Peter Shafron, the former General Counsel and Company Secretary of James Hardie has been granted special leave to appeal to the High Court in respect of the two remaining contraventions of the Corporations Act found against him by the Court of Appeal.

The High Court will now be called upon to consider and clarify two significant issues in Australian corporate governance, namely:

  • the test as to who constitutes an "officer" within the meaning of the Corporations Act; and
  • the scope of a general counsel and company secretary's duties and responsibilities under the Corporations Act.

The High Court also granted the Australian Securities & Investments Commission (ASIC) special leave to appeal against the Court of Appeal's findings in favour of the non-executive directors.

The grant of special leave to Mr Shafron paves the way for the High Court to clarify:

  • when a person should be taken to be acting as an "officer" of a company within the meaning section 9 of the Corporations Act
  • whether a person acting as general counsel should be taken to be an officer
  • the scope of the office of "company secretary" for the purposes of the Corporations Act
  • the standard of care and diligence expected of an officer
  • if and to the extent that any officer owes a duty under section 180(1) of the Corporations Act to provide legal advice to the Chief Executive Officer or the board, how, and to what extent does the retainer of competent external lawyers by the company affect or discharge that duty.

Further, the granting of special leave to ASIC means the High Court will also deal with the question of whether in civil penalty proceedings regulators such as ASIC are obliged to call material witnesses pursuant to an obligation of fairness and, if so, the scope and the consequences of non-compliance.

Background to the application for special leave

The appeals by Mr Shafron, Mr Morley and ASIC stem from the 17 December 2010 decision of the Court of Appeal (comprising Spigelman CJ, Beazley JA and Giles JA) which reached the following conclusions:

  • ASIC had failed to discharge its burden of proof in establishing that the non-executive directors had considered and approved the draft ASX announcement at the relevant Board meeting. The failure by ASIC to call material witnesses who were in attendance at the relevant February 2001 Board meeting and made amendments to the draft ASX announcement, was one of a number of factors found to have undermined the cogency of ASIC's case leading the Court to find that ASIC had not discharged its burden of proof. The Court of Appeal upheld the appeal by the non-executive directors and quashed the penalty and disqualification orders made against them.
  • Mr Shafron's appeal against the trial judge's findings were allowed in relation to the draft ASX announcement, but dismissed in relation to the need to consider whether disclosure of certain information on the Deed of Covenant and Indemnity (DOCI) was required.
  • part of ASIC's cross-appeal was successful in securing the surprising finding that Mr Shafron had breached his duty under s180(1) of the Corporations Act by failing to advise the Board that an actuarial estimate of James Hardie's asbestos liabilities prepared by Trowbridge did not take into account "superimposed inflation", and a prudent estimate would have.
  • Mr Morley's appeal against the trial judge's finding of contravention was dismissed but his penalty and disqualification period was reduced.

Note:

Middletons acted for Mr Shafron in connection with ASIC's investigation, the first instance hearing and appeal hearing before the Court of Appeal, and continues to act for Mr Shafron in relation to his appeal to the High Court of Australia.

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