Business and Corporate Law: Case Study on James Hardie

This report discusses the case of James Hardie, a building material company, and the breach of duties by its directors and officers. It explores the duties and responsibilities under the Corporation Act and the judgment of the court. The report concludes with the implications of the case on business and corporate law.

BUSINESS AND
CORPORATE LAW

Table of Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1.1Introduction of case...........................................................................................................3
TASK 2......................................................................................................................................3
2.1 Duties and responsibilities under corporation act............................................................3
TASK 3......................................................................................................................................6
3.1 Discussion on judgement of court....................................................................................6
CONCLUSION..........................................................................................................................7
REFERENCES...........................................................................................................................8

INTRODUCTION
The Business or corporate law can be understood as the legal practices that are made
by tribunal for controlling all the activities that are conducted in corporate world. Different
laws that are made in this sector cover shareholders, directors, workers and creditors of any
organisation. It defines various acts and principles that govern activities related to companies
so that no illegal practices can be followed within any firm (Muchlinski, 2012). In the present
report, there is a discussion over business and corporate law. As per this, there is a discussion
over the case of Australia that has covered the corporation act and its different sections
according to which duties of directors and officers within workplace have been defined.
Besides this, there will be a critical discussion about the judgement given by tribunal in stated
case so as to understand all the essential elements that are involved in corporations act.
TASK 1
1.1Introduction of case
James Hardie is a building material company which is headquartered in Ireland and
founded in Australia. The stated organisation is a manufacturer of fibre cement building
products firm that is listed in Australian Securities Exchange (ASX) as well. As per the case,
in 2001, two auxiliary firms of James Hardie group were filed with large liabilities that were
linked with asbestos claims. There were some of the sufferers who demanded for the
compensation against the losses and diseases caused as a result of asbestos (Phillips, Turco
and Zuckerman, 2013). Thus, a foundation was structured by cited enterprises so as to give
the compensation to sufferers. After this, the members of board of directors made a
declaration to Australian securities exchange entailing about the funds that were sufficient for
meeting all claims of compensation. However, later it was found that the declaration made
by firm was fake and as the structured foundation was underfunded by $1.5 billion. As a
result, the Australian Securities and Investment Commission (ASIC) took an action against
the entity’s directors and company secretary Mr. Shafron.
TASK 2
2.1 Duties and responsibilities under corporation act
It has been manifested that in recent years, the tribunal has closely looked into the
matters of corporate governance and the role of directors and company secretaries as well

(Page and Katz, 2010). As per this, it has been said that no director or officer of company
make an argument about the organisation’s proceedings by saying that he/she was unaware of
the duties and responsibilities. Prior to 1991, Australia had a state-based corporate law
scheme, as it had a argument that the business laws comes under the jurisdiction of state.
However, gradually many developments came across due to which the acts under corporation
laws came into force which regulated the laws related with business world. The acts and rules
made under this law were potential to raise a fear among the personalities of corporate
against the litigation procedures that may take place against any illegal operations of the
company. In Australia, there are particular laws that have been framed for a firm’s director
and company secretary according to which they are supposed to fulfil various obligations and
responsibilities. Thus, there are several duties of officers under the Australian law according
to which they have been divided into three categories: a) Statutory duties b) Common laws
that explain duty of care and due diligence and c) fiduciary duties (Meese and Oman,2014).
The Corporation act (CA) has various sections according to which different duties and
responsibilities have been defined. As per the law, the breach of ss 180-183 under CA may
lead to certain penalties. While, in case of some severe occurrences that implies any criminal
liability may come under s 184. The above stated case of James Hardie group also
demonstrates the similar conditions where ASIC charged the directors and company secretary
under Corporation act where they were found to be failed of performing their duties with due
care and diligence. Thus, under CA, they were fined with certain amount of penalties. The
directors are the persons who use to work on the behalf of all shareholders of a company.
Thus, they are expected to perform their duties in good faith and fulfil all expected roles and
responsibilities. There are some major duties that are expected of the directors and officers of
the organisation which were breached in case of James Hardie group. The major duties that
are explained in the Corporation act, 2001 expected from the directors and other officers are
as follows:
Care and diligence: As per the corporation act s 180, the company’s directors and officers are
held responsible for acting with a highest degree of care and diligence in all its operations
(Bainbridge, 2015). The meaning of due care is to demonstrate the reasonable care in the act
which also exhibits the best interest of organisation and all its related stakeholders. It also
reflects to maintain the activities which are directed towards the formalised security that has
systematic policies, standards and related guidelines which can help in maintaining the right
procedure for carrying out legal works. Apart from this, the due diligence refers to the careful

investigation and research of each and every activity that are conducted by firm so as to
restrict any illegal practice. Both of these cares were not performed properly by stated
enterprise because of which the directors were accused of penalties and case against them. In
addition to this, the court also discovered that the mentioned firm’s directors had breached
duties at the time of approving ASX announcement in board’s meeting.
Good faith: Section 181of Corporation’s act states that the business firm’s directors must act
in good faith that refers to the best interest of organisation (Johnson, 2012). This also
demonstrates the duty of faith and trust which has been imposed by the law. According to this
duty, the directors and officers are bound to act with all of their sincere attention. There
should not be any belief or purpose of mischievousness that shows the desire of making any
kind of fraud. According to this act, the cited venture was bound to reveal all of their
information correctly without any intention of cheating to any party. While, the directors
made concealment and revealed wrong amount of compensation to the ASX.
Improper use of designation: As per section 182 of corporation act, the officers of a company
cannot make use of their position within firm in any illegal manner that results in gaining
undue advantage for themselves or for any third party. It does not matter that the company
has suffered any loss as a result of the improper use of position by directors and officers. The
thing which matters is that their intention and performance which was not as per the legal
acts. In case of James Hardie, The directors made wrong use of their position and power. The
company secretary also did not perform his duties as per the rules (Letsou, 2010). Thus there
was a serious breach of duties and responsibilities from the side of the directors and officers.
Improper use of information:
According to section 183, The company’s director or officers should not use the information
they have for any purpose other than intended. They should not hamper with the information
and data in any way for their own personal benefits . Also the use of information should be
transparent and known to the individuals concerned with the company . This would not only
be more easier to manage but would also be a good ethical act from the company’s part. With
respect to the above case (Segrestin and Hatchuel, 2011). The directors concealed the right
information ASX where they revealed the compensation amount wrongly as it was
underfunded by 1.5 billion dollars.

TASK 3
3.1 Discussion on judgement of court
The decision on James Hardie’s case was filed in court where the final decision was
made after various rounds. At first round of trial, the court gave its decision about the case
that Mr Shafron who was the company secretary of mentioned enterprise has breached his
duty. As per the position of Mr. Shafron, he was responsible to make right advices in an
adequate manner. He was responsible for advising entire board of directors that the
announcement made by organisation termed in very insistent way. Besides this, the court also
made it clear that Mr. Shefron was expected to make all the activities legal as he was also
involved in the decision making. According to (Baer, 2010), the CS of any firm is responsible
to look into the legal matters of organisation so that legal proceedings of enterprise can be
brought on track. Failing to fulfil such responsibility may lead to serious results that may
result inti any legal actions against the firm.
In the second round of court’s decision, several directors of organisation made an
appeal that the supreme court should not have held the minutes have been approved.
Therefore court overturned the NSW’s decision and the minutes presented by ASIC had a lot
of inaccuracies. While, decision taken for Mr. Shafron was unchanged as he was held
responsible to breach his duty. He also made an argument he was just acting in the capacity
of general counsel not as CS so the laws related to Corporations act, 2001 should not apply.
As per Dezalay and Garth, (2011), the directors and all other officers who are involved in
decision making process are fully responsible for all the activities and decisions that are being
undertaken in the meeting regardless of their capacity at that time.
The high court was also involved in this decision making where it overturned the
decision of NSW. They held all involved parties to be responsible for the breach of their
duties. The appeal made by CS off said entity was not accepted and corporation act was
applied on him fully on the grounds of making him responsible for all decisions as he was
acting as an officer at that time. In addition to this, the court said that due to the absence of
any contradictory evidences, meeting held by board is a proof for entire matter along with
decisions and resolutions contained in them (Muchlinski, 2012). As per this, it was fully
proved that the court and its decision regarding breach of duties was right in case of James
hardy case as the directors did not fulfil their responsibilities in a right manner.

CONCLUSION
The above report has been made on business and corporate law according to which
the various essential duties and responsibilities of an organisation have been discussed. The
report has made a discussion over the case of James Hardie which was an Australian
manufacturing company that has mentioned its compensation funds in wrong way. This was a
case of breach of duty on the part of various directors and officers of stated fir. The above
report concludes that the acts and rules made under Corporation act were potential to raise a
fear among the personalities of corporate against the litigation procedures that may take place
against any illegal operations of the company. As per the law, the breach of ss 180-183 under
CA may lead to certain penalties. While, in case of some severe occurrences that implies any
criminal liability may come under s 184. According to the duties, the directors and officers
are bound to act with all of their sincere attention. There should not be any belief or purpose
of mischievousness that shows the desire of making any kind of fraud. The final decision of
court on this case came in 2010.

REFERENCES
Books and Journals
Baer, M.H., 2010. Organizational Liability and the Tension Between Corporate and Criminal
Law. JL & Pol'y, 19, p.1.
Bainbridge, S., 2015. Corporate Law. West Academic.
Dezalay, Y. and Garth, B.G., 2011. Corporate Law Firms, NGOs and Issues of Legitimacy
for a Global Legal Order. Fordham L. Rev., 80, p.2309.
Johnson, L., 2012. Pluralism in corporate form: Corporate law and benefit corporations.
Letsou, P.V., 2010. Implications of Shareholder Diversification on Corporate Law and
Organization: The Case of the Business Judgment Rule.
Meese, A.J. and Oman, N.B., 2014. Hobby Lobby, Corporate Law, and the Theory of the
Firm: Why For-Profit Corporations Are RFRA Persons.
Muchlinski, P., 2012. Implementing the new UN corporate human rights framework:
Implications for corporate law, governance, and regulation. Business Ethics
Quarterly, 22(01), pp.145-177.
Page, A. and Katz, R.A., 2010. Freezing out Ben & Jerry: corporate law and the sale of a
social enterprise icon. Vt. L. Rev., 35, p.211.
Phillips, D.J., Turco, C.J. and Zuckerman, E.W., 2013. Betrayal as Market Barrier: Identity-
Based Limits to Diversification among High-Status Corporate Law Firms 1. American
Journal of Sociology, 118(4), pp.1023-1054.
Segrestin, B. and Hatchuel, A., 2011. Beyond agency theory, a post‐crisis view of corporate
law. British Journal of Management, 22(3), pp.484-499.