ASIC v Hellicar Case Analysis

This report provides a comprehensive analysis of the High Court of Australia's decision in ASIC v Hellicar [2012] HCA 17. The case involved civil penalty proceedings against non-executive directors of James Hardie Industries Ltd for breaches of their duty of care and diligence under s. 180 of the Corporations Act 2001. The report details the facts of the case, focusing on the company's attempts to separate subsidiaries facing asbestos-related liability claims and the establishment of a foundation to manage these claims. The core issue before the High Court revolved around whether the Court of Appeal correctly determined that the Australian Securities and Investments Commission (ASIC) failed to prove that a draft ASX announcement was tabled and approved at a board meeting. The report examines the High Court's rejection of the Court of Appeal's findings, focusing on the court's assessment of the board meeting minutes and the ASIC's failure to call a key witness. The High Court's decision reinforced the objective standard of diligence expected from company directors and broadened the regulatory focus on non-executive directors' performance. The report concludes by highlighting the significance of the case in corporate law and director's liability.

ASIC v Hellicar [2012] HCA 17
In ASIC v Hellicar [2012] HCA 17, the appeal made by the Australian Securities and Investment
Commission was unanimously upheld by the High Court. This appeal was made in the text off
the civil penalty proceedings that have been initiated against the 7 nonexecutive directors of the
James Hardie Industries Ltd. It was found by the court that all these directors have breached their
duties that they were required to follow in accordance with s. 180, Corporations Act, 2001 as
they had failed to exercise due care and diligence by acting as the directors of the company. The
brief 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 two
were James Hardie & Coy Pty Ltd and Jsekarb Pty Ltd. Both of these companies had to face the
claims for damages due to the personal injuries suffered by the individuals who had come in
contact with the asbestos products of these companies. In order to achieve the separation of these
two subsidiaries, JHIL was going to establish a foundation, the MCRF that was going to manage
and pay the claims for the diseases related with asbestos. This foundation was also going to
conduct research regarding the causes and treatment for the disease is caused by asbestos. The
two subsidiary companies, Coy and Jsekarb were going to make a deed of Covenant and
indemnity with James Hardie Industries Ltd. According to it, these two companies would make
no claim against and indemnify James Hardie regarding all its liabilities related to asbestos
claims. In return, James Hardie was going to pay an amount of money to these two companies
over a period of time. In this way, it was decided that a new company was going to be
incorporated in the Netherlands under the name of James Harvey Industries NV. This company
was going to become the immediate holding company of James Hardie Industries Ltd. as well as
the 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 meeting
of the board were the subject of the eventual proceedings at the High Court. A number of matters
were recorded at the minutes of the meeting. These matters are related with the separation
proposal. A resolution was also passed by the board of the company in this meeting. This
resolution 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 also
passed. 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. It
was also stated that the directors of the company had determined the level of funding. That was
needed by the foundation and they were satisfied that the foundation has sufficient funds
available with it. However, ultimately it was found that sufficient funds were not available with
the foundation, MCRF. It was discovered during the trial and by the Court of Appeal that when
these statements were made in February, 2001, it should have been clearly known to the directors
of James Hardie that the statements made regarding the availability of funds with the foundation
were in fact misleading. However, this was not the issue before the High Court. On the other
hand, the main issue before the High Court was if it should have been found by the Court of
Appeal, as it did, that the ASIC had failed in establishing that a draft of announcement made by
the company to the ASX had been tabled at the meeting of the board, held in February, and it had
not 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 not
tabled at the board meeting held in February.. For this purpose, they impugned the accuracy of
the minutes of the meeting. However, this contention of the directors was rejected by the High
Court. In fact, the Court noted that the "arguments of the respondents that the February and April
minutes of the meeting were false, in relevant respects, were the arguments, if accepted, may go
to the extent of demonstrating that the respondents had failed to take the steps that are necessary
for making sure that the minute books of the company were in fact, not false or misleading". It
was held by the High Court that finding out the presence of other inaccuracies in the minutes did
not result in establishing that the relevant parts of the minutes were not accurate. It is not
necessarily implied by the fact that the minutes of the meeting were prepared in draft before the
meeting was held, that these minutes did not provide a true record of what has taken place during
the meeting. Even so, subsequently the boat and adopted the minutes as the true record of what
has taken place.
Another major issue present before the court was related with the failure of the ASIC in the
Court of Appeal to call Mr. Robb, the external solicitors of James Hardie, as a witness as he had
attended the meeting. While it was indicated by the Court of Appeal that a duty was present on
part 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 applicable
in case of the breach of such duty, has been sufficiently identified by the Court of Appeal or in
the arguments made before this Court. Ultimately, the court stated that by not calling Mr. Robb
by 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 Court
that ASIC could not satisfy the burden of proof that the draft announcement made to the ASX
was tabled and approved during the board meeting held in February, 2001. The Court stated that
the 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 recorded
by them, particularly that a draft ASX announcement has been tabled and approved in this
meeting. It was also helped by the court that the submission made by the respondents. According
to which the minutes were inherently unreliable due to the fact that they had been prepared
before the board meeting took place in February, and there were several inaccuracies present in
these 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, in
which the minutes of the February meeting with adopted, could notice that there was a resolution
presented in these minutes, which to their knowledge, was not passed. Therefore, the High Court
stated that in view of the case made by the respondents themselves, this would have been a
glaring blunder or even worse than the blunder that a vitally significant resolution had been
recorded, which never took place.
Moreover, evidence was present with suggested that the draft announcement made before the
ASX was circulated during the meeting as it was found by Mr. Robb, as well as revealed by the
files of BIL Australia Pty Ltd., which has a large shareholding in James Hardie and two
nonexecutive directors who were closely associated with this company, were present at this
meeting.
A similar view was taken by the High Court regarding the announcement made to the ASX itself
by the company. The court noted in this regard that while some differences were present between
the draft that was held to be tabled during the meeting of the board held in February, the
amendments that have been made to this draft announcement were properly described as being
textual instead of being substantive, were not substantial, and the misrepresentations that have
been made in the two, were the same. It was stated by the High Court that, "whether a deed that

has been exhibited later on or an announcement that has been published later on, is the document
that has been approved by the board, needs to be decided with the help of more than a little
comparison between the two texts. It is possible to correct some slips and errors (ASIC v Rich,
2009). There are some cases, where it is possible to adopt a better but different wording. Hence
the court stated that only due to the fact that some small changes have been made, would at
worst, "reveals no more that the individuals who made these changes did not have the authority
to do so and in this case, it does not reveal that the company had not approved the draft
announcement made to the ASX.
Another factor was noted by the High Court in its decision was that when later on, the ASX
announcement had been circulated, none of these persons had protested or demurred as to the
terms of the announcement (Morley v ASIC, 2010). The court held this fact to be consistent with
the finding that the board had approved the draft announcement made to the ASX. Regarding the
'novel' finding of the Court of Appeal that as a result of the failure to call Mr. Robb, the cogency
of the evidence produced by the ASIC has been diminished, while it was admitted by the ASIC
that a general obligation was present on its path to act fairly, it was held by the High Court that
the Court of Appeal failed to identify the source of such duty to call particular evidence.
Similarly, the source of the rule that was plain to apply in case of the breach of such duty was
also not identified. The High Court stated that even if such duty was present, it can be expected
that the remedy would be present either in the primary judge directing the ASIC to cause
avoidable with this or to say the proceedings, until the same was done by the ASIC, or if the trial
had gone to verdict. In an appellate court, considering if there was a miscarriage of justice, which
required a retrial.
In this way, the High Court had rejected the reliance of the Court of Appeals on the principles
provided in Blatch v Archer (1774) (where it was held that goes against needs to be considered
in accordance with the proof that was in the power of a party to be produced) and also Jones v
Dunkel (1959) (where it was mentioned that any unexplained failure in calling evidence allow
the court to comfortably draw an inference that was in favor of the opposing party, where such
inference was otherwise available on evidence). The High Court noted that the case of the ASIC
did not rely on the inference but it depended on the direct evidence that was present in the form
of the minutes of the board meeting held in February, 2001.

The judgment of the High Court supports the broadening focus of the regulators on the
performance of nonexecutive directors and the senior executives who are below the board level
(ASIC v Macdonald (No 11) (2009)). More importantly, as a result of this decision of the High
Court, the application of objective standard of diligence imposed on the directors and other
officers of the company has been reinforced.

References
ASIC v Hellicar [2012] HCA 17
Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229
Blatch v Archer [1774] 1 Cowp 63
Jones v Dunkel (1959) 101 CLR 298
Morley v ASIC [2010] NSWCA 331
Legislation
S 180, Corporations Act, 2001 (Cth)