ASIC commenced civil proceedings (Civil Action) against seven former directors and three former company officers on 14 February 2007. The hearing will commence before Mr Justice Gzell in Sydney in the NSW Supreme Court on 29 September 2008 and involve maximum penalties for each breach of $200,000 and disqualification from managing a corporation for such period as the court determines.
ASIC’s investigations and the Commonwealth Director of Public Prosecutions’ (CDPP) considerations are now complete and ASIC said today that no criminal proceedings are proposed.
ASIC also said today that it will seek leave of the NSW Supreme Court to withdraw the related asbestos compensation indemnity claim, as it has been superseded by the Final Funding Agreement becoming fully operational.
On becoming ASIC Chairman in May 2007, the oversight of the James Hardie matter passed to Mr Tony D’Aloisio. Since October 2007, external law firm Clayton Utz has provided additional resources and external review of the Civil Action.
Civil Action to commence
The Civil Action was commenced by ASIC against ABN 60 Pty Ltd -formerly James Hardie Industries Limited (JHIL), James Hardie Industries NV (JHINV), and certain former directors and former officers of those companies1.
ASIC is seeking declarations that former directors and officers breached their duties owed to JHIL, and in the case of Mr Macdonald, JHINV, and in the case of Mr Morley, a former subsidiary of JHIL. If successful, ASIC will ask the Court to consider disqualifying those former officers and directors from managing corporations and will ask the Court to impose fines on them. ASIC also seeks declarations that JHIL and JHINV made misleading statements and contravened continuous disclosure requirements of the Corporations Act.
Among other things, the Court will be asked to consider whether these former directors and officers failed to discharge their duties with due care and diligence in that they, having regard to the information of which they were aware and which was available to them at the relevant times, did not take steps to ensure that JHIL did not contravene its obligations under the Corporations Act with respect to disclosures made concerning:
the adequacy of funding to be made available in 2001 for victims of asbestos related diseases;
future plans relating to JHIL and partly paid shares issued by JHIL.
The Civil Action, which looks at the conduct of both executive officers and non-executive directors, will focus on the scope and content of the duties of executive officers, that is the chief executive officer, the company secretary and general counsel and the chief financial officer. The proceedings will also examine the obligations of non-executive directors in evaluating proposals put to the Board by the company's management.
The proceedings should bring into sharp focus the fundamental responsibilities of both executive officers and non-executive directors who are ultimately responsible for significant public company decisions and the release of information concerning those decisions to the share market, to employees (including former employees), creditors and the public.
ASIC believes this action goes to the heart of the responsibilities of directors of public companies. Directors are asked by management to assess important strategic decisions for a company, which in some cases can amount to 'betting the farm', and to approve disclosure made to the market about those decisions. The case will provide guidance to executive officers and non-executives in these and similar situations. In the future, this will benefit companies, their shareholders, employees and former employees who may be impacted by such decisions. ASIC believes that the public interest of the Civil Action is clear.
Subject to what may emerge in the course of the hearing of the Civil Action, no other proceedings, in particular, no criminal proceedings are proposed. ASIC’s investigations and the CDPP’s considerations are now complete.
In conducting its investigations, ASIC had the benefit of the Jackson Commission report. Subsequent ASIC investigations were exhaustive, conducted on three continents making extensive use of special investigators and involved computer-assisted searching of 122 million electronic files.
In relation to potential criminal proceedings: first, in relation to non-executive directors, ASIC concluded that the evidence was not of a nature sufficient to refer any matter to the CDPP. The non-executive directors were advised of ASIC’s decision in that regard on or about 6 July 2007.
Secondly, briefs were referred to the CDPP in July 2007 in respect of certain individuals. Essentially, the decision of the CDPP in relation to those briefs (with which ASIC agrees) is that a close and careful consideration of the evidence available, both in this country and abroad, led to the conclusion that there was an insufficient basis to commence any criminal proceedings. ASIC has advised those individuals that they will not be the subject of criminal proceedings.
These conclusions on criminal matters will not impact the Civil Action. Among other things, the Civil Action requires a civil not a criminal (beyond reasonable doubt) standard of proof. The law recognises that conduct which may, for example, be misleading may not necessarily amount to a criminal offence but may still be actionable in civil proceedings.
Whilst there may be a concern in some sectors of the broader community about this outcome, because of the nature of asbestos and what transpired, a careful and independent review has concluded that there was insufficient basis to commence any criminal proceedings.
ASIC will discontinue its indemnity claim, which is part of the Civil Action, as the need for that claim has been superseded by the Final Funding Agreement becoming fully operational.
In December 2005, JHINV and James Hardie 117 Pty Ltd entered into an agreement to provide long term funding for compensation arrangements for certain victims of asbestos-related diseases in Australia with the New South Wales Government and the Asbestos Injuries Compensation Fund Limited, as trustee for the Asbestos Injuries Compensation Fund, which was amended on 21 November 2006 (Final Funding Agreement).
As the funding agreement took time to be finalised, and when signed was subject to conditions precedent (referred to in JHINV’s announcement to the ASX dated 1 December 2005) including shareholder approval, ASIC assessed other actions it could take in the event that the Final Funding Agreement did not come into effect.
Hence, in the Civil Action, ASIC has sought an order that JHINV execute a deed of indemnity up to a maximum of $1.9 billion, or such amount as JHIL or its directors consider is necessary to ensure that JHIL remains solvent, for example, as a consequence of it incurring liabilities in relation to asbestos related claims (Indemnity Claim).
When ASIC commenced the Civil Action (14 February 2007), ASIC indicated to the market that if the conditions precedent to the Final Funding Agreement (referred to in JHINV’s announcement to the ASX dated 1 December 2005) were satisfied, ASIC would not pursue the Indemnity Claim against JHINV.
Since 14 February 2007, ASIC has satisfied itself that the conditions precedent have been met. It also reassessed whether it should, for other reasons, continue the Indemnity Claim. ASIC has considered the advice available to it in relation to the Indemnity Claim. ASIC has decided not to pursue that claim. ASIC has advised JHINV of this.
ASIC will therefore now seek leave from the Court to discontinue the Indemnity Claim.
It is apparent from disclosures made by JHINV that the costs of the defendants to the Civil Action may be met by JHINV under certain indemnity arrangements.
ASIC has assessed the likely costs that JHINV could incur in meeting those indemnities (including whether it could have the undesirable effect of not enabling JHINV to meet its obligations under the Final Funding Agreement). ASIC is satisfied that the amounts involved are not of sufficient materiality to affect JHINV’s ability to continue to fund its obligations under the Final Funding Agreement. Hence, the Civil Action will not materially affect JHINV’s ability to fund under the Final Funding Agreement.
ASIC is aware that certain other claims have been foreshadowed in relation to JHINV by certain tax authorities. Whether or not these could affect the ability of JHINV to continue funding under the Final Funding Agreement is not a matter which ASIC has assessed or falls within its jurisdiction.
However, ASIC is satisfied that continuing the Indemnity Claim would not place asbestos sufferers in a better position than that arising under the Final Funding Agreement if these tax matters were to have an adverse effect on JHINV.1 Peter Macdonald - director and CEO of JHIL and JHINV
Peter Shafron - company secretary and general counsel of JHIL
Philip Morley - CFO of JHIL, director of Amaca Pty Ltd and Amaba Pty Ltd
Michael Brown - director of JHIL
Michael Gillfillan - director of JHIL
Meredith Hellicar - director of JHIL
Martin Koffell - director of JHIL
Geoffrey O'Brien - director of JHIL
Gregory Terry - director of JHIL
Peter Willcox - director of JHIL.