Research Handbook on Directors’ Duties

Research Handbook on Directors’ Duties

Research Handbooks in Corporate Law and Governance series

Edited by Adolfo Paolini

Directors’ duties and liabilities have become the centre of a general legal discussion following the 2008 financial scandal that resulted in global recession. Questions have arisen regarding the ways in which the directors of the world’s major financial institutions have handled their duties and how their decisions have impacted investors, shareholders and consumers. This detailed Handbook discusses the nature of the relationship between a company and its directors, assessing issues such as how duties are discharged, liabilities that may arise and what interests directors should consider before embarking on commercial ventures.

Chapter 10: Connections between ethics and directors’ duties in Australia

Vivienne Brand

Subjects: law - academic, company and insolvency law, comparative law, corporate law and governance


The history of the development of directors’ duties in Australia has been one of increasing obligation. Nineteenth-century notions of director competence set a lower standard, and gave more credence to business pressures, than later formulations of the relevant duties. In 1959 Sir Douglas Menzies, a Justice of the High Court of Australia, made the extra-curial comment that ‘[i]t is a generalization not far from the truth, up to the present, that what the law demands from a director of a company is a high standard not so much of ability, care and diligence as of honesty’. However, by the latter part of the twentieth century Australian courts were prepared to use a more objective test when assessing directors’ actions, and the AWA case clarified the objective elements of the critical duty of care. It is now an accepted observation that ‘the standard of care expected of company directors, both by the common law (including equity. . .) and under statutory provisions, has been raised over the last century or so’. Further clarification of the standard of care and diligence expected of directors occurred more recently with the High Court decisions in the James Hardie litigation, and the Centro case, the latter reflecting ‘the upward trajectory of the duty of care and diligence’ over the last two decades.

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