The NSW Court of Appeal has overturned the decision of the NSW Supreme Court in respect of seven directors who had received bans on serving as directors. The Supreme Court had found that they had breached their duties to the company (James Hardie)  in 2001 over a misleading media release about asbestos compensation.

The Court of Appeal determined that the Australian Securities and Investments Commission (“ASIC”) failed to prove that the directors had considered or approved a 2001 draft media release saying a new compensation trust would be ”fully funded”. Three years subsequent to that announcement, it emerged that the trust was in fact underfunded by some A$1.5bn.

As a result of the unanimous Court of Appeal decision, the five year disqualifications and fines handed out to seven former non-executive directors will now not apply. It will also reconsider the bans and fines originally imposed on Peter Shafron (former General Counsel) and Phillip Morley (former CFO). Former CEO Peter MacDonald did not appeal his 15 year disqualification.

The Court of Appeal based its decision on the failure of the ASIC to call as a witness a former partner of one of James Hardie’s lawyers who had advised on the setting up of the trust.

However, in a separate decision, the company lost it’s appeal against the Supreme Court’s ruling that it had breached the Corporations Act by issuing “materially misleading” statements and had made a “flagrant” breach of its continuous disclosure obligations. The Court of Appeal judgment noted that there “could be no doubt about the misleading nature” of the announcement.

Further Reading

Hellicar’s board ban overturned – Business Day

Court overturns bans on James Hardie directors – Business Day

The text of the decision is expected to be posted in due course.

Last Updated: 17 December 2010