Former non-executive directors of James Hardie Industries have won their appeal against a court judgment that would have banned them from sitting on company boards for five years.
A full bench of the NSW Court of Appeal has overturned a ruling that found the non-executive directors had breached their duty of care by approving a media release concerning the company's
provisions for meeting its asbestos diseases liabilities.
But the company lost its own appeal, when the Court upheld a parallel ruling that James Hardie made misleading statements to the Australian Stock Exchange (ASX) in 2002 about its ability to 'meet all asbestos claims and as to remaining asbestos claims'.
The ruling means that all seven former non-executive directors of James Hardie at the time are once again free to sit on company boards.
The full bench of the Court of Appeal, headed by Chief Justice James Spigelman, said the Australian Investment and Securities Commission did not prove the former non-executive directors
breached their duty of care by approving the press release sent to the ASX.
James Hardie also lost its appeal against a ruling that the company had breached continuous disclosure rules by failing to disclose steps taken to move the holding company offshore in March
2003.
'The Court has concluded that no error has been shown in the judge's findings of contravention,' Chief Justice Spigelman told the court on Friday.
James Hardie was ordered to pay 90 per cent of the Australian Securities and Investment Commission's legal costs relating to the appeal.
The market initially welcomed the judgment on Friday, James Hardie stock rising to a peak of $6.95, up two per cent, before later falling as the implications of the judgment sank into the
market.
At 1315 AEDT, James Hardie shares were down 14 cents, or 2.1 per cent, at $6.63.
The successful directors were former chairman Meredith Hellicar and former non-executive directors Michael Brown, Michael Gillfillan, Martin Koffel, Dan O'Brien, Greg Terry and Peter
Willcox.
Justice Spigelman said that ASIC had failed in its case against the former non-executive directors by not calling a key witness with "relevant knowledge" about whether they approved the release.
ASIC had a "duty of fairness" to call David Robb, a former partner of Allens Arthur Robinson, one of James Hardie's main external legal advisers who attended the board meeting.
'The failure to call one of the legal advisers of JHIL undermined the cogency of ASIC's case," Justice Spiegleman said. Appeals by former James Hardie chief financial officer Phillip
Morley and former general counsel Peter Shafron were allowed in part.
The court will reconsider their cases in February in light of Friday's judgment.
Former Hardie chief executive Peter Macdonald was the only former executive who did not appeal, after he was banned for 15 years and fined $350,000.
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