James Hardie Case Study
The article illustrates how the High Court handled James Hardie’s case, focusing on the legal issues of misleading statement, director’s duties as well as issues regarding continuous disclosure. These issues will be explained with supporting case examples and relevant legal principles.
Misleading or deceptive statements
“… James Hardie non-executive directors breached Corporate Law by making a misleading statement…”
A misleading or deceptive statement can be described as intentional or negligent misrepresentation about the truth . “A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive” (Section …show more content…
Directors are also prohibited from inappropriately using their position to either gain an advantage for themselves or someone else, or to cause detriment to the corporation as per section 182(1) of the Act (ASIC v Adler & Ors ).
Consistent with the facts, the directors breached s181 (1) and s182 (2) of the Act, since it is unlikely that approving a deceptive ASX announcement is in the best interests of James Hardie. As a listed public company, the market reaction to the ASX announcement is critical to the company and it was reasonably foreseeable that approving a deceptive ASX announcement would lead to cost implications for the company, detriment reputation and credibility of James Hardie for the investors.
Business Judgement …show more content…
Since James Hardie is listed on ASX, the company is obligated to disclose relevant information as per the listing rules of ASX.
In addition, any information that a reasonable person would expect to be market sensitive and can potentially impact on the price or value of a company’s security, must be immediately disclosed to ASX, as mentioned under Chaper 3 of the ASX Listing Rules. With the reference to our case, the above rules imply that the directors of James Hardie have also failed the obligations of continuous disclosure in relation to the misleading and deceptive misstatement about the legal indemnity for asbestos claims, as they were aware of the statement and did not provide any supplementary document to correct the deficiency.
James Hardie and its directors have clearly contravened their obligations of continuous disclosure and breached directors’ duties under both general and statutory law, given the fact that they have made and approved misleading statements about the company’s underfunded asbestos compensation foundation. Therefore, the High Court ruled against the directors and the overturned decision made by the New South Wales Court of Appeal, and hence ordered the case to be returned to the Appeal Court to decide the outstanding matter including penalties which are set out in sections 1317E and 1317G of the