29/04/2009

Company officers should be very diligent when approving press releases or other company representations in light of the very recent judgment against the James Hardie directors.

On 23 April 2009 Justice Ian Gzell found that the non-executive directors of James Hardie were in breach of the Corporations Act for approving the dissemination of a media release that contained false or misleading information about the company’s compensation fund for asbestos victims.

The press release that was allegedly approved by the board of James Hardie made claims that the compensation fund was “fully funded”. This assertion has subsequently proven to be false, and Justice Gzell has found that the directors either knew, should have known, or should have sought further information with respect to, the accuracy of the statements made in the press release.

While the decision of Justice Gzell is likely to be appealed following the penalty hearings, the case adds weight to certain principles that are of importance to company directors, including the fact that just staying silent on a voted resolution will not be enough to absolve a person from liability under the Corporations Act; a statement of abstention may be required.

Although the James Hardie decision was under the Corporations Act, an earlier case in the Federal Court of Australia came to the same decision based on the Trade Practices Act.  In that case the Court held that a director who approved her company’s advertising campaign was herself in breach of Section 53 of the Trade Practices Act 1974 for making false or misleading representations.

The company marketed a product called Safties Nature Nappy which the company advertised as “100% biodegradable”.  The director in question approved the company’s running of the advertising and promotional campaign knowing that the claim of 100% biodegradability was false, because the product had plastic components that were not biodegradable.

The Trade Practices Act requires that a business not falsely represent goods as being of a particular standard, quality, value, grade, composition, style or model or having a particular history or previous use. In other words, goods must comply with any description that is provided in advertising or labelling.

The Federal Court determined that the director, in addition to the company, was in breach of the Act and imposed a five year injunction on the director restraining her from further misleading conduct

Available penalties for breaching the Corporations Act include fines of up to $200,000 and a ban on the person being allowed to be a director of a company.  Under the Trade Practices Act extensive monetary penalties of up to $220 000 can be levied on individuals, as well as injunctions, community service orders and ancillary orders of various kinds.

If you would like more information about “green marketing” guidelines or your obligations under the Trade Practices Act or the Corporations Act please contact Mark Dupuis at Townsends Business and Corporate Lawyers.