Why "Binding" Has Lost its Meaning

John Robertson


Resources companies bandy around the term "binding" in a way which often defies any proper use of English. Northern Minerals (NTU:AX) has said it has a binding agreement with a Chinese mining and investment house for a A$49.5M funding package (ASX 18 February 2015). A closer look in documents forwarded to shareholders on Friday confirms that A$27.5 million of this amount is subject to an option agreement with an exercise price 35% higher than Friday’s close. In other words, the supplier of the finance has not made a firm commitment. The High Court of Australia considered what constitutes a binding agreement for a Western Australian mining company doing business with Chinese partners in October 2012 in ASIC v Fortescue Metals Group. The thrust of the High Court's judgement was that the people to whom the term was addressed (i.e. investors and not the broader public) would have known better. Consequently, they could not have been deceived or misled. As a result of the High Court decision, companies can be as cavalier as they like in how they use the term.

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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...


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