The High Court has this morning handed down judgment in ASIC’s James Hardie appeal. The full judgment in relation to the non-executive directors can be read here, that for the company secretary and general counsel Mr Shafron can be read here, and a summary for each can be found on the High Court’s website here.
Taken from the summary: The High Court held that each of the seven non-executive directors of James Hardie Industries breached his or her duties as a director of the company by approving the company’s release of a misleading announcement to the ASX (to the effect that the new entity to which asbestos claims were to be quarantined was “fully funded” to meet present and future claims).
On the question of the minutes of the infamous board meeting of 15 February 2001 at which the ASX announcement was approved, the High Court held that inaccuracies in the February board minutes did not counter their probative value as a contemporaneous and formally adopted record of what was done at the meeting.
ASIC’s appeal was allowed and the matters remitted to the NSW Court of Appeal for further consideration of remaining issues in the appeals to that Court about claims to be excused from liability, penalty and disqualification.
The company secretary and general counsel of James Hardie was also held to have breached his duties of care and diligence as an officer of the company, in two ways. First, Mr Shafron failed to advise either the CEO or the board that the company should disclose to the ASX certain information about a Deed of Covenant and Indemnity governing James Hardie’s separation from two of its subsidiaries. Secondly, that he failed to advise the board that an actuarial study he had commissioned to predict asbestos-related liabilities suffered from critical limitations.
Worth noting is an aspect of Mr Shafron’s case which will be of interest to general counsel in Australia: He argued that the application of s 180(1) of the Corporations Act 2001 (Cth) should be restricted to those functions he performed in his capacity as company secretary. He argued the contraventions alleged against him concerned his responsibilities as general counsel, not as an “officer” of the company, and thus should not be subject to s 180(1).
The High Court rejected this. The Court found Mr Shafron’s responsibilites with James Hardie as company secretary and general counsel were indivisible and must be viewed as a composite whole. A closer look at the High Court’s approach in reaching this conclusion will be worthwhile. Mr Shafron’s appeal was dismissed.
I will provide a fuller discussion of the judgments in due course.