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UPDATE 1-Australia's Fortescue wins court battle over founder's ban

* Ruling from highest court ends seven-year battle

* Court rules no misleading statements on Chinese deals

* Ruling comes at critical time for iron ore miner

* Fortescue shares on trading halt

CANBERRA, Oct 2 (Reuters) - Australian iron ore magnate Andrew Forrest and his Fortescue Metals Group have won a High Court challenge over a conviction for misleading investors, opening the way for Forrest to return as an executive director of the company he founded.

The ruling on Tuesday comes at a critical time for heavily indebted Fortescue, the world's No.4 iron ore miner, as it ramps up iron ore production just as demand in top consumer China slows and prices slide.

The long-running case relates to allegations of misleading investors in 2004. Forrest was convicted in 2011 and faced a potential ban on being a company director if he had lost his appeal to Australia's highest court.

Forrest, who has strongly defended the case over the past seven years, stood aside as chief executive of Fortescue in July 2011 to focus on philanthropic work with indigenous communities. He owns just under one-third of Fortescue, worth more than $3.5 billion at current prices.

The court case stems from information provided to the Australian Securities Exchange in August and November 2004 regarding agreements with three Chinese construction companies to build and finance Fortescue's mining project in Western Australia's Pilbara region.

Australia' securities watchdog, the Australian Securities and Investment Commission (ASIC), accused Fortescue and Forrest of misleading or deceptive conduct, in breach of corporations and trade practices laws, by saying the agreements were legally binding.

The High court unanimously held that the statements made by Fortescue and Forrest regarding their agreements with Chinese investors were neither false nor misleading.

"Because the statements were neither misleading nor deceptive, the Court further found that Fortescue and Mr Forrest had not failed to meet their obligations under the Corporations Act," the court said.

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HIT BY SLUMP

The ruling will have implications for other Australian companies and their obligations under continuous disclosure rules.

Fortescue and Forrest had initially successfully defended the case against ASIC, but then lost on an appeal in the Federal Court.

Known by his nickname "Twiggy", Forrest founded Fortescue in 2003 after a decade of promoting everything from Cuban-style nickel mining to underground desert oceans.

He is credited with turning Fortescue into the country's third-largest iron-ore producer after Rio Tinto and BHP Billiton , with a current market capitalisation of around $11 billion.

But hammered by a slump in iron ore prices just as it ramps up borrowings to fund a surge in production, Fortescue has come under increasing pressure in recent months. In September, Fortescue said it would slash spending and jobs just days after reassuring on its outlook, shocking investors.

Later that month, Fortescue lined up $4.5 billion to restructure part of its $11.7 billion debt pile and said it was in talks to sell stakes in some of its assets.

Fortescue shares were placed on a trading halt ahead of the High Court decision. The stock closed on Monday at A$3.50, having fallen some 43 percent from a recent peak above A$6 in March.

(Reporting by James Grubel and Maggie Lu Yueyang; Editing by Lincoln Feast and Richard Pullin)

((James.Grubel@thomsonreuters.com)(+612 6273 2730)(Reuters Messaging: james.grubel.reuters.com@reuters.net))

Keywords: AUSTRALIA FORTESCUE/

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