Shafron V ASIC (2012): Scope And Duties Of Corporation Director And Officer

Background

In Shafron v Australian Securities and Investments Commission (2012) 286 ALR 612 case, in the year 2012 the high court clarifies the scope and the duties of the director of the Corporation. In this case, the officer had been granted a role under section 9 of the Corporations Act 2001. It states about the responsibility of an individual that an officer who has granted the role under section 9 could undertake the dual roles within an organisation and extent of responsibility it can undertake. In this case, it has been examined the objectives of section 180(1) that states the duty of care and diligence of the officer. The legal issues can be rise due to the breach of these laws that what happened in this case. It will be further stated the implication and the actual court decision of the case. There are laws that had been used by the court in deciding the case with reference to certain case laws. In this case, the two roles had not severable for examining the duty of care and diligence. The officer of the Corporation has the two roles to perform that had been examined.

Mr Shafron who is the plaintiff appointed as a general advocate and company secretary in the James Hardie Industries Limited (JHIL) in August 1998. However, he is not appointed as a company secretary in a formal manner until November 1998. Mr Donald Cameron had been employed with Mr Shafron as a united Company Secretary. The company had a meeting where certain obligations of the officer did not meet. Section 180(1) of due care and diligence had been found to be in a contravention by the plaintiff. There are some data about the partition offer is required to reveal to the Australian Stock Exchange but the plaintiff had failed to recommend to the board of directors of James Hardie Industries Limited. The plaintiff had also failed to recommend that an actuarial statement on which the board of directors were dependent in bearing in mind the division proposal does not grant for the superimposed price rise when a cautions story would have done so. Plaintiff is the company secretary and it falls in his duty. 

Mr Shafron who has failed to give advice had been found that he had not conducted his duties with the due care and diligence. This is the duty that other officer had done if he has the same responsibilities as of Mr Shafron. The officer had the duty to work with care and diligently for the corporation. Whereas, Mr Shafron had submitted that he has the responsibilities is limited to the office held. Hence, the circumstances had made him a Company Secretary. Therefore, his obligation towards section 180(1) of due care and diligence is limited as the company secretary. Mr Shafron said that his main duty is to advise and that was owned in his capacity as a general counsel. Therefore, his liability of section 180(1) of due care and diligence lies towards as general counsel and not towards the company secretary.  

Legal Issues

Certain legal issues that had been arisen in this case are the breach of section 180(1) of due care and diligence of the Corporations Act. The director duties and responsibilities of a corporation have the duty to fulfil their obligations with the due extent of care and diligence. This duty lies with the directors but also to the officers of the organisation. The officers engaged in the duty that has the same or similar task as of director in the office held.  Section 180(1) does not only for the directors but it is also for the officers in a broad manner. In this case, the plaintiff was an officer and he has two dual responsibilities, first, he was the company secretary of the company and the second, he was the general counsel. Mr Shafron makes the pronouncements that had an impact entirely on the trade of the organisation. In reverse, the plaintiff stated that he had limited duties for the company secretary role and disagreed that he is associated with the role of his cooperative company secretary Mr Cameron, whose role was chiefly managerial. In his arguments, stated that he did not have any contributions to the parting offer and it was a pronouncement for the board of directors of which he has not participated. In the end, he said that he has not violated any obligations of the corporation in relation to the actuarial or the ASX, as he was a bureaucrat. 

It was clearly observed from the legal issue that has arisen, that all the activities in the organisation had been suspicious. Mr Shafron has the dual duties to perform of a Company Secretary and the General Counsel.  The plaintiff whether done one task in one capacity and the other task in some other capacity had no proof.  Since the Appellate Tribunal has observed and separated both his duties and found that section 180(1) of due care and diligence lies on the responsibilities of the officer. The officer holds the position of company secretary and cannot be a term that as limited responsibility. Thus, section 180(1) applies of director duties under the Corporations Act. The legal issues raised due to the plaintiff had failed to provide the recommendation of the ASX that he was obliged to provide to the board of directors. The issue of actuarial is the responsibility of the plaintiff on which the board of directors are dependent. These both come in the duty of the company secretary that the plaintiff has breached and he has the responsibility and the obligation towards the corporation under the director duties of the Corporation Act. Thus, it can be concluded that duties that have given under the section 180(1) are the major responsibilities that the officer or the directors should comply with them.

Dual Responsibilities of Corporation Officer

In this case, that Mr Shafron who is the plaintiff had been found in the contravention of section 180(1) of the Corporations Act. The plaintiff is an officer in the Corporation that has been defined under section 9 of the Corporations Act. There are mainly two laws of the Corporation Act that had been taken into consideration by the court in deciding the case. Section 180(1) states that the director or the officer who has the same role or similar role, the director has the obligation towards the corporation to do his duty with due care and diligence. Mr Shafron covers the dual responsibilities, the company secretary and the general counsel of the corporation. Thus, he had failed to do his duty in accordance with the section 180(1). He had failed to provide the partition offer that is required to give to the Australian Stock Exchange, also he had failed in providing the actuarial report on which the board of directors are dependent. Two duties that had been breached by the plaintiff that comes under the obligation of the plaintiff in his role as a company secretary. Although he denied, said that he has limited duties and not obliged to follow these duties because his role as a company secretary is too limited. The judges then considered the role played by the officer that is defined under section 9 and the duties that he had to obey under the section 180(1) of the Corporations Act. In Australian Securities & Investments Commission v Macdonald [2009] NSWSC 287 case, the directors and the CEO held liable for not performing his duties under section 180(1) of the Corporations Act. In relation to the ASX, report they had failed to provide that the foundation having a fund to pay the compensation was not misleading or deceptive. They had failed to advise the board to disclose the deed and they held liable for the breach of section 180(1) of the Corporation. Referring to these case laws was also the director not had conducted their duties under section 180(1) and the directors held liable under the Act. Section 180(1) of the Corporations Act has the major issue that should be considered by the judge in deciding the case. Thus, the court in deciding the case took the Corporations Act mainly in consideration. 

NSW Court of Appeal given verdict was appealed in the high court. In this verdict of Court of Appeal, the plaintiff had been found to be in the violation of section 180(1) of due care and diligence that he had failed to provide an opinion to the board of directors that the draft of ASX statement was deceptive but also failed in providing an opinion about the information on the actuarial. Mr Shafron then approached the high court and put forward his case. He argued that he had found to be in the violation of section 180(1) if he would be a Company Secretary. The ASIC had charged against him were alarmed with measures that he made in his competence as a general advocate and not as an executive of JHIL. By this, Mr Shafron wants to say that the duties and responsibilities of the company secretary and the general counsel can be segregated. The High Court had rejected this argument by saying that plaintiff roles as company secretary and general counsel cannot be segregated. Mr Shafron had the responsibility to provide safeguards to the company from the legal risk. His duties of due care and diligence are not limited to the tasks done in the role of Company Secretary but it has many roles to protect the company from all the legal risks and also giving necessary advice. He also argued that on what grounds he is an officer but according to Section 9A of Corporation Act, the company secretary is an officer. The high court also rejected that the responsibilities in reference to the duty of his co-secretary of Mr Cameron whose role was purely administrative. Mr Shafron also not has the evidence that he had done the one work in one capacity and the role in some other capacity. Thus, Mr Shafron is the senior executive of the company and from the acts, it is upheld that he participates in the meeting and he is held liable for the breached of his duties to JHIL. The high court has dismissed the Mr Shafron appeal and upheld this case. 

Conclusion

In conclusion, it can say from the whole case that Mr Shafron had breached the Section 180(1) of due care and diligence of the Corporations Act by not performing his duties towards the corporation. The Court had found that Mr Shafron an officer from the section 9 of the Corporations Act. The verdict makes it clear that the two functions cannot be separated in accordance with due care and diligence. The function of an officer is not limited to the legislative responsibilities but to the responsibilities that had been undertaken by the officer. In this case, the plaintiff had not undertaken his responsibilities as both as company Secretary and the general counsel. Finally, it can be said from the verdict that there is a need for standard Care in section 180(1) as integrating the actual responsibilities of the officer in the corporation. This case had the great impact on all the corporations and the officers that are covered by the Corporation Act to work with due care and diligence. 

References

Australian Securities & Investments Commission v Macdonald [2009] NSWSC 287

Corporations Act, s 198A

Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 at 378 [894]

Shafron v Australian Securities and Investments Commission (2012) 286 ALR 612