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Law Notes Business Associations Notes

Directors Duties Checklist Duty Of Care Notes

Updated Directors Duties Checklist Duty Of Care Notes

Business Associations Notes

Business Associations

Approximately 289 pages

These are comprehensive yet succinct notes. They set out the relevant legal principles, and material facts from a range of cases in order to demonstrate how those legal principles have been applied.

At the beginning of each document on each topic, there is a table of contents (hyperlinked so you can navigate easily through the document), and also an 'exam checklist', which you can use during revisions or exams to remind yourself of the key issues you have to address.

You can use these to q...

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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:

  • Director or officer? See s 9

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).

  • See balancing (ASIC v Vines)

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).

  • Causation: But for the director’s breach of duty, would the loss have arisen? (Permanent Building Society)

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

  1. makes the judgment in good faith for a proper purpose, and

  2. does not have a material...

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