Key points
- The High Court's decision highlights new risks under the Corporations Act for company secretaries and general counsel.
- Any individual who is appointed to the dual role of company secretary and general counsel will be taken to be an "officer" under the Corporations Act, in respect of all their responsibilities, including their responsibilities as general counsel.
- Any general counsel who plays a large and active part in formulating important proposals for the board may also be taken to be an "officer".
- Any lack of due care and diligence on the part of such officers exposes them to the risk of prosecution by the Australian Securities and Investments Commission (ASIC) for contravention of the Corporations Act, which may result in disqualification and liability to pay pecuniary penalties, in addition to legal costs.
- The High Court's decision highlights significant corporate governance issues relating to the role of general counsel and company secretary.
Introduction
The High Court dismissed an appeal by the former general counsel and company secretary of James Hardie, finding that he was an "officer" under the Corporations Act and failed to discharge his duties as an officer of the company with the degree of care and due diligence that a reasonable person in his position would have exercised.
The High Court held:
- it was not possible to divide the duties and responsibilities as general counsel and company secretary, given the "single, composite description given to the job"
- there was no evidence demonstrating or suggesting that the appellant performed certain tasks in one "capacity" and other tasks in another
- once the appellant is taken to be an officer by virtue of his role as company secretary, he is to be taken to be an officer in respect of all his responsibilities within the company, "regardless of how or why those responsibilities came to be imposed on that officer"
- that all the tasks the appellant performed were undertaken in fulfilment of his responsibilities as general counsel and company secretary. Accordingly, because of his qualifications and the position of employment, his responsibilities as general counsel and company secretary extended to proffering advice on disclosure and any limitations on advice procured from external advisors
- the appellant should also be taken to be an officer on the basis that he participated in making decisions of the requisite character within the definition of "officer" for a number of reasons, including the role he had in the ultimate act of making a decision, the contribution he made to the making of a decision, his level of seniority as an employee within the company, and that his role went beyond proffering advice to the board.
Having found the former general counsel and company secretary to be an officer, the High Court reinstated a contravention found by the trial judge against him in relation to his failure to advise the board on the emphatic nature of the terms of the draft Australian Stock Exchange (ASX) announcement, and upheld two contraventions found by the Court of Appeal in relation to his failure to advise the board on matters relating to disclosure and limitations in actuarial estimates.
Note:
Middletons will be holding a number of sessions to discuss the implications of this case. A Melbourne briefing has been scheduled for 6 June 2012 and a Sydney briefing will be held on 21 June 2012. If you would like to attend one of these sessions, please register your interest through the link below:
Melbourne -
6 June 2012
Sydney -
21 June 2012
Murray Deakin, Sylvia Ng and Joni Garnham of Middletons acted for the former general counsel and company secretary in connection with ASIC's investigation, the first instance hearing and appeal hearings before the Court of Appeal and the High Court of Australia, and continue to act for him in relation to the hearing on penalty that has been remitted back to the Court of Appeal.
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