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BULAW5915 Corporate Law

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To enable you to consider and research a topic of current interest of relevance to Australian corporate law.

Introduction to Task A

In Australian Securities and Investments Commission v Rich [2009] NSWSC 1229,

Justice Austin comments specifically on the business judgment rule. he refers to both the Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998 and to the second reading speech of the then responsible minister, Mr Hockey MHR, in relation to the introduction of s180 in its present form.

Task A 

Read the Chapter of the judgment in Australian Securities and Investments Commission v Rich  [2009] NSWSC 1229  and answer the following questions:

1.What is the business judgment rule and what is the principle behind it?

2.Justice Austin compares the US model and the Australian position in respect of business judgment rules. Who, according to Justice Austin, bears the burden of proof of the elements of s180(2)?Is this the same as the position taken in America in respect to its business judgment rule?

3.Does Justice Austin agree with ASIC’s submission that in Australia (unlike America) the defence is not available if the decision taken by the director is based on an unreasonable belief?Why?

Where possible, you should refer to appropriate paragraphs of the judgment to support your answer.

Introduction to Task B

Since the decision in ASIC v Rich there has been discussion of a ‘stepping stones’ approach in proceedings brought by ASIC.
The following paragraph is the abstract to an article by Abe Herzberg and Helen Anderson entitled “Stepping stones - from corporate fault to directors' personal civil liability” [online] in the Federal Law Review, Vol. 40, No. 2, 2012.


Several recent cases have seen the courts approving ASIC's employment of a 'stepping stone' approach that applies directors' statutory duty of care as well as their other statutory duties in a novel context. The first 'stepping stone' involves an action against a company for contravention of the Corporations Act 2001 (Cth). The establishment of corporate fault may then step stone to a finding that by exposing their company to the risk of criminal prosecution, civil liability or significant reputational damage, directors contravened one or more of their statutory duties in ss 180–2 of the Corporations Act, particularly their statutory duty of care, with the attendant civil penalty consequences. The effect of the 'stepping stone' approach is that directors may face a type of derivative civil liability for corporate fault.

In the 2015 decision Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589 Beach J commented on the liability of directors for a company in breach of the law. Briefly, the case concerned Mariner’s takeover bid for the company Austock Corporation Ltd, with ASIC alleging a contravention of s631(2)(b) in that the bid was reckless, and contravention of s1041H in that Mariner had engaged in conduct that was misleading or deceptive – and more importantly for the purpose of this assignment - that each of Mariner’s
three directors had breached their s180(1) duties by either authorising Mariner’s announcement of the bid; or alternatively not progressing with the bid once announced.

Task B

Read paragraphs 13 and then 439 to 562 in Part VII: Duties of Care and Diligence – Section 180 of the judgment in Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589 and answer the following questions:

1.Was ASIC successful in its claims that the directors had breached their s180(1) duty to act with due care and diligence?

2.How did Justice Beach describe the framework within which s180 must be analysed?

3.Do you think Justice Beach recognizes the need for directors to take an entrepreneurial approach on occasions? Why or why not?

4.Did Justice Beach find that the elements of the statutory business judgment rule in s180 (2) had been met by each of the directors? Was Justice Beach required to apply the rule? Why or why not?

5.How does the decision in ASIC v Mariner compare to the decision in ASIC v Rich referred to in Task A?
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