Australia: James Hardie: High Court issues warning to boards – minutes will bind you

Last Updated: 11 May 2012
Article by Murray Deakin and Sylvia Ng

Key points

  • The High Court has unanimously found the former non-executive directors of James Hardie to be in breach of the Corporations Act in approving a misleading draft Australian Stock Exchange (ASX) announcement. The High Court's decision highlights the importance for boards to:
    • have a thorough understanding of proposals put before them
    • carefully review ASX announcements before they are released to the market
    • ensure that minutes of board meetings are accurate.
  • The decision also highlights the need for enhanced corporate governance processes for board meetings to support the due diligence expected of directors at those meetings.


The High Court unanimously allowed the appeal by the Australian Securities and Investments Commission (ASIC) against the Court of Appeal's findings in favour of the seven former non-executive directors of James Hardie. In essence, the High Court found:

  • that the Court of Appeal was wrong to conclude that ASIC did not prove that the draft ASX announcement in question was tabled and approved at the board meeting
  • the minutes were evidence of the truth of the matters recorded – in particular that a draft ASX announcement was tabled and approved
  • the Court of Appeal was wrong to hold that ASIC breached a duty of "fairness" by not calling a former partner of Allens Arthur Robinson who attended the relevant board meeting
  • the Court of Appeal further erred in concluding that a failure to call a witness, if taken to be in breach of a duty of "fairness", diminished the cogency of the other evidence adduced.

In doing so, the High Court reinstated the findings of contravention against the former directors in relation to their role in approving the misleading draft ASX announcement in 2001, and the finding of contravention against the former general counsel and company secretary in relation to his failure to advise the board of the misleading nature of the draft ASX announcement.

The case has been remitted to the Court of Appeal to deal with the issue of penalty.

Background to ASIC's appeals to the High Court

On 13 May 2011, the High Court granted special leave for ASIC's appeals to be heard. These appeals were ultimately heard in October 2011.

The appeals by ASIC stemmed from the 17 December 2010 decision of the Court of Appeal (comprising Spigelman CJ, Beazley JA and Giles JA) which concluded that:

  • 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.

Implications for directors and boards in Australia

The High Court's decision is significant and will have an impact on the manner in which board meetings are conducted and how directors conduct themselves in the corporate environment. Some key implications arising include the need:

  • for company directors to exercise due diligence in reading and checking the accuracy of company statements and media releases
  • for company directors to carefully review the accuracy of board minutes, because the minutes have a high probative value as a contemporaneous record of the events and decisions recorded in the minutes
  • for companies to review the procedures supporting board meetings, including the practice of preparing minutes in advance of meetings, the review of those minutes following a board meeting and the Chairman's approval of those minutes as an accurate record.


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 Mr Shafron 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 continues to act for Mr Shafron in relation to the hearing on penalty that has been remitted to the Court of Appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Middletons has been awarded a 2012 EOWA Employer of Choice for Women citation acknowledging our commitment to workplace diversity.

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