Director’s Duties under the Corporations Act, 2001 (Cth)
1.In Australia, the directors have been given certain duties under the Corporations Act, 2001 (Cth) which have to be adhered properly (Cassidy, 2006). This is the result of a very long and a very complex statutory development. A point which is more complex is related to such cases where the directors of the company can be made liable personally for the corporate torts, which includes the contravention of the statutory duty. There have been a range of cases in the nation in the recent time, which deal with these issues; yet, there is a judicial opinion division regarding the basic tests and also a lack of clear analysis of basic questions of policy and principle which underline them (Bainbridge, 2015).
The case of Salomon v Salomon & Co Ltd [1897] AC 22 provides that a company is a separate legal person and as a result of this the company is liable for its own torts (Rush and Ottley, 2006). However, the company is artificial legal person and has to act through the human hands as had been seen in H L Bolton & Co v T J Graham & Sons [1957] 1 QB 159 and Tesco Supermarkets Ltd v Nattrass [1972] AC 153 (Kelly, 2016). It does not matter that this is based on the individuals being identified with the company or that with their acts which are attributed to company. In H L Bolton & Co v T J Graham & Sons, the courts concluded that the directors are deemed as the will and mind of the company. Where logic is followed through this, it entails that the directors are not liable in a personal manner as their act is corporate act. This is stemmed from the concept of corporate act, instead of limited liability which is applicable on shareholders, instead of directors as was held in Microsoft Corporation v Auschina Polaris Pty Ltd [1996-7] 142 ALR 111, 121 (Jade, 2018).
The acts undertaken by the individuals are the act of corporation as they are the instruments and organs which undertake this act. Conversely, it is said at times that these are agents for companies and the agents can be made liable in a personal manner for the torts as joint tortfeasors with company as was seen in Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (Anderson, 2008). This is quite contradictory and the law is murky on differentiating between the acts which are exclusively undertaken by the companies and the ones which are exclusively undertaken by the agents. Even the latest judicial theory, which is based on attribution, is not a solution to this problem. For instance, Lindgren J in Microsoft Corporation v Auschina Polaris Pty Ltd had been aware of such difficulties, and yet he could solve these. Again, in Trevor Ivory Ltd. v Anderson, Hardie Boys J also held the same position. And yet, both of these judges have been commended for their attempts made in identifying the problems (Lo, 2016).
Personal Liability for Corporate Torts in Australia
In this context, a distinction can be drawn between the accessory or secondary and the primary liability. Hardie Boys J, in Trevor Ivory Ltd. v Anderson, has pointed in this very direction. It was stated that the fact that there was corporate tort, which had been raised through omission or the actions of a director, does not entail, in a necessary manner, that they are liable primarily and that the company is liable in a vicarious manner only. Negligence had been emphasized by Hardie Boys J and stated that it always has to be determined in presence of duty of care. The directors are indentified in the company in suitable situations. The very nature of corporate identify requisites identification to be normally be basic premise and there is a need for clear evidence for displacing this with finding that he director has not acted as a company and instead had acted as servant or agent of the company, in such a manner, so as to make them personally liable. It has also been stated that in a number of cases of modern statutes, the basis of liability of director would be specified and would be accessory or secondary (Farrar, 1997).
The involuntary tort creditors, unlike the contract creditors, who are injured owing to corporate negligence required compensating; but have no ability of self protection ex ante against the non-payment risk. In such cases where the company is not able to, is insolvent and is uninsured, so as to provide compensation to the injured plaintiff, it becomes but natural for the clamant to look behind the company for the purpose of re-compensation. It is quite likely that the claim would be made against the directors where there is certain element of personal culpability is present on their part. Though, the law which is related to the liability of directors in context of torts undertaken by the director is quite unsatisfactory and unsettled. As has been covered earlier, there is confusion in law which is born from the misconception of meaning of piercing of veil and limited liability regarding the agents of the company (Farrar, 1997).
There is a clash in between the directors being made liable in context of holding the real people behind the working of company liable, against the directors not being made liable in context of the concept of separate legal entity concept. Yet, it is important that the directors retain the liability for the wrongful acts undertaken by them and this has to take place irrespective of the fact that they are directors, employees, or the parties out of company. Again, there is a conflict between scholars where some state that the directors should bear the personal liability for their acts, whilst the other opposes it. This is because of the controlling position held by the directors. All in all, the company can be made liable to its shareholders under the tort law, and in certain cases, even the directors can be made liable for the tort which is undertaken, for being negligent at work (Farrar, 1997).
Corporate Criminal Liability in Australia
2.The corporate legal persons’ criminal liability has been recognized in the nation for more than a century. The principles which govern corporate criminal liability are majorly derived from the common law. Though, a statutory framework, at federal level, for corporate criminal responsibility is provided under the Chapter 2, Part 2.5, Division 12 of the Criminal Code (“Code”), Schedule 2 to the Criminal Code Act 1995 (Cth). There are also, the state and territory based anti-bribery legislations. In the majority part of the nation, the private sector bribery is covered in the criminal codes of the state and territory, where these have uncertain extraterritorial application (Allens, 2016).
A company can be subjected for an offence till the subject matter or the definition of such offence shows the contrary. An example of this is that a company can be made liable for an offence in the code, which includes the ones which are covered by the Code and this includes the offences publishable by imprisonment. With regards to the white collar crime, the leading criminal offences where the company can be made liable in a criminal way, includes the bribery given to commonwealth public officials, bribery of foreign public officials, and breach of sanctions of law, false accounting offences and money laundering (Allens, 2016).
The criminal liability is raised only when there is involvement of both fault element, to the likes of negligence, recklessness, knowledge or intention, and physical element are shown to be true for such offence. An example can this be seen in the offence of bribery given to the foreign public official requiring both intent and conduct. Again, there is an exception from fault element being satisfied for strict or absolute liability offences. For instance, the contravention of sanction law offence for a company attracts strict liability and this does not require the establishing of fault element (Deming, 2014).
The physical element of an offence, under section 12.2 of the code, is attributed to body corporate where it is undertaken by office, employee or agent which acts within their apparent or actual scope of employment. The intention fault element, or that of recklessness and knowledge, under section 12.3 of the code, is attributed to company where the company tacitly, impliedly or expressly permits or authorizes the commissioning of offence (Gans, 2016). Where the company tacitly, impliedly or expressly permits or authorizes the commissioning of offence, there is a need to show that:
- The board of directors of the company knowingly or intentionally carried the particular conduct, or impliedly, expressly or tacitly permits or authorizes the commissioning of offence;
- Knowingly or intentionally, a high managerial agent of the company was indulged in relevant conduct in an express, tacit or implied manner and permitted or authorized the commissioning of offence;
- There was existence of corporate culture in the body corporate which tolerated, directed, led or encouraged the non compliance with the offence provisions; or
- There was a failure on part of the body corporate in maintaining or creating corporate culture which required the compliance with the pertinent sections (Allens, 2016).
Tests Used in Determining Corporate Liability and Director’s Culpability
Whenever it is required, under the code, to show negligence of company, the conduct or its officers, employees or agents is aggregated. Negligence is proved by the fact that the restricted conduct had been majorly attributable to the insufficient corporate management, supervision or control of conduct of officers, employees or agents, or there was a failure in providing the requisite systems for conveying the pertinent information in the body corporate of the relevant persons. Under the common law, the general principle is that the company are liable in a personal manner, for the conduct and the mental state of the directing mind acting on behalf of the company. This directing mind is of the managing director, board of directors, and the other individuals who undertake the function of board. Apart from this, when the agent or employee acts within their scope of employment, be it actual or apparent, and undertake a physical element of offence, the company can be made liable under the criminal law where it had impliedly, expressly or tacitly permitted or authorized the commissioning of offence (Allens, 2016).
In order to hold whether it was the company or the individual actors who had been guilty of such offence, the courts use different tests. The leading test, i.e. identification test, as had been given under the English law in Tesco Supermarkets Ltd v Nattrass [1972] AC 153 provides that an individual who acts does not act or speak for the company (Dignam and Hicks, 2011). They act as the company in their own mind and this mind directs their acts, which becomes the mind of the company. Where there is guilty mind, in such a case, this guilt is the company’s guilt. Though, this approach had been criticized as it restricts the corporate liable on t he actions of the directors and that of the high level managers. The large corporations are unfairly favoured as they can easily escape the criminal liable for acts of employee who manage the daily acts of the companies (Dine, Gobert and Wilson, 2010).
There is also the benefit test, as is applied by the Federal Court of Australia. Through this test, it is proposed that a company attains the benefit of acting as it is deemed to be attributed with such act. The applicability of this test differs where any action is undertaken by mind and will, which prompts the usage of organic theory, in place of agent which prompts the use of agency theory in usual course (Beaton-Wells and Fisse, 2011). The directing mind and will principle as had been given under Tesco Supermarkets Ltd v Nattrass had also been adopted in Hamilton v Whitehead (1988) 16 CLR 121 by the High Court where a critical question was raised regarding the individuals which commissioned the offence as being directing the mind and being the embodiment of the company. Upon the satisfaction of this test, the mens rea or guilty mind, for the individual, would be attributed to the company (Wee and Gauja, 2015).
References
Allens. (2016) Corporate criminal liability. [online] Available from: https://www.allens.com.au/pubs/pdf/ibo/CorporateCriminalLiabilityPublication_2016.pdf [Accessed 22/03/18]
Anderson, H. (2008) Directors’ Personal Liability for Corporate Fault: A Comparative Analysis. Netherlands: Kluwer Law International.
Anderson, H. (2009) Piercing the Veil on Corporate Groups in Australia. Melbourne University Law Review, 33, pp. 333-367.
Bainbridge, S. (2015) Corporate Law. Minnesota: West Academic.
Beaton-Wells, C., and Fisse, B. (2011) Australian Cartel Regulation: Law, policy and practice in an international context. Cambridge: Cambridge University Press.
Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press.
Deming, S. H. (2014) Anti-bribery Laws in Common Law Jurisdictions. Oxford: Oxford University Press.
Dignam, A. J., and Hicks, A. (2011) Hicks & Goo’s cases and materials on company law. Oxford: Oxford University Press.
Dine, J., Gobert, J., and Wilson, W. (2010). Cases and materials on criminal law. Oxford: Oxford University Press.
Farrar, J.H. (1997) The Personal Liability of Directors for Corporate Torts. Bond Law Review, 9(1), pp. 102-113.
Gans, J. (2016) Modern criminal law of Australia. Cambridge: Cambridge University Press.
Jade. (2018) Microsoft Corporation v Auschina Polaris Pty Ltd. [online] Available from: https://jade.io/article/329274 [Accessed 22/03/18]
Kelly, M. J. (2016) Prosecuting corporations for genocide. Oxford: Oxford University Press.
Lo, S. H. (2016) In search of corporate accountability: liabilities of corporate participants. Cambridge: Cambridge Scholars Publishing.
Rush, J., and Ottley, M. (2006) Business Law. London: Thomson Learning.
Wee, S., and Gauja, A. (2015) Corporate crime, fraud and investigations in Australia: overview. [online] Available from: https://uk.practicallaw.thomsonreuters.com/6-519-2034?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 [Accessed 22/03/18]
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
