Company and Security Law - Assignment Example

COMPANY AND SECURITY LAW STUDENT NAME COURSE NAME DATE Question 1 Rogers J in Daniels v Anderson sought to highlight the standard of duty of care and the issue of reliance in the delegation of duty (delegation doctrine). Rodgers J states that that a director is justified in trusting officers of the corporation to perform all duties that, having regard to extingencies of business, the intelligent devolution of labour and the articles of association may be left to the officer (Tomasic, Bottomley, & McQueen, 2002). According to Rogers J a minimum standard ought to apply in cases of negligence and that there is no minimum standard to be applied (Melane, 2005). Rogers J sought to state that directors acting in good faith in relation to the Company’s affairs would not be liable if they were acting to the best of their knowledge. The main difference was based on the fact that the Court of Appeal (AWA Ltd v Daniels t/a Deloitte Haskins & Sells) in their view stated that all directors both executive and non-executives are to comply with stricter standards of care and skill and diligence depending on the size of the business (Greenhow 2005). Directors are to place themselves in a position to guide and monitor the company. However Rogers based it on the Directors knowledge, experience and the size and kind of business involved and the way in which the company operated. The Court of Appeal first rejected the decision of Rogers J based on the fact that it imposed a stricter standard for persons who were non-executive directors . The Court of Appeal in this instance place a higher threshold for any director to delegate their authority in what goes on in the company on a daily basis. The court of appeal stated that the Chief executive of AWA was liable since the loss incurred was based on the fact that he relied on “competent, capable and reliable persons.” A director in their ruling should not avoid being liable based on the fact that the responsibilities or losses incurred was by delegated authority since the authority to supervise had not disappeared. The test should be applied objectively according to the Court of Appeal rejecting the notion that liability to be given to non-executives was limited to gross negligence. In concurrence however both the Court of Appeal and Rogers J. provided that directors could be sued for damages on negligence at common law. Further they both agreed that directors had a duty of care skill and diligence at common law as well as in equity. Question 2 In Re City Equitable Fire Insurance Co Ltd case the appropriate test to be applied was that of an ordinary prudent person. Romer J stated that a director in his duties must; be informed of company’s affairs to make independent judgment, a duty to be performed in good faith (Sweeney, O'Reily, & Coleman, 2010). The case centered mainly on the delegation of duty by a director in relation to his duties and affairs of the corporations. The articles of association and statutory provisions are to provide for certain affairs and responsibilities to be delegated, but the main issue is who is liable when there is delegation of duty (Turner,2009). Romer J in this case provides that a non-executive ought to have sufficient knowledge, that of a prudent person and act in accordance with the knowledge in relation to managing the corporations affairs. The reasonable care to be imposed according to Romer J is to be measured by the ordinary man might be expected to take in the circumstances on his own behalf and a degree of skill which may reasonably be expected from a person of his knowledge and experience (at 428). In this case the non-executive director was not liable since he had not behaved unreasonably since he was not put on notice of any matters that imposed a higher obligation on him. Romer J. does not absolve himself since he adopts a subjective standard of skill, linking it with director’s duties and then seeking to see what would be the reasonable standard of care? (Baxt, 1994). In relying upon the decision of Re City Equitable Fire Insurance Co [1925] Ch 407 at 428 that in delegating the authority and applying the reliance doctrine that it would be unreasonable to delegate if the director was aware of such character, plain and manifest that no person with any degree of prudence acting on his behalf would have relied on the [particular judgment information and advice of the officers (Campbell, 2007). Question 3 The Corporations Law Act at sections 229 (2) and section 232 (4) do provide mainly for the general concept of negligence at common law (. In consideration of Malcolm J in Vrisakis ASC (1993) 11 ACLC 763 at 766, this was to be considered based on balancing between risk of harm and the potential benefit. In the case, the New Jersey Business Corporations Act 14A: 6-14 was analysed since it imposes a standard of ordinary care with section 717 not exonerating any Director from liability based on being an accommodation. In this case the main issues was to consider the duties of a director according to the Statutory Provisions in section 556 of the Companies Code and Corporations Law at section 592. Section 232 (4) as amended by the Corporate Law Reform Act 1992 on the duty of care and diligence provides that a director in exercising powers and in discharge of their duties the officer must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation circumstances. Since the statute was amended, the previous statutory provision adopted a general concept of negligence as regards to the duty of care to be exercised by a director. The statute law however does not provide for any mention of skill, requiring any form of diligence as stated in Re City Equitable Case. In relation to the case, the main statute under consideration was the provisions of section 232 (2) of the Companies Code in relation to the foreign exchange operations. Section 180 (2) of the Company’s Code introduces a safe harbor for directors known as “the business judgment rule which apply to any contravention under sections 180 (1) as well as applying to any breach of duty of care and diligence based on the laws of equity and common law. However the previous statutory provisions did not provide for the “business judgment rule” to protect directors who make a properly informed decision in good faith in the best interest of the company and who have no particular conflict of interest. The courts have relied on the provisions of section 1318 of the Corporations Law (Formerly under Companies Code section 335) that does excuse company officers from liability in negligence where it would have been unconscionable to do so especially if risk is involved in the business environment. Question 4 The recent case of ASIC v Rich (NSW) has provided that in establishing the duty of care in any negligence case, what needs to be considered is assessing the degree of care and diligence that a reasonable person would exercise in a like position based on the corporations’ circumstances. Further in ASC v Gallegher (1993) 11 ACLC 286 has affirmed that a test to be applied is to be objective based on the fact that an ordinary person should be one with knowledge and experience that ought to be expected to be done in the circumstances if that person would have been acting on their behalf. The AWA decision as described by Baxt (1992a, p16) stated that the AWA case mainly deals with the issues of contributory negligence, the duties of the directors and how it is evaluated by the courts. Liability arose out of their positions under corporations’ law. Currently many cases have come under the provisions of section 180(1) that a director is to exercise their powers as well as discharge their duties with care and diligence. This must be done to the standard of a reasonable person. Re City Equitable Fire Insurance Company [1925] Ch 407 had created a precedent that the test to be applied was that of balancing between the risk of harm and potential benefit. However better standards such as that of an ordinary prudent person have been adopted as well as the minimum standard. In line with the recent decisions in National Safety Council Tadgell J has implied that a director would be required to possess a minimum standard of competence or skill enabling him to understand the company’s accounts and statement, however Dwyer v NCSC (1989) set a precedent that this is not required by directors as a matter of law. References List Baxt, R. 1992a. AWA and the Case of the Non-Executive Director. Charter,63(9):16-19. Baxt, R.1994.Comfort from the Courts. Charter, 65(6) :20-22. Campbell, D. (2007). International Securities Law and regulations. Sydney: York Hill Law. Corporations Law Act (NSW) Furmstone, M. (2003). LAW OF CONTRACT (15th ed.). New York: Butterworths. Greenhow, A. (2005). The Statutory Business Judgement Rule. Bond Law Review, 11(1). Sweeney, B., O'Reily, J., & Coleman, A. (2010). Law in Commerce (4th ed.). Chatswood, N.S.W: LexisNexis Butterworths. Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporation Law in Australia (2 ed.). Sydney: Federation Press. Turner , C., & Gamble Rodger. (2011). Concise Australian Commercial Law. Pyrmont, N.S.W: Thomson Reuters (Professional). Turner, C. (2009). Australian Commercial law (27th ed.). Pyrmont, N.S.W: Thomas Reuters. Read More