Business Law Of Hardie And Shafron Essay

Question:

Discuss about the Business Law of Hardie and Shafron.

Answer:

Facts of the Case

Hardie had employed Mr Shafron in August 1998 as the “general counsel and company secretary”, although it was not until November 1998 that he was formally appointed as the company secretary. Mr Donald Cameron along with Mr Shafron was appointed as the joint company secretary.

The board of Hardie in February 2001 met for considering a proposal for separating two companies with considerable liabilities of asbestos from the James Hardie group. It was found that there was a breach of section 180(1) of Corporations Act 2001 (Cth.) (“Act”) by Mr. Hardy since:

  • there was a failure to advise the board or the chief executive of Hardie it was required to disclose to the ASX, certain additional information regarding the proposal of separation (“ASX Issue”); and
  • there was a failure to advise the board of Hardies that the actuarial report on which reliance had been placed by the board did not provide with “superimpose inflation” which the report should have (“Actuarial Issue”).

Issue

The relevant issue in this case were:

(i) Was Mr Shafron an officer of the company?

(ii) Where the duties of section 180(1) applicable to Mr Shafron as the company secretary?

Rule of Law and Application of Law

It was conceded by Mr Shafron that he was an officer under s 9(a) of the Act an officer of the company being the company secretary though not in the sec 9(b)(i) wider senses, the same was found by the Court of Appeal.[1] Thus as the company secretary he had only administrative responsibilities similar to that of Mr Cameron the other C.S. unlike section 9(b)(i) which states ‘who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation.’ It was held that Mr Shafron was not an officer just by his role as the C.S. but also by section 9(b)(i) wider definition. The court stated that participation meant being involved closely in the formulation of decisions that are important and not being the ultimate decision maker. Being the top three executive he fell within the ambit of section 9(b)(ii).[2]

With respect to liability under section 180(1) the Act provides for liability where there is failure on the part of the director or officer to discharge their duties with due diligence and care that a reasonable person would as an officer or director. This largely is an objective test it was reconfirmed by the High Court in this case that it is not just statutory responsibilities referred to under this section and include all the concerned responsibilities.[3] Thus Mr Shafron’s knowledge was relevant was assessing the sections standards. Based on this knowledge there was a duty on Mr Shafron to advice regarding the ASX issue and he failed to do so and hence there was a breach of section 180(1). With regard to the Actuarial issue the decision of the NSW court was upheld stating that any reasonable person would have advised this in his place[4], thus though not an actuarial he was aware of this concept.[5]

Conclusion

This case has far reaching implications with within section 9 and other roles of the Act. As per this decision the roles cannot be separated for the requirements of diligence and duty of care. Further the test of participation for section 9(b)(i) is confirmed as not requiring to be the ultimate decision maker. Finally the standard of care under section 180(1) is confirmed under this case which is not just statutory responsibilities but the actual responsibilities.[6][7]

Bibliography

ASIC v Adler [2002] 41 ACSR 72

ASIC v Rich [2003] NSWSC 85

Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287

Morley v Australian Securities and Investments Commission [2010] NSWCA 331

Shafron v Australian Securities and Investments Commission [2012] 286 ALR 612

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