Revenue, Tax & Superannuation

On 3 May 2012 the High Court dismissed the appeal of Peter Shafron, the former company secretary and general counsel of James Hardie Industries Limited (JHIL) in the decision of Shafron v Australia Securities and Investments Commission [2012] HCA 18.

The High Court unanimously upheld the trial judge’s decision that Mr Shafron had breached his obligations under section 180(1) of the Corporations Act 2001 (Cth) to act with the degree of care and diligence that a reasonable person in his position would exercise.

The decision has significant implications for officers of a corporation who act in a dual capacity, such as general counsel and company secretary. These officers are required to exercise the relevant degree of care and diligence in the exercise all of their responsibilities, not just those responsibilities arising out of their specific office.
 
The High Court found that Mr Shafron performed his tasks in fulfilment of his responsibilities as general counsel and company secretary, and these responsibilities were indivisible. Mr Shafron was required to exercise the degree of care and diligence required by section 180(1) in relation to all tasks, immaterial of how or why those responsibilities came to be imposed on him.

Facts

Mr Shafron contravened section 180(1) in two respects.
 
First, Mr Shafron failed to advise the chief executive officer, or the board of JHIL, that the information contained in a Deed of Covenant and Indemnity (Deed) entered into by JHIL was required to be disclosed to the ASX under the continuous disclosure rules. Second, Mr Shafron had also failed to advise the board that an actuary’s report relied upon by the board to predict asbestos related liabilities was significantly limited in its scope.
 
In failing to give this advice to the CEO and the board, Mr Shafron was found not to have discharged his duties with the degree of care and diligence that a reasonable person would exercise if they were an officer of a corporation in JHIL’s circumstances, or if they occupied the office held by, or had the same responsibilities as, Mr Shafron.
 
High Court

Mr Shafron submitted that his obligation of care and diligence was limited to performance of those responsibilities that attached to the office held, or the circumstances that made him an officer, namely his position as company secretary.

He therefore asserted that his obligations under section 180(1) were limited to the exercise of powers and discharge of his duties as the company secretary, and were not applicable to his duties as general counsel. Mr Shafron claimed his duty to give the relevant advice was owed in his capacity as general counsel, and was therefore not subject to the same degree of care and diligence imposed by section 180(1).

The High Court held that tasks done by Mr Shafron in his role as company secretary could not be divided from tasks done in his role as general counsel in this way. The standard was that of a reasonable person having regard to the office held, and the responsibilities held, by that person.

Mr Shafron’s title as general counsel and company secretary included the responsibility to protect the company from legal risk. His duty to act with the relevant degree of care and diligence was not limited to the performance of tasks undertaken as company secretary, but extended to tasks to protect the company from legal risk, including proffering the necessary advice.
 
Comments

The High Court’s decision to dismiss the appeal confirms that where an officer of a company acts in a dual role that includes acting in the capacity of general counsel, they cannot divide their responsibilities.
 
The duty to act with the degree of care and diligence that a reasonable person would exercise if they were an officer of a corporation in the corporation, or had the same responsibilities as an officer, is owed for all responsibilities of that officer. These responsibilities also include any tasks or functions imposed on them by way of their position as general counsel.

On 3 May 2012 the High Court held that the seven non-executive directors of James Hardie Industries Limited (JHIL) had breached their duty to exercise care and diligence, by approving the release of a misleading announcement to the ASX. This decision overturns the finding of the NSW Court of Appeal.
 
This decision has significant implications as to the evidentiary importance of board meeting minutes.

The High Court held that inaccuracies in board meeting minutes and evidence that inferred the minutes were false did not counter the evidentiary value of the minutes as a primary record of what had occurred at the relevant meeting.
 
Facts

The High Court deliberated over whether a misleading ASX announcement had been tabled and approved by the JHIL board at a meeting in February 2001. The minutes of the February meeting were tendered by the Australian Securities and Investments Commission (ASIC) as evidence.

The minutes recorded that the chairman had tabled the draft ASX announcement at the meeting, and a resolution had been passed approving the announcement and its release to the ASX. At a subsequent board meeting in April 2001, the board had approved the minutes as an accurate record of the February meeting, and the chairman had signed the minutes as a correct record.
 
It was neither disputed that a copy of the draft ASX announcement had been distributed to some attendees at the board meeting, nor that it had been misleading. However, two directors were in the United States at the time of the meeting and were not in receipt of the draft ASX announcement. It was only in dispute that the draft ASX announcement had been formally tabled and approved by the board.

High Court

The non-executive directors (respondents) submitted that the minutes tendered as evidence of the February board meeting were false and no draft ASX announcement was tabled at the meeting, or approved by resolution of the board.
 
They further submitted that the board’s subsequent adoption of the minutes was also false, as the minutes adopted were not an accurate record of the proceedings of that February meeting. The respondents admitted that the errors in the minutes had not been picked up because of a lack of care.

The respondents relied upon the fact that the minutes were inaccurate. They did not record the events of the meeting in the order in which they had actually occurred, and there were further errors, such as the incorrect recording of dates. The respondents claimed the errors in the minutes cast doubt upon their accuracy in recording whether the resolution was passed regarding the draft ASX announcement.
 
The respondents further relied upon the fact that alterations had been made to the draft ASX announcement after the board meeting, and pointed to the fact that the draft ASX announcement had not been formally tabled and approved by the board.

It is important to note that the minutes were not signed and recorded in the company minute book within the applicable timeframes under section 251A of the Corporations Act 2001 (Cth). As such, there was no statutory presumption that any resolution recorded in the minutes had been passed.

The High Court held that the submissions by the respondents worked on the incorrect premise that the minutes were one of several factors that could be used to infer (from the combined weight of evidence) what had occurred at the meeting.
 
The High Court established that the minutes were the starting point for determining the proceedings of the February meeting, not just one of a number of evidentiary circumstances. Thus, the High Court ruled that the Court of Appeal had underestimated the weight to be accorded to the minutes.

The minutes were a contemporaneous record of the board meeting and were the only direct evidence of the proceedings of that meeting. None of the attendees of the board meeting who had given evidence professed to have any specific recollection of the draft announcement.

The circumstantial evidence submitted by the respondents founded an inference that the minutes were false. The High Court held that the minutes would not be considered collectively with the circumstantial evidence to determine what occurred at the meeting. The minutes were found to be a better guide and, in the absence of circumstantial evidence that proved the minutes were false, ASIC had proved its case by tendering the minutes.
 
The Court also noted that the absence of protest on the part of the directors after the final ASX announcement was officially released was inconsistent with their claim that they would not have approved the draft ASX announcement had it been tabled. The absence of protest about the terms of the final announcement was consistent with the board having approved the draft ASX announcement.
 
Comments

The High Court’s decision represents a reversal from the NSW Court of Appeal decision.
 
The decision confirms that board meeting minutes are evidence of the truth of what they represent. In the absence of any circumstantial evidence that actually disproves the truth of the minutes, they will stand as evidence of what occurred at the relevant meeting.
 
The case serves as a timely reminder that company directors and officers need to take care when reviewing and approving draft minutes to ensure they are an accurate record of the meeting proceedings. Otherwise, directors may be straddled with evidence in a proceeding that does not correctly reflect the relevant state of events.