The James Hardie Group (formerly called, JHIL) had set a scheme to compensate the people affected by asbestos diseases after a period of exposure to the companys business activities in two of its subsidiaries up to the year 1987. The group decided to establish a foundation to handle the cases of asbestos claims arrived at after a comprehensive planning and consultation with management and members of the board in February 2001. Because of the agreement, JHIL transferred shares in the two subsidiaries associated with the asbestos disease to the newly established trust and entered into a Deed Of Covenant and Indemnity (DOCI). In the provisions of the agreement, the two subsidiaries indemnified JHIL for asbestos claims while JHIL agreed to make substantial payments to the newly found foundation. The directors and the business management had recognized the need for an effective communication strategy in addressing various issues including questions about whether the Foundation have adequate monetary requirements to meet all the asbestos claims at a particular time.
In responding to this propriety anxiety, JHIL solicited actuarial advice on probable levels of asbestos claims projected over a period of 50 years resulting in its preparation of a cash flow model for the finance trust. The board of directors who form the primary respondents in the case ASIC v Hellicar approved the Foundation proposal at a meeting held on meeting on 15 February 2001. A day after approval of the plan, JHIL made a market announcement in which it stated among other things that the trust would generate and have enough finances to compensate all the legitimate claims of asbestos pollution. Therefore, it provided certainty for both the asbestos claimants and shareholders. Nonetheless, subsequent findings were that the foundation had a shortfall of funding to the tune of more than $1 billion thus exposing the executive management and board members to a lawsuit culminating into the case law; ASIC v Hellicar.
Facts of the ASIC V Hellicar Case Law
Employees working in any corporations are bound to operate not only within the confines of the corporate norms and code of conduct but also by legal provisions that regulate the general business environment. The corporate laws provide for various protections and liabilities accruing to any employee based on their respective roles in any activity. If the employer feels disadvantaged by the activities of workers, they can invoke sections of the law and involve the courts to sanction them duly (Ciro & Symes, 2012 p.79). The case law ASIC v Hellicar was a culmination of a hearing on first civil penalty proceedings brought before the New South Wales Supreme Court against James Hardie Group employees in 2017.
The appellant, in presenting allegations against the seven former nonexecutive directors, three former directors, and corporate secretary cited a breach of section 180(1) of the Corporations Act 2001. The legislation alleged as having been violated concern the duties and obligations of company executive officers. The main suit against the workers was that they acted against the principles of diligence and due care inherent in section 180 (1) of the Corporations Act 2001. According to the appellant, the workers had released information to the share market, which according to the appellant amounted to a breach of their corporate duties. The case then entered into series of back-forth judicial hearings and determinations from the New South Wales Supreme Court, the New South Wales Court of Appeal and the High Court.
NSW Supreme Court Decision on the ASIC V Hellicar Case
In its determination of the case, the New South Wales Supreme Court held that the accused directors had violated the Corporations Act 2001. The court judged them guilty for approving an announcement to the Australian Securities Exchange (ASX) deceivingly that the trust that had been created to finance disease claims related to asbestos pollution would have adequate funds to compensate the current and future claims lounged by affected people (Australia. 2011 p.365). From a fair point of reasoning, the Corporations Act 2001 provides that an occupant of the office held by, and had the same responsibilities within the corporation, as the director or officer is liable for any losses attributable to their actions and decisions (Ciro & Symes, 2012 p.122). Therefore, if the accused duly held their positions at the time of erroneous disclosure, which had the potential of destroying the companys reputation, they would be liable for the breach of section 180(1) of the Corporations Act 2001. The act requires that company officers and directors participate only in activities that they rationally believe to be in the best interests of the corporation (Mortimore, 2009 p. 63).
The company secretary and general counsel also got implicated for failing to advise the board of directors that the expression of the financial capacity of the trust was too emphatic. Within the precincts of the Corporations Act 2001, the board of directors n consultation with the general counsel had to act with due diligence to the duty of care as contained in the common law principles that govern liability for negligence (Ciro & Symes, 2012 p.73). The directors were accused of lacking a foresight for the ramifications with the economic advice and modeling that the endorsed for implementation. In section 180(1) of the Corporations Act 2001, directors are supposed to make the judgment in good faith for a proper purpose within the corporate interest. Therefore, any action that negates this requirement is tantamount to its violations resulting in different liabilities. In its determination of the case presented and based on provided evidence, the Supreme Court in 2009 imposed fines and disqualification orders against the accused directors and officers for their several breaches under section 180(1) of the Corporations Act 2001.
Decisions of the Court of Appeal
A section of the leaders who felt aggrieved by the ruling of the NSW Supreme Court appealed to the New South Wales Court of Appeal. In their submission, the appellants argued that the primary judge erred in holding that the draft ASX announcement, which formed the substance of the case, had been tabled and approved at a board meeting held in February. In its part, the presiding court of Appeal Jury was satisfied that the Australian Securities and Investments Commission failed to meet the burden of proof in two perspectives. First, it failed to determine that the February minutes of the broad recorded the resolution on the ASX announcement contained various inaccuracies about matters of accuracy in general and specifically concerning the ASX announcement. Second, the witness presented could not accurately recall the events surrounding the tabling of the controversial ASX announcement.
Within the concept of separate legal entity between a company and its employees, the liabilities accrued to a company are not taken as personal responsibilities. Nonetheless, the delegated responsibilities to individuals such as directors make them liable to any express decisions that they make on behalf of the business that undermines its integrity or have any ramifications for its operations (Lo, 2015 p.62). Intuitively, the people who engage in wrongdoing which affect the company remain personally liable as in the case of the defendants in ASIC v Hellicar. Fi reasoning would be that the decisions that the executive officers who stand at the helm of corporate operations determine the extent of corporate policy and management direction greatly hence are personally liable for torts arising from their activities (Lo, 2015 p.63).
On its appeal hearing, the NSW Court of Appeal further held that ASIC had an obligation to adhere to the duty of fairness similar to that of a Crown Prosecutor (Le Mire, 2014 p.445). Nonetheless, the sitting judges established that the employer had breached the duty of fairness by not calling JHIL's lawyer as a witness yet he had attended the meeting, alleged to have erroneously passed the ASX announcement and even prepared the board minutes. In light of this assertion, the NSW Appeal Court held that not inviting JHIL's lawyer diminished the cogency of ASIC's evidence in general. ASIC then decided to appeal the Supreme Court verdict to the High Court.
High Court Decision and Reasons for the Decision
The hearing at the high court resulted from ASIC's appeal of the determination by the Supreme Court. The Appeal Court had faulted the appellant for not providing its evidence beyond a reasonable doubt and failing to bring the person who drafted the minutes to the proceedings that collectively amounted to the diminished cogency of ASICs evidence.
On its part, the high court overturned the Appeals Court decision that ASIC could not satisfy the burden of proof that the ASX announcement was tabled and approved at a board meeting sitting in February. The court in overturning this position of the appeal court stated that board minutes are an adequate formal source of evidence of truths on the matters discussed during any meeting (Paolini, 2014 p.152). It asserted that the minutes showed that a draft ASX announcement had been tabled and approved during the alleged board meeting. Therefore, the high court thwarted the submissions of the accused that the minutes espoused by the accuser could not be relied upon because they had been prepared before the February 15th meeting hence contained some levels of inaccuracy.
Reasonably, it was defeatist for the defendants to advance the notion that nobody in a board meeting sitting in April, which endorsed the February minutes that contained the controversial February passage of the ASX announcement noticed that it included a resolution, which to their knowledge had not been passed. The court on its part further alluded that if this were the case, then it would be a glaring blunder to record a critical board meeting resolution, which never happened (Paolini, 2014 p.82). As a watchdog for the corporate interests, section 180(1) of the Corporations Act 2001 confers on the directors a responsibility to inform themselves about the subject matter a decision to the extent, they reasonably believe as appropriate (Gifford, 2009 p.82).
The High Court also found compelling and incriminating evidence to the fact that the draft ASX announcement had been circulated at the February meeting where the estranged workers served as executives. Though it conceded to the Appeal courts view of the ASX announcement itself, the Appeal Court noted that some differences existed between the draft reports held as having been tabled at the board meeting in April. Nonetheless, it found that the subsequent amendments to the draft ASX announcement were well described as more textual than substantive hence were deemed as not substantial, and the misrepresentations made were the same.
The high court in its submission argued that the determination of whether the agreement that was later executed or the announcement later published was the same document that the board approved in its siting required just more than a direct comparison between the texts. It conceived that some errors could be corrected and in some instances, better (but different) wording can be integrated into the original text. The court further asserted that the fact that minor alterations were included would ordinarily imply that the individuals who made them lacked the express authority to do so hence within this context the draft ASX announcement had not been approved.
The High Court determined that the minutes of the 15 February board meeting provided convincing evidence for ASIC's case in which they alleged that the directors approved...
If you are the original author of this essay and no longer wish to have it published on the midtermguru.com website, please click below to request its removal:
- Essay on Strategies Employed to Combat Child Trafficking
- Essay on Typical Juvenile Crimes
- Essay on the Prison Gangs, Tattoos and Intervention Programs
- The Role of Institutions Towards Health Promotion and General Human Life in the Society
- Privacy Violation Rights by Government Intelligence and Security Organizations
- Paper Example on Recruitment and Staffing Proposal
- Essay on Death Penalty in the USA