HI6027 Business and corporations Law - ASIC v Hellicar
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HI6027 Business and corporations Law (HI6027)
Added on 2019-10-31
HI6027 Business and corporations Law - ASIC v Hellicar
HI6027 Business and corporations Law (HI6027)
Added on 2019-10-31
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ASIC v Hellicar [2012] HCA 17In ASIC v Hellicar [2012] HCA 17, the appeal made by the Australian Securities and InvestmentCommission was unanimously upheld by the High Court. This appeal was made in the text offthe civil penalty proceedings that have been initiated against the 7 nonexecutive directors of theJames Hardie Industries Ltd. It was found by the court that all these directors have breached theirduties that they were required to follow in accordance with s. 180, Corporations Act, 2001 asthey had failed to exercise due care and diligence by acting as the directors of the company. Thebrief facts of this case are related with the attempts made by the James Hardie Industries Ltd.(JHIL) as the company tried to separate two wholly owned subsidiaries. The names of these twowere James Hardie & Coy Pty Ltd and Jsekarb Pty Ltd. Both of these companies had to face theclaims for damages due to the personal injuries suffered by the individuals who had come incontact with the asbestos products of these companies. In order to achieve the separation of thesetwo subsidiaries, JHIL was going to establish a foundation, the MCRF that was going to manageand pay the claims for the diseases related with asbestos. This foundation was also going toconduct research regarding the causes and treatment for the disease is caused by asbestos. Thetwo subsidiary companies, Coy and Jsekarb were going to make a deed of Covenant andindemnity with James Hardie Industries Ltd. According to it, these two companies would makeno claim against and indemnify James Hardie regarding all its liabilities related to asbestosclaims. In return, James Hardie was going to pay an amount of money to these two companiesover a period of time. In this way, it was decided that a new company was going to beincorporated in the Netherlands under the name of James Harvey Industries NV. This companywas going to become the immediate holding company of James Hardie Industries Ltd. as well asthe ultimate holding company of the group. Under these circumstances, the board of James Hardie Industries Ltd. met on 15 February, 2001.The purpose was to consider the proposal of separation. The events that took place at the meetingof the board were the subject of the eventual proceedings at the High Court. A number of matterswere recorded at the minutes of the meeting. These matters are related with the separationproposal. A resolution was also passed by the board of the company in this meeting. Thisresolution provided that it is in their best interest of the company to effect the separation of Coy
and Jsekarb. At the same time, several other resolutions related with the separation were alsopassed. It was also said in the meeting that sufficient funds were available with the foundation,MCRF to deal with all the legitimate claims of compensation that can be anticipated in future. Itwas also stated that the directors of the company had determined the level of funding. That wasneeded by the foundation and they were satisfied that the foundation has sufficient fundsavailable with it. However, ultimately it was found that sufficient funds were not available withthe foundation, MCRF. It was discovered during the trial and by the Court of Appeal that whenthese statements were made in February, 2001, it should have been clearly known to the directorsof James Hardie that the statements made regarding the availability of funds with the foundationwere in fact misleading. However, this was not the issue before the High Court. On the otherhand, the main issue before the High Court was if it should have been found by the Court ofAppeal, as it did, that the ASIC had failed in establishing that a draft of announcement made bythe company to the ASX had been tabled at the meeting of the board, held in February, and it hadnot been established that the draft had been approved by the directors.On the other hand, the directors of the company argued that the draft announcement was nottabled at the board meeting held in February.. For this purpose, they impugned the accuracy ofthe minutes of the meeting. However, this contention of the directors was rejected by the HighCourt. In fact, the Court noted that the "arguments of the respondents that the February and Aprilminutes of the meeting were false, in relevant respects, were the arguments, if accepted, may goto the extent of demonstrating that the respondents had failed to take the steps that are necessaryfor making sure that the minute books of the company were in fact, not false or misleading". Itwas held by the High Court that finding out the presence of other inaccuracies in the minutes didnot result in establishing that the relevant parts of the minutes were not accurate. It is notnecessarily implied by the fact that the minutes of the meeting were prepared in draft before themeeting was held, that these minutes did not provide a true record of what has taken place duringthe meeting. Even so, subsequently the boat and adopted the minutes as the true record of whathas taken place.Another major issue present before the court was related with the failure of the ASIC in theCourt of Appeal to call Mr. Robb, the external solicitors of James Hardie, as a witness as he hadattended the meeting. While it was indicated by the Court of Appeal that a duty was present onpart of the ASIC to call Mr. Robb, this was rejected by the High Court. It stated that neither the
source of a duty of this nature, not the source of the rule, that has been claimed to be applicablein case of the breach of such duty, has been sufficiently identified by the Court of Appeal or inthe arguments made before this Court. Ultimately, the court stated that by not calling Mr. Robbby the ASIC, there was no unfairness caused to the respondents or to the other defendants.In this way, the judgment delivered by the Court of Appeal was overturned by the High Courtthat ASIC could not satisfy the burden of proof that the draft announcement made to the ASXwas tabled and approved during the board meeting held in February, 2001. The Court stated thatthe minutes of the board meeting for the formal record of what has occurred during the meeting,and therefore, need to be considered as the evidence of the truth of the matters that were recordedby them, particularly that a draft ASX announcement has been tabled and approved in thismeeting. It was also helped by the court that the submission made by the respondents. Accordingto which the minutes were inherently unreliable due to the fact that they had been preparedbefore the board meeting took place in February, and there were several inaccuracies present inthese minutes, had been rejected by the High Court. It was stated by the Court that it would be"too great a coincidence" that not even one person who was present during the April meeting, inwhich the minutes of the February meeting with adopted, could notice that there was a resolutionpresented in these minutes, which to their knowledge, was not passed. Therefore, the High Courtstated that in view of the case made by the respondents themselves, this would have been aglaring blunder or even worse than the blunder that a vitally significant resolution had beenrecorded, which never took place. Moreover, evidence was present with suggested that the draft announcement made before theASX was circulated during the meeting as it was found by Mr. Robb, as well as revealed by thefiles of BIL Australia Pty Ltd., which has a large shareholding in James Hardie and twononexecutive directors who were closely associated with this company, were present at thismeeting.A similar view was taken by the High Court regarding the announcement made to the ASX itselfby the company. The court noted in this regard that while some differences were present betweenthe draft that was held to be tabled during the meeting of the board held in February, theamendments that have been made to this draft announcement were properly described as beingtextual instead of being substantive, were not substantial, and the misrepresentations that havebeen made in the two, were the same. It was stated by the High Court that, "whether a deed that
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