Seven former non-executive directors of James Hardie have won their appeal against a decision that would have banned them from sitting on company boards for five years (see note on original decision here).
In a lengthy and complex decision (Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331), a full bench of the NSW Court of Appeal has overturned a judgement that found the non-executive directors had breached their duty of care by approving a media release that the company had fully funded its asbestos diseases liabilities, when in fact there was a funding shortfall of more than $1 billion.
The full bench of the Court of Appeal, headed by Chief Justice James Spigelman, said the Australian Securities and Investments Commission did not prove the former non-executive directors breached their duty of care by approving the press release sent to the ASX. Importantly, Chief Justice Spigelman said that ASIC did not prove that the resolution approving the press release was passed and that ASIC had not called a key witness with “relevant knowledge” about whether the release was approved. The failure to call one of the legal advisers of JHIL “undermined the cogency of ASIC’s case,” Chief Justice Spiegelman said.
However, James Hardie lost its own appeal (see separate judgment James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332), when the Court upheld a ruling that the company made misleading statements to the Australian Securities Exchange (ASX) in 2002 about its ability to “meet all asbestos claims and as to remaining asbestos claims”. James Hardie also lost its appeal against a ruling that the company had breached continuous disclosure rules by failing to disclose steps taken to move the holding company offshore in March 2003.
The appeal by the former CFO Phillip Morley was also dismissed. The appeal by the former Secretary and General Counsel Peter Shafron was partly accepted.
The former chief executive Peter Macdonald, did not appeal his 15-year ban from company directorship and $350,000 fine.
ASIC is assessing the judgment and will announce whether or not it will seek special leave to appeal to the High Court from all or any aspects of the judgment shortly.
UPDATE 14 January 2011: ASIC has announced it has filed applications in the High Court for special leave to appeal the decision of the New South Wales Court of Appeal in the James Hardie matter, insofar as that decision concerns the former non-executive directors and the former company secretary and general counsel of James Hardie Industries Limited.
UPDATE 20 January 2011: Former James Hardie general counsel and company secretary Peter Shafron has also applied to the High Court for special leave to appeal.
UPDATE 24 January 2011: Former James Hardie CFO Phillip Morley has also applied to the High Court for special leave to appeal.
