In May this year, the High Court agreed to hear appeals in the James Hardie case. The events giving rise to this extraordinary litigation occurred in February 2001 and are ongoing, after more than 10 years.
ASIC brought proceedings against the directors and senior executives of James Hardie, alleging they had breached their duties of care and diligence, because they made an announcement to the ASX about the funding available for asbestos victims. The announcement was claimed to be misleading because it gave a false impression about the adequacy of the funding.
ASIC succeeded in the Supreme Court in obtaining lengthy disqualifications and substantial financial penalties against the directors. The directors appealed to the NSW Court of Appeal which upheld the appeal of the non-executive directors.
Now ASIC intends to pursue these proceedings further in the High Court.
Details of the pros and cons and legal issues involved in this case have almost become lost in the 10 year saga. Whatever the outcome for the directors and executives, win or lose, the impact on their personal lives, their reputations, their careers and their finances has been nothing short of catastrophic.
Essentially, the directors were found guilty of painting too rosy a picture of the amount of asbestos funding. In doing so, they hoped to make their company look good. Personally they had little, if anything, to gain by their overoptimistic announcement.
The consequences for them have been disastrous.
There is only one lesson for directors who have a duty of care to investors, their company and the market in general: the facts must be stated bluntly. Nothing can be gained by hiding unpleasant truths.
