| 1. Did the D breach their duty of care? | S 180(1) Care and diligence | A director or other officer of a company must exercise his/her powers and discharge his/her duties with the degree of care and diligence that a reasonable person would exercise if s/he: were a director or other officer of a company in the company’s circumstances, and occupied the office held by, and had the same responsibilities within the company as, the director or officer. Civil penalty: see s. 1317E. Consider: Standard varies: The duty will vary according to the size and business of the particular company and the experience or skills that the director held himself or herself out to have in support of appointment to the office (Daniels v Anderson Elements: (1) director/officer? (2) reasonable care and diligence? (3) causation? (4) No requirement for harm or detriment to the company. (but still balancing of foreseeable risk and benefit required for determining reasonableness). Balancing act: Whether a director has exercised a reasonable degree of care and diligence ‘can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question’ (ASIC v Vines) Not limited to expertise: A director appointed to a company because of special expertise in an area of the company’s business is not relieved of the duty to pay attention to the company’s affairs which might reasonably be expected to attract inquiry, even outside that area of expertise (Re Property Force Consultants) NO requirement of harm, loss or detriment |
| Common Law Duty of care | The director must exercise reasonable care and skill in performing his/her duties (Daniels v Anderson). This has been extended to care, diligence and skill: reasonable care is measured by the care an ordinary man might be expected to take on his own behalf (Re City Equitable Fire Insurance). Causation: Common law duty: Were an identified negligent acts or omission of the defendant was so connected with the plaintiff’s loss or injury that, as a matter of ordinary common sense and experience, it should be regarded as a cause of it (March v Stramare Pty Ltd (1991) 171 CLR 506). Question: Had a reasonable director in X’s position exercised reasonable care and skill, would they have so acted? (Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187). |
| Equitable Duty of care | Duty to exercise reasonable degree of care and skill, but not a fiduciary obligation (PBS v Wheeler; Lee J in Bell Group, but cf Daniels v Anderson and Drummond J in Bell). |
| Note contract | It may be an implied or express term of the employment contract that an executive director will possess and act with the skill of a reasonably competent person within his or her category of appointment (PBS v Wheeler) Eg in Adler, under the implied term in a contract of employment of an executive director, the director (such as here Mr Williams and Mr Fodera) will be taken to have promised the company that he or she has the skills of a reasonably competent person in his or her category of appointment and that he or she will act with reasonable care, diligence and skill: Wheeler; Adler |
| N.B. Same Standard | Mention all three sources of the duty, but the standard of care of all of them is now essentially the same (Vines v ASIC). |
| Exception 1#: Business judgment rule | s. 180(2) Business judgment rule | A director or other officer will not breach s. 180(1) or his/her common law or equitable duties if s/he: makes a business judgment (which requires positive decision to be made, Adler (ie not satisfied where there is just an oversight or failure in monitoring)) and makes the judgment in good faith for a proper purpose, and does not have a material personal interest in the subject matter of the judgment (note that mere holding of shares in a company doesn’t mean there is an MPI in any judgment that might affect that share price: Adler. But there a loss of $6k in share price because Williams was a major shareholder was an MPI: Adler) informs him/herself about the subject matter of the judgment to the extent that s/he reasonably believed to be appropriate; (consider importance of judgment, time available, costs in obtaining info, directors’ confidence in exploring matter, state of business, nature of competing demands for attention: Adler. Need positive evidence to prove this: Adler.)
AND rationally believes that the judgment is in the best interests of the company. (‘would no reasonable person in their position hold it?) The belief that the judgment is in the best interests of the company is a rational one unless it is a belief that no reasonable person in the director’s or officer’s position would hold: s 180(2) Onus falls on party invoking it: Adler. |
| Exception 2#: Reliance | s. 189 Reliance on information and advice | A director’s reliance on information or advice is taken to be reasonable, unless the contrary is proved, if all of the following three elements are satisfied: -
the director relies on information, or professional or expert advice, given or prepared by: an employee of the company whom the director believes on reasonable grounds to be reliable and competent in relation to the matters concerned, or a professional advisor or expert in relation to matters that the director believes on reasonable grounds to be within the person’s professional or expert competence, or another director or officer in relation to matters within his/her authority, or(iv) a committee of directors on which the director did not serve in relation to matters within the committee’s authority; and -
the reliance was made: in good faith, and after making an independent assessment of the information or advice, having...
|
