In the recent High Court of Australia decision of Shafron v ASIC  HCA 17, the court found that the general counsel of James Hardie Industries Limited (James Hardie), who also held the position of joint company secretary, was an 'officer' of the company for the purposes of the Corporations Act 2001 (Cth) (Corporations Act) and as an officer, was liable for breaches of their duty of care and diligence owed to the company.
This case is important because it provides guidance, amongst other things, as to the factors the court considers relevant in determining when a person holding the position of 'general counsel' (or an equivalent position) would be classified an 'officer' of a company for the purposes of the Corporations Act. This in turn is likely to have implications on defining the role and responsibilities of general counsels within companies moving forward.
Review of the facts
James Hardie entered a Deed of Covenant and Indemnity (DOCI) with two of its subsidiaries as part of a restructure. Mr Shafron was the General Counsel and joint Company Secretary of the company. He had formulated, promoted and presented the restructure to the board and had retained actuarial consultants to prepare a report regarding the underlying cash-flow model upon which the restructure was based.
The Australian Securities and Investments Commission (ASIC) argued that Mr Shafron was an 'officer' of James Hardie and had breached his duty of care and diligence under section 180(1) of the Corporations Act for failing to advise the board that the DOCI should have been disclosed to the Australian Securities Exchange (ASX) and for failing to inform the board of the limitations of the actuarial report.
The earlier court decisions
Prior to the High Court handing down its decision, both the New South Wales Supreme Court and the Court of Appeal both found Mr Shafron was a 'officer' of the company and that he had breached his duty of care and diligence for failing to provide advice to the board. Mr Shafron appealed the decision.
Shafron as the 'company
On 3 May 2012, the High Court held that Mr Shafron was an 'officer' of James Hardie for the purposes of section 9 of the Corporations Act. The court did not accept Mr Shafron's argument that his role as company secretary, which classified him an officer of the company, was distinct from his role as general counsel and also that his role as company secretary did not extend to providing advice of the kind concerned in this case.
In the court's view, there was no evidence to demonstrate Mr Shafron was acting in different capacities and his responsibilities as company secretary could not be isolated simply by looking at the responsibilities of the other joint company secretary. Further, his responsibilities were said to "include whatever responsibilities the officer concerned had within the corporation, regardless of how or why those responsibilities came to be imposed".
Shafron as a 'participant in
The High Court also held that Mr Shafron was an 'officer' of James Hardie for the purposes of the Corporations Act as he 'participated in making decisions' regarding the business of the company. In the court's view, participation in decision-making does not require a general counsel falling in 'substantially the same position as directors' or to have 'ultimate control' of the decision-making process. Unlike external advisers, Mr Shafron's role was not confined to simply providing advice. He was a senior executive and played an important and active role in formulating, promoting and presenting the restructure proposal to the board.
The High Court's decision provides some useful guidance to general counsel (and those in equivalent positions) as to when they are likely to be considered an 'officer' of a company for the purposes of the Corporations Act.
First, a general counsel who holds additional positions which fall within the definition of 'officer' under the Corporations Act such as company secretary (which is not uncommon in Australia) is likely to be classified as an 'officer' of the company. The fact that they also hold the position of general counsel does not detract from their responsibilities as a company secretary.
Secondly, a general counsel who participates in the decision-making process regarding the business of the company is also likely to be classified as an 'officer' of the company as a result of the High Court's decision. This is irrespective of whether they hold additional positions such as company secretary.
Ultimately, whether a general counsel is an 'officer' of the company for the purposes of the Corporations Act will depend on the circumstances, including their actual role and responsibilities within the company.
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