Duties and Corporate Social Responsiveness

Question: Discuss about the Duties and Corporate Social Responsiveness. Answer: Introduction: This report contains the discussion on Australian case Australian Securities and Investments Commission v Hellicar [2012] HCA 17. We choose this case because in this the actual matter is related to breach of directors duties and officers duties under section 181 of the Corporation Act 2001. In this case, the full bench of the High Court of Australia overturned the decision of NSW Court of appeal and held that all the directors of the company that is seven non-executive directors, company secretary of the company breach their duties towards the company by releasing the statement which is related to misleading announcement to ASX. This case provides better understanding of duties of ASIC duties related to bringing proceedings under Corporation Act 2001 and also the duties of directors towards the company and other regulatory authorities. This case clarifies many other things also such as duties of executive and non executive director, management below the board level, and definition of officers under the act (Czoch Whalebelly, 2012; ABC, 2012). In this first we give brief introduction of the case, then how directors breach their duties towards the company, and we critically ANALYSE the court/tribunal decision and the reason for the decision in view of the Corporations Ac t. At last, we conclude the essay with the brief conclusion. Australian Securities and Investments Commission v Hellicar [2012] HCA 17: Case introduction: In 2007, proceedings under civil penalty were brought by ASIC to NSW Supreme Court against the seven non-executive directors of the company. Out of those seven directors three directors are former executive directors and company secretary of James Hardie Industries Ltd (JHIL) and proceedings against these directors are brought under section 180(1) of Corporation Act 2001. ASIC alleged that directors of the JHIL are failed to exercise due care and diligence for release of information related to share market, and this will result in breach of duties of directors towards the company. In this case NSW Supreme Court decided that seven directors of JHIL breach their duties by approving the misleading announcement made to ASX which stated that trust which is created to compensate the victims of asbestos related diseases have sufficient funds and this trust can meet the all claims related to asbestos in present and future. Later, it was found that this trust was underfunded by $1.5 billion. Court also held that Mr. Shafron as company secretary and general counsel of JHIL breach his duties by failing to advice the board that announcement made to ASX was misleading. For breach of section 180(1) of the Corporation Act 2001 court issue disqualification orders and imposed fines against the directors (High Court of Australia, 2012; Jacobson, 2012). Directors filed appeal against the decision of NSW Supreme Court in NSW Court of Appeal. Directors stated that judge of NSW Supreme Court does not consider the fact that announcement made to ASX is tabled and approved in the meeting of board in February. NSW Court of Appeal allowed the appeal and held that ASIC has not satisfied his burden of proof and court of appeal stated: Resolution related to ASX announcement was passed in meeting of board of directors conducted in February, and this resolution was not accurate and its accuracy is in question especially for the matter of ASX announcement (High Court of Australia, 2012). ASIC failed to call accurate witness, and they are unable in re-calling the events held in the February board meeting of directors. Court of Appeal also held that ASIC owned duty of fairness and they breach their duty by not calling the lawyer of JHIL that is Mr. Robb because he attended the meeting and also prepare the board minutes of that meeting. ASIC failed to call Mr. Robb which result in diminish of cogency of the evidence presented by ASIC. ASIC filed appeal against the decision of NSW Court of Appeal in the High Court of Australia (Lexology, 2012; Time base, 2012). High Court overturned the decision of NSW Court of Appeal, and remaining matters are remitted to the Court of Appeal brought by the directors and other officers related to relief from penalty and liability (news.com. au, 2012). Breach of directors duty: Before discussing the duties of director it is necessary that we discuss section 180 (1) of the Corporation Act 2001 which states that it is the duty of the director or other officers of the company that they must exercise their powers and discharge their duties with due care and diligence that any reasonable person would exercise (Corporation Act 2001). In 2012, High Court of Australia held that by approving the misleading statement made to the ASX which is related to asbestos compensation fund, the 7 non-executive directors of JHIL breach their duties under section 180(1) and 181 of the Corporation Act 2001. Court also held that Peter James Saffron who is the company secretary and general counsel of the company also failed to discharge his duties with due care and diligence related to the announcement made to the ASX that Asbestos compensation trust is fully funded (Lamont 2012). The decision of High Court under this case highlights the duties and accountability of directors for the decision made by the Board, and also it state the responsibility of directors related to the accuracy of statements made by the company to the market. This case state the importance of the need that directors must understand the documents related to the company and representations the made to outsiders even if such documents are complex in nature. Court does not introduce any new law in this case and approach considered by court is not controversial. It is important for directors that they understand the document, and does not fulfill his duties merely on the basis of other directors and experts advice. This case also highlights the challenges for company secretary and other officers of the company regarding following matter (Redmond, 2012). After this case the career and reputation of former directors of James Hardie was ruined, and there is also great loss to the reputation of the company. Besides that there is damage on the market value of the shares of James Hardie which also affect the innocent shareholders of the company. This is clear, that risk taken by the directors of the company in this case by not making actual statement to the ASX to the board and ASX results in great damage to the company and to themselves (Govrick, 2012 : McVeagh, 2012). If management fails to provide accurate and complete information to the directors of the company then it does not mean that directors are free from the responsibility. Therefore, it is necessary for directors that they keep their eyes open and discharge their duties with due care and diligence (Casson, 2011). Decision of High Court: The High Court of Australia overturned the decision made by NSW Court of Appeal in which court of appeal stated that ASIC has failed to satisfy the burden of proof lien on him related to announcement made to ASX in February board meeting was tabled ad approved. High Court also stated that minutes of board meeting are record which are formal in nature and stated the proceedings of the meeting and these minutes are the true evidence of what happened at the meeting. Therefore, ASX announcement was tabled and approved at the meeting. Argument of directors stated that minutes of the meetings are not reliable because these minutes are prepared before the board meeting and these minutes are not accurate was rejected by the High Court. High court stated that this was great coincidence that not even single individual who was presented in the board meeting of April in which minutes of February board meeting was approved notice that minutes contained resolution which was not even passed in the meeting. In the words of the High Court respondents case would be a great blunder because recording such an important resolution in the minutes even if such resolution never passed in the meeting (Tam, 2012). High Court further held that there are some differences in the draft that was tabled in the February board meeting and amendments was made in the announcement made ASX but these amendments are not substantive and especially the misleading statements are same. High court also stated that ASX announcement was circuited and not even single individual raise question against that announcement which shows that announcement was tabled and approved by the directors of the company in the meeting of board of directors. On the finding of the NSW Court of Appeal that ASIC failed to call Mr. Rob diminish the Cogency of Evidence of ASIC, and ASIC agrees that this was general obligation of ASIC to act fairly. On these findings High Court held that: NSW Court of Appeal does not identify any source which imposes duty to call the particular evidence, and also not any source which stated any rule was applied in case of breach. Even if any source existed which impose duty to call specific witness then it was expected that primary judge direct the ASIC to call such witness or primary judge stay the proceeding of this case until ASIC call such witness. There is no provision which stated that cogency of evidence is diminished by not calling that particular witness (Austlii, 2012). The High Court rejected the decision of Court of Appeal on the basis of principles stated in Blatch v Archer and Jones v Dunkel. This case is not depend on the witness but it was depend on the Board minutes of February Board meeting. In this case High Court allowed the appeal of ASIC with cost and set aside the order of NSW Court of Appeal in relation Mr. Hellicar. High Court overturned the decision of NSW Court of Appeal, and remaining matters are remitted to the Court of Appeal brought by the directors and other officers related to relief from penalty and liability (Boardman Lees, 2012; Kemp Strang, 2012). All the judges held that Court of Appeal does not give sufficient importance to the board minutes of February Board Meeting, whereas Section 251A states that it is necessary for the company that it maintains the minutes book of the meetings and record the proceeding of the meetings within 1 month of the meeting. This section also state that minutes must be signed by the chair or reasonable authority, and these minutes are evidence of the proceedings to which it relates. Contravention of this section is criminal offence. Therefore, high court consider the minutes of February Board Meeting as evidence to the fact that draft of ASX announcement was tabled and approved by the board (Austin, Standen Reynolds, 2012). The impact of this decision raise many questions such as whether it is right that directors of the company lies on the advice of experts and management and whether it is not possible for the company secretary to divide his task from the role of company secretary or general counsel (Austlii, 2012). Conclusion: In this case, we understand the obligations and duties of directors related to the representations made by the company to the outsiders. It is important that directors discharge their duties with due care and diligence. This case not only impacts the reputation of former directors of the company and company itself but also affect the innocent shareholders of the company. In this case, High Court overturned the decision of NSW Court of Appeal, and remaining matters are remitted to the Court of Appeal brought by the directors and other officers related to relief from penalty and liability. This decision of High Court highlights the importance of directors duty and their impact on the company. Therefore, it is clear from the above facts that directors are responsible for the decisions made by board. This case also state the importance of minutes held by the company and considered them proper and good evidence of the matter related. At last, we conclude the essay by saying that ASIC v Hellicar case leaves number of question marks on the working of directors and other officers of the company. References: Czoch, K. Whalebelly, R. (2012). The James Hardie Decisions: ASIC v Hellicar Ors [2012] HCA17; Shafron v ASIC [2012] HCA 18. Retrieved on 22nd December 2016 from: https://www.mondaq.com/australia/x/176336/Directors+Officers+Executives+Shareholders/The+James+Hardie+Decisions+ASIC+v+Hellicar+Ors+2012+HCA17+Shafron+v+ASIC+2012+HCA+18. High Court of Australia, (2012). AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v MEREDITH HELLICAR ORS [2012] HCA 17. Retrieved on 22nd December 2016 from: https://www.hcourt.gov.au/assets/publications/judgment-summaries/2012/hcasum17_ASIC_v_Hellicar.pdf. Jacobson, D. (2012). ASIC V HELLICAR: LIABILITY OF COMPANY DIRECTORS (JAMES HARDIE). Retrieved on 22nd December 2016 from: https://www.brightlaw.com.au/asic-v-hellicar-liability-of-company-directors-james-hardie/. High Court of Australia, (2012). AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v MEREDITH HELLICAR ORS [2012] HCA 17. Retrieved on 22nd December 2016 from: https://eresources.hcourt.gov.au/downloadPdf/2012/HCA/17. Lexology, (2012). The decision: ASIC v Hellicar Ors. Retrieved on 22nd December 2016 from: https://www.lexology.com/library/detail.aspx?g=c02498f5-ec3a-4514-af79-0d8982db328a. Time Base, (2012). ASIC v Hellicar Others James Hardie directors lose to ASIC in High Court. Retrieved on 22nd December 2016 from: https://www.timebase.com.au/news/2012/AT169-article.html. Corporation Act 2001-s180(1). Lamont, L. (2012). Hardie directors breached duties: High Court. Retrieved on 22nd December 2016 from: https://www.smh.com.au/business/hardie-directors-breached-duties-high-court-20120503-1y0cu.html. Redmond, P. (2012). Directors duties and corporate social Responsiveness. Retrieved on 22nd December 2016 from: https://www.austlii.edu.au/au/journals/UNSWLawJl/2012/13.pdf. Govrick, D. T. (2012). The James Hardie case: risk, reputation and business ethics Retrieved on 22nd December 2016 from: https://www.ethics.org.au/on-ethics/blog/june-2012/the-james-hardie-case-risk,-reputation-and-busines. McVeagh, R. (2012). Corporate Advisory Legal Update. Retrieved on 22nd December 2016 from: https://www.russellmcveagh.com/Publications/ViewPublication/tabid/176/Title/directors-duties-james-hardie/pid/83/Default.aspx. Casson, J. (2011). Directors Duties What was the James Hardie Appeal About. Retrieved on 22nd December 2016 from: https://www.holmanwebb.com.au/blog/directors-duties-what-was-the-james-hardie-appeal-about. Corporation Act 2001-s251A. Austin, R. Standen, M. Reynold, C. (2012). The High Court decides the James Hardie Case. Retrieved on 22nd December 2016 from: https://www.minterellison.com/files/uploads/Documents/Publications/Alerts/NA_20120509_JamesHardieDecision.pdf. Tam, K. (2012). The sting for General Counsel in the James Hardie decisions - Shafron v ASIC and ASIC v Hellicar. Retrieved on 22nd December 2016 from: https://www.hunthunt.com.au/SiteMedia/w3svc1265/Uploads/Documents/Shafron%20decisionMay2012.pdf. Austlii, (2012). Australian Securities and Investments Commission v Hellicar; Australian Securities and Investments Commission v Brown; Australian Securities and Investments Commission v Gillfillan; Australian Securities and Investments Commission v Koffel; Australian Securities and Investments Commission v Terry; Australian Securities and Investments Commission v O'Brien; Australian Securities and Investments Commission v Willcox; Australian Securities and Investments Commission v Shafron [2012] HCA 17 (3 May 2012). Retrieved on 22nd December 2016 from: https://www.austlii.edu.au/au/cases/cth/HCA/2012/17.html. Austlii, (2012). "Shafron v Australian Securities and Investments Commission (2012) 286 ALR 612" [2012] UTasLawRw 16; (2012) 31(2) University of Tasmania Law Review 155. Retrieved on 22nd December 2016 from: https://www.austlii.edu.au/au/journals/UTasLawRw/2012/16.html. Boardman, P. Lees, J. (2012). James Hardie Directors Approved Misleading ASX Release. Retrieved on 22nd December 2016 from: https://www.wottonkearney.com.au/downloads/case%20note%20-%20james%20hardie%20directors%20approved%20for%20misleading%20asx%20release.pdf. Kemp strang, (2012). James Hardie decisions - implications for general counsel and company secretaries. Retrieved on 22nd December 2016 from: https://www.kempstrang.com.au/publication/james-hardie-decisions-implications-general-counsel-and-company-secretaries. ABC, (2012). James Hardie directors breached duties: court. Retrieved on 22nd December 2016 from: https://www.abc.net.au/news/2012-05-03/high-court-rules-in-favour-of-asic-in-hardie-case/3987196?pfmredir=sm. News.com.au, (2012). High Court rules in favour of ASIC in James Hardie case. Retrieved on 22nd December 2016 from: https://www.news.com.au/finance/markets/high-court-rules-in-favour-of-asic-in-james-hardie-case/news-story/b1c4798daec37297c54e7cc80f650ca8.