Gillfillan v Australian Securities and Investments Commission [2012] NSWCA 370
On appeals remitted by the High Court, the New South Wales Court of Appeal held that the trial judge erred in fixing the penalties of seven former non-executive directors of James Hardie Industries Ltd under the Corporations Act 2001 (Cth) by taking the former chief executive's notional penalty as the comparator without analysing the differences between their cases, and substituted shorter disqualifications and smaller pecuniary penalties, lighter again for the two who joined the meeting by telephone, whose claim for relief from liability failed.
What the court decided
The seven appellants had sat on the board of James Hardie Industries Ltd without executive roles [18]. The Australian Securities and Investments Commission (ASIC) alleged that each had approved, at a board meeting on 15 February 2001, the release to the Australian Stock Exchange of a misleading draft announcement [20]. The trial judge declared that each had contravened the duty of care and diligence in section 180(1), disqualified each from managing corporations for five years and imposed a pecuniary penalty of $30,000 on each [21]. In December 2010 the Court of Appeal set them aside [22], [49]. After the High Court restored them in Australian Securities and Investments Commission v Hellicar [2012] HCA 17, it remitted to the Court of Appeal the questions of relief from liability and penalty [18], [23].
Barrett JA agreed with the orders proposed by Sackville AJA, for his Honour's reasons [3]. Beazley JA found it vexing whether the directors in the United States should receive the same penalties as those present [1]. Concluding with some hesitation that they warranted less, her Honour agreed with Sackville AJA's orders and reasons and Barrett JA's comments [2].
Sackville AJA called the two who took part by telephone from the United States the US directors, and the rest the Australian directors [18], [36].
The trial judge had taken the seven years he attributed to the former chief executive for approving the announcement, discounting it to five years for each director [191]. Sackville AJA found problems with that use of the comparator [196]. The chief executive's declaration recorded that he knew or ought to have known the announcement was misleading, while each Australian director's declaration said only that the director should have known it [196], [201]. Nor was it clear how the seven years was reached or what part it played in his total of 15 years [202], [204]–[205]. Because the differences between the cases were not analysed, due weight was not given to the parity principle's requirement of allowance for relevant differences [206]. The Court assessed the penalties afresh [207]–[208].
The power to disqualify under section 206C, in his Honour's reading, requires the court to be satisfied that the period of disqualification, as well as the order, is justified [193]. Unlike its predecessor, the section permits disqualifying a person regarded as fit and proper to manage a corporation [174]. Other contravenors' penalties for the same or closely similar contraventions may be considered [194], but the points of similarity and difference must then be identified [195].
Penalties were fixed on the footing that no Australian director knew the draft was misleading or acted dishonestly, as the case had not been fought that way [212]. Sackville AJA described the departure by two Australian directors, Mr Brown and Ms Hellicar, as "very serious indeed", while placing it below the most serious category [232]. Contrition played no large part for those two, as they had put on no evidence of it themselves [248].
For Mr Brown and Ms Hellicar, Sackville AJA proposed two periods of disqualification totalling about two years and three months [265], [363]. After mitigation, which included their qualified contrition, he had regarded about three years as justified for each of them [253]. His Honour found no significant disparity with the penalties imposed on or attributed to three former officers, including the chief executive [254], [257], [259]. No order was in force between the two appellate decisions, but from ASIC's application for special leave Mr Brown and Ms Hellicar were in practice kept off public company boards [264]. Partial allowance was made for that, and because section 206C(1), read with section 23(b) of the Acts Interpretation Act 1901 (Cth), permits more than one period, the two ran from 24 September 2009 to 17 December 2010 and from 3 May 2012 to 30 April 2013 [265], [363]. The same orders were proposed for two more Australian directors, Mr Terry and Mr O'Brien [269], [283], [363]. Mr Willcox, the fifth, sought no stay, so of his two periods the first began on 27 August 2009 and the second ended on 31 March 2013, a month sooner at each end [291], [363].
The trial judge was entitled not to be satisfied that the US directors had acted honestly under section 1317S(2), and no error was shown in his refusal to excuse them [303], [314]. Their contraventions, "although very serious, were not quite as grave" as the Australian directors', because, through no fault of their own, the US directors lacked the text and had no notice that approval would be sought [313]. The US directors' disqualification, also in two periods, was to end on 31 December 2012 [320], [363].
Sackville AJA accepted that a pecuniary penalty was to be imposed only if disqualification was an inadequate or inappropriate remedy, but held that general deterrence and the need to mark disapproval warranted a modest one [330]. Each Australian director was to pay $25,000 and each US director $20,000 [331]. As ASIC had repaid the earlier penalties, orders were foreshadowed for the appellants to pay appropriate interest, with ASIC to frame them [332], [364].
The Court accepted, as within the permissible range, the penalties agreed between ASIC and the former secretary and general counsel [339], [344]. ASIC's cross-appeal on Mr O'Brien's and Mr Terry's trial costs was dismissed with costs [345], [353]. Each appellant was to pay one ninth of ASIC's costs of the earlier appeal on the approval issue [358], [363]. The remaining costs were left for further submissions [364]–[365].
Why it matters
A penalty taken from a co-contravenor's case needs the differences between the cases stated [195], [206]. Sackville AJA noted the High Court's warning in Forrest v Australian Securities and Investments Commission [2012] HCA 39 about pleading that a contravenor knew or ought to have known [75]. He said the uncertainty about the scope of ASIC's case seemed to illustrate that point [76]. On Sackville AJA's reasoning, a director asked at a meeting to approve an important document he or she does not have should ask for a copy or for the text to be read out and, failing that, abstain [302], [313], [319].
In observations with which Beazley JA agreed, Barrett JA said that a meeting held by agreed technology may require more than that each director can hear and be heard [2], [4], [15]. He added that where directors discuss a document not every participant holds, the technology must let each see its content at the relevant point [15]. He also said that a chair's informal call for agreement is dangerous without appropriate formality [8]–[9], and that it must be possible to see and record how each director votes [11]. Boards may wish to adopt those observations. The provisions are described as the Court applied them; readers should check the current text of the Act.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.