Recently, the High Court of Australia delivered judgments in the James Hardie case (see ASIC v. Hellicar and Ors  HCA 17 (3 May 2012)) which in part considered the importance of minutes of directors meetings. There are lessons in these decisions for directors and committee members of clubs, although the decisions related to a publicly listed company on the Stock Exchange.
For the purposes of this Article, we use the expression “director” to include both directors of companies incorporated under the Corporations Act and committee members of Associations incorporated under the Associations Incorporation Act. At common law, directors are considered to owe a duty of good faith and appropriate care and diligence.
The High Court found that the directors of James Hardie had failed to act with appropriate care and diligence.
James Hardie was concerned about the possible impact of asbestos related injury claims on the James Hardie Group. The directors sought to restructure the group which included a strategy to separate some subsidiary companies which may have been liable to asbestos liability claims. They also sought to establish the Medical Research and Compensation Foundation (“the Foundation”) to manage and pay out asbestos claims made against the subsidiaries and to conduct medical research into the causes of, and treatment for, asbestos related diseases.
This was a material matter that James Hardie needed to disclose to the ASX in a Statement (“the Statement”).
Amongst other things, the Statement claimed the Foundation was “fully funded”, “has sufficient funds to meet all legitimate compensation claims anticipated”, and after considering the long experience of James Hardie in asbestos “the directors ……..… determined the level of funding required by the Foundation”.
The Statement then concluded “James Hardie is satisfied that the Foundation has sufficient funds to meet anticipated future claims”.
The High Court found that at the time of making the Statement the Foundation did not have sufficient funds to meet all legitimate compensation claims which were reasonably anticipated and therefore the Statement was misleading.
ASIC alleged, and the directors denied, that the directors had approved the release of the Statement.
The directors asserted that the Statement was not included in the board papers, and in any event had been amended by management subsequent to the meeting.
The High Court found that a draft of the Statement had been tabled at the meeting, and whilst some amendments were made subsequently by management, they were not material amendments.
The minutes of the meeting recorded that the Statement was approved and those minutes were in turn approved as a true and correct record at the next meeting of directors.
The Court considered it important in its findings that there was no protest from any director to the Statement (at the meeting or subsequently upon release) or the company minutes.
In short, the High Court found unanimously that the directors had approved the issuing of the misleading Statement and therefore failed to ensure appropriate care and diligence. The directors had therefore breached the Corporations Act.
In his Judgement, Justice Heydon, emphasised the importance of minutes by stating:-
“The relevance of this consideration goes beyond legal obligations. Provisions of this kind correspond with a strong feeling that accurate minutes should be kept at general meetings and committee meetings in organisations of all kinds. They include businesses; educational and medical institutions; social and sporting clubs; cultural and religious groups; professional and trade associations; trade unions; community bodies and political parties [our emphasis]. The members of these organisations, humble as they often are, see it as important that minutes accurately record what took place.”
Minutes are not intended to be a transcript of every word spoken in the meeting, but a record of the decisions reached. However, what has been stressed by the High Court is that the minutes need to be an accurate record. Directors have an opportunity to amend minutes, when considered, at a subsequent meeting and should be amended if they do not represent a “true and correct record”.
The Centro Case (see Club Connect Issue August 2011) emphasised the standards of attention and focus required of directors. The High Court in James Hardie has reinforced directors’ obligations to focus on their duties.
Implications for Clubs
The practical implications for clubs would appear to be:-
Ensure there is an appointed minute taker at each board meeting (generally, but not necessarily, a staff member).
Ensure that discussions are directed to the matter at hand.
Ensure that decisions and actions are clear to all to facilitate accurate minute recording.
Ensure Minutes are presented clearly, concisely and in a readily readable format.
Ensure that minutes are produced in a timely manner.
All directors have an obligation to review and consider the minutes before adopting them as a “true and correct record”.
Directors really must actively consider issues within the club’s governance and risk protocols. A director can rely on expert advice but not to the extent of ignoring obvious errors that a person exercising reasonable care and diligence would query.
Clubs operate in a heavily regulated environment affecting a range of conduct which includes gaming, liquor, occupational health and safety and industrial relations. If, as a director, you cannot reasonably focus on these issues, but would simply prefer to participate in bowls or golf at the club – the role and responsibilities of a director are not for you.
Article published in Club Connect August 2012
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