The corporate watchdog has put the nation’s company boards on notice after the High Court ruled that former James Hardie directors misled investors about its asbestos compensation fund.
The High Court found on Thursday that seven former non-executive directors of the building products company misled the Australian Securities Exchange (ASX) about a compensation fund for asbestos victims.
Australian Securities and Investment Commission (ASIC) chairman Greg Medcraft said the ruling was a victory for shareholders and a reminder to boards to fulfil their duties.
“The deterrent effect that it sends to all directors (is) that they need to take care as far as the accuracy of statements that they issue to the market,” Mr Medcraft said.
“I think its important that Australians can have trust and confidence in what’s actually delivered.”
The court’s ruling was hailed by the Asbestos Diseases Foundation and unions.
“This is just a tremendously satisfying day for all of us who smelt a rat back in March 2001 when James Hardie originally announced its compensation fund,” Asbestos Diseases Foundation of Australia president Barry Robson said.
“Since then, the company has used every PR and legal trick in the book to escape responsibility for its misleading conduct.
“To see that finally come to an end today is just a dream come true, in many respects.”
The ruling came nearly a decade after the compensation fund it had established for asbestos victims was found to be underfunded by more than $1 billion, triggering a wave of controversy and legal action.
The NSW Supreme Court then ruled in 2009 that former chairman Meredith Hellicar and ex-directors Michael Brown, Michael Gillfillan, Martin Koffel, Dan O’Brien, Greg Terry and Peter Wilcox misled the ASX about James Hardie’s capacity to fund asbestos claims.
The court banned them from serving on company boards for five years.
That ruling was overturned in 2010 by the NSW Court of Appeal but ASIC appealed to the full bench of the High Court.
In ruling in ASIC’s favour against the seven former directors, the High Court said inaccuracies in the February 2001 board meeting minutes, which recorded the tabling and approval of a draft ASX announcement, did not counter their probative value.
Australian Institute of Company Directors head John Colvin said the decision emphasised that boards must carefully consider whether their releases were appropriately qualified, as well as the need for ongoing director education.
It also placed greater pressure on administration processes and was likely to increase the demands made on company secretaries and lawyers.
The Australian Council of Trade Unions and Unions NSW said the ruling was a step towards justice for asbestos victims.
However, Australian Manufacturing Workers Union secretary Paul Bastian questioned whether the Corporations Law was adequate in prosecuting directors and executives.
The High Court has referred the matter back to the NSW Court of Appeal to consider issues of liability, penalty and disqualification.
James Hardie said the decision would have cost implications which would be assessed after the NSW Court of Appeal’s decision.
The High Court also dismissed an appeal by former James Hardie company secretary and general counsel, Peter James Shafron.
The court upheld that Shafron had contravened the Corporations Act by failing to discharge his duties as an officer of James Hardie.
