Hayne was putting to me a moment ago, if we are correct on that question that, in our submission, would be the end of the case, but if we are not correct on that question and the agreements were not binding as between the parties to them, we would contend that the primary judge’s ultimate conclusion was correct. The impugned announcements expressed statements of belief. The belief was held by us and there was a reasonable basis for it.
FRENCH CJ: There was a concession that they were binding and that the paper is about the content of the obligation, is it not?
MR JACKSON: Yes. Your Honours, the Full Court went on to hold that, in any event, there was not an honest and a reasonable belief that the agreements were binding. That finding, in our submission, was made without reference to a very large body of material showing conduct in circumstances leading to the factual conclusion arrived at by the primary judge on this issue. It isolated some pieces of evidence to which I will come and, with respect, misconstrued them in the scheme of things.
Now, your Honours will see there are notices of contention and a notice of cross‑appeal. The notice of contention is concerned with the section 1041H issue. The notice seeking leave to cross‑appeal relates to the section 674(2) issue. May I come to them later?
Could I come, your Honours, to the three agreements and the impugned statements? Your Honours, we have given to the Court a document which contains – it is headed “Key Documents in Appeal Book”. It contains an index which shows where all the documents can be found in the appeal book. Behind tabs 1, 2 and 3, are the three agreements in question and then behind the remaining tabs are the publications in the order in which they occurred – chronological order in which they occurred. Your Honours, I hope to save your Honours having to go to the actual appeal books on a number of occasions.
Your Honours, as will be apparent from what your Honours have seen in the case, it turns very significantly on the degree of correspondence, as it were, between the three agreements and the terms of the impugned statements. May I go to that degree of correspondence first, your Honours, and then come to the question of the binding nature of the agreements. Your Honours will see that the agreement which has been used in the past as the basis for discussion in the two courts below has been the CREC Agreement. It was the agreement first entered into and your Honours will find it behind tab 1 in that document. It is dated, as your Honours will see, on its first page under the heading as being made on 6 August 2004 but as is apparent from clause 5 of it, it was to become binding on the approval of the board of directors of each party and that, in fact, occurred on 19 August 2004. Your Honours will see that referred to in the primary judge’s reasons at page 3072 in volume 8, paragraph 148. Your Honours will see in paragraphs 148 and 149 a reference to what took place in relation to the execution of the document.
Now, your Honours, the approval of the board of directors of both companies occurred on 19 August 2004 and it resulted in there being the two statements made by the appellant that are behind tabs 4 and 5 in that document. The document behind tab 4 is a communication to the stock exchange and that behind tab 5 is a media release. Your Honours, if one goes to the agreements for just a moment, what one sees is that the agreement says in clause 7 that it:
represents an agreement in itself and it is recognised a fuller and more detailed agreement not different in intent from this agreement will be developed later.
Your Honours, the contentions which ASIC makes in relation to these documents, and also the other documents in the bundle, can be seen in the schedules to its supplementary notice of appeal in the Full Court. Could I say, your Honours, the schedules commence at volume 8, page 3343. They refer back to various parts of the notice of appeal, for example, paragraph 18 at 3328, but, your Honours, the particulars that have been given have been extracted and, together with our responses to them, appear as annexure B to our submissions in‑chief and, your Honours, may I deal with them in the order in which they can be seen.
Your Honours, the first relates to the 23 August letter and your Honours will see that document, as I said, behind tab 4. Your Honours will see that the letter contains three substantive paragraphs. Nothing in the last paragraph, including the last sentence, appears to be impugned and three assertions have been made in relation to the contents of the letter. Your Honours, the first was that it said we had entered into a binding contract with CREC to build and finance the railway component of the project and what we say in relation to that is, if one leaves aside the question whether it was as a matter of law binding, what we would say is that if one goes to the agreement behind tab 1 and one sees that recitals A and B refer to a representation in A that:
CREC has represented that it has the necessary skills, personnel and equipment to successfully carry out and complete the Build and Transfer of the railway (the “Works”) for the Pilbara Iron Ore and Infrastructure Project –
Then in recital B, that it had “submitted an offer to execute the Works” and we had accepted the offer. One sees then, your Honours, in clause 5, the agreement becoming binding and one sees clause 7, to which I have already referred. Your Honours, the first contention was that we misrepresented by saying we had entered into a binding contract to build and finance the railway component. Your Honours, as to the “build” part, could we refer your Honours to the definition of “the Works” in recital A. The description in clause 2 of the scope of works – no, your Honours, if one looks through clause 2.1 and 2.2.1, that does rather sound like the detail involved in building a railway. Your Honours will see all the matters that are listed there in relation to building a railway and one also sees in clause 4 of the agreement, and in particular to the second sentence of clause 4, that:
To expedite the Works –
and “the Works” are defined in recital A –
CREC have agreed to supply sufficient engineering support from the signing of this Agreement such that it will allow CREC to competently expedite its role in the provision of the Works.
Your Honours will also see the first sentence of that clause. Your Honours, that does seem to be an agreement for building the works. As to financing the works, which is the other part of the first of these complaints, you will see clause 3. The effect of clause 3, your Honours, is that we make a down payment of 10 per cent in exchange for a guarantee from CREC. We pay the rest over three years after project completion and we give a security in the form of a classified resource to the value of the works. Your Honours, I put that in a short form. We have set that out rather more fully in our written submissions in paragraph 44 and also in paragraphs 47 and 48.
FRENCH CJ: You say “the works” is defined in recital A. The definition must be “the railway for the Pilbara Iron Ore and Infrastructure Project”.
MR JACKSON: That is right.
FRENCH CJ: Where do those terms get their content from?
MR JACKSON: Your Honour, may I come to that because I do intend to deal with that in a little detail if I may. Your Honours, dealing with paragraphs 44, 47 and 48, your Honours will see the provisions as to finance. We would say that in the circumstances of the case it is a perfectly ordinary use of the term “finance” to describe the agreement as one to build and finance. Your Honours, if someone agreed with the developer builder to have a house built on the basis of 10 per cent down and pay the builder over three years after completion, that would surely be a contract to build and finance the house. Your Honours, the Full Court does seem to have accepted our contentions on the effect on clause 3.
Your Honours, the second matter referred to, in relation to the letter, was that it was said the contract was a build and transfer contract covering the railway from the iron ore tenements in the Chichester Ranges to the export hub in Port Hedland. Your Honours, it was an agreement to build the railway, it was to build it between those locations and was one for the railway not to be CREC’s property. Your Honours, if I could go to the third item referred to in that letter, clause 2.1 of the agreement said specifically that the works included everyone of the matters that is set out in the third of those statements. That is in clause 2.
So that, your Honours, as is apparent, we would submit, from those suggested instances, the question whether they were misleading or deceptive turned on whether a person having entered into a contract containing those terms might hold the view that they meant what they said, in effect, and, in any event, whether they were legally accurate. A court might come to the same view. Your Honours, might I go perhaps to the question your Honour the Chief Justice was asking me a moment ago and could I return then to the aspect I was dealing with. Your Honours, could I start on this aspect of the case, and perhaps I could deal at this point with the question whether the agreement was one that was a binding agreement, rather more fully. What we would say is this, your Honours.
GUMMOW J: What is the force of this word “binding”?
MR JACKSON: Your Honour, I appreciate there is an element ‑ ‑ ‑
GUMMOW J: If you do not have an agreement, you do not have an agreement. I just do not understand the force that is attached by this word “binding” throughout this case.
MR JACKSON: Your Honour, no doubt the reason for reliance upon it, so far as ASIC is concerned, is because it is a relevantly emphatic statement, I suppose. It says it is a binding agreement. If it is said “an agreement”, the same issue would probably arise. We would say that although there is, of course, the element of tautology involved in the description “binding agreement”, the use of the word “binding” assists in conveying the impression that what was being conveyed was a statement about a belief as to the legal effect of it.
GUMMOW J: The legal effect being what? In terms of remedy for breach?
MR JACKSON: Your Honour, if one goes for remedy for breach, it may well be that one would not get any form of specific relief for it, but could I just say this? Let us assume that there was a breach by CREC refusing to go ahead with it, then we would say that amounted to a breach of contract for which, in the first place, phenomenal damages would be available, but there would be substantial damages.
GUMMOW J: You are postulating an anticipatory breach, as it were, anticipatory repudiation?
MR JACKSON: Yes. At the moment I am, your Honour. I am speaking, of course, of the – there is another possibility of a breach during the course of that, but dealing with the anticipatory breach so far as a case against CREC would be concerned, what we would be entitled to receive would be the difference between an estimation of the value that would have been placed on the cost to us of them building it on the one hand, but the difference between that and what it actually cost us to build it with someone else doing it. So leave aside questions of interest, your Honour, but substantially. Now, if it be that the breach occurred after the work had commenced, what we would be entitled to would be the difference between what it might have been completed by under the agreed price on the one hand and, on the other hand, what we had to pay to complete it plus what amounts, if any, that we had paid already to CREC.
Now, so far as the case against us is concerned, if the position were that we said to CREC, no, we do not want you, we are not going to have you do it, then CREC would be entitled to recover what might have been its profit on the deal on carrying out the work and if we brought it to an end somewhere along the way, if we repudiated the future performance of the agreement by CREC and refused to pay them, then they would be entitled to what amounts they had not yet received. The answer would be, they would not have received much at that point because we only had to pay 10 per cent initially and the result would be that they would entitled to recover from us, in effect, the profit they would have made.
I said at the start of it, there might be difficulties, of course, in obtaining specific relief. There might be, in terms of specific performance, – it would be surprising if specific performance was perhaps granted as against CREC and, your Honours, equally, one might think that a mandatory injunction to complete the work would be probably not granted.
HAYNE J: Does the word “binding”, as used, I think, more than once in these documents, take any of its colour from the reference found in some of the documents to the fact that the counterparty was in each case a state‑owned corporation. I refer in that regard to tab 7 in appeal book 1783 where there is, I think – perhaps I am mistaken. There was reference, I think, in one of these to these being three state‑owned corporations.
MR JACKSON: Yes.
FRENCH CJ: Yes, that is the first line.
HAYNE J: Yes. Three of the largest state‑owned.
GUMMOW J: That is pregnant with a sovereign immunity point, is it not?
MR JACKSON: Well, your Honour, if there had been litigation between the parties to the contracts, then it is possible that there might have been raised some issue, but there is no issue that really appears in the proceedings at present to do that. Now, getting back to your Honour Justice Hayne, the reference to “binding” and the fact that one is dealing with companies that are government owned, it may have something to do with that, but it is more likely, with respect, your Honours, to refer to the fact that the agreement themselves draw distinction between the time of execution and the time of coming into effect and the way in which they are framed expresses their binding nature to take effect from the time of approval of the two boards of directors.
I think that is the expression in clause 5 and that seems to be the binding aspect of – I am sorry – the binding aspect comes then. What that may reflect, and this relates to what your Honour was saying, is the fact that they were government‑owned bodies and government‑owned bodies are sometimes a little timid about entering into contracts unless there is approval from those who control them, but that is where the binding aspect seems to be.
Your Honours, could I just say this, in dealing with the question whether the agreements were, if I could use the expression, binding agreements, our submission is that this question is one which is to be considered as it would be in proceedings between the parties to the agreements – those agreements. Your Honours, that does not seem to have been contested by anyone and, we would submit, it seems obvious enough that it would have to be the case.
GUMMOW J: Proceedings in what form?
MR JACKSON: Your Honour, a proceeding between the parties to the contract in which one of the parties sought to, if I can put it this way, briefly escape or deny liability to perform the contract by reason of the fact that a concluded agreement had not been arrived at, concluded agreement because of absence of certainty on particular matters. Your Honour, I said sought to avoid obligations or whatever expression I used, your Honour, but that would be an issue in proceedings in which one side sought a declaration that there was not a binding contract or perhaps another side – one side sought damages on the assumption that there was and the other side sought to defend its position on the base that there was not.
KIEFEL J: Would the so‑called binding nature of the contract have any particular relevance in Chinese law for the good faith provisions under the Chinese contractual code to come into effect?
MR JACKSON: I do not think there is any evidence to suggest that, your Honour. I was going to say in response to what your Honour Justice Gummow said to me a moment ago that the statement that there is a binding agreement or binding contract does, in our submission, carry with it the view that the contract is one in which in litigation between the parties, it would be held or held ultimately, to bind them contractually. Your Honours, I say held ‑ ‑ ‑
GUMMOW J: But litigation in an Australian court, I assume?
MR JACKSON: Your Honour, I am making that assumption for the moment and that is what I am – I am making that assumption. We would submit it is a reasonable assumption to make. The statements are being made in an Australian context and that is what one would expect, we would say.
KIEFEL J: Where was the agreement signed? There was a signing ceremony in China?
MR JACKSON: Your Honour, the agreements, I think, certainly the CREC agreement was first signed, first made here and then signed in China. So, too, I think, were the other two.
GUMMOW J: There was a reference to “good faith” in clause 6, is there not?
MR JACKSON: Yes, there is, your Honour, yes. I recognise the application of both laws. Your Honours, if one were looking for, if I could use a perhaps dated expression, the proper law of the contract, this was dealing with activities to be carried out in Australia, references to Australian standards and things of that kind, one would expect the proper law, if that be the case, would be Australian law, we would submit.
GUMMOW J: That is probably supported by the reference in 3.1 to standard liquidated damages and performance bonds clauses.
MR JACKSON: Yes, and also your Honours would see in clause 1.1 the second‑last dot point on the first page, designed to Australian standards. You will see Australian standards referred to in 2.2.1. You will see in clause 4, the technical understanding of the relevant Australian standards and work practices inherent in this project.
KIEFEL J: But you would probably have to read provisions relating to the performance of the agreement by reference to clause 6 which says the relevant laws of both Australian and Chinese.
MR JACKSON: Well, it says will conform with all relevant ones.
KIEFEL J: That seems to be referable to performance, to performance ‑ ‑ ‑
MR JACKSON: Yes, your Honour, could I just say though that in the end the contention being made was that we had engaged in conduct which was misleading and deceptive. In the end it was a matter to demonstrate the statements we made were ones, to put it in the most neutral fashion, were untrue. Then, your Honours, one does not see that what is being said was that there were provisions of the agreement that were ones that did not comply or did not comply with Chinese law or that the agreement would be held uncertain by Chinese law. There was an argument, which in the end failed in the Full Court, about the need for approval from a Chinse body, but that has not been pursued here.
So, your Honour, if one is looking at the need to prove that there was misleading and deceptive conduct then one needs to demonstrate, we would submit, that the contention that the contracts were not binding contracts, if I can use that expression, was one that was untrue. The only attempt to do so is by reference to Australian law.
HAYNE J: Does the expression “binding agreement” carry any connotation that the agreement can be enforced by litigation, and given the Australian connections to which you pointed, can be enforced by litigation in Australia?
MR JACKSON: Yes, it does, your Honour. That seems to be inherent in it. Yes, I accept that, your Honour, enforced by litigation. When I say enforced by litigation what I mean is that it is one which, in litigation, to enforce it or to hold that it was not binding, it would be held to be binding on the parties to it. Your Honour, I am not sure that answers what your Honour has put, but yes it does.
HAYNE J: I think it may not grapple with what may have been an unintended substrate to the proposition. If it carries with it the connotation that the agreement can be enforced by litigation in Australia that at once engages with the fact that you are dealing with foreign State parties.
MR JACKSON: Your Honour, this is an issue which I think it is right to say is not one with which the courts below have been engaged because your Honours will not see, I think, any reference in any presently significant way to enforcement in China and, your Honour, I really would submit, with respect, that there is not an issue that arises about that. I accept that there might be a theoretical issue but in reality there is not, in our submission.
FRENCH CJ: Can I just ask before we leave this question of the notion of binding, at paragraph 120 in the Full Court judgment and I think it harks back to something in paragraph 343 in the primary judge’s judgment, it said:
On appeal, ASIC argues that although the framework agreements were binding, so far as they went, they did not evidence a common intention that the Chinse Contractors should be immediately bound to build the infrastructure for the Project.
As I put to you before, it seems that the area of difference thus articulated is not on the question of whether the agreements had any legal effect, but as to the content of the obligations that were imposed. Is that a fair description of the ‑ ‑ ‑
MR JACKSON: Your Honour, I think that is right, yes. They said, to put it shortly, they were agreements to agree. We said they were agreements presently binding the parties in a contractual effect, but that there was to be a further agreement.
FRENCH CJ: So is it right to say there was common ground that there was intention to create legal relations, at least in the Australian legal context or at Australian law, the argument being what were the content of the obligations agreed to?
MR JACKSON: Yes.
KIEFEL J: Is that what the primary judge means when he refers to the concession by ASIC that as a matter of objective inference the agreements were intended to be legally binding?
MR JACKSON: Yes, it is, your Honour.
KIEFEL J: Thank you.
GUMMOW J: Those concessions by ASIC seem to involve it in pursuing the case on an artificial basis and they bear any adverse consequences of that, not you.
MR JACKSON: Yes. Well, your Honour, I am about to come to this in just a moment, but the reason, no doubt, for ASIC taking that view is that there are a number of decisions which say that if it appears that the parties intended an agreement to be binding immediately, then notwithstanding the fact there are other matters ‑ ‑ ‑
GUMMOW J: I do not think any of those cases involve international commercial contracts, do they?
MR JACKSON: I do not think so, your Honour, no. Then the Court will do its best to give effect to that intention and so it was accepted there was such an intention. Your Honours, may I attempt to say, with respect, this. I said before the concept of a binding agreement or binding contract, in our submission, carries with it a view that the contract is one which litigation between the parties to it would be held or held ultimately to bind them contractually. What I mean by that expression “held or held ultimately” is that because this is inherently a question on which views may differ, your Honours, a judge at first instance may take one view on such an issue, an appeal court perhaps by majority take another and this Court take the view of the primary judge, again by majority or majority the other way. The point I seek to make, your Honours, is that the expression that one has a binding contract does involve the expression of a view about a legal consequence.
GUMMOW J: There is another aspect to it too, I think, Mr Jackson. This is all taking place in the context of statutory provisions dealing with share markets.
MR JACKSON: Yes, indeed, your Honour. The announcements have to be made ‑ ‑ ‑
GUMMOW J: About international commerce.
MR JACKSON: Yes, your Honour. Your Honours, the second point we would seek to make is that ‑ ‑ ‑
GUMMOW J: Not some agreement to put up a block of home units somewhere or other.
MR JACKSON: No, it is not, your Honour. This was a project of a very substantial nature. At the time these agreements were made, one could not, for example, just build a railway line across Western Australia wherever one liked. I will come to the reference in a moment. There were negotiations going on with the State Government about an agreement which shortly afterwards became a statute which made provision for where the line would start, where it would finish and matters of this kind. So one is talking, your Honours, in dealing with this agreement, not about some up in the air thing where one says the appellant or Mr Forrest has got a wonderful conception, have a third force, let everyone use the railway line, make special provision for indigenous people, deal with the environmental aspect, all of these things your Honours will see in these documents, but one is dealing with something that was in the end to seek to come into fruition but had to be supported by State enactments of some particularity, or providing the particularity, and that is what one is talking about in saying that these things will be prepared – these things, clause 1.1.
Your Honours, could I just say that if one is resolving a question in litigation, whether something is a binding agreement, there are to be applied, we would submit, the rules of interpretation and the evidence admissible which would be apposite in proceedings between the parties and also the rules as to implication of terms both as a matter of law and as a matter of fact. Your Honours, could I come then to agreements contemplating a further agreement as this one is.
Your Honours, it is well established, we would submit, that there may be agreements which are immediately binding as contracts although they contemplate as does clause 7 of each agreement in this case. Now, they will be followed by agreements which are fuller and more detailed and which may include terms not dealt with at all by the first agreement. Your Honours, that is, each of the three agreements at least purported to be of that kind. You can see that from clause 7. You can see it from clause 5, which says “This agreement will become binding” and then recital B uses the language of offer and acceptance.
Now, your Honours, may I give your Honours a brief reference to some of decisions on this issue. The legal efficacy of contracts of this kind was referred to in this Court by Chief Justice Knox and Justices Rich and Dixon in – your Honours, the relevant passage is quoted in a decision I will come to in a moment – in Sinclair, Scott & Co Limited v Naughton (1929) 43 CLR 310 at 317 and that was followed and that passage picked out by Justice McLelland in the New South Wales Supreme Court in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622. The relevant passage is at page 628 from letters D to G
GUMMOW J: What was the dispute in this case?
MR JACKSON: I am sorry, your Honour?
GUMMOW J: What was the dispute in Baulkham Hills?
MR JACKSON: Your Honour, in Baulkham Hills it was one where, as your Honour will see, there was to be a sale of a hospital and the agreement was, offer and counter‑offer:
“We have instructed our solicitors . . . accordingly and they will be in contact with you concerning the formal contract.”
and the question was whether that was a contract immediately or whether it was not a contract at all. You will see the relevant documents are at pages 623 through to 626. No, your Honour, that quote is the passage from Sinclair, Scott v Naughton and also from Love & Stewart in the House of Lords. Your Honours, that is a case from which a description of the fourth class in Masters v Cameron seems to derive. Your Honours, the existence of a case of that kind and of the enforceability of the initial agreement has been recognised in a number of decisions. Your Honours, we have referred to some of them in paragraphs ‑ ‑ ‑
GUMMOW J: But why is there an assumption that Masters v Cameron defines a universe?
MR JACKSON: Your Honour, I am not suggesting that there is.
GUMMOW J: I am not suggesting you embrace it, but it seems to be embraced in some of these cases.
MR JACKSON: Your Honour, the first thing is it is a decision of this Court which defines at least a significant part of the universe, if I can put it that way, but it is right to say that what it is saying is that you have to look at the first agreement that was made, in the circumstances in which it was made and then interpret that agreement. Your Honour, I do not think it goes beyond that.
GUMMOW J: No, it is saying you interpret the contract, you might find the force in this category or that category or that category. It does not say and it cannot fall in any other category, I think.
MR JACKSON: That is so, your Honour. Your Honours, we have referred to ‑ ‑ ‑
GUMMOW J: They were not so unsophisticated as to say that, I would have thought.
MR JACKSON: Well, your Honour, all I can say really is that it gives a guide to those who ‑ ‑ ‑
GUMMOW J: That is true.
MR JACKSON: ‑ ‑ ‑ have to apply in courts below which can go a long way down, your Honour. Having said that, your Honours, we have referred to some of the decisions on this in paragraphs 29 and 36 of our written submissions. Could I add, your Honours, a reference to a decision of the Supreme Court of the United Kingdom in RTS Flexible Systems.
GUMMOW J: I am sorry, where does this go in, Mr Jackson, in your submissions?
MR JACKSON: I am sorry. If your Honours go to paragraph 29 of our written submissions, you will see at footnote 10.
GUMMOW J: Yes.
MR JACKSON: Now, your Honours, we would add to that RTS Flexible Systems. Your Honours, may I just give it that short name for the moment. It is [2010] 1 WLR 753 and also, your Honours, a decision of the Full Court of the Supreme Court of South Australia in Lucke v Cleary [2011] SASCFC 118 at paragraphs 56 to 59 and 71 to 74. I meant to give your Honours the references in RTS Flexible. The judgment of the Supreme Court of the United Kingdom was delivered by Lord Clarke, page 771 to 772, paragraphs 45 and 46 to 56 and then 57 to 89. Your Honours, if I could just say one thing about that case. At pages 784 to 785 in paragraph 87, the Supreme Court said the issue was considered objectively by considering what a reasonable honest businessman in the position of the parties would have concluded and that:
all the terms which the parties treated as essential were agreed and the parties were performing the contract –
That is, all terms which the parties treated as essential. Your Honours, in the present case, the core obligations that were undertaken were that the Chinese contractors were required to build and transfer the relevant part of the infrastructure on the basis that, except as to 10 per cent, we did not have to pay until completion, agreement was contemplated, we would say, on scope and price and with a deadlock‑breaking mechanism. Your Honours, could we say this. As your Honours have noted, this was a case where it was accepted that the agreement would be legally binding. That is paragraph 343 of the primary judge’s reasons. Your Honours, as we submit in our written submissions at paragraph 30, the Full Court, we would say, did not give effect to that contractual intention and it had the curious result, we would submit, that as the primary judge said in volume 8, page 3118, at paragraph 343 ‑ ‑ ‑
GUMMOW J: That is the concession.
MR JACKSON: I am sorry, your Honours, I meant to say 3118. Your Honour, my apologies.
GUMMOW J: Paragraph?
MR JACKSON: Yes, paragraphs 289 to 290. In particular in paragraph 290 he said:
It would make no commercial sense for it to be merely a more detailed agreement to negotiate.
That is speaking of the terms of clause 7 immediately referred to above.
The “intent” referred to, which the parties considered was revealed within the terms of the framework agreement must, it seems to me, be the intent that CREC build and transfer the railway.
His Honour, in our submission, was right in saying if you look at clause 7 it does not make much commercial sense to have an agreement which is going to arrive at a more detailed agreement to negotiate.
HAYNE J: Why not?
MR JACKSON: Well, your Honour, because first of all they contemplate that there will be a further detailed agreement, but why one commercially would make an agreement to agree to negotiate in circumstances where what is expressed in the first agreement is that it is to be an immediately binding agreement in effect to build the works, then the less likely view, we would submit, would be that the agreement is simply one to agree to negotiate. Your Honours, I cannot advance that beyond that, the words say it is, with respect, the better view of things.
Could I go then to the efficacy of the agreements, and may I use the CREC agreement as the example, behind tab 1? You will see that it commences with a statement of offer and acceptance in recital B, an offer to execute the works and an acceptance of that offer and, your Honours, the offer and acceptance related to what was referred to in recital A as being to:
carry out and complete the Build and Transfer of the railway (the “Works”) for the Pilbara Iron Ore and Infrastructure Project –
There were two respects, your Honours, in which recital A contained, in effect, a definition. One was the definition of what were the “works”, an expression used later, and the second was the term “the project” and the project of course was the Pilbara Iron Ore and Infrastructure Project. Your Honours, there is a question about the extent to which one can use the recitals. The Full Court at paragraphs 153 to 154 in volume 9 at page 3583 - and your Honours will see they there referred to the use to be made of the recitals, and they said in paragraph 155 that:
It may be accepted that the recitals do show an intention to conclude an agreement in relation to the construction of the infrastructure for the Project. Nevertheless, it is to the operative terms of the framework agreements that one must look to see how far that intention had been consummated by the execution of those agreements.
Their Honours quoted from Justice Mason. In Ansett Transport Industries your Honours will see a quotation in paragraph 158. Your Honours will then see in paragraph 159 that their Honours said:
This statement does not support the trial judge’s approach. In this case, the “absence of a contractual provision” of the kind spoken of by Mason J was not “due to oversight or inadvertence”.
Your Honours will see the remainder of paragraph 159. Could we just say, with respect, your Honours, that what their Honours did, did involve, we would submit, a misinterpretation of what was said by Justice Mason in Ansett Transport Industries. Could I take your Honours to that for just a moment 139 CLR 54 at page 72? Your Honours will see the relevant paragraph is the second new paragraph on page 72.
His Honour was not saying, if one reads that passage, that the terms of recitals could only be relied on in cases of oversight of inattention. What he was saying was that where there is in recitals an acknowledgement of a promise to do an act, the absence of a further express promise will not – in the body of the document - will be treated as not fatal. Its omission is then treated as a mistake. Your Honours, the way in which the Full Court puts it really is to suggest that absent oversight – in the absence of oversight or mistake, that you cannot use the recitals to elaborate upon, relevantly, the obligations of the parties.
KIEFEL J: Just looking at the terms of recital A, though, the reference to reliance upon representations by CREC, is that capable of suggesting a kind of qualification, something less than a concluded view on the part of ‑ ‑ ‑
MR JACKSON: No, your Honour, there is really an historical air in A, B and C.
KIEFEL J: You mean A leads into B?
MR JACKSON: A leads into B, B leads into C, I think, also. In effect, A is saying CREC’s representative can do it. B, it has made an offer to do it – it has looked at the documents and made an offer to do it. That has been accepted by FMG and then in C, that it would like to carry out the other works involved as well. That is not part of this agreement. So it is really speaking in that order of events, your Honour.
Your Honours, in our submission, the approach taken by the Full Court in relation to the recitals was rather too narrow. Could we refer your Honours to the lengthy discussion of recitals by Justice Campbell in the New South Wales Court of Appeal in Franklins Pty Ltd v Metcash Trading Ltd (2009) 264 ALR 15. His Honour discusses this at page 102, paragraphs [379] to [390], but in particular, if one goes to paragraph [380] ‑ ‑ ‑
HAYNE J: It is also, I think, in 76 NSWLR 603 at 695, I think.
MR JACKSON: Yes, your Honour is ahead of me, I am afraid, in relation to that. Your Honours, I was going to refer to proposition (1) in paragraph [380], and also to proposition (5) and to proposition (4). Your Honours, assuming the correctness of those propositions for the moment, what they do illustrate, we would submit, is that the recitals are part of the agreement. They are to be taken into account in – I am sorry, your Honour.
GUMMOW J: You may be right about all of this. One of the reasons you had recitals in deeds was to get the benefit of an estoppel.
MR JACKSON: Quite, your Honour, yes.
GUMMOW J: It does not seem to be in the universe of discourse at 695 to 696.
KIEFEL J: That would appear to be what recital A is directed to.
GUMMOW J: Paragraph (4).
MR JACKSON: Yes, your Honour, as your Honour has said, paragraph (4) - there is the reference in paragraph (4) of that collection. Could I say also, your Honours, that there has been - following this decision there is a discussion of the use of recitals and as part of an agreement in relation to its interpretation in ‑ ‑ ‑
GUMMOW J: But what is the area of debate in all this generation of case material, as you understand it?
MR JACKSON: Your Honour, what I am seeking to say is this. If one looks at the recitals in this case, they record an agreement to do something. Your Honours, that is in clear terms. That is something that is effectuated by what appears in the remainder of the agreement. When one speaks about “Works”, it is speaking about what is in recital A. The Full Court, we would say, was in error in the way in which it treated the use of the recitals too narrowly, and ‑ ‑ ‑
GUMMOW J: Where is the particular paragraph where the Full Court did that?
MR JACKSON: Yes, your Honour, I was referring earlier, I think, to paragraph 159 of the Full Court’s reasons.
GUMMOW J: Thank you. In 155 perhaps?
MR JACKSON: Your Honour, it commences at 153. Then, your Honour, there is an acceptance of our basic proposition in the first sentence of 155, but where one goes from there is ‑ ‑ ‑
GUMMOW J: It is this expression “operative terms”. The basic rule is the written instrument is to be as a whole, I would have thought.
MR JACKSON: Quite, your Honour, that is ‑ ‑ ‑
GUMMOW J: Good afternoon.
MR JACKSON: Your Honour, that is the point we are making and we say that paragraph 159 is too narrow an approach. The proposition your Honour has just put to me is one which is referred to in a discussion of cases on this issue following Franklins, a decision in the New South Wales Supreme Court by Justice Barrett. I will not take your Honours to it, but can I just give the reference. It is The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group [2010] NSWSC 282 at paragraphs 43 and 74 to 85.
Your Honours, the agreement, in our submission, turning to its terms, did go on to define or provide for the definition of what were the works and, your Honours, there was, and we have referred to this in paragraph 43 of our written submissions, much of the content of the further agreement already provided for it. Could I take your Honours back to the agreement. You will see the matters referred to in the five dot points in clause 2.1, earthworks, civil works for culverts and bridges, above track works, et cetera, signals and communications and rolling stock with the exception of locomotives. Then, your Honours, one sees in clause 2.2.1 the matters that were referred to in that provision. You see the detailed design to Australian standards, you will see the management of the project and scheduling the works and you will see in the third dot point the procurement, construction and commissioning of the works.
Now, your Honours, the terms of clause 2 necessarily reduce significantly the areas which might be for debate under clause 1, to which I will come shortly. The money, if I can put it that way, is dealt with by clause 3 and as its opening words make it clear, the provisions in clause 3 were to be included in the general conditions of contract to which the first dot point in clause 1.1 referred. Your Honours, as we have said in the submission to which I have referred earlier at paragraphs 47 of our written submissions, clause 3 of the agreement, in our submission, makes it absolutely clear that CREC was financing the railway.
Your Honours, if one looks again at clause 3, there are three matters to which I would refer. One is the reference to a certificate of practical completion; the second is to be found in the second‑last dot point “Standard liquidated damages and performance bond clauses” and, your Honours, those three matters, in our submission, are all matters that could be decided either, and I will come to this in a moment, pursuant to clause 1.2 or, if necessary, determined on – acting on the basis by a court, acting on the basis of what is reasonable.
Your Honours, could I say just as to reasonable, one sees as long ago as Hillas v Arcos Ltd (1932) All ER, the additional part of it, page 494 at pages 503 to 504 that Lord Wright said that because the court strives to make certain that which is said to be uncertain appropriate implications can be made of what is just and reasonable as a matter of machinery. One can see references to the use of standards of reasonableness in, for example, the New South Wales Court of Appeal, Chief Justice Gleeson in ABC v XIVth Commonwealth Games Ltd (1998) 18 NSWLR 540 at 548 and in the Queensland Court of Appeal in Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60 at paragraph 51. Your Honours, Mr Heyting ‑ ‑ ‑
FRENCH CJ: Just before you go to Mr Heyting, coming back to the question I put to you earlier about the content of the works and the term “railway for the Pilbara Iron Ore and Infrastructure Project”, do I read paragraphs 32 and following of your submissions correctly when I say that your position seems to be that discussions preceding the execution of the framework agreement and presentations made to CREC meant that at the time had the result that at the time of the execution of the framework agreement, CREC knew with a requisite degree of precision what was meant by the Pilbara Iron Ore and Infrastructure Project.
MR JACKSON: Yes, indeed, your Honour. I am going to come to the detail of that.
FRENCH CJ: But it is really extrinsic discussion.
MR JACKSON: Yes. Your Honour, what I was going to say was that just in relation to the question of provision for practical completion, if one goes to volume 7 at page 2637, Mr Heyting who was an earlier employee of ours at the relevant time but was not at the time when he was called by ASIC, in paragraph 15, you will see he refers to being involved in two railway projects of which this was one. He refers to the terms of AS 4300 providing a useful reference point in negotiating those contracts. You will see in paragraph 17, he refers to a type of contract, AS 4300.
Your Honours, that contains a provision which determines when practical completion occurs. The effect of his evidence was that that agreement, or that standard – and it was in this and other respects something that would satisfy the first dot point in clause 1.1.
Your Honours, if one goes to the last dot point in clause 3, can we just say this? In paragraph 46 of our written submissions we say the last dot point appears to recognise, and may not ultimately be an agreement on a warranty period, but it does not mean that the agreement as a whole is unenforceable. If one goes then to clause 4 of the agreement, the first sentence of clause 4 refers to the project. It suggests, your Honours, that both parties knew what was involved. So, too, does the fixing of a target delivery date and again, so, too, does the reference to:
relevant Australian Standards and work practices inherent in this Project –
I have already referred to the second sentence of clause 4, but could we just add this, that it contemplates that there is to be an expedition of the works made out so far as possible and that CREC had agreed to supply sufficient engineering support from the signing of this agreement, such that will enable it to competently expedite its role in, as it says, the provision of the works.
Your Honours, could I go then to clause 1.1, which is the provision upon which such reliance is placed by ASIC. One starts with the position that the general conditions of contract which are referred to in the first dot point - I am sorry, your Honours. The first dot point does contain within itself a kind of standard. It says that they must be “suitable for a Build and Transfer type contract in good faith”.
Your Honours, there does not seem particular difficulty in working out what that would be in the light of Mr Heyting’s evidence, to which I referred a moment ago. Of course, they must contain the matters referred to in clause 3. If one goes to the third dot point, the list of nominated Australian and Chinese joint venture partners and subcontractors, could we refer to what we have said in our written submissions in paragraph 52 and I do not think I need to say more about it, really, than that for the moment. One does see a little later that there were movements towards obtaining persons in that category.
Your Honours, as to the fourth dot point “Definitive engineering design (to Australian Standards)”, that itself involves an element of providing for a standard, and your Honours will see that that is something also referred to in clause 2.2. It provides the standard with which the design is to comply and to incorporate. Then one goes to the last two dot points where one sees the “Scheduling of the Works” and then over the top of the next page “Determination of the Value of Works”. Now, your Honours, scheduling of the works has to be in the contract. That is provided for by clause 2.2.1, the second dot point. The works have a target date, clause 4. We would contend that leaving aside altogether the provisions of clause 1.2 – and I will come to that in a moment – the agreement provided for what was to be contained in the fuller agreement.
May I interpolate here, your Honours, something I mentioned in passing before, that the location of the railway was not to be decided, in effect, willy‑nilly. Neither CREC nor the appellant could simply proceed to build a railway wherever they chose to or liked. For that they needed government approval and the assistance of government in acquiring land over which the railway would run. At the time of making this agreement the evidence was that the appellant was in the course of obtaining that approval. You can see that referred to by the primary judge in volume 8 at page 3086 ‑ ‑ ‑
FRENCH CJ: There would be a string of native title processes to go through too, would there not?
MR JACKSON: Your Honour, that is referred to too, and environmental questions and so on. You see referred to at page 3086 – I am sorry, your Honour, I will give the paragraph reference in just a moment.
HEYDON J: Paragraph 203.
MR JACKSON: Thank you. Where in that paragraph 203 your Honours will see the seventh dot point. His Honour is there speaking about by early November or as at 5 November:
FMG was in the process of finalising a State agreement with the Western Australian government, but this had not yet been approved. This too was reported in the media for example on 24 August 2004 –
and so on. Now, your Honours, the September quarterly report to which he refers is in the book of materials I gave your Honours this morning behind tab 13. Your Honours, At the page numbered 50 at the bottom of the page you will see a heading of “Sustainable Development” and then “Tenure” and a sidenote “State Agreement in final stages of negotiation”.
HAYNE J: Sorry, I am lost, Mr Jackson. What page number? I think you have got line numbers with 50.
MR JACKSON: I am sorry, your Honour.
HAYNE J: What page number?
MR JACKSON: I am looking at the document ‑ ‑ ‑
HAYNE J: I know that, but what page number?
MR JACKSON: Behind tab 13 and it is the page which has in the bottom left hand corner 50 – I am sorry, 1505, your Honour.
HAYNE J: That is why I am lost.
MR JACKSON: I have confused myself more than once on this. Under the heading “Sustainable Development” and there is a reference to the last quarterly report having said that the:
Minister for State Development agreed to support State Agreement negotiations –
et cetera. They expect the agreement to be signed by the end of November –
This Agreement will cover the port and rail infrastructure with a separate Agreement to cover the mining and processing –
Then your Honours will see the various headings or sidenotes that follow dealing with the various topics that are there referred to. The agreement with the State was in fact made on 10 November 2004. It is titled as the Railway and Port (The Pilbara Infrastructure Pty Ltd) Agreement Act 2004. Your Honours, the agreement is a schedule to the Act commencing on page 5 of the document. So far as the Act is concerned, you will see in section 4 the ratification of the agreement and you will see in section 5 that the State has power in accordance with clause 23 that provided for the taking of land. The agreement was one between the State by the Premier, Dr Gallop and the Pilbara Infrastructure with Fortescue Metals Group with the appellant being the guarantor.
Your Honours will see recitals A to D and you will see – your Honours, I will not deal with it exhaustively, of course – but you will see definitions in clause 1, “project”, “railway”, “railway corridor” and “special railway licence”. Clause 3(3), to put it shortly, meant that the Bill for the Act had to be moved along quickly. There was to be a route for the railway agreed by the end of December 2005. You will see that from clause 7 and clause 10 and similarly with the port facilities, clause 8. A decision by the Minister was required within two months. That is clause 11(2) and there was provision for arbitration of that decision if there was disagreement about it. There was provision for the grant of relevant licences, et cetera, in clause 14 and the obligation to construct the railway was clause 15 and the obligation to do so with the port facilities was clause 17.
Your Honours, in short the railway, the subject of the agreement, was one to be built along the approved corridor from an approved point to an approved point.
GUMMOW J: Now, this statute, looking back at the CREC Agreement, it is picked up, is it, by clause 6 as a relevant law? When they say “this agreement will conform with”, one can read that as a performance of this agreement will conform with the statute.
MR JACKSON: Yes, your Honour, that certainly covers it ‑ ‑ ‑
GUMMOW J: That is an obvious example of what they are talking about, I should think.
MR JACKSON: It is, your Honour, but can I also say this. What they are talking about is works where it was in the contemplation of the parties that the works would be ones that would be performed in accordance with a statutory authority and there had to be proposals put to the government and that is what the parties were working to, to a proposal. Where it actually started and where it finished was a matter that they had the first opportunity to bid about, if I can put it that way. Your Honours, the timing, of course, as between the appellant and CREC was, of course, tight, clause 4, and that was no doubt the reason for the emphasis on acceleration and expedition in clause 4.
Your Honours, the views taken by the Full Court rather suggest that this is a project somewhat in the abstract. Well, in one sense, perhaps it was. It was yet to be built, big project, but, in effect, so what, with respect? It is clear, we would say – and I am coming to this now – that the parties knew what was involved. Your Honours, could I go first to the findings of the primary judge at volume 8, page 3068, paragraphs 134 to 139. Under the heading “Early developments” in those paragraphs it can be seen that for a considerable period prior to the making of the CREC Agreement there had been discussions taking place between the parties to it. Your Honours, I will not read them out, of course, but we would invite your Honours to look at what he recites in those paragraphs and, in particular, your Honours, could we say that if one looks at paragraph 139, you will see that:
CREC had indicated to FMG that its preference was to be involved in the detailed designing process and to be awarded the construction work without tendering. FMG however said this was not its preferred position. The parties then contemplated entering into an MOU –
However, one then sees the actual agreement come about. Your Honours, one sees then the visit by the officers of CREC which took place in August and which is referred to in paragraphs 140 and 141 of the primary judge’s reasons. Mr Heyting had prepared a first draft of a framework agreement. Your Honours will see then at paragraph 141 an updated itinerary and statement of what was to be in the itinerary.
Now, the actual itinerary – may I take your Honours to it in volume 4 at pages 1102 and following. The itinerary is set out on page 1103. You will see there were to be three visitors, with Mr Bai arriving on Wednesday night. On the Tuesday, 3 August, they were picked up. There was a flight to Port Hedland, lunch and a bus, drove along the rail – I take it that is a proposed rail route, or something along those lines, or something concerned with railway – then a picnic and then at 2.30, a BHP commercial tour and then back to Port Hedland. Then the actual work started.
Your Honours, on the Wednesday there was a greeting, then an update presentation, a flyover of the mine. Worley, who were doing the feasibility study gave a presentation which was to last for an hour and a half. Presumably they talked about the reasons why CREC was there and what they might have to do. You will then see that at 11.30 CREC gave a presentation. Presumably, your Honours, they were not talking just about how pleasant it was to have good relations overall between China and Australia, but were talking about what was the matter at hand.
After lunch, you then have what is called the PIF presentation, which is the Pilbara Infrastructure Fund presentation. That was scheduled to go on for two and a half hours. Perhaps there was a break but let us say it was scheduled to go for two and a half hours. Then, your Honours, the data room was opened for an hour and a half and they could see whatever they liked. It would seem surprising, we would say – I am sorry, your Honours, I should have said the next day, the 5th, there is a discussion of financials. There are negotiations by senior management the next day and then signing of the agreement on the 6th.
We would say it would seem surprising, with respect, if the parties who had been talking about the works did not know what they were talking about, particularly when, as Mr Heyting said – if I could just say two things, your Honours – and you will see in volume 7, page 2641, paragraph 34, the meeting was preceded by the proposal which appears at volume 1, pages 467 and 468.
I am sorry, I take your Honours here and there, but you will see at page 468 that Mr Watling sets out a thumbnail sketch of the Chinese or the CREC people who will be visiting - consist of “technical specialist personnel” and so on. Then you will see on page 469 at about line 32:
FMG teams have had several discussions with CREC . . . expressed strong interest in participating in the construction of FMG’s railway on the basis of Build & Transfer. CREC would find its own finance to build the railway, with some form of repayment security provided by FMG . . . would invest later in the PIF in some capacity.
Now, that is earlier, the meeting in April. The meeting in fact took place in August, but your Honours can also see from Mr Heyting’s statement at volume 7 at page 2643, paragraphs 45 to 47 that:
On 4 August . . . a presentation [was given] about TPI which covered all infrastructure for the Project to Kean Zhang (the project manager from CREC) (Zhang) and other technical staff from CREC at FMG’s offices. The words spoken in the presentation were in substance consistent with and did not contradict the slides which we used to assist in the presentation.
The slides, your Honours, are those a copy of which was actually sent later to CREC a few days later. I do not think I need to take your Honours to the reference where one can see that, but it is at volume 4, page 1117. Your Honours, perhaps I should. You will see at page 1117 in volume 4 that a copy of the presentation given on 4 August is there set out and if one goes through it you will see the slides, in effect, and you will see the agenda on page 1119, “The Opportunity, Project Definition, Project Delivery, Commercial Profile”, “The Opportunity” on page 1120. At 1121 the “FMG & The PIF Concept”. You will see what I referred to earlier, the second arrow point:
FMG’s aims is to separate mining from transport infrastructure -
The vehicle to do this is the PIF. PIF strategies on page 1122, scope summary on page 1123. You will see the size of the core facilities referred to, key project drive at 1124, then the discussion of the resource base at 1125, potential customers at 1126. Your Honours, I should say I think this document contains reference to Mt Nicholas rather than Christmas Creek which became it, but it would seem rather surprising if Christmas Creek was not identified as a relevant place in the discussions they had.
You will see the project definition in very broad terms at 1127, then discussion of the railway commences at 1128 – I am sorry, your Honours, I should have said 1180. If we just go to 1180 for a moment, your Honours, it says actually – I may have missed this – in the last dot point on the page:
Newer project areas proving to better than Mt Nicholas –
Then, your Honours, you will see the rail status referred to at 1129, DFS planning, aerial photography, et cetera, major features at 1130, a preliminary feasibility study design undertaken by Maunsell you see at page 1131, details of track and main features 1132, and then 1133 gauge and so on, major features of the rolling stock at 1134, then a locomotive at page 1135, a typical married pair 1136, ore wagon at 1137, automated train loading at 1138, wheel and axle press at 1139, rail construction at 1140, track studies scope at 1141, then discussion of the port at 1142 and proposed layout at 1143, and if I may say so, and so on. Your Honours, the point that I am seeking to make about it is that the notion that this was some concept that had really very little definition and that the parties was all left to future events does seem a little odd in the light of the parties’ knowledge of what was required.
Your Honours, might I come then to clause 1.1 again, and we say that clause 1.2 contains a manner of resolution of any inability to agree, and that the agreed method of resolution is by what is in 1.2. This is an issue on which different views have been arrived at in the courts below and I will come to the interpretation provision in a moment, but one sees Justice Gilmour in volume 8 at page 3115, paragraph 279, where he records the submission and then at page 3126, paragraphs 318 to 319, he deals with it. He says at line 40 halfway through paragraph 318:
The value of the Works was to be subject to independent review. It is arguable that once the scope of work was, in due course, established, that the value of the Works could be established, upon review, by reference to an appropriately qualified independent party . . . upon considerations of reasonableness.
Your Honours, you will see also in paragraph 319 the view expressed that the absence of an actually agreed price is not necessarily fatal and also paragraph 322 where he said, in the third sentence, I think:
FMG was able to effect the technical review of the Works . . . so that, objectively, the price for the Works could be finalised.
Your Honours, that was the view expressed by the primary judge. The Full Court at paragraphs 171 to 176 in volume 9, page 3588, took the opposite view and your Honours will see that at paragraphs 171 to 176 saying that clause 1.2 did not create a third party determination mechanism. Your Honours, I am going to come back to what the Full Court ‑ ‑ ‑
HEYDON J: Actually there is no conflict - Justice Gilmour was talking about what was reasonably arguable. Paragraph 176 of Chief Justice Keane is talking about, as it were, the reality. To say that something is reasonably arguable and to say that the truth is different are not inconsistent.
MR JACKSON: No, your Honour, I accept that. But, your Honour, it is right to say that Justice Gilmour overall did not resolve the issue. I accept that, but he appeared to recognise that the issue was one that was arguable. The Full Court took a different view as to its correctness. May I come to that aspect now? Your Honours, we deal with this in our written submissions in paragraphs 58 to 63. We would say that the approach taken by the Full Court does not give effect to the structure of the agreement. It is an agreement under which CREC was engaged in questions of design and scheduling, et cetera. It was its first venture in Australia. The parties have to agree on a number of matters referred to in clause 1.1.
We are given the right to appoint persons to carry out the tasks referred to in clause 1.2. Of course, we appoint them, but they have to be independent and clause 1.2 provides that both parties have to co‑operate with them. Your Honours, if one takes first the expression “independent review of the schedule and value of the works” why, we would say, is that expression not apt to describe the task of resolving any difference that might arise between FMG and CREC?
Your Honour, the answer given by the Full Court to that can be seen in paragraph 174 of their reasons. In paragraph 174, the first reason given is that:
Clause 1.2 is expressed to operate immediately upon the signing of the framework agreement.
But, your Honours, why does that matter? It does not follow from the fact that a provision comes into operation from the commencement of a contract, for the circumstances for its application will arise at exactly the same moment. Take, for example, default clauses are in agreement. Default provisions are in the agreement from the moment they start but they may have no application until a later event when there is default.
The point we seek to make about it, your Honours, is that to say that this provision operates from the commencement of the agreement is simply to say it is part of the contract and no more, with respect. The reliance upon that is misplaced.
The second basis, your Honours, in paragraph 174 is the absence, it is put, of the word “determination” in clause 1.2. It is absolutely right, of course, to say you do not see the word “determination” in clause 1.2. But, your Honours, the words actually used, in our submission, are perfectly apt to describe such a process and it seems a little odd that where parties have said, as they did in clause 7, that there is an agreement in itself and that they have a potential – I am sorry – an obvious mechanism for resolution of any differences in view, that that provision is given what is, with respect, a somewhat insipid construction, that is of simply facilitating agreement, in other words, of making the agreement into an agreement to agree.
The same applies, your Honours, to the expression “Technical peer review” used in the first dot point of clause 1.2. If any of the matters referred to in clause 1.1 is not the subject of agreement, it can be resolved by a technical peer review. We would refer your Honours to our submissions at paragraph 62 in that regard and we would say, your Honours, in particular, that the view of the Full Court does not really sit well with the time restrictions and the need to arrive at the determination of the value of the works at an early point. The Full Court took the view, and this can be seen, your Honours, at paragraphs 171 of the Full Court through to paragraph 173, that the technical peer review was – and this is paragraph 173 - simply:
a process for correcting errors in engineering design and detail, rather than a process for establishing the subject matter of the contract –
They refer to a quotation from the Standard Handbook for Civil Engineers. The point we would make about that, your Honours, is that that does not at all suggest that a technical peer review can be used only for a purpose of the nature referred to in the opening words of paragraph 173. We would submit that if any of the matters in 1.1 is not the subject of agreement it can be resolved by one of the methods referred to in 1.2.
HAYNE J: Just can I understand that better.
MR JACKSON: Sorry, your Honour.
HAYNE J: The last two dot points in 1.1 are scheduling and determination of value. Those are under the rubric of the parties will jointly develop and agree on the following. Let it be assumed that the parties jointly developed but did not agree on scheduling of the works. How do you say 1.2 would be engaged?
MR JACKSON: It would be engaged, your Honour, because ‑ ‑ ‑
HAYNE J: How it would be engaged – I am so sorry – how would it operate?
MR JACKSON: Yes, it would operate in this way, your Honour. It could be initiated by either party or both parties.
HAYNE J: How does that sit with the fact that the parties agree that the following scope of work will be undertaken by FMG?
MR JACKSON: Yes, your Honour, but the scope is – the scope of work is to engage in either the technical peer review or an independent – in the case of the last two items, an independent review of the schedule and value of the works. That means, that we are the ones who are entitled to appoint the person to do it but we both have to co‑operate, both sides, with the person so appointed who will then arrive at the conclusion. Your Honours, that is the – it is something that gives us a right to appoint. We have to appoint someone independent but they then have to decide.
Could I just say two things in relation to clause 1.2. Your Honours will have seen at, I think, paragraph 172 in the Full Court there is a reference to a hypothetical question I had put to the Court. Could we just say this, your Honours, that Mr Heyting who played a part, at least, in drafting the agreement, knew why the provision was inserted. You will see this in volume 7 at page 2825.
HAYNE J: The cry of “Author! Author!”, is it, Mr Jackson?
MR JACKSON: Your Honour, all I would say about it, your Honour, is this, that it indicates a businesslike approach to how people would construe this. You will see at the bottom of page 2825 at about line 45 he has referred to something and then at the top of the next page, about line 6:
And the aim was to negotiate the scope and general terms for a build and transfer contract of the railway; that’s correct?---Yes.
Then, your Honours, if one looks at the question and answer about line 11, the answer:
As I indicated before, that an engineering contract has a number of points that need to be included and those points are actually outlined in the agreement that we had to design the scope of works more fully with the specifications, design standards, et cetera. We had to come up with a mechanism to determine the price and the schedule.
The mechanism is clause 1.2. Your Honours, one might think that CREC would not have been too surprised at that because if one goes to the meeting they had in April in volume 1 ‑ ‑ ‑
KIEFEL J: Just before you do, could I just ask you this? Clause 1.1 at dot point 2 refers to “The Scope of Work to be included in the Contract” which, reading it with the heading, the parties are to jointly develop and agree upon.
MR JACKSON Yes.
KIEFEL J: Clause 1.2 seems to exclude from that the two aspects, technical peer review and independent review, from the scope of the work as being that which FMG is to be able to determine itself. Is that a fair reading?
MR JACKSON: With respect, your Honour, no. The second dot point in 1.2 refers to two aspects, namely the last two dot points in 1.1.
KIEFEL J: Why would it not refer to the second dot point, “The Scope of the Work”?
MR JACKSON: Your Honour, I suppose it could, but it is referring to the scheduling of the works just in terms. It is the penultimate point that is in one, it is just the use of the language but, your Honour, if not covered by that then the second dot point would be covered by the “Technical peer review”, which in effect covers the lot but I suppose there might be a question whether the last two items are only an “Independent review”, et cetera.
FRENCH CJ: What is the relationship between 1.2 and 2.2.2, by the way?
MR JACKSON: Well, 2.2.2 – your Honour, it is similar, but it leaves out the word “peer”. We would say it has, in effect, the same effect but really has to be read with clause 1.2. Now, your Honours, the other thing I was going to say was if one goes to what took place on 23 April, in volume 1 at page 453 you will see a conference that took place where various matters are discussed. Then on page 453:
Regarding FMG’s project, CREC is agreed with Build and Transfer. Consequently, three questions were raised:
1. Estimated Construction Cost
-There will be difference between proposed construction cost from CREC . . . and, FMG. Then whose estimations will be taken?
So it was a recognition, your Honours, of there being potentiality for disagreement. Your Honour, I see the time.
FRENCH CJ: Yes, we will adjourn now until 2.15.
AT 12.45 PM LUNCHEON ADJOURNMENT
T43/JLR
UPON RESUMING AT 2.16 PM:
FRENCH CJ: Yes, Mr Jackson.
MR JACKSON: Your Honours, may I mention one matter in passing in relation to the degree of specificity in the agreements and it relates to a submission made by our learned friends in their written submissions at paragraph 62 where they refer to supposed difficulties in arriving at a fair or reasonable value of the works, namely, the railway, including an appropriate profit element. We deal with this in our reply submissions at paragraph 15 and the document to which we there refer may be seen in volume 1 at page 347. What it is is a document from Mr Spragg at Barclay Mowlem to Mr Heyting giving information about above track construction rates, and he says:
Ed,
Sorry for being a bit late with this response.
I have attached some budget pricing information which has been developed from a number of recent & relevant tenders or actual projects.
You will see then in the paragraph commencing “In terms of program” he sets out an appropriate duration in his view. You will see then in the paragraph at about line 24:
Our cost estimate is net cost without contractors margin (normally 8‑10%)
You will see that submission by the respondent said how would you know what the margin was? He said:
the cost assumes construction of all trackwork above the formation and allows for contractor supplied rail and sleeper trains.
The above program is realistic and achievable, albeit by companies such as Barclay Mowlem who have a permanent rail operations base in the Pilbara and have the high production equipment (Ex Alice Springs to Darwin) ready and available to hit the ground running – plug plug. (seriously a new tracklayer takes over 12 months to build).
Your Honours will see on page 349 there is set out the estimates of costs to which he refers. The only point I make about that is that we are not – we have said in our written submissions perhaps more than once that these are the sorts of things where, if there is some difference of view, the issue is capable of being determined by persons experienced in the field or by the standards of reasonable standards and that indicates, your Honours, that this is hardly, I do not want to use a now very dated expression, really, “rocket science”. It is simply building a railway for which there are pretty substantial estimates one can readily make, one would think, if you are talking about kilometre, kilometre, kilometre in times in Australia where there have been many railways built in recent times.
Your Honours, the next matter to which I wish to refer are the observations concerning the pre‑feasibility study made by the Full Court relevantly at two places, page 3587, paragraph 163 and 3590, paragraph 175. In those paragraphs, the Full Court is referring to and rejecting a submission that the works were as described in the pre‑feasibility study. Could we just say, your Honours, one thing about that. That, with respect, overstates and oversimplifies the submission that was being made to that Court. One of the contentions that had been made on behalf of ASIC, the appellant in the Full Court, was that the railway works could not be identified and one of the responses was that a good starting point was to look at the preliminary feasibility study which your Honours can see in volume 2 at pages 490 through to 594. I will not take your Honours through it page by page, but your Honours can see that this involves a great deal of work that had been done by way of a pre‑feasibility study to arrive at the conclusions that are set out at page 594 and, your Honours, it deals with a great deal of information concerning it.
Now, your Honours, we also relied on matters such as those to which I referred before, what took place in the August visit in relation to CREC and, in our submission, the views of the Full Court of the two paragraphs to which I have referred do not, with respect, accurately record the full argument that was advanced to it. Could I just say one other thing, your Honours, in relation to that and it is this. Our learned friends submit at paragraphs 6 and 58.3 of their written submissions that it is not clear that the pre‑feasibility study was made available before each framework agreement was signed, but, your Honours, Mr Heyting gave unchallenged evidence that CREC had received it before September 2004. Now, of course, he does not say exactly before August 2004, but you can see that in Mr Heyting’s statement at volume 7, page 2646, paragraph 61.
Your Honours, could I come next to something more about the arrangements for a third party to determine matters and, your Honours, may I deal with this relatively briefly. In this Court in Godeke v Kirwan (1973) 129 CLR 629 there was an agreement for the sale of land which contained a provision that if required, a further agreement would be executed containing the agreed terms and such other terms as the seller’s solicitors might reasonably require and it was held there was a binding contract. Justice Walsh, with whose reasons Justice Mason agreed, gave the primary judgment and his Honour said at page 638, about point 9 on the page:
that the question is one of construction in each case of the document –
At page 639 that a term of a concluded agreement may oblige the parties to sign a further contract on the terms of the concluded agreement, had such an obligation, was specifically enforceable and more particularly at page 642, about point 5, that it was:
established that a binding agreement may be made which leaves some important matter, e.g. the price, to be settled by the decision of a third party.
Your Honours, in the House of Lords in Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 the issue was whether an option to purchase the reversion under a lease was valid where it provided a floor price and provided the price might be agreed by two valuers or, if not, agreed by an umpire and it was held that the option was not uncertain but was valid. Could we refer your Honours to page 478 at B to C, and in particular to the reference to “id certum est quod certum reddi potest”. Then at page 478 to the top of page 479 Lord Diplock said that an agreement to settle the price to be ascertained was capable of specific performance and, your Honours, Lord Fraser deals with the topic at page 482 to 484.
I have mentioned that case, your Honours, because it appears to have been picked up in this Court in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600. In that case the issue was whether an option to renew a lease at a rent to be agreed or, failing agreement, to be determined by an arbitrator was valid and the Court held that the option was subject to fixing the rent and applied to Godeke v Kirwan. Could I take your Honours to page 604 about point 9 on the page where three members of the Court said:
It is [well] established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement . . . On the other hand, it is also well established that the parties to a contract may leave terms – even essential terms – to be determined by a third person: see the cases cited in Godecke v Kirwan.
Your Honours, at page 616, about point 2 on the page, Justice Brennan said that the Court:
where the express terms of a lease reveal an hiatus in the machinery for fixing in the rent, the court will lean towards a construction of the lease which treats the machinery merely as a means of ascertaining what is capable of being ascertained objectively as a fair and reasonable rent and which thus avoids such a hiatus –
to put it shortly. Could I refer your Honours also to page 617 at about point 8 on the page where he referred to the court’s machinery. Your Honours, Booker was applied in this Court by Justice Brennan, albeit he was dissenting on another ground in Nullagine Investments Pty Ltd v Western Australia Club Inc (1993) 177 CLR 635 at 648 and, your Honours, on this topic could we refer also, without going to it in detail ‑ ‑ ‑
FRENCH CJ: Nullagine, I think, if you are from Western Australia.
MR JACKSON: I am sorry, your Honour. Could I refer also, your Honours, to the two decisions in the Privy Council to which we have referred in our written submissions, paragraph 60, footnote 20. Your Honours, might I come back then to an issue that I started to deal with this morning and that concerns the various publications or statements that were made publicly and compare them with the – I am sorry, I will start again – with the circumstances in which it is said that the public statements made were statements which were misleading and deceptive. I have taken your Honours to the letter to the ASX which is behind tab 4 in that bundle of documents.
The next document, your Honours, is the media release of 23 August 2004. Your Honours, one needs to read that, with respect, with annexure B to our written submissions which sets out the particulars in which it was said to be misleading or deceptive and that document also sets out in capitals the response which, in short, we made to each of those matters. Your Honours, this is the only of these documents that I would propose to deal with at any length because the others, very largely, say similar things about them.
If one goes to that media release behind tab 5, your Honours will see the first contention made in relation to it by ASIC is that it picks out the passage that says the project would cost a total of $1.8 billion. That is referred to, your Honours, in the paragraph that is the first paragraph on the first page of that media release. Your Honours, it is perfectly clear, in our submission, that that figure was an estimation of the cost of the project, we would say no one would really read it otherwise, and, indeed, one notes that in fact the judge at first instance appears to have so held. Your Honours, that is in paragraph 2 of his reasons for judgment in volume 8 at page 3034. He also, your Honours, deals with this estimation in paragraphs 858 to 864 of his reasons commencing at page 3268. Your Honours will see he concludes by saying, in paragraph 864 that:
Those statements consistently represented that the total cost of the Project would be in the range $1.6 billion to 1.85 billion. The market was aware that the actual prices for the framework agreements had yet to be agreed.
Your Honours, in our submission, he was plainly correct in so doing. There had been an announcement to that effect on 8 July 2004, which is at volume 4 at pages 1050 to 1052. You will see the reference to 1.85 billion in the first paragraph of that. Your Honours, there was an announcement at 20 July 2004 to the ASX, which appears in the same volume at page 1055, the second paragraph, and also page 1057 where there are some estimates of other components of it. Your Honours, those, in our submission, are obvious estimations. They precede the announcement on 23 August 2004 and, in our submission, reasonable readers of the media statement would not have treated the announcement as doing more than repeating the previous estimations. Your Honours, the second item referred to was that:
China’s largest construction group, China Railway Engineering Corporation (CREC), has executed a binding agreement –
Your Honours, I have dealt with that already. The third item was one concerning the fifth paragraph of that document and quoting Mr Forrest about BT contracts. Now, your Honours, we have said in our written submissions that that was not shown to be wrong. If it was suggested that was to be misleading or deceptive, one would expect that the evidence would in the end support that. Your Honours, the contract, in our submission, was accurately described as one involving building the railway and transferring it to us and, your Honours, if one were to say that it was misleading so to describe the agreement, then one would expect the evidence to show that to attribute the term “BT contract” to a contract having the features in the second sentence of that paragraph or to say that a BT contract had different features or to contend that it was in some other way incorrect, you would expect there to be evidence to support that.
Your Honours, as we say in our written submissions in paragraph 64, the only evidence adduced by ASIC on this issue was that of Mr Heyting, which is in volume 7 at page 2634. You will see your Honours in paragraph 10 he says in working on projects he has listed, he has assisted in drafting, engineering contracts including EPC, EPCM, BOO and BOOT contracts and, your Honours, that is really as far as his evidence went. You will see he goes on to describe in paragraph 11 and through to paragraph 13 what he would expect to find in a BOO or a BOOT contract, if that be the way to describe them, but that is as far as his evidence went. Only one of the projects to which he refers appears to be an international project, which was what was said by Mr Forrest.
Your Honours, as we have said in our written submissions in paragraphs 65 and 66, what the evidence did show was that the contemporaneous agreement was being described by the parties to it as a build and transfer contract, or BT contract, including by Mr Heyting himself. Your Honours can see this discussed by the primary judge in paragraph 155 of his reasons in volume 8 at page 3074. You will see that in paragraph 155 he is referring to, at the end of the paragraph, a memorandum of understanding:
signed by Bai on behalf of CREC. Attached to the MOU was a copy of the CREC Framework Agreement.
You will see that he says that the memorandum of understanding expressly acknowledged that CREC had:
“entered into an agreement with FMG . . . for the build and transfer of the Project as attached hereto...”
FRENCH CJ: What was that paragraph number again, Mr Jackson?
MR JACKSON: Paragraph 155, your Honour, page 3074. Your Honours, the document to which he is referring, I will not take your Honours to it now, is in volume 4 at page 1365. Then his Honour in paragraph 397 at page 3147 said:
This event . . . was covered by the Chinese press. At no point before 24 March 2005 did any Chinese entity or person suggest to the market that the disclosures made by FMG that the framework agreements were legally binding build and transfer agreements were in any way inaccurate.
Then, your Honours, in paragraphs 400 to 402 your Honours will see again, in paragraph 401 particularly:
CREC clearly considered that it had made “a binding agreement to build and finance the railway component of . . . project”.
Your Honours, further as we ‑ ‑ ‑
HAYNE J: That conclusion being founded on the inference that Mr Bai had approved the draft press release, is it?
MR JACKSON: Yes, your Honour. Your Honour, the document was sent there. Similar documents were there for the two later agreements. There was never dissent from them. They were documents which it was obvious were going to be published. Your Honours, as I said a moment ago, Mr Heyting, himself, described the agreement as a BT agreement. You can see this in volume 4 at page 1326. It is on 24 August. He says about line 23:
To put it into perspective first, the B&T parameters of the CREC announcement send an important signal –
et cetera, and so it is referred to as that. Your Honours, one also notes that Mr Heyting was told by CREC that a build and transfer agreement was their normal way of doing business. You will see that, your Honours, in volume 7 at page 2641, paragraph 32, where he said he was informed that:
“our normal way of doing business is to enter into a “Build and Transfer” contract which would be funded by Chinese Government sponsored banks”.
Also from the same volume, page 2815 from about line 40 going through to page 2818 about line 45, I think. So what we would say is that Mr Forrest’s statement was really, in essence, an elaboration of what the words “build and transfer” meant and there was nothing very surprising or unorthodox about it. Could I mention though, your Honours, one curiosity that appears in that part of the media statement. It is a reference to AS 9000. Your Honours, the assertion – AS 9000, the number seems to be wrong. As we understand what ASIC was asserting about it below, it was that the reference should have been to AS 4300 but it was not in fact.
AS 9000 is in fact a standard that relates to quality systems for aerospace engineering and, your Honour, even we would not make a claim of that nature for the railway, but the reference, it would seem, your Honours, we think, should have been to a quality standard which is ISO 9000 and one which related to customer specifications. The reason why I say that is that one can see in the preceding documents that there was a reference to something misdescribed as ASO 9000 and the “O” dropped out. Your Honours, I can give your Honours the references to it, but they are in volume 4. Your Honours, I do not know that it matters very much because certainly there was a reference to there being standards and, of course, the agreement provided for things to be built to Australian standards.
Your Honours, the next contention related to the observation which is numbered 4, that it underwrote the project’s independent railway line from the mine site to the Chichester Ranges iron ore deposits. That relates to the sixth paragraph of the media release. Your Honours, it was however accurate or an opinion honestly and we would say reasonably held. “Underwrites” does not seem to be being used in any insurance or financial sense, but rather in a popular sense, to get the ore to Port Hedland and independent railway line was obviously highly desirable. Your Honours, because CREC was bound by the core obligations of the CREC Agreement providing for a deferred payment of 90 per cent of the value, it did in that sense, if one does look at it from a financial point of view, underwrite the railway.
The fifth item, your Honours, relates also to the sixth paragraph of the document, that “CREC will also source and finance the bulk of the rolling stock”, et cetera. Now, your Honours, clause 2.1 of the agreement provided this. That is exactly what it provided for. Your Honours, the sixth item was in the 12th paragraph of the media release. It said, “The contract covers all earthworks”, et cetera. Well, your Honours, that is exactly what clause 2.1 said and we would ask your Honours to note the 14th paragraph of the document which is about line 24 on the next page, which excludes, as it did, the locomotives.
Your Honours, the next item related to the seventh paragraph of that release, the second‑last paragraph on the first page, where it said Mr Catlow said that the contract “provides for that vital new infrastructure”, et cetera. Your Honours, that was, in our submission, entirely accurate and persons reading it or hearing it would recognise it (a) as an opinion by Mr Catlow – it was one that was accurate because the agreement provided for a railway system to be built and it was vital to get the iron ore to the market.
Your Honours, the next item, item 8, was that they had already commenced discussions, et cetera. That relates to the 13th paragraph of the media release which your Honours can see at about line 22 on the second page. Your Honours, there was nothing to show that was erroneous and it was really confirmed by the entry of CREC of the memorandum of understanding with Barclay Mowlem on 1 September 2004, which you can see in volume 4 at page 1365.
FRENCH CJ: Can I just relate these back for a moment to your grounds of appeal at 3653 and 3654? Looking at 3(a) and (b) in particular, it seemed to be focused upon the commitment to build, transfer and finance the project. It just struck me that some of these points were going perhaps a little beyond the focus of the grounds.
MR JACKSON: Well, your Honour, a couple of things about it. We do not seek to go beyond that, but it is necessary to look at the very many allegations that were made. Most of them, as we said, turn on the question of whether these were binding agreements to build and finance, et cetera. That is all I am seeking to demonstrate and to deal with the various points. I appreciate it takes a while to do it.
FRENCH CJ: I am not concerned about the time. I am just concerned about, for example, this statement attributed to Mr Catlow or where one fits that into it all.
MR JACKSON: Well, your Honours, what took place in the Full Court was that it held that the statements that we had made were misleading or deceptive. The view taken by the Full Court was that they were misleading or deceptive in ‑ ‑ ‑
FRENCH CJ: You say they were not because the Chinese entities had committed to build, transfer and finance the project? That was the true position you say?
MR JACKSON: That was the true position, yes, that is what we are ‑ ‑ ‑
FRENCH CJ: Then there is the alternative that you honestly and reasonably believed the truth of what you were saying.
MR JACKSON: Your Honour, really what I am trying to do is to demonstrate that almost all these assertions turn on the correctness of the proposition that there was a binding agreement of the relevant kind. There is much repetition in the various documents and once one gets past this one, they will be quite brief I hope. But there are just a few things that I need to refer to because various items are picked out which turn on little more than that. I am sorry, your Honours.
Item 9, your Honours, we would say that was something that was obviously accurate. The agreement to build the railway obviously would make easier undertaking the whole of the three parts of the projects and insofar as time was concerned, clause 4 of the agreement provided for the timing consistently with our forecasts and also it was a catalyst because it had agreed to provide the build and transfer before 90 per cent of the funding so that we could move forward without obtaining immediate funding for it.
Your Honours, item 10 was perfectly accurate and could I just say this, your Honours. First of all, you will see in our response to item 10 that we have used the word “shown” and the word “shown” is a mistake. It should not be there and one can simply delete it, but having done that, can I just say this about this. This statement has been treated by ASIC as if it meant that the framework agreement itself was to contain a fixed price and the Full Court also seems to have treated this as an instance of misleading or/and misleading and deceptive conduct. You will see that Chief Justice Keane in paragraph 150 in the last five lines, page 3582:
These differences also show that there was no reasonable basis for the claim in the ASX letters and associated media releases that the initial framework agreements contained a “fixed price” under which CREC had assumed “100 per cent of the risk”.
Your Honours will see the last sentence of what he said, but could we just say, if one goes to what was actually said by us on this occasion, what your Honours will see is that it is in the paragraph on the second page of the document, about line 28 where it says:
Under the terms of the contract, CREC will take full risk under a fixed price agreement on the rail project which Fortescue Metals proposes be held separate to the parent company, in a new entity called The Pilbara Infrastructure (TPI).
Your Honours, to say that the statement conveyed that the framework agreement itself contained a fixed price is just not what this part of the media release said. What it said, your Honours, was that they would take full risk under a fixed price agreement which it proposes to be held separate, et cetera. Your Honours, what the framework agreement contemplated was that there was to be a fuller and more detailed agreement. It was that agreement which would contain the value of the works as determined and clause 3.1 makes it clear that that was to be the fixed price and the price. Your Honours, full risk equates into full responsibility. It also means that CREC bore the risk of cost overruns or blowouts, which was the case.
Your Honours will see the 11th item and that simply reflects clause 4 of the contract and, your Honours, those are the matters, I think, that are contained in it. Your Honours, if one goes to the next item, the 23 August 2004 press conference – sorry, your Honours, I have got them in the wrong order. If one goes behind tab 6 to the 5 November letter – I am sorry to be messing your Honours up. Could I go to tab 9 of that document. It is the transcript of the press conference that took place on 23 August. Your Honours will see in relation to that that there are three contentions made. One was the observation which appears at the seventh page of the document, about line 25, he said:
Okay, a bill transfer agreement is quite literally like purchasing, if you like, a car from a car manufacturer which is complete, is expected to run at its performance specifications –
and so on. Your Honours, that, we submit, was a perfectly appropriate analogy. It was simply a way to describe the build and transfer nature of the CREC Agreement, namely, that the infrastructure was to be transferred once practical completion had been achieved, that is, when it had achieved performance of the performance specifications, and the remainder of that paragraph of the interview makes it perfectly plain what he was referring to.
Your Honours, the second item relied upon is one I have dealt with already. It relates to the same paragraph of the record of that interview. The third item relates to the paragraph at the bottom of page 7 and the top of page 8 where it was said that we had entered into:
a binding agreement whereby we purchase the railway line once all performance specifications are met.
It is the fourth, fifth and sixth line on page 8 of that and, your Honours, that, in our submission, was again something that was accurate. You will see then, your Honours, that in that document it is said by ASIC that those statements were made in the context of Forrest making additional remarks as follows. Now, the point we make about the first of those, your Honours, is that this was not pleaded as a particular of misleading and deceptive conduct. It is put as providing a context, but it does have to be read with the other parts of the interview which made it apparent that an actual price had not yet been arrived at. You can see that from the bottom of page 7. It says:
well if it costs 300 million Stewart we agree the price and the performance specifications in advance and naturally you would appreciate that further questions along this line aren’t going to be answered, they’ll be commercial‑in‑confidence –
The reference to commercial, if one goes to page 9 of the document, your Honours, between about lines 15 and 27:
the price of the railway line and the rolling stock is confidential but we are pleased to say it is competitive.
Could we just say this, your Honours. The mechanism of the agreement made it very likely that the ultimate price would be competitive and it made it apparent that it would be competitive because he had to get two parties to agree. If they could not agree, an independent person would decide, no doubt, on the basis of what was a reasonable price. The second item referred to is these two contextual things in relation to hurdles. Again, this was not something pleaded as a particular of misleading conduct, but what was said was also correct. The primary judge had noted at paragraph 184, page 3081 that:
The stockbroking firm and market analyst, Patersons Securities Ltd (Patersons), observed in its 5 April 2004 report that the Project was an “early stage project development concept” in respect of which it highlighted “the risks are numerous” –
and then there was reference to –
environmental, Aboriginal and heritage –
and various other issues and what Mr Forrest said was, in our submission, perfectly correct. The next item was to be seen in the FMG annual financial report of 27 August, which your Honours will see behind tab 10. The two statements were relied on. As to the first of those, your Honours will see the relevant passage at page 4 of that report and at the bottom of the page. Your Honours, I have dealt with statements of that kind already. The second item was at page 37 of the report, the fourth dot point on the page. Again, I have dealt with that.
Your Honours, there was an interview on Business Sunday on 17 October 2004, tab 11. There are two statements relied on. The first of them, your Honours, is at the bottom of page 4 of the transcript, that we had “signed a”, your Honours, and the second one is the, we did not pay until “it’s operating at least 90 per cent of its design specifications.” That statement is on the fifth page of the document and is about halfway down the page. What we would say about that, your Honours, is that that was Mr Forrest’s opinion about how the agreement would be likely to work. It accords with what one would ordinarily expect about an agreement which was to have a certificate of practical completion and when 90 per cent of the money was payable at various dates after the issue of the certificate of practical completion.
Your Honours, the annual report of 25 October 2004 is behind tab 12. There were five statements relied on. The first of those is at the second page of the substance of the report in the chairman and chief executive’s statement and, your Honours, once again, that is something which, in our submission, was accurate for the reasons to which I have referred already. The second one can be seen at page 8 in the middle column and the third one is at page 2 of the document and, your Honours, each of those, in our submission, was accurate.
Your Honours, the fourth item is one that appears at page 8 in the middle column. Again it is something we would submit was accurate. The fifth and final item is also at page 8 in the middle column and again, your Honours, in our submission, it simply reflects the commercial effect of entry into the CREC Agreement.
FRENCH CJ: The Full Court did not dissent into these particulars, did it?
MR JACKSON: No, your Honour. They did not. Your Honours, the fact that they did not look – I am sorry, I will put it this way. The Full Court took the view, probably correctly, that having been taken to these, they turned fundamentally on the question of whether the agreements were binding or not. There are a couple of instances, such as the question about whether it was fixed price, that they dealt with separately, but otherwise they took the kind of global view about it. Your Honours, we say that insofar as they took the global view, that is right because when one does analyse them, they come down to little more than that the issue turns on whether they were or not binding agreements to build, transfer, et cetera.
Your Honours, I do not think that there is anything else that I particularly want to refer to in these that would not involve simply repeating something I have said before about the various contentions. They come down, in our submission, to what I have just said. Your Honours, could I move from that to the question of honest and reasonable belief and, your Honours, the central question we would accept ‑ ‑ ‑
HAYNE J: To which branch of the statute, or which element of the statute, is this question of honest and reasonable belief relevant?
MR JACKSON: Yes. Your Honour, it relates, in the first place, to section 1041H. I said in the first place because there is a question in relation to section 674(2), whether the existence of a reasonable belief negates awareness of a view to the contrary.
FRENCH CJ: This rests on the premise that the statements convey a representation of an honest and reasonable belief as to the character of the agreements.
MR JACKSON: Yes. Your Honour, that is the point.
KIEFEL J: Why is it necessary to go any further than as to what they convey? What is the reality of whether those beliefs were held important in terms of whether there was misleading and deceptive conduct in the market?
MR JACKSON: Well, it comes to this, in our submission, your Honour. The question is as to what is conveyed to persons reading them. What we would say is that it conveyed the impression – I am sorry. I will start again. The statements were to the effect, in our submission, that the appellant and the relevant Chinese contractors had entered into agreements which were contractual in nature, would bind the Chinese party to build, et cetera, the infrastructure and would bind the appellant to, to put it shortly, co‑operate in doing it and pay for it, and, your Honours, importantly we would say, it conveyed that the appellant believed that was their effect and it also conveyed, we would submit, that we had reasonable grounds for stating that belief.
FRENCH CJ: That is your fallback position, is it not? If they are not binding, the representation conveys no more than that the appellant had a reasonable belief that they were and that representation was true and therefore not misleading or deceptive.
MR JACKSON: Yes, your Honour. One can put it in a number of ways, but I suppose we would say that it conveyed the impression that we believed that we had entered into contracts which had the qualities to which I referred before and it conveyed also that we had reasonable grounds for that belief. Your Honours, the Full Court, however, took the view that what we were saying was that the contracts were – this is where one does have a little difficulty with identifying quite what is meant by the expression – were contracts which, if the matter fell to be decided in a court, for example, would be binding and that we, to use the expression used by the Full Court in paragraphs 114 to 116 in volume 9 at page 3568, bore the risk of error. Now, what we would seek to say about that, your Honours, is this. We would say it is inherent in an assertion by a party that it has entered into a binding contract that the party is expressing a view and a view which is an opinion or, in a sense, a prediction. It is an opinion, your Honours ‑ ‑ ‑
HAYNE J: And that is all it is offering?
MR JACKSON: Yes and no, your Honour. Yes, in terms – well, I am sorry, your Honour, the questions get somewhat Delphic answers sometimes. It is saying that it is conveying that that is what its belief is and it is conveying also, we would submit, that the belief is one founded on reasonable grounds.
KIEFEL J: This seems to be bringing in the trade practices concepts of opinions as to future matters. I mean, there is no sense of futurity in the statements that were made.
MR JACKSON: Well, your Honour, with respect, that is not the case and may I just say this, that if one says that the contract is a binding contract – I hope your Honours will forgive me for using it that way, but that is what was said – what one is saying is that that the maker believes that that conclusion will be the result if the question of its binding nature had ultimately to be determined by a court. That is what it is saying. Your Honours, it is a prediction because it expresses a view as to the result which would follow in any such proceeding and, your Honours, I said a determination by a court, but that itself carries with it a degree of uncertainty. It carries a degree of uncertainty because, as the courts’ existence demonstrates, and as I submitted earlier, courts do not always decide things exactly the same way and it could be decided in different ways with different levels in the court hierarchy.
HAYNE J: Does not this branch of your argument shift the focus from the person, or how the recipient of the statement would understand it, over to what the view of the maker was?
MR JACKSON: No, your Honour, it does not because both the maker and the recipient give and receive the same statement and the statement is one that says we have entered into a binding contract. That expression is one which, in our submission, inherently carries with it an element of underlying opinion or prediction, whichever expression one prefers to use, or both.
FRENCH CJ: But you are talking about a representation of fact insofar as it is a representation of a current state of mind.
MR JACKSON: Not quite, your Honour.
FRENCH CJ: That is, “I believe this and I believe it on reasonable grounds”, it being a serious statement which, no doubt, carries implications of perhaps underlying advice and so forth.
MR JACKSON: Your Honour, there is no doubt about it being a representation of fact in the sense of it being a representation of a present state of mind and it is that. That is the immediacy of it, but the nature of the statement that is made is one that carries with it, we would submit, an underlying expression of view about what would happen if the matter came to be decided. Your Honour, I do not want to overemphasise that. One is speaking about what is a binding contract? The answer, I should think, is that it is a contract which the courts would hold to be binding and, your Honours, that is why, we would submit ‑ ‑ ‑
HAYNE J: But would different considerations intrude if it had just said Fortescue has made a contract with CHEC? Take out the epithet “binding”.
MR JACKSON: Yes, of course, your Honour. If that is all it said, then the answer would probably be no, it does not make any difference.
HAYNE J: It is still a statement of opinion, is it?
MR JACKSON: Yes, your Honour. No, sorry, your Honour. It is still a statement which expresses a belief and the belief has to be based on reasonable grounds. There has to be reasonable grounds for saying it because what one is saying is this is a contract. Your Honour, if that is not the case, it can have of course some curious results. If one were to say, “I have a contract with the Crown to do X or Y” and it turned out that the contract was ultra vires for some reason, then, your Honours, that would have the effect that there would be a liability for misleading and deceptive conduct because of expressing that view.
HAYNE J: Misleading and deceptive conduct has never given rise to a remedy available only where the maker of the statement has intended to mislead or deceive.
MR JACKSON: No, your Honour, I understand that, and having said that, intention is not a necessary aspect of it, your Honour, but that does not take away, in our submission, the need to give a description in terms of a type of characterisation to what is being said in the particular case.
KIEFEL J: Are you saying that the representation is to the effect that this is a contract which we consider will hold up in a court of law?
MR JACKSON: Yes, your Honour. That is essentially what – one can put it in different ways, your Honour, but to say that a contract is a binding contract or a contract if it takes a simpler form of it, is to say ‑ ‑ ‑
KIEFEL J: That is what it is saying to the reader. You say that necessarily incorporated within a statement like that is – to the reader – that you have some reasonable grounds for saying that. Who bears the onus of proof in relation to this?
MR JACKSON: Your Honour, the burden of proof in demonstrating that it was misleading or deceptive would lie on the party asserting that it was. That might be ASIC. It might be a person who is seeking damages.
KIEFEL J: I understand that, but what I am interested in is obviously the second leg of what we have been discussing. So does the onus of proof extend to ASIC showing what was – whether or not those making the statements had a reasonable basis for making them because I simply cannot see that in section 1041H.
MR JACKSON: Your Honour, can I just say this. It is a question of identifying the nature of the statement. The question which then would arise would be whether a statement that said, in effect, that we have something which we believe would be held to be a binding contract is one which is (a) actually held and (b) is something for which one would expect there to be a reasonable basis. In the ordinary course of events, one would expect that the material that was produced by the party claiming that it was misleading would be a party’s evidence to show that those conditions were not satisfied.
Now, there may well be a shifting of the burden once that evidence is adduced onto the defendant in order to demonstrate that, in fact, that was so. But the ultimate burden would lie on the party asserting breach, excepting, your Honour, shifting the burden during the course of it.
FRENCH CJ: There is no equivalent of 51A of the Trade Practices Act applicable here, is there?
MR JACKSON: No.
HAYNE J: Conduct in question is that identified in 1041H(2)(b)(ii), is it not, “publishing a notice in relation to a financial product”?
MR JACKSON: Your Honour, may I look at – I think ‑ ‑ ‑
HAYNE J: I am sure if you follow the chain of definitions you will come eventually to the definite article includes the indefinite article, Mr Jackson.
MR JACKSON: Yes, your Honour, I think your Honour is right, yes. I think I took your Honours earlier to the part where it was agreed that the shares were the relevant financial product.
HAYNE J: Publishing a notice is the relevant conduct here, is it not?
MR JACKSON: Yes, I think that is correct. That does not, in our submission, take away from the submission we were making because if the conduct is the publishing of the notice, the question still remains whether to do so is misleading or deceptive.
GUMMOW J: There is no equivalent of 51A, is there?
MR JACKSON: I am sorry, your Honour?
GUMMOW J: There is no equivalent of section 51A under the old numbering system?
MR JACKSON: No. Your Honours, without unduly labouring the point, may I just say this? I mentioned before that underlying a notion that it is a binding contract is that the notion conveys that it would be held to be a binding contract. Your Honours, as I said before, courts may arrive at different decisions in the different parts in the hierarchy and one would arrive at a rather curious situation if, as in this case, there is no breach at the time of publication if the case had not gone to the Full Court.
There is, on the Full Court’s judgment if this Court decided the other way then there would be no breach. I appreciate it is perfectly possible, but the point I am seeking to say is that to say that about something does involve a question of an opinion about what other people would, if necessary, decide. We would say, your Honours, that the primary judge was right in saying, as he did in volume 8, page 3224, paragraph 684, that:
As an objective matter, an ‑ ‑ ‑
HEYDON J: You said 3224, paragraph?
MR JACKSON: I am sorry, your Honour. Paragraph 684 – I am sorry, 3225, it should be, your Honour, paragraph 684. The last four or five lines:
As an objective matter, an assertion as to the meaning and legal effect of an agreement is necessarily the product of an opinion formulated to that effect.
Your Honours will see the next sentence as well. Could we refer also to an observation by his Honour to the same effect at paragraph 59 of his reasons in volume 8 at page 3048.
FRENCH CJ: When the Chief Justice says at paragraph 119 that:
FMG’s public statements would have been understood as statements of fact by ordinary and reasonable members of the investing public –
what is his Honour there characterising as fact?
MR JACKSON: Well, your Honour, that is something to which I sought to advert in passing earlier that they are statements of fact, but what fact? To say that these agreements are binding agreements to say build and transfer is to say something that contains an element of fact. I mean, there is a document, it is the agreement, but to say it is a statement of fact takes one back to what is the fact and the fact one then comes to, we would say, is that if the issue about the binding nature of the contract fell to be determined it would be held to be a binding contract to….., et cetera.
Your Honours, that is why, we would submit that the issues involved do involve questions of belief which, we would submit, has to be it conveys a belief, the belief has actually to be held and there is something to be said for the view that it requires that there be a reasonable basis for doing it. Your Honours, could we refer, in that regard, to what was said by your Honour the Chief Justice in Campbell v BackofficeInvestments Pty Ltd (2009) 238 CLR 304 at 321, paragraph 33 where your Honour said, in the fourth line, that:
there may be some category overlap between opinions and statements of fact. Opinions may carry with them one or more implied representations according to the circumstances of the case. There will ordinarily be an implied representation that the person offering the opinion actually holds it. Other implied representations may be that the opinion is based upon reasonable grounds –
et cetera.
KIEFEL J: But these are in the context of reliance‑based representations – representations upon which particular reliance in closer contracting positions is based. You say it is, nevertheless, referable in this scenario.
MR JACKSON: Yes, your Honour. Well, one bears in mind, it is a provision which can give rise to a claim for damages, for breach of it, by persons suffering damages. Also, contravention gives rise, at least, to declaratory relief against the person. Your Honours, there is no reason why one would take a different view of the meaning of it, really, we would submit.
Your Honours, could I just say a little more about this topic? In Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 – this is referred to in our written submissions at paragraph 85 - the issue was whether statements made in a newspaper article could be misleading, contravening section 52, even if they were characterised as a statement of an expression. Your Honours, I see I have been wickedly defamed on the first page of this document with my initials, but that being so, the Court held that the opinions can be misleading and the Full Court at page 88 said that:
An expression of opinion which is identifiable as such –
This is the second‑last paragraph on that page:
conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion.
Your Honours, in our submission, it is clear that that is something that has been recognised in relation to section 52 and the question is simply whether the opinion is something which is relevantly identifiable as such and the nature of the opinion in the present case or the statement in the present case falls, in our submission, within that category.
GUMMOW J: Does section 769C bear on this? It seems to apply to Chapter 7 which includes 1041H, absence of reasonable grounds.
MR JACKSON: Well, your Honour, as you will see it does reflect something of section 51A. I am sorry, your Honour, I was not familiar with this provision I say immediately. Your Honours, subsection (2) of that provision does not limit the circumstances in which a representation may be misleading, but what one sees is that representations in relation to future matters are treated as ones where there may be a contravention if one lacks reasonable grounds. But the presence of subsection (2) does seem to indicate that that does not really cover the field, as it were.
FRENCH CJ: It is a little different from 51A in one respect, I think. There is a reverse onus provision in 51A(2) which does not seem to apply here.
MR JACKSON: No, it does not appear to be there, your Honour. May we check on that, and I will deal with it later.
GUMMOW J: But these statements by Mr Forrest that we have been taken to – do they include any representations with respect to any future matter?
MR JACKSON: Some of them did, your Honour.
GUMMOW J: Some of them did, I would have thought.
MR JACKSON: Many of them were statements about how this would affect the project in the first place. Many of them were statements which related to the ability to obtain the financing of it for the future, and, your Honours, in a sense, many but not all were statements involving future aspects of it.
FRENCH CJ: I suppose you can say that any statement about the legal effect of a document could be characterised either as a statement about the present – that is to say, the legal character of the document - or alternatively, a prediction about what a court will say about it.
MR JACKSON: Yes, your Honour. One can say that in a sense, but if you take the first of those things that your Honour put to me, that itself gives rise in a sense to the same issue. If one is saying this is a binding contract, it is not in form the same as saying this is a contract which will be held to be a binding contract, but it is just what it means, in our submission your Honour.
GUMMOW J: I think it comes back to what we were touching upon earlier this morning that binding has an emphatic force in the sense of it is looking forward to remedies if things do not go according to plan.
MR JACKSON: Yes, but, your Honour, it is not emphatic, and I say that before you with respect, and it emphasises ‑ ‑ ‑
GUMMOW J: But in that sense it is predictive.
MR JACKSON: It is predictive, yes, your Honour, it is predictive and that is the point I am seeking to make.
KIEFEL J: But if a statement is made which is less certain and more predictive it suggests that the maker is not quite as certain about the topic, that is what you would appear – that is what would be conveyed. That is what you are looking for in a representation that has a predictive element, are you not, in the way in which you have described? Some uncertainty on the part of the maker is conveyed to the reader and that is what we have to find here.
MR JACKSON: Well, your Honour, with respect, one does not have to find uncertainty in the mind of the – I am sorry, your Honours, can I say that ‑ ‑ ‑
KIEFEL J: Sufficient as is ‑ ‑ ‑
MR JACKSON: The mind of the maker or the mind of the reader, I am sorry, your Honour?
KIEFEL J: What is conveyed to the reader is that the maker of the statement, in assuming a predictive type of statement, is perhaps not entirely certain about the outcome.
MR JACKSON: No, your Honour. One can make a prediction which is a prediction that something will happen, but it does not cease to be a prediction because of that, and sometimes the stronger it is, the more obvious it will be that it is a prediction, without getting into trivial examples of that kind of thing. For it to be a prediction, it does not have to be something that conveys uncertainty. Perhaps sometimes the most obvious predictions are the ones that convey a boneheaded certainty, if I can put it that way – the makeup of the Australian cricket team at any time, one might say.
Your Honour, I am speaking of people commenting on it, your Honour – leaving that aside, though, your Honour, very many of the matters said in answer to your Honour Justice Gummow in this document were in fact matters relating to the future.
Your Honours, could I come then to the question whether there was an honest and reasonable belief. I say “honest and reasonable belief” by way of brevity. We refer to it in our written submissions in paragraphs 95 to 116 and, your Honours, I do not intend to go through it paragraph by paragraph, but could I give a summary of the position?
The primary judge had made specific findings that the appellant honestly and reasonably believed that the agreements were binding agreements of the nature referred to in the statements impugned. Those findings your Honours will see, if I could just give the reference in the first place, are in volume 8 page 3046 – commencing page 3046, paragraphs 54 and 59. The reasoning underlying those findings, your Honours will see in paragraphs 353 through to 465 commencing at page 3136.
Now, if I could go then to paragraph 357 of the primary judge’s reasons which your Honours will see sets out the order in which he deals with those items and the matters to which he has referred there, we have referred to in our written submissions in, as I said, paragraphs 95 to 116. If I could go to paragraph 116 of our written submissions, you will see that we refer to three matters relied on by the Full Court to arrive at a different conclusion.
Your Honours, perhaps we should have said four rather than three because there was something said in relation to the position of Mr Huston as a legal advisor as well, but I will come to that, your Honours. Your Honours, one of those relied on was the confidential but competitive statement at paragraph 194 and I think I have dealt with that already.
May I come then to the first of the matters occurring, in effect, after the event which the Full Court regarded as being important and the first of those is the advanced framework agreement and secondly the email of Mr Forrest of 27 October 2004. Your Honour, turning to the advanced framework agreement, this was a matter upon which the Full Court placed significant reliance in finding against us on this issue. You will see Chief Justice Keane’s reasons at page 3577, paragraphs 137 through to paragraph 151 and you will see in paragraph 151 that he refers to what he describes as “The real significance”, and he says:
the correspondence . . . shows how far the parties were from a real consensus on subject matter and price and the impossibility of bridging that gap –
Now, your Honours, you will see the second thing that he says in the second half of paragraph 153. The documents to which he was referring appear to have been a version of an advanced framework agreement which we sent to CREC on 2 November 2004. That is in volume 5 at page 1717 and it is in two languages.
HAYNE J: Sorry, which page?
MR JACKSON: It commences at 1719, your Honour, actually. The response to that is an amended document which is in volume 1 at page 251. Your Honours have seen what the Full Court said at page 136 and in the passages that are between paragraphs 138 to 152, his Honour pointed to six areas where he said that the positions of the parties had contrasted sharply. That is referring to those words “contrast sharply” at paragraph 138.
The six areas were, your Honours – I will have to deal with these, I am afraid – first of all, that CREC in its response had weakened the recitals; secondly, that it amended the definition of performance date, which was essentially the date for practical completion; thirdly, that the parties were not ad idem as to the value of the works; fourthly, that the parties had different views as to the financing and funding obligation; fifthly, that the scope of work remained vague and finally a reference to equity negotiations and the NDRC.
Now, your Honours, if I could deal with those six points in that order? So far as the weakening of the recitals is concerned you will see at paragraphs 138 to 139 that he referred to the fact that CREC did not accept recital 2 of our advanced framework agreement. It had stated that the parties:
have negotiated in good faith with a view to entering into this agreement for China Railway Engineering Corporation to carry out and complete the design and construction of the Railway –
Now, your Honours, it is very difficult to see, with respect, any reason why the non‑acceptance of that recital by CREC was significant, or reflected any weakening of anything because, indeed, at paragraph 140 Chief Justice Keane noted that:
This change may be said to be relatively modest, given the fact that the Chinese parties included Recital A –
and, your Honours, recital A of the CREC version at page 252 does seem to reflect the framework agreement.
That is what it says, your Honours. Your Honours, that recital is one which the primary judge found to be, as he said, powerful evidence that CREC regarded the framework agreement as a binding build and transfer agreement for the railway. His Honour’s observation in that regard is paragraph 459 of his reasons in volume 8, page 3163. Your Honours, that, in our submission, was correct.
The second matter relied on by the Full Court was the amended definition of “performance date”. The difference between the parties was that CREC rejected an additional requirement that we sought to add over and above the use of the standard AS 4300 definition for practical completion. What we sought to add was a form of performance testing - this is dealt with by Chief Justice Keane at paragraphs 140 to 142, namely that:
the Railway has carried iron ore at a rate of at least 143,000 tonnes per day for a period of 120 consecutive days –
but in all other respects the definition was the same. Your Honours, the parties were agreed as to the standard definition in AS 4300, but the rejection of the additional performance tests that we sought to impose, in our submission, could hardly be fatal to the completeness of the framework agreement.
If anything, it shows the parties were at ad idem as to the basic nature of the practical completion. Your Honours, our addition could be severed from the clause. We were simply seeking something more and of course, something to which they would not agree, and I might note that the definition of “practical completion” that both proffered came from the general conditions of contract set out in AS 4300. You will see that at Chief Justice Keane at paragraph 141.
The third aspect was the value of the work and the parties’ conflicting proposals. We sought to cap the value of the works at 600 million without an overhead or profit component. You will see clause 4.1 at page 1724. They rejected that and sought to have the value of the works as being cost, overhead and profit, and you can see that at pages 254 to 255 in the definition of “value of works” in clauses 1.1 and 1.2.
Your Honours, could I just make these points about that. As we have submitted in our written submissions in paragraph 74, if there is an agreement which contemplates that there will be a future agreement, there will be negotiations and the parties in them may be far apart. That was referred to by Justice Ipp in the Full Court in Western Australia in Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 at page 118, paragraph 51. I do not think I need to take your Honours to it, but that is what his Honour said, and that is the position one would expect to see. Your Honours, different positions taken by the parties on the value of the works is irrelevant or perhaps consistent with the framework agreement if the value is ultimately to be fixed by an independent review in default of agreement.
Your Honours, could we also say that it is apparent from the email of 27 October 2004, from Mr Forrest to Mr Heyting and Mr Huston which is referred to in paragraph 136 of the Full Court’s reasons, that there were developments from CREC’s side after the framework agreements were signed. You will see references in that document – in the emails – to pressure on Mr Bai.
Your Honours, it seems that there was an attempt by us to reach agreement with them on a detailed agreement, including price, under pressure, as it were, in order that it could be – the detailed agreement could be formalised at the signing ceremony for the other two agreements on 5 November. Your Honours, one sees also that if one goes to the last clause of the CREC advanced draft – advanced framework agreement at page 260, it provides that the parties confirm that except as mentioned in this build and transfer framework agreement the framework agreement will continue in full force and effect.
So that, your Honours, we would submit that it is wrong on that basis to draw the conclusion that there was a distancing of the parties demonstrating that there was some – never had been agreement in the first place. Your Honours, in relation to financing obligations, Chief Justice Keane at paragraph 147 placed weight on the addition of a clause to the effect that FMG shall arrange funding for the total value of the project by a combination of equity and debt. He said that that indicated that:
far from showing that the Chinese contemplated an agreement by which they were bound to secure financing, the amendments . . . show that they firmly believed securing finance was an issue for FMG.
Your Honours, could we just say first that the CREC version of the advanced framework agreement still contains the deferred payment schedule. You will see that in clause 2 at page 255 in precisely the same terms as the framework agreement. The second thing is that clause 5.2 of the CREC version of the advanced framework agreement at page 256 contemplates that CREC will obtain on behalf of the CREC and Barclay Mowlem joint venture, financial support from reputable Chinese financial institutions to fund the execution of the work under – after financial close. Your Honours, that seems to make it apparent that CREC was funding the works. It is supported by the reference to CREC/BMJV. No doubt we were required to obtain funding to pay for the deposit first and then to pay for the works after practical completion, but CREC still had to fund the construction phase.
Your Honours, there is a reference to the term “financial close” in clause 3 and clause 5.2. That suggests that CREC wanted to be sure that we could ultimately pay after they had built the railway and could your Honours also note, perhaps in passing, that clause 5.2 provides for a clear expert determination process in respect of the agreement itself in the event the parties have not reached agreement on all aspects of the advanced framework agreement by the time CREC obtained the construction finance required.
Your Honours, in relation to the penultimate matter, the scope of matters remaining vague, as his Honour said in the advanced framework agreements, paragraph 148 and 149, his Honour appears to be saying that the advanced framework agreements reflected the absence of consensus between the parties, but he still notes in paragraph 148 that the wording “regarding the scope of work” repeated much the same terms as the original framework agreement.
Your Honours, we would submit that a consideration of those negotiations about the advanced framework agreements did not offer any relevant development to shed light on the objective intentions of the parties. The position remained as per the original framework agreements and there was nothing, we would submit, to suggest that they were ineffective.
Finally, your Honours, his Honour referred to equity negotiation and the NDRC and he concluded that the ongoing negotiations about the issue of the extent of Chinese equity in the project – I am looking at paragraph 152 I am sorry, your Honours – also served to emphasise the preliminary character of them. But, your Honours, the provision of equity to the Chinese parties or to Chinese parties, I should perhaps say, was not a term of the framework agreements, nor of the advanced framework agreements. Your Honours, it is difficult to see, with respect, why that issue bore upon the question whether the parties had reached a consensus on the terms of a build, finance and transfer agreement as recorded in the framework agreements.
So, your Honours, I am sorry to have taken some time on that, but it is a matter that was regarded as very important by the Full Court and we would submit was one where an inference of the kind drawn by the Full Court should not have been drawn. Your Honours, the second aspect concerns the Full Court’s reliance on Mr Forrest’s email of 27 October 2004.
FRENCH CJ: Can I just mention, Mr Jackson, that the Court will be sitting through to 4.30.
MR JACKSON: Thank you, your Honour. Your Honours will see the reliance by the Full Court on that at paragraph 136 at page 3576 and also at paragraph 194 at page 3596. Your Honours, I will come to the email in just a moment, but at paragraph 194 and when the case against Mr Forrest, rather than Fortescue, was being dealt with Chief Justice Keane said that:
This email shows that Forrest knew that FMG was still involved in a bargaining process –
and that he did not reasonably believe that the three:
agreements were effective as binding agreements to build, finance, and transfer the infrastructure –
Your Honours, we would submit, there were several reasons why the Full Court was incorrect in that conclusion.
The first one, your Honours, is this, as we have already submitted in relation to Anaconda, or by reference to Anaconda. It is perfectly possible to have a binding agreement even though further bargaining may be anticipated and negotiations are necessary to make the fuller agreement contemplated by agreements of that kind. Your Honours, I have referred to Anaconda, but could I also refer to something to the same effect in a decision in the English Court of Appeal in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 at page 620 where Lord Justice Lloyd said in this passage in the left column, second‑last paragraph:
Once one accepts that the parties are in law capable of making what I will call an interim agreement, it was only to be expected that they would continue negotiating the terms that remained without delay.
Your Honours, a person’s awareness of a bargaining process does not necessarily negate a reasonable belief that a contract to perform the core obligations already exists. We would submit the reasoning applied by Chief Justice Keane at paragraph 194 takes too narrow a view and, particularly, in circumstances where there had to be borne in mind that Mr Forrest had been personally involved in the Anaconda decision where the Full Court of the Western Australia Supreme Court held that a rather similar agreement – I take it no further – was immediately enforceable. The primary judge had relied on that at paragraph 390, page 3146 in volume 8. Your Honours, one would expect that the belief of Mr Forrest would be, to a degree, informed by his experience.
The second feature, your Honours, about it is that one does have to look at the 27th October 2004 email in its context. The CREC Agreement was made in August 2004. It was executed on – sorry, the CHEC, the Harbour Agreement was executed on 1 October 2004, subject to board approval, and the next agreement – or the other agreement, the CMCC Agreement – was executed on 20 October, subject to board approval. Your Honours, it was on 3 October 2004 that Mr Forrest wrote a long email – which is in volume 3 at page 1526.
KIEFEL J: Sorry, what page number was that, Mr Jackson?
MR JACKSON: Page 1526, your Honour. Volume 4, I am sorry, your Honour, I think I said volume 5. In that agreement he said, and this is about line 27 or 28 on page 1526:
You may know that we signed a very similar B.T. deal with China Harbours as we did with Rail. It is at this stage non‑binding, but is intended to become binding on the 20th of this month at a signing ceremony in Beijing.
Your Honours, in that document he asked that Mr Huston ensure that all agreements were legally enforceable. One can see that in page 1527 under the heading, about line 12 on the page, “Legally binding contracts.” He said:
There are many agreements yet to be negotiated and settled and many already written which would benefit from being rewritten . . .
Some agreements have been written in an ad‑hoc way with the best means available to the executive responsible . . .
Gentlemen, please ensure with Peter –
that is Mr Huston –
complete legal enforceability on the agreements that we are all relying to construct FMG.
Your Honours, in the email one does not see anything in which Mr Forrest is saying the agreements we have entered into so far are not enforceable and certainly not the CREC agreement nor the CHEC one. Your Honours, on 13 October, in volume 5 at page 1553, you will see Mr Forrest sending an email in which he numbered points and you will see in paragraph numbered 2 about line 19:
We have an [enormous] amount of work to get done to make this very important trip worthwhile –
et cetera. Then, your Honours, in relation to paragraph – I am sorry, your Honours, I have just lost this. Could your Honours excuse me just a moment, I am sorry. If one goes to about line 29, he said:
What’s the CH MCC delay stuff to Friday – we do need to execute them all if at possible and tie CH down with TK –
and that culminated in the execution of the CMCC Agreement on 20 October 2004. On 14 October, at page 1555, two pages on, Mr Forrest wrote to Mr Bai at CREC and said that we want an implementation under the agreement to progress, and your Honours will see, if one goes through the letter and in particular the reference to the target completion date, about line 30, and then the last paragraph:
make a presentation to FMG that outlines your time line and critical dates for project implementation.
You will see the remainder of that letter and, your Honours, what the letter discloses, in our submission, is a belief that the CREC Agreement was binding, it was not part of a negotiation and it was prefaced on getting CREC to meet its existing obligations, not something on agreeing to be bound. Your Honours, it is in that context, in our submission, that one comes to the 27 October 2004 email, which is in the same volume at page 1625. Your Honours will see at about line 28, it is said:
Ed, pls carry the day in the formulation of these Construction Commissioning contracts with Peter, particularly with Alan out of the country and me out of the State – relying on you both heavily.
So, let’s go through the plan….
Mr Bai from China Rail (CR) is under pressure I believe to sign a detailed contract, as detailed enough to be binding on the total delivery of the project.
He demanded it on my last visit. It may well be possible, if we can get it to him tomorrow, that Alan can take him through it and resolve anything contentious when he meets with CR on Monday, for signing potentially shortly thereafter.
Pausing at that point, your Honours, these are statements saying they are under pressure to sign a detailed contract. That is what the framework agreement contemplates, that there be detailed agreements ‑ ‑ ‑
GUMMOW J: Mr Jackson, I am sorry to interrupt you, but you may get some support from that case in the Lloyd’s Reports you took us to.
MR JACKSON: Pagnan, your Honour?
GUMMOW J: Yes. It is significant because the trial judge was Lord Bingham, page 611 [1987] 2 Lloyd’s Rep 601,at the bottom of the first column:
The parties are to be regarded as masters of their contractual fate.
There is a reference to Lord Denning who, of course, had a considerable commercial practice before he got religion, as it were:
In considering this question, I do not much like the analysis in text‑books . . . I prefer to examine the whole of the documents ‑
and then lower down getting back to Lord Bingham:
I think, furthermore, that the Court must bear constantly in mind the subject matter with which it is dealing. The relevant principles of the law of contract are, no doubt, of universal application, but the proper inference to draw may differ widely according to the facts of the particular case.
That is what we are embarked on now.
MR JACKSON: Yes, indeed, your Honour. Your Honour, can I just say this. It is easy to take a narrow view of contract if one is dealing with areas that are precise, do not involve major developments and matters of that kind, but what one very frequently finds is that no matter how many clauses there are in agreements, that in the end the description of the work to be done can often be very briefly expressed. Your Honours, it is in those circumstances that one does look to matters such as those which your Honour just referred. Your Honours, could I just say this. If one goes to about line 40 on page 1625, you will see he says:
While I am pushing for CR to [do, in effect is to] take full responsibility for the commissioning and ramp up, a ceiling price of A$600m with incentives . . . and these are all hard asks.
But, your Honours, what this does seem to be doing no more than saying we have got to negotiate with them, that is what the agreement provides, this is our position. That is what I want to get. It might be hard to get it but maybe we will maybe we will not. It does not follow at all that the first agreement is not efficacious and the reference ‑ ‑ ‑
HAYNE J: But efficacious to do what?
MR JACKSON: Your Honour, efficacious to be an agreement binding CREC to build the railway, putting it shortly, and binding us to pay. Now, to arrive at the ultimate conclusion of that there has to be a negotiation about it, that is what the agreement contemplates, and this is part of the negotiation. When I say efficacious, your Honour, I mean it was one that would bind either party with differences to be resolved in one of the manners to which we have referred.
HAYNE J: In the course of those negotiations, could the parties arrive at a conclusion or at a point where it was open to them consistent with what they had agreed to say, “We cannot go further.”?
MR JACKSON: No, your Honour. If they did that and agreed to do it, that would be ‑ ‑ ‑
HAYNE J: Of course, they can agree to do anything in the course of negotiations, I understand that.
MR JACKSON: But the answer is no, your Honour, it was a binding agreement. That is what it means. It may be, of course, that as a practical matter the damages one might get for it would be small on either side and it may be large, but they were bound to do it. Your Honours, we would also say in relation to this that if one goes to Mr Forrest’s further email of 29 October at page 1634 of the same volume, you will see that in that he said that once CREC has signed the detailed agreements, then the other two companies may also sign the detailed agreements, but, in effect, it is obvious that they should get the first one to do it. You see that between lines 30 and 40.
Now, your Honours, he drew a distinction between the framework agreements and the more detailed or fuller agreements. It does not lead to the conclusion, in our submission, that he well knew that the Chinese contractors were not obliged to build, et cetera, and we would submit that the Full Court gave the 27 October email a meaning that it does not bear. Your Honours, the third and final thing I would say about it is this, that the Full Court at paragraph 136 in volume 9 at page 3576 said in relation to the trial judge’s position:
there is substantial evidence which points to a conclusion different from that reached by the trial judge . . . The email was referred to in the primary judgment at [455] but his Honour did not explain what he made of it or how it was consistent with his conclusions.
Then they set out the terms of the email, but, your Honours, the primary judge had considered the email and the basic reliance on it in his reasons for judgment at paragraph 421 at page 3152 and at paragraph 422 on 3153 he regarded the email as, at most, ambivalent and he rejected the argument after again referring to the 27 October email at paragraph 455. He rejected the argument that the negotiations for the advanced framework agreements also negated the framework agreements. That is paragraph 459.
Your Honours, might I then deal with an aspect that appears in our learned friends’ submissions in paragraph 83 in which they seek to put together a number of matters said to militate against the conclusion for which we contend. Your Honours will see paragraph 83 says that, this is the third line:
In reality, they support the view that the framework agreements were no more than agreements to negotiate towards such an agreement.
Could I now deal with the matters that I referred to there just briefly? In relation to paragraph 83.1, in our submission, there is no reason why the conduct of parties to entry into an agreement cannot be evidence of the reasonableness of a view as to the effect of an agreement later entered into. The question of reasonableness must depend on events at the time of entry into the agreement and also what has taken place before.
Your Honours, there is a reference there, your Honours will see, to the email of 20 October 2004 to which I have already taken your Honours. That is the document at page 1599. If one looks at that document, what is apparent is that the appellant is concerned to get CREC into performing an agreement that has already been made. We would refer particularly to the second paragraph of that email. Your Honours, further, as we have said in paragraph 24 of our reply submissions, there are some findings by the primary judge in relation to this topic and they give that email some content. You will see them in volume 8 at page 3076, paragraphs 162 through to 163 and then, your Honours, if one goes also to paragraph 174. We would submit that what is in paragraph 83.1 of those submissions does not support the contention for which it is advanced.
In relation to paragraph 83.2, this relates to the solemnity of the signing ceremonies in China and, your Honours, that does rather seek to make them somewhat hollow and meaningless and the attendance of persons who were there, some of whom were quite distinguished members of the communities, the presence there, to use the expression again, rather hollow and meaningless. Once again, as we have said in our written submissions, there are findings relevant to this issue. As to the August 2004 meeting, could we refer to paragraph 149 of the primary judge’s reasons at page 3072. Your Honours will see what took place there set out in some detail:
a formal signing ceremony was conducted in CREC’s exhibition hall; Forrest and Qin signed the joint statement on behalf of their respective boards; Qin made it clear that the FMG project was a significant one, and that it dove-tailed nicely with the strategic development of CREC; and photographs were taken . . . The signing ceremony it appears was a high level, serious, and, by Chinese custom, solemn occasion. Kirchlechner accepted that the parties were entering into a serious agreement.
and, your Honours, at page 3147, paragraph 395 and also then paragraph 397. As to the later agreements, you will see paragraph 176 at page 3080, paragraphs 176 to 180. Could we refer in passing to 178 as well on the way through and then, your Honours, page 3149, paragraphs 404 to 405.
Now, your Honours, those findings and the evidence underlying them do not sit well with paragraph 83.2. Your Honours, as to paragraph 83.3, what we have said in relation to 83.2 really covers that, I think. The propositions in 83.3 really do not support the opening words of paragraph 83 itself. The penultimate sentence of 83.3 suggesting that:
It was important for FMG to ensure the accuracy of its releases to satisfy its obligations under the Corporations Act –
does not suggest acting in any way other than a way which was a reasonable thing to do.
In relation to paragraph 83.4, we would submit, that Chief Justice Keane’s observations do not assist. It may be accepted, as he said, that the only joint statement of what had been agreed was in the agreement, but the agreement did not really just sit mute. There were recitals A and B and clause 7 and the matters specified in the other clauses and it was to be interpreted in the light of the principles to which we have earlier referred.
In relation to 83.5, your Honours, the document, the CREC Barclay Mowlem document, is in volume 4 at page 1366. The first two comments made about it in the first two sentences of 83.5 really seem, if I may say so, with respect, a little carping. Your Honours, it will be appreciated that the CREC Framework Agreement contemplated the possibility of joint ventures being involved. The second “whereas” in the document at page 1366 refers to the CREC Agreement and annexes it, calling it “the Head Agreement”. You will see immediately following, on page 1389, you will see in clause 1, about line 30 on page 1366, refers to in the last words “based on principles of the Head Agreement” and, your Honours, clause 11, to which reference is also made, simply indicates a number of circumstances in which the memorandum of understanding between those parties would come to an end.
Your Honours, coming to 83.6, could we just say this? The relevant minutes are in volume 4 at page 1344. What Mr Forrest said at the top of 1345 appears to have been correct. The notion underlying our learned friend’s submissions at 83.6, namely that the board was supine or did not approve, seems rather belied by the material at page 1345, about point 9 on the page at about line 42, going through to page 1346, discussing the railway.
In relation to 83.7, could we just say this, your Honours, that it may be hardly surprising that in our communications externally we put forward the same description of the CREC agreement, but it hardly supports the notion that it was unreasonable to do so. Your Honours, in relation to 83.8, we have dealt with this in our reply submissions in paragraph 27. Could we just say that the evidence supports the inference that the company through its officers and employees regarded the agreements as effective BT contracts. There is nothing to show the directors had a different view, and in relation to Mr Heyting, he was regarded as important – in fact, he was the subject of an announcement to the ASX upon his appointment, which you can see in volume 1 at page 304, in particular at the page numbered 306. Your Honour, I see the time. I expect to take half to three quarters of an hour. I am sorry I have taken as long as I have.
FRENCH CJ: Yes, all right, thank you, Mr Jackson. Mr Myers, what is your estimate of time?
MR MYERS: On the assumption of what I make about what Mr Jackson is going to say in half to three quarters of an hour, I should think I will be a little more than an hour, but I could not promise to be less than that.
FRENCH CJ: Yes, all right. Thank you very much. You will be a little time, too?
MR YOUNG: Yes, your Honour, I am not sure I will be able to finish in a day if more than two hours are occupied.
FRENCH CJ: We will see how we go.
MR YOUNG: If your Honour pleases.
FRENCH CJ: All right. We will adjourn until 10.15 tomorrow morning.
AT 4.30 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 1 MARCH 2012
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