Research on ANY Australian case (ideally not more than 10 years old since the de

Question

Research on ANY Australian case (ideally not more than 10 years old since the decision by the Court) involving breach of company director’s/officer’s duties under the Corporations Act 2001 (Cth).

Write a report outlining the following:

a. Case introduction.

b. The duties/responsibilities breached (ex. CA sections 181 or 588G) and explain why the duties were breached.

c. Discuss and critically ANALYSE the court/tribunal decision and the reason for the decision in view of the Corporations Act.

d. Where possible and applicable, the relevance of the decision to the development of Australian corporations law or the impact of the decision on the operation of companies in Australia.

Explanation / Answer

I. Introduction

1992 the then Chief Justice of the High Court of Australia, Sir Anthony Mason, spoke of the Court’s use of materials from other jurisdictions. He said that although the Court looked primarily to decisions in other common law jurisdictions, it also looked to relevant comparative law principles and what other systems of law might have to say about a particular problem. Legal problems, because they re ect human problems, are not unique to any one system of law, he said1. Australian courts are not strangers to using foreign law in the process of judicial decision-making. As a relatively young ex-British colony, Australia 1Anthony Mason, The Relationship Between International Law and National Law, and its Application in National Courts: Commonwealth Law Bulletin 18 (1992) 750 at 753.

often looked to the law of England and other Commonwealth countries, such as Canada and New Zealand, in seeking to establish and develop a common law for Australia. The decisions of the United States Supreme Court on constitutional matters have had a particular relevance, because the Australian Constitution was drafted with parts of the United States Constitution in mind. Much less use has been made by Australian courts of materials concerning civilian and European Community (EC) law. It is that use which is the focus of my discussion today. When Sir Anthony Mason spoke it could not have been said that recourse was often had to such materials, nor by all judges of the Court. Nor can that be said today. But there has been an increased interest in the law of these jurisdictions in the last 20 years or so since he spoke. That interest, and a more outward looking approach, coincided with the assumption by the High Court of a greater role in the development of a uniquely Australian common law. I commence this lecture by discussing the background to the High Court’s role. I will refer to the areas in which civilian and EC law has been applied, where it has not and areas where it might be considered in the future. I shall then discuss some recent decisions of the High Court in the main area in which civilian law is referenced, tort law. In that process, I shall take up the central theme of this lecture, which is to identify the use made of civilian law materials in judicial reasoning. In my conclusion I shall brie y discuss factors which inhibit its wider use.

The duties and responsibilities breached under ex. CA sections 181 or 588G and why? Under the section 181 or 588G

the duties and responsibilities breached by the director Mr Lindberg were: Makes ascertain and inquiries whether the reclamation of $8 million to Tigris obligation from the United Nations escrow account by gathering the value of wheat that be sold below the contract of OFFP by the AWB

ownership of AWB with existing staffs, and that earlier worker who was acquired with applicable evidence which had not interviewed. !Notify the board of AWB until September 2005, which was told to him by ICC in the month of February 2005, which representatives of the Hussein government had informed to IIC that Alia practices the funds of the channel to the Iraq government in which no company excused for paying 10% of trucking fee. The payment was always made by AWB through the hand of Alia and the price of AWB's under contract, wheat has been reduced due to the contract price comprised this 10% feedback.

Due to this each situation, Mr Lindberg confessed that he had breached under the section of 180(1) of the Corporations Act. He break to work out his release and controls his responsibilities as a handling director and CEO of AWB with the grade of diligence and maintenance that a serviceable person

The parties decided that nothing of these breaches involved deliberate wrongdoing, dishonesty and moral immorality. Additionally, they decided that exposes in relation to the involvement of AWB in OFFP produced important damage to AWB and to its members. So, it was not imaginable to found a fundamental link amongOk the suffering of destruction and decided breaches by Mr Lindberg. The particulars of agree create strong that Mr Lindberg suffered by playing a guiding and checking role, at every interval all others staff members were monitoring the agreements under OFFP.Although the penalties and contraventions were agreed among the two parties.

I confine my discussion to the High Court of Australia because of its po- sition in the court hierarchy in Australia. The High Court sits at the apex of the court system in the Australian federation and is both the constitutional court and the final court of appeal. The Court is responsible for the develop- ment of the common law, namely the non-statute law, for Australia, and is thus better placed than other courts to consider the perspectives of other legal systems. It has not, however, always had such a role.

At an early point in the history of Australia, the English common law and the rules of equity were received in the colonies to provide a basis for order and government2. English judgments had an authoritative status in Austral-

ian courts, derived, in large part, from the emphasis placed upon uniformity and harmony of law in the British Empire. The Privy Council, which re- mained the final appeal court for Australia for many years, upheld such uni- formity as being “of the utmost importance”3. “Uniformity” meant con- formity with the common law as declared in England. The decisions of the Privy Council were regarded as binding on all Australian courts. Decisions of the House of Lords were uniformly followed and applied, not only when there was no High Court decision on point, but also in cases of conflict be- tween decisions of the High Court and the House of Lords4.

For some time the High Court also regarded Canadian and New Zealand courts as sister courts, in a single common law system, the judgments of which were highly regarded and often followed5. They were accorded a similar status to decisions of Australian State Supreme Courts. Their judg- ments were not “foreign” as such, but neither were they binding. The doc- trine of a unified common law declined in importance when the former colonies became independent members of the Commonwealth of Nations and became more interested in the development of their own law.

An early step towards the break from the traditions concerning the ap- plication of English law in Australia was taken by the High Court in 19636, when it departed from a decision of the House of Lords. In 1978 it declared that it no longer regarded itself as bound by the decisions of the Privy Coun- cil and that State courts might regard themselves as so bound only when there was no relevant High Court authority7. In 1986 the High Court rein- forced that stance with statements that English precedents generally were not binding and were useful only to the extent of the persuasiveness of their reasoning8. The process was completed, by the final statutory abolition of appeals to the Privy Council, in the same year9. These events established what has been described as the precondition for an Australian jurisprudence

Developments in Case Law

34.While the architecture of corporations law was largely developed through statutory reforms, there were also of course many developments in case law, particularly as to the substantive rights and duties of company members and officers. It is far outside the scope of this paper to mention all of them, let alone analyse them. The historical development of directors’ duties or members remedies for example would warrant a paper in their own right, or perhaps more accurately a thesis. I will however just mention a couple of important cases.

35.The first case is actually one that does relate to what I have called the “architecture” of corporations law. In 1897 Saloman v A Saloman Co Ltd [1897]

AC 22 upheld the separate corporate personality of the one-person company and held that although a company required seven persons to sign a memorandum of association to register a company, there was no need for seven beneficially interested members – one person was sufficient. This case clarified the strength of the “corporate veil” and paved the way for the one-person company to become a popular commercial vehicle. It also largely removed the need for limited liability for partnerships, at least at that time, as smaller businesses could easily incorporate and obtain benefits in that manner.

36. In relation to directors’ duties, it was established by the early twentieth century that directors had equitable obligations to exercise their powers bona fide in the interests of the company and for proper purposes. The earlier cases are referred to in considerable detail in the judgment of Isaacs J in Australian Metropolitan Life Insurance Co Ltd v Ure (1923) 33 CLR 199 at 217. In 1925, In Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 established that directors have duties to exercise such skill and diligence as an ordinary person “might be expected to [exercise] in the circumstances on their own behalf”.20 The Court there also clarified that in considering the standard of care required, regard was to be had to the nature of the company’s business and the director’s own experience and knowledge, and that directors may delegate certain functions to other officials and, absent grounds for suspicion, trust that those duties have been performed honestly. This was not the first case in which these propositions were put, but it is commonly regarded as the source of directors’ duty to act with due care. These principles continue to endure under the common law and are largely, although by no means exactly, reflected in directors’ statutory duties under the Corporations Act 2001.

37. In relation to members, probably the most important historical case is Foss v Harbottle (1843) 67 ER 189, which restricted the right of a shareholder to sue on behalf of the company. The “rule in Foss v Harbottle”, as it commonly called, established that the company is the proper plaintiff for wrongs done to it. This means that a corporation initiates proceedings in its own name and that generally speaking members do not have a right to sue of their own accord for wrongs done to the corporation, for example due to a breach by directors of their duties. In other words, members to not generally have a right to commence derivative

Conclusion

Section 181 of the Corporations Act should not be amended to similar wording as section 172 of the Companies Act. Directors’ are guardians of shareholder money. Consequently, directors’ duties have evolved to protect their interests. Section 181 requires directors to act in the best interests of the corporation and for proper purposes. The lack of mention of other stakeholders does not mean that directors can not take such interests into account. Companies do not operate in a vacuum. Indeed, in order to be sustainable in the long term, directors must take other stakeholder interests into account. Directors that do not are not managing their risks adequately and are arguably in breach of their duty to act with due diligence and care. Although there are many examples of companies which arguably engaged in profit maximisation activities at the cost of all other stakeholders, one only needs to look at the negative repercussions for some of those companies to see that any argument that their actions were in the best interests of their corporation is fairly weak. Blatant disregard to relevant interests can not only lead to an adverse community reaction, but also to litigation, government inquiries and regulatory intervention.

Whilst section 181 has been criticised as not clearly spelling out directors’ obligations to all other stakeholders, it is the flexibility of this section that is one of its greatest strengths. All decisions made by directors must be in the best interests of the company. The what and the how, quite rightly, are up to the directors, who have the business knowledge and expertise to make the decisions. It is essential that directors’ duties remain flexible over time and are able to evolve as community expectations and values change. On the other hand, although section 172 appears to set out clear guidelines of expected behaviour of directors, it is marred with a myriad of problems. The section incorporates many phrases and concepts that are unclear and untested by case law. Furthermore, the prescribed listed interests that directors must take into account adds bureaucracy to the decision making process with little added benefit. Worst of all, the list of required considerations for directors clouds their accountability to the company and threatens the enforceability of the duty.

Although an easy target, the Corporations Act is not the right place for the interests of other stakeholders to be taken into account by business. There is no reason for obligations to other stakeholders to apply to companies and not other business entities. In addition, as stated by the Senate Committee, CAMAC and the PJC, such interests should be dealt with in separate targeted legislation, that specifically caters to those interests and has been the subject of separate consultation and review. It is not without reason that every Australian government review so far has led to the conclusion that section 181 does not require amendment. Any further request for change to it should be resisted.

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