James Hardie High Court decision: officers of a corporation with dual roles

09 May 2012 Topics: Compliance and corporate governance

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.

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