Background
In the year 1998, the appellant Mr Shafron had been employed as the company secretary and general counsel of the James Hardie Industry Ltd. He had been appointed as the company secretary in 1998 November 13. After a year a joint company secretary had been appointed for the company, Mr David Cameron. Allegations had been made against the appellant that he had contravened the provisions of the Corporation Act 2001 (Cth) as he had failed to provide proper advice to the board of the company and the chief executive officer of the company on one occasion and in the other occasion to the board of the company. Civil penalty proceedings had been brought by the ASIC against seven former non executive directors, the company secretary and general counsel and three other directors of the company that they have violated the provisions of section 180(1) of the Act. The ASIC made an allegation that all the defendants had failed to exercise due diligence and care with respect to releasing information to share market and thus violated the duties imposed on them. The question which had been raised by the appellant was that in what respect did the definition of an officer as provided in the Act was applicable to him, his failure to give information to the board that information has to be passed to the ASX did not constitute a breach of duty under section 180(1) and his failure to not inform the board that the actuarial material does not consider superimposed inflation was not a failure to observe standard of care. He made a claim that as he was a company secretary and legal counsel and another company secretary was present his role in the company did not extend to providing advice to the board or the CEO.
Section 9 of the Corporation Act 2001 (Cth), provides definition of an offer and director of a company. According to the section an officer of a company is a secretary or director of the corporation, or a person who
- Participates in or makes a decision in the company which impacts substantial or whole business of the organization
- Has the power of affecting substantially the financial standing of the organization
- Whose wishes or instructions are used by the directors of the company for the purpose of acting. However this does not include any advice provided by a person in the appropriate discharge of functions relating to the profession of the person or any form of business relationship with the directors.
- A receiver and manager of the assets of the organization
- The administrator of the organization
- a person administrating a compromise between a third party and the company or a trustee of the corporation
through this section it is provided that any officer or director of a organization have to discharge their duties and powers through the use of care and diligence which would also be done by a reasonable person in case
- such reasonable person would be a officer or director of the company in the same situation
- the person also occupied the position which had same duties occupied by the director or officer of the company
The degree of diligence and care which is mandated under the provisions of section 180(1) is ascertained as an objective test which is identified by referring to two critical elements. These include the circumstances of the corporation and holding the same officer as the officers and directors of the corporation. These responsibilities are not limited to statutory responsibilities. They extend to any responsibility which the officer in context is provided in relation to the company irrespective of why and how such responsibilities have been imposed on such officer.
Legal Issues
At no stage of the legal proceedings it was at dispute that, the appellant was an officer of the company as he was the company secretary. He was also a person who in relevant situation participated in the decision making which affected the business of the company in substantial parts or as a whole. Thus he was to be considered as an officer of the company under the rules provided by section 9. It had been submitted by the appellant that his duty of diligence and care was restricted to the discharge of duties which were attached to the officer held by him and the situation which made him an officer. This signifies that in case he is to be considered as an officer as he was the CS of the company then his duties have to be limited to his discharge of duties as a CS only and should not take into consideration any responsibilities he had as a general counsel. In addition it had been further submitted by the appellant that the responsibilities which he had as a general secretary of the company did not include the advice which has allegedly violated the provisions of section 180(1). He made an argument that, his conduct at issue had not been performed in the capacity of a company secretary, but in the role of a general counsel. There were three steps in which the arguments provided by the appellant had been carried out. The first step proposed a division between is duties and responsibilities undertaken in role of a CS and that of a general counsel. He also denied that as a CS his duties and responsibilities extended to giving the advice in context and in the third step he denied that he was an officer of the organization on a wider basis which would include the advice in context under his obligations and duties.
In relation to the first step it had been stated by the court that the argument made by the appellant is not good. The court stated that the task which the appellant had in the company cannot be divided in the way he seeks. He cannot be wearing two hats at the same time and use one of the hats while making a decision an opening the other. it had been further submitted by the appellant that the scope of office of a CS in a specific organization is a matter of fact and that in the case the best proof of scope of the role of the appellant as a CS is the scope of role which other CS’s of the company had. He also submitted that the responsibility of the other CS did not arise above administrative functions. Thus the appellant stated that any action taken by him towards giving advice to the board was an action taken in the capacity of the general counsel not in the capacity of a CS. In the same way the appellant made an argument that any actions which he did in relation to a actuarial advice primarily related to financial and actuarial matters was a work done in capacity of a general counsel.
Decision
The court stated that a basic problem with the submission made by the appellant is that there was no proof which could show or suggest that the appellant had committed certain actions in one role and others in other role. This evidence was not provided by the appellant at trail. The evidence which had been actually provided did not have the capacity of supporting the submission which the appellant sought to draw. All the tasks which had been performed by the appellant had been undertaken in compliance of his duties as a company secretary and a general counsel. Specifically, this is because the qualifications which he possessed and the position he held in the organization extended to providing advice in relation to meeting the disclosure obligations. In situation where advice of others had been procured by him and had been put before the board for it to be used, his obligations could and the present case also did extend to highlight the restrictions of the advice which was provided by the third party. Thus the court rightly came to the conclusion under the meaning of an officer under section 9 of the CA that the appellant was an officer of the company and cannot divided his roles between a CS and a general counsel.
The appellant had made a submission that the provisions of section 180(1) had not been breached by him. In the present case both the court of appeal and the primary judge found that the responsibilities of the appellant included providing of relevant advice in relation to the disclosure obligations. It had been stated by the court of appeal that a CS having legal background would generally be expected to identify issues such as a statement which can be potentially misleading along with requirements of disclosure with the boards. In general it may not be the case in relation to a matter including the cash flow modelling of the company, which specifically needed expertise. However, the appellant had a close involvement with the model of cash flowing in the company and raising the limitations of such model is not a legal matter which requires the attention of a general counsel. Thus the involvement and raising the limits in the view of the court were a part of the responsibility in the role of a CS.
This means that the responsibility in the corporation of the appellant extended to various subjected indentified. Once it had been established that the duties included the subjects, the question was whether the appellant abided by the responsibilities with the degree of diligence and care. This being the case, it is not particularly required to take into consideration the argument provided by the appellant in relation to the participation of par (b)(i) of the definition of officer.
Analysis
there had been allegations made by the appellant that the court of appeal was not correct in relation to determining that he had breached the provisions of sections 180(1) as he did not advice the CEO or the board or personally to the board in relation to the matter or by not giving advice to the CEO or the board about the importance of the disclosure obligations. In relation to the first matter the court stated that there no possible reason through which the correctness of the factual findings can be doubted. It follows that the argument provided by the appellant in this court, that he had the right to assume that solicitor of the company would have provided him advice in relation to the disclosure obligation s to ASX s needed. However the court stated that the consideration of this matter is irrelevant in the situation.
The appellant had also made an allegation that the COA was not correct in the finding that while making a presentation to the board in relation to the materials provided by the Trowbridge which was the foundation of the cash flow model considered at February 2001 meeting he did provide advice to the board that the materials did not allow for making the allowance. This reason was also rejected by the court by stating that there is no reason to doubt the decision of the court of appeal.
Conclusion
It can be concluded that the court was correct in its decision that the Appellant cannot argue that he had acted in a role of a CA and a general counsel separately. All the tasks which had been performed by the appellant had been undertaken in compliance of his duties as a company secretary and a general counsel. Specifically, this is because the qualifications which he possessed and the position he held in the organization extended to providing advice in relation to meeting the disclosure obligations. . In situation where advice of others had been procured by him and had been put before the board for it to be used, his obligations could and the present case also did extend to highlight the restrictions of the advice which was provided by the third party. Thus the court rightly came to the conclusion under the meaning of an officer under section 9 of the CA that the appellant was an officer of the company and cannot divided his roles between a CS and a general counsel. He also violated section 180(1) of the Act.
References
Corporation Act 2001 (Cth)
Shafron v Australian Securities and Investments Commission [2012] HCA 18 3 May 2012
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