Duties of care, diligence and skill

1. General law imposes upon directors and other officers a duty

to their company to apply reasonable care in the performance
of their office
- can be liable for liquidated damages for breach of duty at
common law and equitable compensation for restitutionary
basis with equity
2. General law of duty is complemented by a statutory duty of
care and diligence in s 180(1: civil penalty provision whose
contravention attracts the penalty and compensation
provisions in Pt9.3B in addition to general law and other
statutory remedies and obligations such as those arising out
of contacts and employment (s185)
- Act provides a safe haven from liability for breach of the duty
of care in respect of business judgments if certain conditions
are met (s 180(2)) and defines circumstances in which
directors and officers may rely upon information or advice
provided by others ( s 189)
3. Act imposes a specific obligation upon directors to prevent
company from incurring debts while it is insolvency and
imposes personal liabilities upon directors subject to defences
Remedy for breach of general law duty of care and diligence and its
statutory complements is the award of common law damages to
compensate the company for loss caused by or arising from the
breach or equitable compensation for the loss that would not have
occurred but for the breach.
Both general law and statutory duties are owed by individual
directors and officers who are personally liable for breach of duty. If
directors breach their duty of care, the remedy is not for an order to
set aside a board decision taken in breach of duty of care or to
restrain action pursuant to such a decision. The rescission remedy
be granted however for breach of good faith. Carelessness or other
failures may in exceptional cases amount to breach of fiduciary duty
as well as duty of care but will generally only arise where director
self interest or partiality extended to a third party. Breach would
then be remedial by orders affecting the decision taken.
Solvent company
- primary remedies will arise under a service contract or for
breach of the general law duty of care
- may also seek compensation where neglect amounts to
contravention of the duty in s180(1), irrespective of whether a
civil penalty order has been sought (s 1317H)
insolvent company
- remedies: action under Pt5.7B Div 4 against directors founded
upon contravention of s 588G; compensation proceedings

upon s180(1) under s1317H and longstanding remedy under

s598 for breach of general law duty of care
General law duty of care
Standard of care is measured by the care that an ordinary man
might be expected to take in the circumstances upon his own
behalf
In 2000, directors were given the benefit of a statutory presumption
of reasonableness where they rely upon information or advice
provided by an employee or other officer, professional adviser or
expert by an employee, etc whom the director reasonably believes
to be reliable and competent however reliance must be made in
good faith and be based upon director independent assessment (s
189). This protection extends to proceedings brought to determine
whether a director has performed their duties under Pt2D.1
(including the duty of care) or their general law equivalents (s 189c).
Secondly, directors were also relieved of responsibility for the acts of
those to whom they have delegated powers where the director
believes on reasonable grounds that:
1. the delegate would exercise the power in conformity with the
directors duties and the companys constitution
2. in good faith, and after making proper inquiry if the
circumstances indicated the need for inquiry, the delegate
was reliable and competent in relation to the power delegated
(s 190(2))
This displaces the operation of the rule that if directors delegate a
power as they are permitted to do under s 198D, they are
responsible for the exercise of power by the delegate as if the power
had been exercised by the directors themselves (s 190(1)). Hence if
the delegate acts fraudulently, negligently or outside the scope of
the legislation, then the director escapes responsibility if the
requirements of ss 189 and 190 are satisfied.
Foreseeable risk of harm
Fact director participates in conduct that carries a foreseeable risk of
harm does not mean they have breached their duty of care
is a question answered by balancing the foreseeable risk of
harm against the potential benefits that could reasonably be
expected to accrue to the company from the conduct in
question
Duty does not impose on directors a general obligation to
ensure company does not contravene the Act or another
legislation. Whether they breached their duty in allowing a
contravention is determined by same calculus of foreseeable
risk and reward of the company.

Where director participates in companys contravention within

the civil assessorial liability standard in s 79, they will incur
personal liability.

Statutory duty of care

Act provides that a director or officer must exercise the duty of care
and diligence that a reasonable person would exercise if they were a
director or officer of a company in the companys circumstances (s
180(1))

non executive directors are not subject to the same standard

as executive directors and to affirm that the standard of care,
is an objective standard
objective standard of minimum skill and competence expected
of non executive directors may not extend much beyond
financial matters In executive directors, statutory standard is
what is objectively expected of a person appointed to
designated executive office and also additional responsibilities

Need to consider whether the company is listed, size and nature of

subsidiaries if it is a parent company.

standard of care under statutory duty is no higher than that

under general law duty
although there is no requirement in s180(1) for harm or
detriment, the same balancing of foreseeable risk and benefit
applies. The standard of care is not breached by mere errors
of judgment

Role of company secretary and general counsel was not determined

solely by those referable to his appointment as secretary since it is
not possible to divide the duties and responsibilities between the
two elements of what was a single composite role. Obligations
imposed under s 180(1) are not limited to the discharge of
responsibilities imposed on the officer under the Act but include
whatever responsibilities the officer concerned had within the
corporation regardless of how or why those responsibilities came to
be imposed on that officer. (Shafron v ASIC)
Daniels v Anderson
Held: