The case is hand is related to duty of diligence and care under Section 180(1) of the Corporation Act 2001 (Cth) and how such duties affect the directors and other officers of an organization. The court in this case had to address the issue of breach of the duty under section 180(1) by Mr. Peter Safron. He was the general counsel and an ex- company secretary of the organization in context, James Hardie Industry Limited. Section 180(1) of Corporation Act was breached by the appellant and this is the reason why appeal was made by him in this court. The court rejected the appeal made by the appellant and while rejecting the appeal provided specific advice on how the section is to be interpreted. In this case it had been ruled by the court that the responsibility of a person appointed as a company secretary will also extend to any special position provided to him in the company because of additional skills possessed. A person is deemed to have a duty in case he has been appointed to take care of a certain action even in case no decision has been made by the person with respect to such actions. The extent of an expert advisor involvement would not let off the duties of the director or the officer. The company had appointed the defendant as the company secretary and the general counsel. No such formal appointment was done by the organization until November 1998. The company appointed David Cameron as the joint company secretary in that same month but next year. In February 2001, the company held a meeting for making a separation proposal for the group of companies by dividing the two organizations from that group which were subjected to high liabilities regarding asbestos.
The appellant argued that the company secretary’s duties are constrained only to the secretarial responsibilities and will not be transferred to the general counsel’s functions. The functions of the general counsel include giving advices to the organization with regards to the revelation of the responsibilities to ASX and providing accurate reports. The plaintiff wanted to limit his roles as the company secretary and he also wanted them to be consistent and equal like that of the joint company secretary that the company appointed in the above mentioned case and their purposes were limited to the functions of administration.
Further, the appellant said that no authority was carried by him in making the decision that is in regards with the separation proposal because the board of directors have the authority to make the decision regarding this matter and the appellant was not the member of the board of directors. The appellant also added that even if he would have been the officer, the obligations that were related to the issues in context had not been breached due to his actions.
According to section 180(1), a director or an officer must follow their responsibilities with diligence and care towards their company. The diligence and care has to be of a standard of a reasonable person in similar circumstances and the same position like the defendant.
Under the provisions of section 9 of the CA, an officer includes any secretary, or director of the company or a person participating in decision making which has an impact on the functioning of the organization, or who can significant affect the financial standing of the corporation or a person on whose instructions the directors of an organization are used to act, manager of corporate property, administrator of company, liquidator or a trustee of the company.
In the case of Commissioner for Corporate Affairs v Bracht [1989] VR 821 at 827 it had been stated by the court that whether a person has participated in a decision is analyzed by the contribution made by the person in relation to the decision making process.
In the case of Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 at 409 [1068] it had been stated by the court that the person who has special skills of understanding a situation, would be held to have violated his duty if such skills were not applied to address an issue under the coverage of his duty.
The defendant was suspected for violating the section 180(1) of the Corporation Act because he was not able to give advice to the board of directors or to the chief executive of the organization with regards to some extra information regarding the separation proposal that is required to be informed to the ASX. Furthermore, there was contravention of the duty because the advice was not provided regarding the actual report to which the company’s board depended on by taking the separation proposal into consideration.
In this section, the duty that has been provided here includes the duties of the officers as well as of the directors of the organization in a wide manner and these provisions also cover up the duties of the company secretaries. The court of appeal of NSW had established the two different bases that Mr. Shafron under the rules of this section might be considered an officer. On the first instance, the respondent was the organization’s company secretary and on the second instance he was that individual who was taking part in the process of decision making of the organization either partially or totally.
The court was of a view that where no difficulty was faced by the court to decide if an individual is not the secretary or the director of the organization then he might be the officer of that said company only if he takes part in the process of decision making of that company of some major importance. Therefore, this case has changed the mind-set that if an individual is not said to be an official decision maker then he will not be taken as the company’s officer.
Further, it has been provided by the court that because the senior executives are not the only decision makers of the organization, they do not have the right to avoid the responsibilities that are mentioned under the section 180(1) of the Corporation Act and also the fact that they are the promoter, or the influencers and it enough to prove their responsibility.
Further, the court had signified that those company secretaries who have special training and a skill in any manner is expected to use them to function the organization even if they have been served with two titles
Decision related to the application of section 180(1) only to “secretarial” responsibilities
The court provided a statement that it was “greatly to be doubted” that the plaintiff as the company secretary was able to release his duties and some other duties as the general counsel of the company. Heydon J said that it is not possible for the plaintiff to discharge his duties as the general counsel or the company secretary of the company. There were no evidence found regarding the matter that the plaintiff had discharged his duties as the general counsel and the company secretary. Furthermore, the company secretary’s duties in some company are the matter of the fact and the evidences that were given by Mr. Cameron did not prove that the appellant’s functions as the company secretary were in the similar manner as the administration.
The court considered that if the duties of the plaintiff are not separated then the result will be affected. The court has noted that this section has the right to set the extent of diligence and care by the references of “the duties regarding the company” and “the office held” of the officer. The court had stated that the word “responsibilities’ with regards to section subpart (b) is related to the officer’s actual duties and not to the company secretary’s duties.
The court of appeal’s decision was agreed by the High court and it was said that appellant had the responsibility to advice the company regarding issue of ASX because it was related to the legal matter and a company secretary must know about it.
The research regarding the interpretation of participation in making of the decision
The view of the court regarding the responsibilities of the plaintiff in relation to the company secretary’s position, it was pointless to take the question into account that whether the appellant is an officer who make decisions that affects the company’s functions. However, the court provided that the plaintiff based on the above mentioned fact is an officer.
The court did not accept that an individual must be a decision maker so that he can take part in the process of decision making and this argument was given by the appellant. The court understood that the plaintiff was the company’s senior executive. While the board had made a decision regarding the separation proposal, the plaintiff had played the main role as a senior executive in the construction of proposal, working for the project by taking help of the eternal advisors and was the part of this proposal. Further, it had crossed the level of offering advice and information to board. This states that the plaintiff who took in the process of decision making along with the facts that he had the duties as an officer of the organization.
The court stated that taking part in the process of decision making of the organization does not make a person an officer of that said organization as per the statutory rules. These decisions must have some effect at least on the major part of the company or the whole part of it. The high court did not agree with the decision made by the court of appeal and stated that its outcomes regarding the test were inaccurate.
The appellant had made a final argument and the high court had rejected it by stating that no such duties were breached by him that were enforced on him by this section.
The appellant said regarding the problem of ASX that he has the right to centre out his activities on the lawyer of the company to raise the requirements for the need of the extra disclosure. However, the court rejected the appellant’s argument and it had failed too. The court stated that if the organization had engaged with such solicitors with regards to the proposal of separation, the appellant was not relived expressly or impliedly from the duties that were enforced on him.
An argument regarding the actuarial report was made by the appellant and he said that he did not own the expert and adequate actuarial information and therefore he could not determine what rules were needed to be considered for “superimposed inflations”. The court did not accept the argument and it failed because it was determined by the court that appellant knew about the fact that the cost regarding the claims were increasing to the inflation rate with the facts that if they do not consider this then it might have a major effect in the accuracy of the actuarial report. In addition, the court further stated that it is not only the appellant’s duty to suggest the rules but to inform the board that these rules had not been accepted.
Therefore, the federal court had rejected the appeal that was made by Mr. Shafron.
References
Australian Securities and Investments Commission v Hellicar [2012] HCA 17
Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199
Corporations Act 2001 (Cth)
Morley v Australian Securities and Investments Commission (2010) 274 ALR 205
Shafron v ASIC [2012] HCA 18
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