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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.
Winner - EOWA Employer of Choice for Women Citation 2009, 2010
and 2011
Winner - Australasian Law Awards Gold Employer of Choice 2011
Finalist - ALB Australasian Law Awards 2008, 2010 and 2011 (Best
Brisbane Firm)
Winner - BRW Client Choice Awards 2009 and 2010 - Best Australian
Law Firm (revenue less than $50m)
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