In Australian Securities and Investments Commission v Hellicar [2012] HCA 17 and appeals relating to 6 other non-executive directors of James Hardie Industries Ltd (“JHIL”) the High Court allowed ASIC’s appeals and held that each director breached his or her duties as a director of the company by approving the company’s release of a misleading announcement to the Australian Stock Exchange (“ASX”).

The media release stated that the company had fully funded its asbestos diseases liabilities, when in fact there was a funding shortfall of more than $1 billion.

Allowing ASIC’s appeal, 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 February meeting. The High Court decided that the Board did approve the announcement and that the announcement was misleading.

In respect of the issue that JHIL’s external lawyer was not called by ASIC to give evidence the High Court decided that there was no basis for inferring that Mr Robb may have given evidence favourable to the directors. ASIC not calling him caused no unfairness. If it had, it would be wrong to respond by discounting the cogency of other evidence led at the trial; the question would be whether there had been a miscarriage of justice requiring a new trial.

As to whether ASIC has a duty to act as a “model litigant” the Court stated: “For the purposes of deciding these matters, it is convenient to assume, without deciding, that ASIC is subject to some form of duty, even if a duty of imperfect obligation, that can be described as a duty to conduct litigation fairly.”

The matters were remitted to the 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.

ASIC’s appeal with respect to the NSW Court of Appeal decision relating to Mr Shafron, the company secretary was also allowed.

In Shafron v Australian Securities and Investments Commission [2012] HCA 18 the High Court dismissed the appeal of Peter James Shafron, the company secretary and general counsel of James Hardie Industries Ltd (“JHIL”), against previous decisions that he contravened s 180(1) of the Corporations Act 2001 (Cth) by failing to discharge his duties as an officer of JHIL with the degree of care and diligence that a reasonable person in his position would have exercised.

Shafron contravened s 180(1) of the Act in two ways. First, he had failed to advise either the CEO or the board of JHIL that the company should disclose to the Australian Stock Exchange (“ASX”) certain information about a Deed of Covenant and Indemnity governing JHIL’s separation from two of its subsidiaries. Second, that Mr Shafron had failed to advise the board of JHIL that an actuarial study he had commissioned to predict asbestos-related liabilities suffered from critical limitations.

Mr Shafron did not dispute that s 180(1) applied to him in his capacity as company secretary. The issue before the High Court was whether s 180(1) applied to Mr Shafron for conduct he submitted was undertaken in his capacity as general counsel.

Mr Shafron submitted that the application of s 180(1) should be restricted to those functions he performed in his capacity as company secretary. Mr Shafron argued that the contraventions alleged against him concerned his responsibilities as general counsel, not his responsibilities as an “officer” of the company, and thus should not be subject to s 180(1).

The High Court rejected this argument. Mr Shafron’s responsibilities with JHIL as company secretary and general counsel were indivisible and must be viewed as a composite whole. The scope of responsibilities of a particular officer is to be determined by an examination of all the
tasks in fact performed for that company by that officer. The role of a particular company secretary cannot be deduced from an examination of the kinds of tasks that other company secretaries, whether at that company or in general, might perform.

The majority judgment said:

The proposition that some distinction could be drawn between the “capacities” in which certain tasks were undertaken by Mr Shafron assumed, wrongly, that the work he did “as company secretary” could not, and did not, overlap with the work that he did “as general counsel”…

A fundamental difficulty with Mr Shafron’s submission is that there was no evidence demonstrating or suggesting that Mr Shafron performed certain tasks in one “capacity” and other tasks in another. Mr Shafron did not give evidence at trial. What evidence there was about the role of a “company secretary and general counsel” of a listed public company did not support the distinction Mr Shafron’s submissions sought to draw. Yet, as has been stated, what responsibilities Mr Shafron had was a question of fact.

As the title “general counsel and company secretary” given to Mr Shafron indicates, he was qualified as a lawyer – he was admitted to practise law both in Australia and in California. An important element in Mr Shafron’s responsibilities was his giving advice about and, where appropriate, taking steps necessary to ensure compliance with all relevant legal requirements, including those that applied to JHIL as a listed public company. The primary judge and the Court of Appeal described this aspect of Mr Shafron’s responsibilities as a duty to protect the company “from legal risk”. No doubt that included ensuring that purely administrative functions were performed like transmitting necessary material to the ASX and maintaining appropriate records of the board. But Mr Shafron’s responsibilities did not end at that point. His responsibilities were wider than administrative, and extended to the provision of necessary advice.

All of the tasks Mr Shafron performed were undertaken in fulfilment of his responsibilities as general counsel and company secretary. More particularly, because of his qualifications and the position in which he was employed, his responsibilities as general counsel and company secretary extended to proffering advice about how duties of disclosure should be met. And when he procured advice of others and put that advice before the board for its use, his responsibilities could, and in this case did, extend to identifying the limits of the advice that the third party gave.”

Shafron had previously been disqualified from managing corporations for 7 years and ordered to pay a pecuniary penalty of $50,000 .

Mr Shafron’s matter will be remitted to the Court of Appeal in relation to the issue of penalty.