Lawyers examining the implications of the James Hardie judgment have reminded general counsels of their responsibilities within an organisation.
On Tuesday (26 June), Baker & McKenzie hosted a seminar entitled James Hardie – Lessons learned from High Court decisions. On 3 May the High Court found that eight former office holders of James Hardie had breached the Corporations Act.
The Bakers seminar concentrated on the High Court’s ruling against the former general counsel and company secretary of James Hardie, Peter Shafron, and how this might impact the professional conduct of general counsels in the future.
“Officers with a legal background should not just rely blindly on advice from third parties,” said Kate Jefferson, a senior associate with Bakers. “What the decision indicates is that if the general counsel and company secretary have concerns with the advice they have been given that they do have a positive duty to take a stance and raise questions they have with the external party that is providing the advice.”
The High Court found that Peter Shafron, the former general counsel and company secretary of James Hardie, had breached the Act 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.
Shafron was a key figure within James Hardie when the disgraced company was analysing various models to separate itself from asbestos liabilities and create a foundation to fund compensation packages for victims of asbestos.
In February 2001, James Hardie made a misleading statement regarding the funding of the Foundation to the Australian Stock Exchange.
In particular, 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.
The noted business law academic Ian Ramsay told Lawyers Weekly in May that the High Court made it “pretty clear” in its judgment against Shafron that disclosure was an area of responsibility that came under Shafron’s brief and not that of Allens, the company’s external legal advisers at the time.
“There is a lesson [from the High Court] here for general counsels to be fairly clear on when a matter should be the subject of outside advice, and when it might be appropriate for a general counsel to rely on that expert outside advice.”
Ignorance isn’t bliss
The seminar looked at the implications of the High Court reaffirming in its James Hardie judgment that a company secretary is an officer under the Act.
The High Court rejected the argument put forward by Shafron’s legal advisers, who were led by Middletons partners Murray Deakin and Bret Walker SC, that the contraventions alleged against Shafron concerned his responsibilities as an “officer” of the company and thus should not be subjected to s180(1) of the Act.
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.
Around 40 per cent of general counsels also hold the role of company secretary within organisations.
“There should be careful consideration given as to whether a general counsel should occupy the same position as a company secretary,” said Jefferson. “I query whether there is any benefit in terms of having two people occupy separate roles, and whether you can actually quarantine liability in that way by separating the roles, given that a general counsel could potentially be seen as someone that was involved in making a decision that affected a whole or substantial part of the company.”
Bakers partner James Halliday was the last of four speakers from the firm to address the seminar, with senior associate Elizabeth Huckerby and partner Georgie Farrant also speaking.
Halliday said the High Court ruling showed that officers cannot rely on a defence of ignorance with regard to official pronouncements from their respective corporations.
“The other expectation from the courts is that officers are expected to involve themselves as to relevant matters,” said Halliday. “It is not enough to say I didn’t know... and if a company secretary doesn’t know [about a company policy] they are expected to inform themselves so that they do.”