Management Law: Director's Breach of Duty in James Hardie Case Study

This case study examines the Australian Securities and Investments Commission v Meredith Hellicar & Ors. case, focusing on the breach of duty by directors of James Hardie Industries Ltd. The company, involved in asbestos production, faced allegations of failing to comply with the Corporations Act 2001, particularly section 180(1), regarding the duty of care to employees. The case details the company's handling of asbestos-related health issues, the establishment of the Medical Research and Compensation Foundation, and subsequent tax evasion allegations. The analysis covers the legal proceedings, including the Supreme Court of New South Wales's findings of director negligence and the High Court of Australia's affirmation. The outcome resulted in penalties and bans for the directors, underscoring the importance of corporate governance and director responsibilities. The case serves as a significant example of director's breach of duty in Australian corporate law.

Running head: MANAGEMENT LAW
Director’s Breach of Duty
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Case: Australian securities and Investments Commission v Meredith
Hellicar & Ors. [2012] HCA 17
Introduction:
Australia is a business-based country and many companies are incorporated in the
continent of Australia. The economy and gross capital of the country is depending on the
corporate sector. The main purpose of the business world is to gain profit (Yip, 2015). Many
regulations and laws are enacted for providing security to the shareholders and draw certain
lines that restrict the directors so that they cannot process any illegal work during the
performance of their job. In Australia, the Corporation Act 2001 usually governs law
regarding the company or the corporation. In recent times, there are number of cases, where
the directors have failed to abide by the guidelines and violate the norms of the Corporation
Act 2001 (Langford, 2015). Australian Securities and Investment Commission has the power
to impose certain penalties if there is any allegation regarding the same made against a
director. In the year 2007, same allegation had been brought against seven directors, who
were working in James Hardie Industries ltd.
Discussion:
James Hardie Industries ltd. was an asbestos company continued business in
Australia. It has been alleged that they had failed to comply with the provisions of section
180 (1) of the Corporation Act and failed to owe care to the employees of the company. A
massive accident was occurred regarding the substances used in the asbestos in the company.
The company was listed under the Australian Securities Exchange and researched on the
asbestos related substances (Langford & Ramsay, 2015). The problem arose regarding one of
the substances of the asbestos, named Fibro, which developed certain diseases or

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abnormalities to the employees as well as to the other nearby persons. In the year 20002,
many allegation was brought against the company regarding the dust disease and near about
4600 claims were made against the company for spreading mesothelioma during the year
2006. One of the employees of the Hardie Group, Bernie Banton had been suffering from
asbestosis, a severe disease regarding the nasal problem. He had to carry oxygen pump with
him and had to face a lot of trouble due to this (Moerman & van der Laan, 2015).
After certain period, the company was decided to move its business in Netherlands
and the CEO of the company had announced that the Medical Research and Compensation
Foundation will give the claims made against James Hardie and Compensation Foundation
and it was assured by the company that the foundation has sufficient funds to meet all the
claims. Based on the facts and the announcement, they have become able to bring permission
from the court and started to set up business in Netherlands (Hill et al., 2016). In 2009, it was
found that they had violated the provision of the US-Dutch treaty and evade taxes. ASIC held
the company liable for the tax evasion and imposed a fine of A$574.3m. however, James
Hardie was denied the payment and stated that his company is separate from the Medical
Research and Compensation Foundation. The New South Wales government had conducted
one inquiry on the company and it was came into light that the company was engaging into
several vague financial plans and did not maintain the financial account promptly.
ASIC had brought civil and criminal cases against seven non-executive directors of
the company including cases under the Corporation Act 2001. The Supreme Court of New
South Wales had held all the alleged directors guilty for the misleading statement regarding
the fund, held them liable under section 180 of the Corporation Act, and banned the CEO for
15 years. The High Court of Australia had also retained the observation of the NSW Supreme
Court in this case and interpreted the judgment as a right one. It has also been ordered by the
court to pay the compensations to the victim of the asbestosis. It was held by the court that

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the company knew the outcome of the asbestos and they know the ultimate risks. However,
they could not foresee the risks, failed to warn the employees regarding the same, and had
failed to act diligently regarding the issue. The company had also failed to take reasonable
care of the employees and denied to compensate those (Sampford & Breakey, 2016).
Conclusion:
Therefore, the above discussion, it is held that the directors of the company were held
liable under the provisions of the Corporation Act and penalised the directors of the company
and banned them for 15 years. This case is one of the significant cases in the history of
Australia in the matter of breach regarding the director’s duties.

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Reference:
Hill, R., Below, B., Bruns, K., Crocco, G., Rathbone, B., & Shaw, B. (2016). U.S. Patent No.
D755,993. Washington, DC: U.S. Patent and Trademark Office.
Langford, R. T. (2015). Directors' Duties: Conflicts, Proactive Disclosure and S 181 of the
Corporations Act.
Langford, R. T., & Ramsay, I. (2015). Directors' Duty to Act in the Interests of the Company:
Subjective or Objective?.
Moerman, L., & van der Laan, S. (2015). Exploring shadow accountability: The case of
James Hardie and Asbestos. Social and Environmental Accountability Journal, 35(1),
32-48.
Sampford, C., & Breakey, H. (2016). Law, Lawyering and Legal Education: Building an
Ethical Profession in a Globalizing World (Vol. 11). Taylor & Francis.
Yip, M. W. (2015). Challenging the role and duty of directors in high profile corporate
failures in the USA and Europe in the wake of financial crisis-possible allegations
against board of directors for breach of duty of care, skill and diligence?. EuroMed
Journal of Management, 1(1), 70-91.