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More than a general counsel

More than a general counsel

A High Court ruling on 3 May has the potential to greatly alter the status of a general counsel as an independent legal adviser.

 

The High Court found that the former general counsel and company secretary of James Hardie, Peter Shafron, had breached the Corporations Act 2001 by failing 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.

In 2009, the NSW Supreme Court found that Shafron breached the Act by failing to advise the board of James Hardie over certain matters at a board meeting in February 2001. Those matters related to the adequacy of funding to be made available for victims of asbestos-related diseases.

In particular, the Supreme Court of NSW found that Shafron had failed to advise the board of James Hardie that an actuarial study he had commissioned to predict asbestos-related liabilities suffered from critical limitations.

This finding was later affirmed by the NSW Court of Appeal.


In May last year Shafron was granted leave to appeal that decision to the High Court.

In the High Court trial in October 2011, Shafron and his legal counsel, which included Middletons partner Murray Deakin, argued that the contraventions alleged against him concerned his responsibilities as an “officer” of the company, and thus should not be subjected to s180(1) of the Act.

The High Court rejected Shafron’s appeal.

The High Court ruled that Shafron’s responsibilities with James Hardie as company secretary and general counsel were indivisible and must be viewed as a composite whole.

At the Australian Corporate Lawyers Association (ACLA) NSW Corporate Counsel Day on 27 March, Deakin expressed concern about the implications for in-house lawyers as an independent legal adviser if the High Court deems a general counsel to be an officer under the Act.

“Their status as an officer might undermine their independence as a legal advisor and also their purpose in giving that advice,” said Deakin. “It might have implications on when a general counsel can act or provide advice or guidance to the board and what attaches to that advice.”

A win for ASIC and Clayton Utz
The High Court today also handed down its decision on an appeal by the Australian Securities and Investments Commission (ASIC) over a decision in late 2010 by the NSW Court of Appeal that overturned a previous judgment banning seven former non-executive directors of James Hardie from sitting on boards for five years.

Separate $30,000 fines against the seven non-executive directors were also set aside by the Court of Appeal.
The High Court allowed ASIC’s appeal, which was a victory for its long-time legal adviser in this matter, Clayton Utz.

The High Court found that each of the seven non-executive directors, including Meredith Hellicar, the chairman of the company between 2004 and 2007, had breached his or her duties as a director by approving the release of a misleading announcement to the Australian Stock Exchange.

The announcement made misleading statements about the provision of funds with regard to the compensation of victims of asbestos.

In setting aside the Court of Appeal decision, the High Court found that ASIC’s decision not to call David Robb, a lawyer providing advice to James Hardie, did not breach a “duty of fairness”.

Robb was a partner with Allens Arthur Robinson at the time he was giving advice to the company.

A cast of thousands
A host of lawyers and law firms were involved in the High Court appeal.

Leading the Clayton Utz team which acted for ASIC was Brigitte Markovic, the head of the firm's litigation and dispute resolution practice, with the solicitor-general, Stephen Gageler, instructed.

Atanaskovic Hartnell acted on behalf of four of the non-executive directors, including Hellicar. It also acted for Michael Brown, Mike Gilfillan and Martin Koffel.

Managing partner John Atanaskovic and partner Larissa Pickford lead the firm's team, with barristers Justin Gleeson SC, Rob Hollo SC and Rohan Hardcastle instructed.

“Even if the High Court supports ASIC on the duty of fairness issue - and finds there isn't one or that ASIC didn't breach it - the High Court still has to come to a view on whether ASIC has proved its case that the non-executive directors approved the relevant Australian Securities Exchange release,” John Atanaskovic said when speaking to Lawyers Weekly just prior to the High Court Appeal last year.

The other three non-executive directors of James Hardie were represented by Arnold Bloch Leibler, Kemp Strang and Blake Dawson.

ABL partner Jonathan Milner acted for Dan O'Brien, with instructed barrister Peter Wood.

Kemp Strang partner Alex Linden provided legal counsel for Peter Willcox, with barristers Thomas Jucovic QC and Richard Scruby assisting.

Greg Terry retained Blake Dawson partner Angela Pearsall and associate Stephanie Patterson. Barristers Andrew Bell SC and Scott Nixon were instructed.

The High Court has sent the matter involving the seven non-executive directors back to the NSW Court of Appeal for further consideration of the remaining issues involving liability, penalty and disqualification.


*See the Lawyers Weekly Legal Loop tomorrow for further updates on this story, including the views of the Australian Corporate Lawyers Association

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