A significant High Court judgment handed down yesterday held that seven former non-executive directors of James Hardie Industries (James Hardie) breached their duties by approving James Hardie's release of a misleading statement to the Australian Stock Exchange (ASX). This decision (Australian Securities and Investments Commission v Hellicar; Brown; Gillfillan; Koffel; Terry; O'Brien; Willcox; Shafron [2012] HCA 17) provides confirmation of the ground rules for market disclosure by directors in Australia.

Our previous blog dated 30 September 2011 recorded the background to this case. The Australian Securities and Investments Commission (ASIC) won at first instance, arguing that the directors were responsible for the wording of the relevant press release to the ASX which was held to be misleading to the market. The directors successfully appealed the case.

The High Court decision represents the highest legal judgment in a decade long dispute in relation to directors' duties. Of note, the decision affirms (amongst other things) the duties and liabilities of directors and officers as prescribed by the Corporations Act 2001 (Cth) (Act). For example, in relation to section 180(1) of the Act, directors must ensure that every step is taken to ensure the highest compliance with the obligations to discharge their duties with a degree of care and diligence that a reasonable person in their position and with their responsibilities would exercise.

The decision also held that company secretary and general counsel, Peter Shafron, failed to discharge his duties with care and diligence in relation to the actuarial work that underpinned the directors' misleading statement to the ASX. Accordingly, Mr Shafron's appeal was dismissed by the High Court (see also Shafron v Australian Securities and Investments Commission [2012] HCA 18).

Directors should take careful note of this decision especially in relation to the high threshold of their duties for any market disclosure/statements to the ASX. The High Court has referred the matter back to the Court of Appeal to consider issues of liability, penalty and disqualification. We will report on the Court of Appeal's decision as soon as it is delivered.

This update was co-authored by DLA Piper Foreign Legal Associate, Mark Dowsing

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