18 February 2011 James Hardie directors free to re-enter boardrooms

By Alistair Jaque, Partner and Phillip Briffa, Solicitor

In brief - Court of Appeal overturns decision in James Hardie case

On 17 December 2010 the NSW Court of Appeal overturned the 2009 Supreme Court decision which found the directors of James Hardie to be in breach of their duties.

James Hardie directors in the Supreme Court

In April 2009, the Supreme Court of NSW found nine directors of James Hardie to be in breach of their directors' duties by approving a misleading public statement to the effect that a newly set-up fund intended for financing claims from asbestos victims was "fully funded''. Infamously, the fund was later found to be underfunded by approximately $1.5 billion. As a result the directors were found to have breached their duties and were each banned from sitting on any board for periods ranging from 5 to 15 years and were each fined between $30,000 and $350,000.  

Supreme Court decision overturned  

On 17 December 2010 the NSW Court of Appeal overturned the 2009 Supreme Court decision.  

In a unanimous decision Chief Justice Jim Spigelman and Appeal Judges Margaret Beazley and Roger Giles ruled that the Australian Securities and Investments Commission (ASIC) had failed to prove that the directors actually passed a resolution approving the statement.  

Justice Spigelman held that one of the grounds for this conclusion was a finding that ASIC had "a duty of fairness to call a witness whose role was such that there was a significant probability that he had relevant knowledge'' of what happened at the board meeting.  

ASIC's failure to call David Robb, a former partner of Allens Arthur Robinson who was one of James Hardie's main external legal advisers on setting up the trust and who attended the board meeting, "undermined the cogency of ASIC's case that the resolution was passed'', Justice Spigelman said.  

Implications of the successful appeal  

The consequence of the newly imposed duty of fairness is that it is now even harder for ASIC to bring a successful claim against a director. This has prompted a series of heated debates concerning ASIC and its usefulness as our corporate regulator.

For further information please contact:

Alistair Jaque, Partner  |  Phone: +61 2 9233 5544  |  Email:

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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