Shafron V ASIC: Scope Of Duties Of Directors Of A Corporation

Background and facts of the Case

Discuss about the Shafron V Australian Securities and Investments Commission.

It was in the year 2012, that a significant clarification of the scope of the duties of the directors of a corporation was provided by the High Court of Australia in the case of Shafron v Australian Securities and Investments Commission (2012) 286 ALR 612 (‘Shafron’) (High Court of Australia, 2012).

This was the case in which the extent of the responsibility of an individual who has been granted a position of an officer within the meaning of section 9 of the Corporations Act 2001 (CA). Also, it was clearly stated that an individual who has been an officer could undertake dual roles within an organization under section 9 of the Act as per the extent of responsibility which was provided in this case (Scott, 2012).

So, in these kinds of cases the dual roles were not able to be departed for the objectives of examining the duty of care and diligence which was owed by the officer under section 180(1) of the Act. So, in this case, Shafron has specifically clarified what all comprises of ‘participation in making a pronouncement’ for the objectives of the meaning of the word ‘Officer’ which was stated in s 9(b) (i) of the CA (Sainty Law, 2012).

• In August 1998, Mr. Shafron i.e. the plaintiff was appointed by Hardie as a “general advocate and company secretary (CS) of the corporation”.
• Though, until November 1998 he was not appointed by the corporation as a CS in a formal manner.
• In November 1999 with the plaintiff, Mr. Donald Cameron was employed as a united CS of Hardie.
• In February 2001, the board of directors of Hardie had a meeting in order to consider an offer to depart from the James Hardie group two corporations with major asbestos obligations.
• The Plaintiff was found to have been in contravention of the section 180(1) of the Act by:
• Failing to recommend the board of directors of Hardie, that some supplementary data in regard to the partition offer would have been revealed to the Australian Stock Exchange, and
• Failing to recommend the board of directors of Hardie that an actuarial statement on which the board of directors were dependent in bearing in mind the division proposal did not grant for “superimposed price rise” when a cautious story would have done so (Tam, 2012).

Section 180(1) of the CA, specifically states that directors of an organization must perform their authorities and fulfill their obligations with the due extent of care and diligence that a prudent individual would work out if they were:

The directors or officers of an organization in the situations of an organization; and

The officers who were engaged in the office which was held by at the same time had the similar tasks within the organization as, the director or officer (D’Apice and Curran, 2012).

Duties of directors which have been defined under section 180(1) of CA connect not only to directors but to the “officers” in a broad manner. It was established by the Court of Appeal that the plaintiff was an “officer” on two different basics as;

He was the CS of Hardie, and

He was “an individual who makes, or contributes in making pronouncements that put an impact upon the entire, or a considerable part, of the trade of the organization”.

On request, the plaintiff disputed that his duties while being in the position of a CS were restricted to the roles of the CS, and did not broaden to his broad counsel roles (Freeman, 2016).

Outline the duties/responsibilities breached and explain why the duties were breached

The Plaintiff also want to demarcate his roles while being in the position of a CS by disagreeing that they should be associated to the roles of his cooperative CS, Mr. Cameron, whose roles were chiefly managerial.

It was further argued by the plaintiff that he was not an individual who contributed in making the verdict in connection to the parting offer, as it was a pronouncement for the board of directors, of which he was not a part.

Lastly, the plaintiff stated that if he was a bureaucrat (on either basis), he had, in any occasion, not violated his obligations in connection both the concern relating to the ASX or the actuarial (Australian Institute of Company Directors, 2017).

It was clearly observed by the tribunal that it was “significantly to be suspicious” for the fact that Mr. Shafron being the director of the corporation could have implemented certain roles in a capacity of a CS and other functions like being a general counsel. There was no proof that the plaintiff has performed some tasks in one capacity and other work in another. Because the responsibilities of a specific CS in specific corporations were the matters of fact, proof of the roles of Mr. Cameron did not show that company secretarial functions of the plaintiff were correspondingly administrative (Hickey and Lam, 2015).

The tribunal then measured whether, if the functions of Mr. Shafron could be separated, the division would have an effect on the result. It also renowned that section 180(1) (b) of the Act secures the degree of care and diligence by indicating to “the office held” and the “tasks with the organization” of the relevant officer (Comino, 2014).

It was then that it was concluded by the tribunal that the term “responsibilities” which was mentioned in section 180(1) (b) have been defined as the real responsibilities of the authentic officer, not simply the statutory tasks of an individual who holds the office of CS.

The findings of the Court of Appeal were at this time was agreed by the tribunals which granted a recommendation in connection to the issue of ASX which was within area of responsibility of the plaintiff. Also, the grant of such suggestion which was granted in connection to the actuarial issue was also within the area of responsibility which was imposed upon the plaintiff being in the position of the director (Wotton Kearney, 2012).

Consequently, the responsibilities of Mr. Shafron by being in the position of a company secretary of Hardie were broad enough to hold up a judgment that he owed the duties of an officer in carrying out all of those responsibilities.

As per the verdict which was given by the Court of Appeal of New South Wales was appealed and as per the Act the plaintiff was found to be in violation of his obligation of care and diligence by:

Failing to give an opinion to the other directors on board that the draft ASX statement which was approved by the Board was deceptive; and

Failing to give an opinion to the board that the information which was granted by actuarial Consultants i.e. the plaintiff had been preserved on behalf of JHIL, and

This granted the foundation for a cash flow form which was measured by the board in connection to the projected reformation of JHIL, did not take into consideration the “the price rises” (Mire, 2014).

Then the plaintiff approached the High Court and put forward his case. The basic reason of his petition was that though he established that section 180(1) of the CA although would be applicable on him as he was a CS. But the violation of section 180(1) which ASIC had suspected against him were alarmed with measures which he made in his competence as general advocate and not as an executive of JHIL.

In other words it could be stated that, his function as “general counsel and CS” was isolatable into jobs which he embarked on as advocate, and then the responsibilities he assumed as CS.

The idea which was provided and mentioned above was rejected that the plaintiff could segregate his tasks and competences. To a certain extent, it was concluded by the tribunal that the responsibilities of Mr. Shafron were inseparable and must be observed as an amalgamated completely (Norton Roseful Bright, 2012).

So, in order to reach such conclusion it was specifically established that in order to settle on the range of everyday jobs of an official of a corporation, an individual must inspect all of the work which was carried out for that organization by that officer. In specific it was noted by the tribunal that:

 The capacity of the role of the plaintiff as a CS could not be determined simply by an evaluation to the function of his co-secretary, whose function never developed to be above merely managerial roles.

The Plaintiff did not produced any proof which would have verified or suggested that he carried out certain tasks in the capacity of being a CS, while he carried out others in a different capacity of being a counsellor.

The designation of “general advocate and CS” signified specifically that a significant part of the responsibility of the plaintiff was to take the essential ladders to make sure that JHIL have fulfilled with all pertinent lawmaking necessities. Such requirements include those that were applicable to JHIL as a listed corporation, and that this was related to the stipulation of essential recommendation (Konstantinidis, 2012).

When a secured guidance from third parties was taken by the plaintiff then put that guidance before the board of directors of JHIL for its utilization, his liabilities did expanded for recognizing the restrictions of the recommendation which was provided by the third party.

So, it was established and pronounced by the tribunal that the extent of care and diligence which was mentioned in section 180(1) of the Act was single-minded by observing at the situations of the organization. The section has also included the workplace and liabilities of a director within the organization that the director in subject had.

Therefore, it was clearly specified by the tribunal that to what extend the director would be liable and what responsibilities he had within the organization, in spite of how or why those tasks came to be forced on the official.

So, the appeal what the dismissed by the tribunal by stating that a person who was a CS with a lawful background would be predictable to raise issue relating to the probable misleading declarations which were there in revelation duties. Also, it was because of the close participation of the plaintiff in the actuary recommendation that the elevating of the restrictions of that recommendation was an accountability that fell within liability of the plaintiff while being in the position of a CS (Austin, Standen, and Reynolds, 2012).

The inference of the verdict which was granted in this case had no doubt been the subject of further discussion and investigation. As what was clearly observed in this case was that a CS who was also general advocate would not be able to simply divide his or her work among the capacity of being a ‘general counsel’ and ‘CS’. It was done more or less, when that conduct was being questioned by the request of section 180(1) of the Act. CS with a lawful backdrop should also take into account that they have to not depend on opinion which was founded from third parties, and should make sure that the board was informed of the restrictions that instruction would have (Jacobson, 2012).

Conclusion

So, at the end it was concluded that the plaintiff had a far-reaching implications for those helping both as officer, within the meaning of section 9 of the CA and other functions. The verdict makes it clear that the two functions were not departed for the objective of the obligation of care and diligence necessities of the CA.

The function of an officer enlarges not only to the legislative responsibilities but to the responsibilities which were essentially undertaken by the officer. So, in this case, the plaintiff could not segregate his responsibilities as the CS and as general counsel.

Finally the matter reconfirmed that the standard of care in section 180(1) as integrating the actual responsibilities the officer disturbed had within the corporation not just the statutory responsibilities. And, this verdict served as another advice to those who serve on boards which were covered by the CA, that a high standard of care would be required. Similarly a prejudiced knowledge as well as dedicated responsibilities may enlarge this standard further (Boyce, 2012).

References

Austin, R., Standen, M., and Reynolds, C. (2012) The High Court decides the James Hardie case. [Online] Minter Ellison. Available from: https://www.minterellison.com/files/uploads/Documents/Publications/Alerts/NA_20120509_JamesHardieDecision.pdf [Accessed on 19/1/17]

Australian Institute of Company Directors. (2017) Role of the company secretary.[Online] Australian Institute of Company Directors. Available from: https://aicd.companydirectors.com.au/~/media/cd2/resources/director-resources/director-tools/pdf/05446-6-7-duties-directors_role-company-secretary_a4_web.ashx [Accessed on 19/1/17]

Boyce, L. (2012) Shafron v ASIC – general counsel, or counsel of perfection?. [Online] Dibbs Barker. Available from: https://www.dibbsbarker.com/publication/Shafron_v_ASIC_-_general_counsel__or_counsel_of_perfection.aspx [Accessed on 19/1/17]

Comino, V. (2014) James Hardie And The Problems Of The Australian Civil Penalties Regime,  University of New South Wales Law Journal, 37(1), 195- 207.

D’Apice, B and Curran, C. (2012) Company officers – Duty of Care obligations for those who have more than one job description. [Online] Charities & Not-For-Profits Law. Available from: https://www.charitiesnfplaw.com.au/2012/07/02/duty-of-care-obligations-for-employees-who-have-more-than-one-job-description/ [Accessed on 19/1/17]

Freeman, I. (2016) Shafron V Australian Securities And Investments Commission [2012] Hca 18. [Online] Lavan. Available from: https://www.lavan.com.au/advice/corporate_services/james_hardie_when_is_an_in_house_counsel_liable_as_an_officer_of_a_company [Accessed on 19/1/17]

Hickey, M, and Lam, V. (2015) Jumping at shadows — shadow and de facto directors. [Online] Sparke Helmore Lawyers. Available from: https://www.sparke.com.au/insights/jumping-at-shadows-shadow-and-de-facto-directors/ [Accessed on 19/1/17]

High Court of Australia. (2012) Peter James Shafron V Australian Securities And Investments Commission [2012] HCA 18. [Online] High Court of Australia. Available from: https://www.hcourt.gov.au/assets/publications/judgment-summaries/2012/hcasum18_Shafron_v_ASIC.pdf [Accessed on 19/1/17]

Jacobson, D. (2012) ASIC V Shafron: Liability Of Company Secretary (James Hardie). [Online] Bright Law. Available from: https://www.brightlaw.com.au/asic-v-shafron-liability-of-company-secretary-james-hardie/ [Accessed on 19/1/17]

Konstantinidis, K. (2012) In-house counsel may be exposed to prosecution, disqualification, penalty or payment of legal costs. [Online] Colin Biggers & Paisley Lawyers. Available from: https://www.cbp.com.au/publications/2012/august/in-house-counsel-may-be-exposed-to-prosecution,-di [Accessed on 19/1/17]

Mire, S.L. (2014) ‘It’s not Fair!’: The Duty of Fairness and the Corporate Regulator, Sydney Law Review 36(445), 446.

Norton Roseful Bright. (2012) The James Hardie Decisions: Australian Securities & Investments Commission v Hellicar & Ors [2012] HCA17; Shafron v Australian Securities & Investments Commission [2012] HCA 18 [Online] Norton Roseful Bright. Available from: https://www.nortonrosefulbright.com/knowledge/publications/66582/the-james-hardie-decisions-australian-securities-investments-commission-v-hellicar-ors-hca17-shaf [Accessed on 19/1/17]

Sainty Law. (2012) Shafron v ASIC: take-aways for General Counsel. [Online] Sainty Law. Available from: https://www.saintylaw.com.au/wp-content/uploads/2012/08/Shafron-Vs-ASIC-takeaway-August-2012.pdf [Accessed on 19/1/17]

Scott, P. D. (2012) Shafron v Australian Securities and Investments Commission (2012) 286 ALR 612 , University of Tasmania Law Review 31(2) 155.

Tam, K. (2012) The sting for General Counsel in the James Hardie decisions – Shafron v ASIC and ASIC v Hellicar. [Online] Hunt & Hunt Lawyers. Available from: https://www.hunthunt.com.au/SiteMedia/w3svc1265/Uploads/Documents/Shafron%20decisionMay2012.pdf [Accessed on 19/1/17]

Wotton Kearney. (2012) High Court Rules James Hardie Directors Approved Misleading Asx Release. [Online] Wotton Kearney. Available from: https://www.wottonkearney.com.au/downloads/case%20note%20-%20james%20hardie%20directors%20approved%20for%20misleading%20asx%20release.pdf [Accessed on 19/1/17]