Thursday 3 July 2014

Australia: are directors' duties public in nature?

The Supreme Court of Western Australia (Court of Appeal) gave judgment towards the end of last month in Ailakis v Olivero (No 2) [2014] WASCA 127. The judgment is noteworthy because of the arguments made about the nature of directors' duties and the view taken by the court in this regard. Chief Justice Martin (with whom Buss JA and Murphy JA agreed) stated (para. [103]):
"It is clear that the duties of a director have a number of sources, including common law, equity and statute. However, the fact that the scope of a director's duties, and the standards which must be met in the discharge of those duties, are embodied in a statute and can be enforced by the exercise of the remedies conferred by a statute does not of itself mean that the duties have a public character, analogous, for example, to the duty to attend court in answer to a subpoena ... or the duty to care for a dependent child ... The duties of a director are owed to the company and are enforceable by the company. Although the rule in Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461; (1843) 67 ER 189 has to some extent been ameliorated by the development of the shareholder's derivative action, including the current statutory form of that action, it remains the case that the remedy enforces the rights of the company as against those who owe duties to the company, such as its directors. The appellants' assertion that the duties which a director owes to the company in which he or she holds office are duties of a public character cannot be accepted."

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