Section 180(1) of the Act provides that directors and officers
of a corporation must exercise their powers and discharge their
duties with the degree of care and diligence that a reasonable
person would exercise if they:
were a director or officer of a corporation in the
corporation's circumstances; and
occupied the office held by, and had the same responsibilities
within the corporation as, the director or officer.
Mr Shafron was employed as "general counsel and company
secretary" of James Hardie in 1998.
In February 2001 James Hardie approved a controversial
separation proposal which included the creation of a fund to
compensate claims against it in respect of asbestos related
liabilities. This separation proposal was announced to the ASX in a
form that was later found to be misleading in terms of sufficiency
of the funds available to finance present and future asbestos
ASIC was successful in claiming that Mr. Shafron breached his
duty of care under s.180(1) of the Act by, among other things,
failing to advise the James Hardie board that the draft ASX
announcement was expressed in terms that were not misleading and
failed to advise about the limitations associated with the
financial modeling of the asbestos compensation fund.
The NSW Court of Appeal subsequently upheld the decision that
Mr. Shafron breached his duty of care by contravening s.180 (1) of
Mr. Shafron appealed this decision to the High Court on the
basis that the application of s.180 (1) should be restricted to
those functions he performed only in his capacity as company
secretary. Mr. Shafron argued that the contraventions alleged
against him concerned his responsibilities as general counsel, not
his responsibilities as an "officer" of the company, and
thus should not be subject to the standard set out in s.180(1) of
The High Court in May 2012 rejected this argument of Mr.
Shafron. Rather it held, by unanimous decision, that Mr. Shafron
could not divide his responsibilities and capacities and that they
must be viewed as a composite whole. The scope of the
responsibilities of a particular officer is to be determined by an
examination of all of the tasks in fact performed for that company
by that officer.
Implications of the Decision
This decision has implications for senior employees and
executives, in particular, where they wear two hats when
discharging their duties to a company or other similar entity.
Some issues to consider:
All officers of a company owe a duty of care and diligence to
the company they serve;
Where an officer which holds another senior role in the company
such as company secretary, those responsibilities may not be
determinative but rather have some overlap with other roles;
In order to determine the scope of responsibility of an officer
of a company, the Court will make an examination of all the tasks
performed for that company by that officer not a singular role;
Where someone participates in making decisions that affect a
business of a corporation while they may not be the ultimate
decision maker if a decision maker is reactive to their initiatives
or the management group to which that person contributes.
As a likely outcome of this case it is quite possible that
larger corporations, particularly listed ones, may seek to have
separate roles of company secretary and general counsel. Persons
who hold such positions should closely examine the scope of the
coverage of their D&O policies to consider whether adequate
coverage is provided.
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