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James Hardie poses new risks for general counsel

James Hardie poses new risks for general counsel

Murray Deakin and Sylvia Ng at Middletons offer an insight into the risks for general counsel arising out of the High Court's recent decision in the James Hardie case.

Murray Deakin and Sylvia Ng at Middletons offer an insight into the risks for general counsel arising out of the High Court's recent decision in the James Hardie case.

General counsel are exposed to new risks of prosecution by ASIC after the High Court dismissed an appeal by the former general counsel and company secretary of James Hardie. In the James Hardie decision, the High Court found that the former general counsel and company secretary was an "officer" under the Corporations Act and failed 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.

The High Court's decision highlights two key new risks under the Corporations Act for general counsel. Firstly, those who occupy the positions of company secretary and general counsel will be taken to be an "officer" under the Corporations Act, in respect of all their responsibilities, including their responsibilities as general counsel. The High Court held that it was not possible to divide the duties and responsibilities of the general counsel and company secretary, given the "single, composite description given to the job".

The Court could not find any evidence demonstrating or suggesting that the former general counsel and company secretary performed certain tasks in one "capacity" and other tasks in another. It was held that once general counsel is taken to be an officer by virtue of his or her role as company secretary, he or she will be an officer in respect of all responsibilities within the company "regardless of how or why those responsibilities came to be imposed on that officer". Accordingly, because of the qualifications, position of employment and responsibilities of the former general counsel and company secretary, his responsibilities were found to have extended to proffering advice on disclosure and any limitations on advice procured from external advisors.

Secondly, and more importantly for those who occupy the sole position of general counsel, if general counsel plays a large and active part in formulating important proposals for the board, he or she may also be taken to be an "officer" under the Corporations Act and liable to penalty in the event of any deficiency with those proposals.

In this case, the High Court held that the former general counsel of James Hardie should be taken to be an "officer" on the basis that he participated in making decisions of the requisite character, notwithstanding that he did not make the ultimate decisions, but because of the contribution he made to the making of the decisions, his level of seniority as an employee within the company, and that his role, according to the Court, went beyond proffering advice to the board.

As it is not uncommon to find general counsel conscientiously involved in preparing board papers and presentations to a board or CEO for consideration, general counsel should be aware that this type of work and the actual responsibilities they assume in a corporate environment may make them "officers".

As this case has shown, once taken to be an officer, general counsel is subject to a number of duties under the Corporations Act, and consequently is exposed to the risk of contravening the Act, which may result in prosecution, disqualification, liability to pay pecuniary penalties and legal costs, and damage to reputation.

Murray Deakin is a partner and Sylvia Ng a senior associate at Middletons.

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James Hardie poses new risks for general counsel
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