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Court overturns bans on James Hardie directors

December 18, 2010

Seven former James Hardie directors are free to re-enter the boardrooms of Australia after the NSW Court of Appeal overturned last year’s findings that they breached their duties to the company during its disastrous handling of asbestos compensation in 2001.

In April 2009, Justice Ian Gzell found the seven broke the law by approving a misleading public statement that a new trust to pay claims by people suffering from asbestos diseases was “fully funded”.

The trust was later found to be underfunded by about $1.5 billion.

Today, Chief Justice Jim Spigelman and Appeal Judges Margaret Beazley and Roger Giles overturned fines and bans from company directorship imposed by Justice Gzell.

In a unanimous decision the three judges ruled that the Australian Securities and Investments Commission had failed to prove that the directors passed a resolution approving the statement.

Justice Spigelman said one of the grounds for this conclusion was a finding that ASIC had “a duty of fairness to call a witness whose role was such that there was a significant probability that he had relevant knowledge” of what happened at the board meeting.

ASIC’s failure to call David Robb, a former partner of Allens Arthur Robinson who was one of James Hardie’s main external legal advisers on setting up the trust and who attended the board meeting, “undermined the cogency of ASIC’s case that the resolution was passed”, Justice Spigelman said.

James Hardie’s former general counsel, Peter Shafron, and former chief financial officer, Phillip Morley, lost their appeals, although part of Mr Shafron’s appeal was allowed.

Justice Spigelman said the context in which Justice Gzell considered their penalties “is now different” and their cases would return to court in February.

Embarrassing defeat for ASIC

It is an embarrassing defeat for the corporate regulator and adds to recent criticism by other judges who threw out its civil penalty suits against the founder of Fortescue Metals, Andrew Forrest, and the founder of One.Tel, Jodee Rich.

ASIC’s appeal in the Fortescue case was heard last month and a decision is expected next year.

The victory was delivered to James Hardie’s chairman from 2004 to 2007 Meredith Hellicar, 56, and former non-executive directors Michael Brown, 65, Michael Gillfillan, 62, Martin Koffel, 71, Dan O’Brien, 55, Greg Terry, 66, and Peter Willcox, 65.

The three judges overturned bans for the seven former directors of five years and fines of $30,000.

The only defendant who chose not to appeal was the former chief executive Peter Macdonald, 58. He was banned from company directorship for 15 years and fined $350,000 for his central role in setting up the trust and publicising it.

The court will reconsider bans for Mr Shafron, 49, and Mr Morley, 63, of seven and five years respectively and fines of $75,000 and $35,000.

The judges handed down a separate decision dismissing the company’s appeal against Justice Gzell’s finding that it contravened the Corporations Act by making “materially misleading” statements about the adequacy of funding for asbestos compensation which were likely to induce investors to buy James Hardie shares.

The judge also found a “flagrant” breach by the company of its continuous disclosure obligations.

esexton@smh.com.au

Posted in Asbestos Law | Tags: , , , , , , , , , , , , , , , ,

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