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Chapter 5 – The attenuation of directors’ statutory duties by ratification or authorisation

Temporary table of contents

ContentsI. Introduction..................................................................................................................2II. How does prospective authorisation of a breach of statutory duty differ from retrospective ratification?....................................................................................................4III. The nature of a director’s statutory duties under the Corporations Act..................5IV. Can retrospective ratification attenuate statutory duties?........................................6V. The different modes of attenuation by prospective authorisation...............................8

A. Attenuation by the company’s constitution...........................................................10B. Attenuation by the formal and informal approval of shareholders........................12C. Attenuation by shareholder acquiescence..............................................................12D. Is there a difference between the different modes of attenuation?........................13

VI. Legal issues concerning attenuation of statutory duties........................................14E. What considerations may be relevant to attenuation of statutory duties arising from prospective authorisation?....................................................................................16

VII. Policy arguments in favour and against an attenuated duty approach...................29VIII. Conclusion.............................................................................................................38

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I. INTRODUCTION

In this Chapter, the question whether statutory duties may be attenuated by retrospective

ratification or prospective authorisation is addressed to provide a separate criterion for

assessing whether the doctrine of ratification remains relevant and appropriate to

companies governed by the Corporations Act.

Attenuation of a director’s statutory duty concerns a change to the content of the duty.

By way of example, one means by which a duty may be able to be attenuated is by the

shareholders in general meeting authorising the future conduct of the company’s

directors. This is a separate legal possibility from the prospective authorisation by the

shareholders in general meeting to an exercise of a director’s power which would

otherwise involve a breach of duty.1

The case law concerning attenuation of fiduciary duties arises principally in respect of

‘nominee’ directors and joint venture style companies and is exemplified in Australia by

Levin v Clark.2 Since the issues arose in Levin v Clark,3 there has been signficiant

legislative changes which included the developmnent of the current statutory duties of

directors. The question whether a director’s statutory duties could be attenuated was only

partly resolved by the High Court in Angas Law Services4 with respect to ratification and

there is currently no authority in Australia considering the question in the context of

incorporated associations, strata companies and trade unions. Accordingly, there remain

legal and policy issues which have not been addressed in Australia, including by the

academic literature.

This Chapter focuses on the attenuation of statutory directors’ duties established by

sections 180 to 184 of the Corporations Act. If a director’s statutory duties may be

attenuated, then this suggests that there should be law reform to the doctrine of

1 See especially Winthrop Investments Ltd v Winns Ltd [1975] NSWLR 666.2 [1962] NSWR 686.3 4 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.

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Normann Witzleb, 27/06/17,

Perhaps it would be good to have an example in the introduction to this chapter to add an illustration of the problems that will be discussed here.


Which issue?


What exactly do you mean by attenuation. Here it looks like you understand it to be the consequence of ratification and authorization. Is this the same as ‘affecting the content of a director's duties’, as you state on the next page.


Is this chapter descriptive of the current law or does it also make suggestions for law reform?

ratification to address the legal consequences of the attenuation of statutory duties which

will impact upon companies and their stakeholders.

Following on from the discussion concerning attenuation of directors’ statutory duties,

this Chapter then addresses the specific legal criteria which concern the possibility of the

attenuation of directors’ duties. An important question is how a company’s constitution

or shareholders’ agreement could affect the content of a director’s duties, especially

given that fiduciary duties of directors developed independently of contract law. It is

further questioned whether the company is the sole beneficiary of duties owed to it by the

directors in light of the emergence of statutory directors’ duties of a public nature initially

under the Companies Act 1958 (Vic).

This Chapter concludes by considering the policy arguments in favour and against the

adoption of an attenuated duty approach. Whilst the Australian case law has responded

to the unique issues which arise from joint venture companies and the prevalence of

directors whom are nominees of particular shareholders, the continued development of

the common law in support of the attenuated duty approach is questioned in the context

of the doctrine of ratification.

This Chapter also considers the prejudice to a company’s stakeholders (being the

shareholders, creditors, employees and consumers of the company’s goods and/or

services) and separately the public which arises from the attenuation of statutory duties.

If there is prejudice to a company’s stakeholders arising from the attenuation of statutory

duties, corporate law reform in Australia would best address the deficiencies in the law

which are apparent from the effect of the prejudice to stakeholders where the prejudice to

the company and its stakeholders outweighs the legal and financial benefits of allowing

attenuation of duties as a matter of public policy.

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Will you look at international case law? Not mentioned before.


I still need to read the chapter, but at this point the structure is not quite clear to me. Why do you separate the examination of prejudice (or net prejudice if balanced against benefits) from the policy arguments?


Not quite sure what the link is between uncertainty in relation to statutory duties and the need for reform of ratification – or do I misunderstand?

II. HOW DOES PROSPECTIVE AUTHORISATION OF A BREACH OF STATUTORY DUTY

DIFFER FROM RETROSPECTIVE RATIFICATION?

As discussed in Chapter 2, the legal issues concerning the application of the doctrine of

ratification are common to both (i) retrospective ratification and (ii) prospective

authorisation of a breach of statutory duty. It is appropriate at this juncture therefore to

consider the relevant differences between a prospective authorisation and retrospective

ratification for companies governed by the Corporations Act. It will be recalled from

Chapter 4 that it is necessary to conceptually distinguish between prospective

authorisation and retrospective ratification because firstly authorisation concerns the

exercise of powers by the shareholders and never the board of directors and secondly in

the case of authorisation, there is no cause of action against a director in existence at the

time of the granting of the authorisation for the future proposed conduct. The practical

effect of the authorisation is to allow the directors to engage in conduct on behalf of the

company which would otherwise attract personal liability for a breach of the directors’

statutory duties.

Prior to the board of directors embarking upon conduct which may be in breach of the

statutory duties to the company, each director may seek authorisation from the

shareholders in general meeting.5 The same requirements and restrictions which apply to

retrospective ratification apply to prospective authorisation,6 accordingly, not every

proposed breach of statutory duty is capable of prospective authorisation.7

If the directors and their associates form a majority of the shareholders, it is to the

advantage of the directors to seek authorisation (as distinct from ratification) since the

directors may not later be able to form a majority at a future general meeting of the

shareholders to approve a ratification resolution.

5 See especially Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666.6 Pascoe Ltd (in liq) v Peter Charles Lucas [1998] SASC 7134; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666; Bamford v Bamford [1970] Ch 212.7 T Cockburn, L Wiseman, Disclosure Obligations in Business Relationships (Federation Press, 1996), 222.

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There is also some relevant discussion in Ford on potential differences between authorization and ratification: see [8.385] at the end.MAR response – I will need to consider


And/or ‘a director’?


Is this a difference between authorisation and ratification?


A bit difficult to follow. Perhaps it would be better to say. Authorisation is prospective.. ratification is retrospective.. principles are said to be same.. but there are actually some differences that need to be borne in mind…

III. THE NATURE OF A DIRECTOR’S STATUTORY DUTIES UNDER THE

CORPORATIONS ACT

Before considering the attenuation of statutory duties as a result of authorisation, it is

instructive at this point to briefly consider the (i) legal nature of the directors’ statutory

duties and (ii) the legal implications of a duty arising from statute.

In so far as attenuation of statutory duties is concerned, based on the relevant case law, it

is sufficient at this juncture to note the following 4 summary points which illuminate the

nature of a director’s statutory duties:

1. it is trite law that a director is in a fiduciary relationship with the company;

2. there is some uncertainty about whether a director's duty of care is only a

common law and statutory duty or is also an equitable duty; and, if it is equitable,

whether the duty is also a fiduciary duty;8

3. a breach of a director’s duty may be a breach of both the general law duty and a

statutory duty; and

4. where a director’s duty was made an offence under the Corporations Act, a breach

of the duty could result in the imposition of a civil and/or criminal penalty,

depending upon the nature of the duty and the director’s conduct.

The inclusion of directors’ duties under the Corporations Act brought about statutory

remedies, which were in addition to the remedies available under the common law9 and in

equity for a breach of a director’s fiduciary duty. The enactment of directors’ statutory

duties did not replace the general law duties of directors and it resulted in directors

having additional duties to the company. This is a consequence of atleast (i) section 185

of the Corporations Act, (ii) the broader wording used in the Corporations Act when the

co-existing fiduciary duty was codified and (iii) the creation of additional directors’

8 Daniels v Anderson (1995) 37 NSWLR 438 at 505 (common law duty of care); Permanent Building Society v Wheeler (1994) 11 WAR 187 (equitable and common law duty); Heydon, J, ‘Are the Duties of Company Directors to Exercise Care and Skill Fiduciary?’ in S Degeling and J Edelman (eds), Equity in Commercial Law, (2005, Lawbook Co, Sydney); Heath, W, ‘The Director's “Fiduciary” Duty of Care and Skill: a Misnomer’ (2007) 25 C & S LJ 370. See generally Irving, M, The Contract of Employment (LexisNexis Butterworths, 2012), [7.25].9 Corporations Act 2001 (Cth) s 185

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Perhaps better to say: ‘additional’.


And common law: s 185.


Also a bit ambiguous – what do you mean by this? And why is this relevant for discussion?


Why do you start discussing Angas and then move to these more fundamental issues?Section moved below

duties under statute separate from the Corporations Act.10 There may be a further

dimension to the issue arising from the public nature of a director’s statutory duties. This

issue has not been authoritatively addressed by the courts, however it is discussed in

detail below.

The principal remedies for a breach of statutory duty are:

(i) pecuniary penalties under section 1317G;

(ii) compensation order under section 1317H; and

(iii) disqualification under section 206.

On current authority, a breach of the directors’ statutory duties cannot be prospectively

authorised or retrospectively ratified to cure a breach of those statutory duties.11 The

question which arises for consideration in this Chapter is whether a director’s statutory

duties can be attenuated by authorisation or ratification and to what extent will that

attenuation be permissible. These issues are now considered in this Chapter.

IV. CAN RETROSPECTIVE RATIFICATION ATTENUATE STATUTORY DUTIES?

In Angas Law Services,12 Gleeson CJ and Heydon J (Gummow, Hayne and Kirby JJ

agreeing) stated that so far as liability based on breach of the statutory duties in sections

180, 182 and 184 of the Corporations Act is concerned (referring to the former sections

of the South Australian Criminal Code), disclosure to and ratification by the members

cannot relieve a director of a liability and that the shareholders cannot release directors

from the statutory duties imposed on directors by sections 180(1), 182(1) and 184(2).

The same conclusion was earlier reached in Miller v Miller,13 Macleod v The Queen,14

10 For example, directors are required to ensure that the company complies with its tax obligations under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (Cth).11 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; Forge & Ors v Australian Securities & Investments Commission [2004] NSWCA 448; Miller v Miller (1995) 16 ACSR 73 cf Pascoe Ltd (in liq) v Lucas (1998) 27 ACSR 737.12 [2005] HCA 23.13 (1995) 16 ACSR 73.14

Page 6 of 41


Is there a difference between relief of liability and release from duty?Yes – s 199A, but not relevant here.

Admin, 27/06/17,

X-ref back to earlier chapter


What is the difference between ‘approve’ and ‘attenuate’? What you say in this paragraph is important but it has not been developed. You mentioned Angas before but not that it stands for this principle.


Needs double-checking – 1317 E is declaration order.

Forge v Australian Securities and Investments Commission15 and Australian Securities

and Investments Commission v Australian Investors Forum Pty Ltd (No 2).16

In Forge,17 the Court stated that civil penalty proceedings to enforce breaches of

directors’ duties involve public rights.18 Consequently, the Court stated that shareholders

cannot remove the declaration by the Court of contravention of a civil penalty proceeding

by ratifying the original acts of the director.

In Miller,19 it was considered by Santow J that,

ratification cannot cure a breach of statutory duty, more especially one imposing criminal

liability. The most it can do is remove from the scope of technical dishonesty such

actions as issuing shares for a purpose which is not a proper one, in the sense of not being

for the benefit of the company as a whole.20

The statement in Miller21 refers to whether following ratification, the conduct engaged in

by the directors is ‘improper’ under current section 183(1) or for a ‘proper purpose’ under

current section 181(1) and 184(1) of the Corporations Act. The meaning of ‘improper’

arose for consideration by the High Court in Angas Law Services22 and was discussed in

R v Byrnes.23 The test of whether conduct is improper is an objective one and is a breach

of the standards of conduct of a director expect of the person by reference to a person in

that position.24 The meaning of ‘improper’ is also contextual to the commercial context

and the intention or purpose of the director.25 It will be a question in each case to

15 [2004] NSWCA 448.16 [2005] NSWSC 267.17 [2004] NSWCA 448.18 At [381]. 19 Miller v Miller (1995) 16 ACSR 73.20 Miller v Miller (1995) 16 ACSR 73, 89 (Santow J). See generally LexisNexis, Ford’s Principles of Corporations Law (at 27 July 2015) ‘Ratification of action in breach of other fiduciary duties’ [8.385].21 22 23 24 R v Byrnes (1995) 183 CLR 501 at 514-515 per Brennan, Deane, Toohey and Gaudron JJ.25 Angas [65] applying R v Byrnes

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Will you explore what this means?MAR response – added material below


Why is the statement in the fn relevant here?

determine from the surrounding circumstances the content of the standard of the conduct

which is expected of the director.26

The fact that a breach of a statutory duty may be a criminal offence is one signficant

reason in the cases discussed above which is different to earlier cases that consider the

ratification or authorisation of a director’s fiduciary duty.

The above discussion that a breach of statutory duty cannot be ratified by the

shareholders in general meeting is relevant to the further question of whether prospective

authorisation may be effective to attenuate statutory duties which is discussed below.

V. THE DIFFERENT MODES OF ATTENUATION BY PROSPECTIVE AUTHORISATION

Angas Law Services27 was a case which in part concerned whether the shareholders had

the power to ratify a breach of statutory duty arising from an alleged novation. The High

Court stated, consistent with previous authority including Miller28 and Macleod29 that the

shareholders did not have the power to release a director from a breach of statutory duty

by ratification of the director’s conduct.30 The appeal to the High Court by the liquidator

on the novation point was dismissed on the basis that there had been no breach of

statutory duties by the directors and accordingly, it was unnecessary to consider the

possibility that there had been ratification of the directors’ conduct.31 In light of the

findings of fact, the author considers that the High Court would have concluded on the

basis of the Court’s obiter statements that there was no valid ratification because the self-

26 Angas, [65] per Gummow and Hayne JJ.27 28 29 In Macleod v The Queen (2003) 214 CLR 230 which concerned the alleged consent of a sole shareholder

to a breach of section 173 of the Crimes Act 1900 (NSW) it was stated that ‘[t]he self-interested 'consent' of

the shareholder, given in furtherance of a crime committed against the company, cannot be said to

represent the consent of the company.’ (at 240)30 31 Relevantly, ratification had not been pleaded as a defence to the claim brought by the liquidator, however it was open to the Court to grant leave to the respondents to amend their defence.

Page 8 of 41

interested consent of the company’s shareholders, given in furtherance of a crime

committed against the company, cannot be said to represent the consent of the company32

and separately on the basis of improper expropriation of the company’s property by the

directors.33

In the joint judgment of Gleeson CJ and Heydon J in Angas Law Services,34 a legal

possibility was raised that the acquiescence of shareholders to a course of conduct by a

director might attenuate a director’s statutory duties.35 It was stated in the context of

statutory duties obiter that ‘[i]n a particular case, ... [the shareholders] acquiescence in

a course of conduct might affect the practical content of those duties. It might, for

example, be relevant to a question of impropriety.’36

The High Court’s obiter remarks raised the question whether statutory duties owed by

directors could be expressly or impliedly attenuated, including by the conduct of the

shareholders, however this legal possibility should be doubted for the reasons discussed

below.

The legal question arises from the doctrine of attenuation of fiduciary duties. Under this

doctrine, the fiduciary duties owed by directors may be narrowed in 4 ways, firstly by the

company’s constitution,37 secondly by the shareholders in general meeting,38 thirdly by

the unanimous agreement of the shareholders (including through the operation of the

Duomatic principle39) and fourthly by the shareholders’ acquiescence to a course of

conduct by the directors.40 Before considering each of these possibilities, in relation to all 32 Angas, [68] per Gummow and Hayne JJ33 Angas, [24] per Gleeson CJ and Heydon J (Gummow, Hayne and Kirby JJ agreeing).34 (2005) 226 CLR 507.35 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23, [32] (Gleeson CJ and Heydon J, Gummow, Kirby and Hayne JJ agreeing).36 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23 at [32] (Gleeson CJ and Heydon J, Gummow, Kirby and Hayne JJ agreeing).37 38 39 Re Duomatic Ltd [1969] 2 Ch 365.40 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507. See generally Japan Abrasive Materials Pty Ltd & Ors v Australian Fused Materials Pty Ltd (ACN 009 415 025) & Ors [1998] WASC 60; Grand Enterprises Pty Ltd v Aurium Resources Limited [2009] FCA 513; Western Areas Exploration Pty Ltd v Streeter (No. 3) [2009] WASC 213; Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors [2005] WASCA 144; Barkley v Barkley Brown [2009] NSWSC 76; Guinness Plc v Saunders & Anor

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Confusing expression. Why should it be doubted that authorization potentially protects – isn’t this exactly what the HCA said (“might”, which includes “might not”)?


Would it be good to explain why the statement was obiter and what the ratio of the case was?MAR response – dealt with in above paragraph


Would it be good to explain the relationship of authorization and acquiescence? Is aquiescence a form of authorisation? Does it raise further/other issues than expression authorisation?MAR response - To be dealt with in another chapter. Not strictly on point here.

companies governed by the Corporations Act, whether a director’s statutory duties is able

to be attenuated by authorisation is subject atleast to the following matters:

(i) section 191 of the Corporations Act (Material personal interest--director's duty to

disclose);

(ii) the operation of the Duomatic principle (addressed in Chapter 3);

(iii) whether the director already has modified statutory duties pursuant to 187 of the

Corporations Act because the person is a director of a wholly owned subsidiary;

(iv) the exemption limitations pursuant to section 199A of the Corporations Act

(Indemnification and exemption of officer or auditor);

(v) the prohibition against fraud on the minority (addressed in Chapter [X]); and

(vi) the prohibition against oppressive conduct under Part 2F.1 of the Corporations

Act (Oppressive conduct of affairs) (addressed in Chapter [X].

Each of the above matters intersect with a director’s statutory duties and it is argued in

this Chapter that these matters are relevant to the question of attenuation of a director’s

statutory duties since in respect of matters enacted under the Corporations Act, equity

follows the law.41

A. Attenuation by the company’s constitution

Under the general law, a company has a right to the unbiased views and advice of all its

directors.42 Further, in consequence of the fiduciary position which a director holds,

unless the company’s constitution otherwise provides, a director may not enter into a

contract with the company.43 A company’s constitution can therefore alter the general

law rule by attenuating the duties of a director either expressly or impliedly.44 It was held

[1990] 2 AC 663.41 Delehunt v Carmody [1986] HCA 67. See also Sexton v Horton [1926] HCA 25; Lavin v Toppi [2015] HCA 4.42 R v Byrnes [1995] HCA 1; Woolworths Ltd v Kelly (1991) 22 NSWLR 189 citing with authority Benson v Heathorn (1842) 1 Y & C CC 326 at 341-342; 62 ER 909 at 916, per Knight-Bruce V-C and Imperial Mercantile Credit Association v Coleman (1871) LR 6 Ch App 558 at 567-568 per Hatherley LC (CA).43 Aberdeen Railway Co v Blaikie Bros (1954) 1 Macq 461.44 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 citing with authority Imperial Mercantile Credit Association (Liquidators) v J Coleman (1873) LR 6 HL 189 at 205 per Lord Cairns (on appeal to theHouse of Lords); Toms v Cinema Trust Co Ltd [1915] WN 29.

Page 10 of 41


?

in Guinness Plc v Saunders45 that equity has no power to relax its own strict rule further

than and inconsistently with the express relaxation contained in the company’s

constitution.

If the company’s constitution attenuates a director’s duties, then provided that the

director complies with the terms of the constitutional provision,46 it will be unnecessary

for the shareholders in general meeting to either prospectively authorise, or to ratify the

conduct.47

It was considered by Elizabeth Boros that the attenuation of statutory duties may arise in

connection with the statutory duties established by sections 182 and 183 of the

Corporations Act because as discussed in Angas Law Services,48 approval for specific

conduct by the directors may not infringe the requirements of improper use of

information or position, or the duty to act for proper purposes since the conduct may no

longer be considered to be ‘improper’ for the purposes of those sections.49

A particular constitutional provision which attenuates a duty of the directors may be

overtaken by the operation of a new or amended statutory provision which expressly or

impliedly prohibits or makes conditional the attenuation of one or more directors’

duties.50 An example of such a statutory condition arose in Centofanti v Eekimitor Pty

Ltd51 where there was a duty of disclosure to the board of directors which was required to

be performed to avoid a director’s conflict of interest.

45 [1990] 2 AC 663.46 In MacPherson & Anor v European Strategic Bureau Ltd [1999] 2 BCLC 203 it was held that there was no requirement of formal disclosure because that would not have increased the knowledge of the other directors.47 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 208 per Samuels JA; Re Automotive and General Industries Ltd (1975) VR 454.48 49 Boros, E, How does the division of power between the board and the general meeting operate?, (2010) 31 Adelaide Law Review 169, 172.50 See, eg, Centofanti v Eekimitor Pty Ltd (1995) 65 SASR 31 where section 228 of the Companies (South Australia) Code required disclosure of a director’s conflict of interest to the board of directors.51 (1995) 65 SASR 31

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Why is this a ‘pre-condition’?

Whilst a particular duty of the directors may be attenuated, the same conduct of the

directors may be in breach of a different fiduciary or statutory duty and accordingly the

directors will remain liable to the company for any loss and damage as a result of their

conduct.52

B. Attenuation by the formal and informal approval of shareholders

With respect to the powers of the shareholders in general meeting, the authorities in

Australia indicate that the shareholders in general meeting have the power to authorise a

proposed course of conduct with respect to a breach of fiduciary duty by a director.53

In companies with a small number of shareholders there will be the possibility of

obtaining the unanimous formal agreement of the shareholders. Further, the

operation of the Duomatic principle54 can result in informal unanomous assent even

where a formal meeting of the shareholders has not been convened since there is no

obligation under the doctrine of ratification that a resolution be approved by the

shareholders in general meeting. The issues which arise in relation to the attenuation of

statutory duties by unanimous informal agreement of the shareholders are the same as the

issues which were considered in relation to the attenuation of duties by the shareholders

in general meeting.

C. Attenuation by shareholder acquiescence

As discussed in Chapter [X], one legal basis for the attenuation of fiduciary duties arises

in trust law. If a beneficiary of a trust positively adopts a breach of trust, or if the

beneficiary has knowledge of a breach of trust but does not take steps to cause the trustee

to remedy the breach, the trustee may succeed in defending a breach of trust claim

because of the acquiescence of the beneficiary to the breach.55

52 See, eg, Groeneveld Australia Pty Ltd v Nolten (No 3) [2010] VSC 533.53 See especially Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666.54 55 See eg. Life Association of Scotland v Siddal (1861) 3 De GF & J 58; NationalTrustees Co of Australasia Ltd v General Finance Co of Australasia [1905] AC 373; Bela v Beehag (1984) 3 BPR 9402.

Page 12 of 41

A second basis for the attenuation of fiduciary duties in trust law arises in circumstances

where because the beneficiary instigates, consents to or concurs in a breach of trust and

engages in unconscionable behaviour more generally, the beneficiary therefore lacks

clean hands.56

The cases referred to above in this section highlight that there will be circumstances

where the shareholders engage in conduct which will be equated with their approval. In

such circumstances a court may classify the conduct as acquiescence by the shareholders,

however, there may also be circumstances where such conduct is considered to give rise

to, for example, an estoppel preventing the denial of the effect of the conduct, or a waiver

of the rights of the shareholders.

D. Is there a difference between the different modes of attenuation?

In the author’s opinion, based on the current law, there is no legal difference between

authorisation by the authority of a constitutional provision, or the shareholders. This

firstly arises from the fact that each of the modes of authorisation are by the shareholders.

There is no basis to distinguish between the means by which the shareholders have

sought to attenuate a director’s statutory duty.

Secondly, upon incorporation of a company, the original shareholders could approve the

contents of the company’s constitution and thereafter, provided that those persons

exercise at least 25% of the voting shares at a meeting of the company, the new

shareholders will be unable to amend the terms of the constitution to remove a

constitutional provision which has the effect of attenuating the duties of the directors of

the company.

Thirdly, whilst there is a difference in the size of the majority required to amend a

company constitution when compared to obtaining the approval of the members

in general meeting, the outcome remains the same for the directors once a

56 Cory v Gertcken (1816) 2 Madd 40; Public Trustee v Larkham (1999) 21 WAR 295; Allan v Rea Brothers Trustees Ltd [2002] EWCA Civ 85.

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Not quite – please see s9. Special resolution depends on votes cast.


This is a bit vague.

resolution is approved since their conduct has been prospectively authorised.

Therefore, the principal differences between obtaining shareholder approval for a course

of conduct prospectively under the constitution, or the shareholders in general meeting is

a question of whether a specific authority is given (rather than a general authority under a

constitutional provision), the timing of the granting of the authority and the size of the

majority required to obtain the authority.

The cases which consider the attenuation of a director’s duties under a

constitutional provision do not also consider the law in connection with the

shareholder approval of a prospective breach of fiduciary or statutory duty. This

is readily explainable on the basis that if compliance with a constitutional

provision is the basis of a defence to a breach of duty by a director, then it is

unlikely in the same factual matrix that the shareholders separately prospectively

authorised the conduct of the directors and there are no reported cases in

Australia which have raised this type of problem.

PropositionFor the purposes of the attenuation of duties by authorisation, there are no clear underlying principles

differentiating between (i) prospective authorisation for a breach of statutory duty pursuant to a

constitutional provision and (ii) the formal or informal assent of the shareholders which prospectively

authorises a breach of duty.

VI. LEGAL ISSUES CONCERNING ATTENUATION OF STATUTORY DUTIES

Judicial reasoning based upon an ‘attenuated duty’ approach emerged in the 20 th century

in Australia, New Zealand and in the early 21st century in the United Kingdom

exemplified respectively by Levin v Clark,57 Berlei Hestia (NZ) Ltd v Fernyhough58 and

Re Southern Counties Fresh Foods Ltd; Cobden Investments Ltd v RWM Langport Ltd.59

In Levin v Clark,60 there were ‘nominee’ directors of a third party mortgagee and those

directors were appointed to protect the interests of the mortgagee. It was relevantly held

57 [1962] NSWR 686.58 [1980] 2 NZLR 150.59 [2008] EWHC 2810 (Ch).60 [1962] NSWR 686

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Not sure what this means – do the courts make a difference but shouldn’t? Or there is no difference?

in that case that the fiduciary duties of the nominee directors had been attenuated by

agreement of the shareholders and as a result the directors had acted properly in the

interests of the company as a whole and in a proper case, those directors were entitled to

act solely in the interests of the mortgagee and thereby, not in the interests of the

company. The case of Levin v Clark61 did not concern the statutory duties of a director

under company law.

The obiter statements by Gleeson CJ and Heydon J in Angas Law Services62 suggest in

respect of the attenuation of statutory duties that an exception may apply in respect of the

practical content of a particular duty although no basis was suggested for such a

principle. The example cited in Angas Law Services63 was on a question of impropriety

which was discussed in R v Byrnes64 and how the factual question of impropriety may be

addressed in certain circumstances. There are no reported cases in Australia of the

attenuation of statutory duties in relation to companies, incorporated associations, strata

companies or trade unions from which any principles have arisen which suggest that the

attenuation of statutory duties is permissible under the Corporations Act.

Separate from the cases concerning nominee directors of subsidiary companies in which

the directors may rely on section 187 of the Corporations Act, it is argued in this Chapter

that the partial (or entire) attenuation of a director’s statutory duties established by the

Corporations Act is not possible by any method including by a company’s constitution,

formal or informal approval of the shareholders in general meeting or a course of conduct

engaged in by the shareholders for the reasons discussed below. The author’s review of

the state of the law in Australia is a novel aspect of this thesis and the analysis relies upon

61 62 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23 at [32] per Gleeson CJ and Heydon J63 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23.64

Page 15 of 41


It would be good if you could explain what this means. It has not received a lot of attention.

the decisions in Angas Law Services,65 Forge,66 Miller,67 Maxwell,68 Macleod,69

Capricornia Credit Union70 and Cassimatis (No 8).71

Directors’ duties developed under the general law independent of the law of contract.

Contract may play a role in defining the relationship between parties and the scope of the

fiduciary duties,72 however the role of a contract in narrowing the duties of a fiduciary is

applied in quite different circumstances from the fiduciary relationship of director and

company.

The attenuation of duties approach seems to suggest that the content of statutory duties

are dependent in some way on the constitution and/or the shareholders’ agreement. This

arises from Levin v Clark73 and Angas Law Services74 and this Chapter discusses what

may be considered to be the scope of the phrase ‘best interests of the corporation’ in

sections 180(2)(d) and 181(1) of the Corporations Act and the word ‘improperly’ in

sections 182 and 183 of the Corporations Act75 in the context of the attenuation of

statutory duties as two examples of possible attenuation of statutory duties by the

shareholders.

E. What considerations may be relevant to attenuation of statutory duties arising from prospective authorisation?

The High Court in Angas Law Services76 did not find it necessary to make an

authoritative statement about the legal considerations which may be relevant to the

65 66 Forge v Australian Securities & Investments Commission [2004] NSWCA 448.67 Miller v Miller (1995) 16 ACSR 73.68 Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052.69 Macleod v The Queen (2003) 214 CLR 230.70 Capricornia Credit Union Ltd v Australian Securities and Investment Commission [2007] FCAFC 79.71 72 See Australian Securities and Investments Commission (ASIC) v Citigroup Global Markets Australia Pty Limited [2007] FCA 96373 74 75 The point was left open by the High Court in Angas Law Services and the doctrinal basis upon which the attenuation is said to arise has never been addressed in Australia.76 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.

Page 16 of 41

Admin, 27/06/17,

Has this been specifically addressed?


What? Said by whom?


Is this not true for fiduciary duties?


Which?

question of whether prospective authorisation would be effective to attenuate the

statutory duties established by the Corporations Act. This issue is analysed below.

Notwithstanding that there is no authoritative legal authority on the question of the

considerations which may be relevant to the attenuation of a particular director’s statutory

duty, the law relevant to the doctrine of ratification does not exist in a vacuum.

Accordingly, it is possible to determine from existing authorities which concern the

doctrine of ratification and the Corporations Act the likely issues which would arise for

consideration by a court.

Depending upon the facts of a particular case, it is argued in this Chapter that the

considerations which are relevant to the legal question of attenuation of statutory duties

arising from authorisation include:

(i) as a threshold question whether on a proper construction the terms of the

resolution or constitutional provision could be effective to prospectively authorise

the conduct of the directors?;

(ii) the principles of public policy which supports the enforcement of breaches of

statutory duty;

(iii) whether the attenuation of a statutory duty is prohibited because the same conduct

could not be ratified (eg. criminal conduct or conduct when a company is

insolvent)?;

(iv) the statutory duties established by the Corporations Act and their interpretation;

and

(v) whether the attenuation of a statutory duty is contrary to section 199A of the

Corporations Act which prohibits a director from being exempted from a liability

to a company?

Each of these matters is considered in detail below.

Whether the terms of the resolution could be effective to prospectively authorise the conduct of the directors?

Page 17 of 41

Admin, 27/06/17,

Check if these issues are in the right order


What would affect this issue?


Sentence too long.

It will always be a threshold question whether a constitutional provision or a

shareholders’ resolution on its proper construction seeks to prospectively authorise the

specific conduct of the directors. Typical interpretation issues which could arise for

consideration in this context include; (i) whether the constitutional provision or resolution

may be conditional and those conditions were never satisfied, (ii) whether the directors’

conduct was consistent with and/or carried out in the manner prescribed by the

constitutional provision or the resolution and (iii) whether the effect of the constitutional

provision or resolution only limits the current controllers of the company from suing the

directors and not a future controller such as a liquidator.

Public enforcement of breaches of statutory duty

The first statutory duty of care in Australia was section 116(2) of the Companies Act

1896 (Vic). This section was later re-enacted as section 107 of the Companies Act 1958

(Vic) but it was significantly modified.77 The latter formulation of the statutory duty of

care was a significant step because of the possibility of public enforcement by the

Attorney-General.78 This was a novel corporate law development at this time because the

regulatory approach was no longer to merely seek to manage the relationship between the

directors as managers of the company and the shareholders as owners of the company.79

Directors’ statutory duties are atleast in part of a public character since the

disqualification of a director and a pecuniary penalty order are punative in nature

providing a specific and a general deterrence effect.80

Academic commentary on the issue of the private and public nature of director duties

highlights that the introduction of the civil penalty regime which empowers ASIC to

77 R Langford, I Ramsay, M Welsh, The origins of company directors’ statutory duty of care, Sydney Law Review (2015) Vol 37, 489, 490.78 R Langford, I Ramsay, M Welsh, The origins of company directors’ statutory duty of care, Sydney Law Review (2015) Vol 37, 489, 490 and 511.79 R Langford, I Ramsay, M Welsh, The origins of company directors’ statutory duty of care, Sydney Law Review (2015) Vol 37, 489, 490 and 513.80 R Langford, I Ramsay, M Welsh, The origins of company directors’ statutory duty of care, Sydney Law Review (2015) Vol 37, 489, 514

Page 18 of 41


How does this relate to 4 above?MAR response – moved from 5 to 2

apply for declarations and orders,81 the scope for the public enforcement of rights

utilising injunctive relief under section 1324 of the Corporations Act, the possibility of a

disqualification order and pecuniary penalty order are steps in the publicisation of duties

under Australian corporate law.82 It has also been argued that because ASIC has taken an

active part in the public enforcement of breaches of duty, this has influenced the setting

of governance standards83 and these standards may provide an objective basis for a

court’s consideration of an alleged breach of duty.

The extent of the public nature of directors’ duties

The legal implications arising from directors’ statutory duties being of both of a private

and public nature is an unresolved question in Australia. In Australian Securities and

Investments Commission v Cassimatis (No 8),84 Edelman J rejected an argument that

section 180 of the Corporations could not be breached by the two directors whom were

the only shareholders of a solvent company since in essence, the company’s interests

could not be narrowly construed to be limited to the shareholders.85

In the context of the attenuation of statutory duties, whilst the decision in Cassimatis (No

8)86 found that the duties created by section 180 of the Corporations Act were atleast

partly of a public nature (consistent with the reasoning in Angas law Services87), Edelman

J considered numerous arguments in support of and contrary to the proposition that the

duties arising under section 180 were a public wrong to which no private law counterpart

existed or which had not been adapted from private law.88

81 Corporations Act 2001 (Cth) s 1317J.82 M whincopWhincop, M Keyes, Corporation, contract, Community: Analysis of governance in the privatisation of public enterprise and the publicisation of private corporate law, 1997 FLR 25,51 at 87-88; R Langford, I Ramsay, M Welsh, The origins of company directors’ statutory duty of care, Sydney Law Review (2015) Vol 37, 489, 513-51483 R Langford, I Ramsay, M Welsh, The origins of company directors’ statutory duty of care, Sydney Law Review (2015) Vol 37, 489, 51184 [2016] FCA 1023 (‘Cassimatis (No 8)’).85 at [478]86 87 88 at [453]

Page 19 of 41

A key question is whether the attenuated duty approach is consistent with the view that

the company (and indirectly the shareholders) is the sole beneficiary of the duties owed

by the directors. The decision in Foss v Harbottle89 supports the view that at that time,

the duties of directors were owed exclusively to the company and not the shareholders.

Pursuant to the statutory rights and duties under the Corporations Act, there are cases

where the Australian Securities & Investments Commission has sought to enforce the law

on behalf of shareholders, creditors and consumers which indicates there is a dimension

to enforcement of the law in favour of a company’s stakeholders where there is a breach

of a director’s duty.90 This follows from the Australian Securities & Investments

Commission’s role in enforcing corporate law and protecting the public.

It is also the case that under Australian law, employees and unsecured creditors may

benefit from the prohibition against insolvent trading. A liquidator is empowered to

commence proceedings against a director for insolvent trading91 and this is intended to

directly benefit the company’s employees and creditors. Creditors with the consent of the

liquidator are also able commence proceedings against a director where there has been

insolvent trading.92 This further shows that the company is not the sole beneficiary of the

statutory duties of directors.

There is a further example of the public nature of statutory directors’ duties under

taxation laws. Under the Taxation Administration Act 1953 (Cth), the directors are

required to cause the company to comply with obligations which include the remittance

of PAYG amounts to the Commissioner of Taxation and pay moneys to employee

superannuation funds.93 These personal legal obligations upon directors which may result

in a breach of a statutory director’s duty under the Corporations Act are directly

beneficial for employees, however there are indirect benefits to other stakeholders of the

company and generally the public.

89 (1843) 2 Hare 461.90 See, eg, ASC v Deloitte Touche Tohmatsu (1996) 21 ACSR 332.91 Corporations Act 2001 (Cth) ss 588M.92 Corporations Act 2001 (Cth) ss 588M, 588R-588U.93 Taxation Administration Act 1953 (Cth) Sch 1 s 269-15(1).

Page 20 of 41


Is this consideration helpful? It takes us outside the CA and there is presumably no discussion of whether a breach of this duty is ratifiable?


Does a distinction need to be drawn between general law and statutory duties?


This might need more precision. Is company’s stakeholder different to the public?

The consequences of the public nature of the statutory duties

A significant factor to be considered by the courts in determining whether a constitutional

provision or resolution could be effective to attenuate a statutory duty is the public

enforcement element of a breach of statutory duty. In the author’s view, there are two

key reasons why the courts are unwilling to recognise that the shareholders have the

authority to modify the effect of the statutory duties imposed by the Corporations Act.

Firstly, the statutory duties are civil penalty provisions and/or imposed criminal liability

and there is the possibility that a person could be disqualified from acting as a director in

the future if they are found to be in breach of the statutory duties. There are plainly

interests separate from the interests of the shareholders which are to be considered,

especially in the context of the protection of the public where the conduct is of a criminal

nature and results in the disqualification of a person as a director.

Secondly, the decision of the Commonwealth parliament to enact statutory duties and

impose penalties for the breaches of those statutory duties gave greater protection to

companies, the stakeholders of those companies and the enforcement of public rights by

ASIC gave greater protection to the public.

Whether the attenuation of a statutory duty is prohibited because the same conduct could not be ratified?

The same requirements and restrictions which apply to retrospective ratification

discussed in Chapter 2 apply to prospective authorisation,94 accordingly, not every

proposed breach of statutory duty is capable of authorisation.95 To highlight the nature of

the issue, two specific situations concerning criminal conduct and insolvent companies

are considered below.

94 Pascoe Ltd (in liq) v Peter Charles Lucas [1998] SASC 7134; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666; Bamford v Bamford [1970] Ch 212.95 T Cockburn, L Wiseman, Disclosure Obligations in Business Relationships (Federation Press, 1996), 222.

Page 21 of 41


So do general duties – the real issue is that statutory duties protect the public as well as stakeholders.


Whose?

Criminal conduct

The case of Macleod96 applied in Angas Law Services97 demonstrates that different public

policy considerations arise in the context of breaches of statutory duties which are

criminal offences separate from statutory duties which are not criminal offences.

Criminal conduct is not ratifiable for obvious public policy reasons which are directed to

ensuring corporate property is not applied to private misuse by the directors. A clear

example of criminal conduct of a director was in Macleod98 where the property of the

company controlled by a sole director and sole shareholder was misapplied by the

director/shareholder. Accordingly, there is no sound basis for an interpretation that a

company constitution or the shareholders in general meeting could prospectively

authorise proposed conduct of the directors in breach of a statutory director’s duty. The

same public policy considerations would not be relevant to a question of attenuation of

section 180 of the Corporations Act which is not a criminal offence.

Solvency

In the context of pre-insolvency situations and insolvent companies, on the authority of

Kinsella,99 The Bell Group100 and Qintex,101 the powers of the shareholders in general

meeting are restricted because creditors gain rights in these circumstances, especially in

relation to the company’s property. It is argued by the author that corporate insolvency

laws thereby displace the operation of the doctrine of ratification since neither the

creditors, or the shareholders have a right to authorise or ratify the conduct of the

directors once a company is nearing the point of insolvency.

In the author’s opinion, there may be a relevant connection between an authorisation

resolution and insolvency where, for example there has been a breach of section 588G of

96 97 98 99 Kinsella v Russell Kinsella Pty Ltd (in liq) (1986) 4 NSWLR 722.100 Westpac Banking Corporation v The Bell Group Ltd (in liq) [No 3] [2012] WASCA 157.101 ANZ Executors & Trustee Company Limited v Qintex Australia Limited (Receivers and Managers appointed) [1991] 2 Qd R 360.

Page 22 of 41


Could you explain what you mean by this?


What do you mean by ‘illegal’? Wrongful? Is conduct in breach of a civil penalty provision also illegal in the sense that you’re using this word here?


Different to: 1) statutory duties that are not criminal offences? Or 2) general law? If 1) what are the different policy considerations – they would have to flow from the differences between civil penalty provisions and criminal offences – both are public law duties.


This is confusing.

the Corporations Act if the authorisation resolution related to the incurrence of a debt by

the company. By way of example, a director may be seeking to authorise the execution

of a contract which will result in the future in a debt due and payable by the company to

an entity associated with the director. There may be an argument that the authorisation of

the execution of the director’s self-interested contract was not a breach of statutory duty

by the director.

The statutory duties and their interpretation in respect of attenuation

The statutory duties established by sections 180 to 184 of the Corporations Act are of

particular interest in this Chapter, however, it is also relevant to consider the modified

statutory duties of directors of wholly owned subsidiaries under section 187 of the

Corporations Act.

A particular attenuation of statutory duty may fall foul of the established principles of the

doctrine of ratification which invalidates the ratification of actions which are, for

example, criminal, contrary to public policy, equitable fraud, a fraud on the minority, a

misappropriate of company resources, oppressive, or if the company was insolvent

(discussed in Chapter 2 as non-ratifiable wrongs). In the case of an approval granted at a

shareholders meeting, the meeting may separately be contrary to section 249Q of the

Corporations Act which requires the meeting to be called for a proper purpose.102

Whilst the High Court applied Macleod103 in Angas Law Services,104 a clear principle

discussed in Macleod105 and not addressed by the joint judgment of Gleeson CJ and

Heydon J was the lack of ‘true consent’ which a company could give to the conduct of a

sole director and sole shareholder.106 Since the property of the company is not the

property of the sole shareholder,107 in the opinion of the author, the principle in Mcleod108

102 Capricornia Credit Union Ltd v Australian Securities and Investment Commission [2007] FCAFC 79, per the Court at [64]103 104 105 106 Macleod, McHugh J at [77]-[78] applying Attorney-General's Reference No 1 of 1985 (1985) 41 SASR 147 at 150; [131] per Callinan J107 Saloman’s case108

Page 23 of 41


Can this be omitted?


Have you got authority for this?MAR response – it does not appear to have arisen in a case.

when applied to the question of attenuation of statutory duties indicates that the consent

of the company does not arise from either the exercise of the powers by the board of

directors or the shareholders in general meeting. This is significant in a sole director and

sole shareholder company because it leaves the company without any organ to attenuate a

director’s statutory duty.

It is argued by the author that the principle in Macleod109 is extendable to situations

where there is more than director and shareholder since the court in Macleod110 focussed

upon the separate legal entity doctrine, not the factual circumstances in reaching its

decision. Whilst, for example, Cassimatis (No 8)111 was not a case concerned with

attenuation of statutory duties, it was found that the two directors of the company whom

were the only shareholders were in breach of section 180(1) of the Corporations Act. The

decision in Cassimatis112 relevantly relied upon the decision in Angas Law Services113 and

Edelman J saliently pointed out that the interests of a company included the interests of

the shareholders.114 The reasoning in the decision of Cassimatis (No 8)115 is not

inconsistent with the reasoning in Macleod116 and this provides support for the argument

in this thesis that the principle in Macleod117 is of general application to all companies

governed by the Corporations Act.

The obiter statements in Angas Law Services118 do not indicate why the reasoning in

Forge,119 Miller,120 Maxwell,121 Macleod122 and by extension Cassimatis (No 8)123 supports

a conclusion that the attenuation of statutory duties by prospective authorisation is

109 110 111 112 113 114 Cassimatis [523] per Edelman J. See Angas, [32]115 116 117 118 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23.119 Forge & Ors v Australian Securities & Investments Commission [2004] NSWCA 448.120 Miller v Miller (1995) 16 ACSR 73.121 Australian Securities and Investments Commission v Maxwell & Ors [2006] NSWSC 1052.122 Macleod v The Queen (2003) 214 CLR 230.123

Page 24 of 41


Unclear.

permissible in Australia for companies governed by the Corporations Act. Indeed,

Edelman J in Cassimatis124 stated in relation to the obiter statements in Angas Law

Services125 that “the acquiescence does not eliminate or relieve the duty where there are

other relevant interests of the corporation apart from the interests of the shareholders.”126

Given that the interests of the company are never entirely the interests of the

shareholders, even in relation to solvent companies such as in Cassimatis (No 8),127 this

indicates that attenuation of statutory duties is not permissible under the law in Australia.

It would be a surprising result that authorisation could attenuate a director’s statutory

duty, especially given that the High Court in Angas Law Services128 firstly determined

that a ratification resolution could not attenuate a statutory duty and secondly because the

cases of Miller129 and MacLeod130 were considered and no doubts were raised or has since

been raised as to the reasoning in those cases.

A separate basis for an argument that a director’s statutory duty cannot be attenuated is

the protection of directors of wholly-owned subsidiaries pursuant to section 187 of the

Corporations Act. This section is within Part 2D.1 Division 1 of the Corporations Act,

the same division which establishes the statutory duties in sections 180 to 184. The

principle of statutory interpretation expressio unius est exclusio alterius is a principle

which is applied where legislation includes provisions relating to similar matters in

different terms.131 The fact that only directors of wholly-owned subsidiaries have been

given the protection of modified duties of good faith provides support for a conclusion

that the attenuation of statutory duties is not permissible in whole or in part.

124 125 126 Cassimatis [523], Edeleman J 127 128 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.129 Miller v Miller (1995) 16 ACSR 73.130 Macleod v The Queen (2003) 214 CLR 230.131 See generally Salemi v Min Immigration & Ethnic Affairs (No.2) (1977) 14 ALR 1, Tas v Cth & Vic (1904) 1 CLR 329, Rylands Brothers (Aust) Ltd v Morgan (1927) 27 SR (NSW) 161, Colquhoun v Brooks (1887)19 QBD 400 at 406.

Page 25 of 41

It is also relevant to consider the interpretation which would best achieve the purpose or

object of the legislation before determining the meaning.132 It has been stated that the

purpose of the statutory duties of directors is “not to secure compliance with the various

requirements of the Corporations Act, but, as it was at general law, to prevent abuses of

directors’ powers for their own or collateral purposes.”133 The purpose of the legislation

would be circumvented where the shareholders have sought under the company’s

constitution or by other agreement to attenuate the statutory duties of a director because

the relevant mischief of directors would not be avoided and thereby affect the interests of

the company and its stakeholders.

There is a logical problem with attenuating a statutory duty to a limited extent because it

may suggest by extension as was considered in Levin v Clark134 (in a fiduciary law

context) that it is permissible to attenuate the entire content of the statutory duty.135

The enactment of the statutory directors’ duties creates a minimum standard of conduct

which the parliament intended to apply to all directors of companies governed by the

Corporations Act (but noting the special position of directors of wholly-owned subsidiary

companies).

The interpretation of ‘improper’

The obiter statements in Angas Law Services136 with respect to the interpretation of the

word ‘improper’ which was discussed in R v Byrnes137 and separately academic

commentary on nominee directors138 suggest that a constitutional provision which seeks

132 Act Interpretation Act 1901 (Cth) s 15AA.133 ASIC v Maxwell [2006] NSWSC 1052, [106] Brereton J134 135 See Conaglen, M, Interaction between statutory and general law duties concerning company director conflicts (2013) C&SLJ 403, 413 and 421 discussing the Companies and Securities Law Review Committee, Indemnification, Relief and Insurance in Relation to Company Directors and Officers (Rep No 10, 1990) at [54] and Langbein, J H, Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest? (2005) 114 Yale LJ 929.136 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.137 138 See Ford, Austin & Ramsay’s Principles of Corporate Law (at 25 July 2015) ‘Nominee directors: attenuation of duty by constitution’ [9.440].

Page 26 of 41


Have you explained before what was said about ‘improper’?MAR response – dealt with above now

to define certain conduct as ‘proper’, could be effective to take the conduct out of the

scope of the meaning of improper under sections 182 and 183 of the Corporations Act

and thereby, the conduct would not be in breach of the statutory duties. For example in

Levin v Clark,139 there was a provision in the company’s constitution coupled with the

terms of a sale and mortgage which modified the fiduciary duties of the directors to the

company.

Directors of wholly owned subsidiaries

Pursuant to section 187 of the Corporations Act, a director of a wholly owned subsidiary

is taken to act in good faith in the best interests of the subsidiary if:

(a) the constitution of the subsidiary expressly authorises the director to act in the

best interests of the holding company; and

(b) the director acts in good faith in the best interests of the holding company; and

(c) the subsidiary is not insolvent at the time the director acts and does not become

insolvent because of the director's act.

Section 187 of the Corporations Act modifies the effect of sections 181(1)(a) and 184(1)

because of the changed requirements as to when a director is taken to act in good faith in

the best interests of the subsidiary company.140 Directors of wholly owned subsidiaries

therefore are subject to modified statutory duties provided that there is compliance

section 187 of the Corporations Act.

Is the attenuation of statutory duties contrary to section 199A of the Corporations Act?

Section 199A(1) of the Corporations Act provides that “[a] company or a related body

corporate must not exempt a person (whether directly or through an interposed entity)

from a liability to the company incurred as an officer or auditor of the company”. In

considering the interpretation of section 199A(1), it does not on the clear wording of the

section appear to apply to attenuation of statutory duties. This is because an attenuation

139 140 See generally Allco Funds Management Limited (Receivers and Managers Appointed) (In Liquidation) v Trust Company (RE Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251 at [190] per Hammerschlag J.

Page 27 of 41


?

of a statutory duty does not exempt a director from a liability to a company on the basis

that if the attenuation of statutory duty is effective, there is no breach of a director’s duty

and a liability to the company cannot arise in those circumstances.141

In Eastland Technology Australia Pty Ltd & Ors v Whisson & Ors,142 McLure J observed

that it appeared to be generally accepted that former section 241 of the Corporations Law

(now section 199A) did not override or exclude the principles of ratification.143 By

extension of the decisions in Eastland Technology Australia144 and Miller,145 the

consequences of section 199A(1) of the Corporations Act could be entirely avoided by

reason that the attenuation of a statutory duty does not result in a director being exempted

from a liability to a company.

It is important however to put the decisions of Eastland Technology Australia146 and

Miller147 into the right context since neither of these cases were concerned with a question

of an attenuation of a statutory duty, however, the decisions indicate that there is a basis

for a conclusion that a court would not conclude that attenuation of a statutory duty was

impermissible because of the interpretation of section 199A(1).

However, in the context of section 199A of the Corporations Act, the shareholders cannot

authorise the relieving of a director’s statutory duties.148 The shareholders of a company

in approving a constitutional provision or approving a resolution cannot simply contract

out of the requirements of the Corporations Act, or ratify a breach of statutory duty. 149 It

is suggested therefore that there is an argument for limited attenuation of a statutory duty

which does not contravene section 199A(1).141 See generally, Conaglen, M, Interaction between statutory and general law duties concerning company director conflicts (2013) 31 C&SLJ 403, 417.142 [2005] WASCA 144.143 Eastland [26], McLure J ((Malcolm CJ, Steytler P agreeing) citing with authority Miller v Miller; Ford Austin and Ramsay, Ford's Principles of Corporations Law, 11th ed, 8.410; R Partridge, "Ratification and the Release of Directors From Personal Liability" (1987) 46 CLJ 122) at p 144 and fn 24)144 145 146 147 148 Capricornia Credit Union Ltd v Australian Securities and Investment Commission [2007] FCAFC 79, per the Court at [76]149 Angas

Page 28 of 41

PropositionThe legal basis for the attenuation of directors’ statutory duties is unclear under the Corporations Act.

It is argued by this thesis that the attenuation of a director’s statutory duties is prohibited by the

Corporations Act.

This thesis will now consider the policy arguments in favour and against the continued

application of the attenuated duty approach.

VII. POLICY ARGUMENTS IN FAVOUR AND AGAINST AN ATTENUATED DUTY

APPROACH

Notwithstanding the argument presented above with respect to the prohibition under the

law in Australia for the attenuation of statutory duties, there are substantial policy reasons

in support of attenuated fiduciary duties of nominee directors150 and the statutory duties of

good faith for directors of wholly-owned subsidiaries151 and these policy reasons are

discussed below.

The appointment of nominee directors is common in commercial practice and because of

the prevalence of nominee directors, the common law recognised the circumstances as

being distinct from other companies’ circumstances and ‘bent’ to commercial practice.152

The attenuated duty approach also recognised that under the common law a nominee

director may have a duty to their appointer through an agreement, which may arise from a

contract of employment153 And this could be in conflict with their fiduciary duties to the

company.

150 See eg, Levin v Clark151 Corporations Act 2001 (Cth) s 187.152 See Ahern D, Nominee directors’ duty to promote the success of the company: Commercial pragmatism and legal orthodoxy [check citation].153 See Ahern D [above N]

Page 29 of 41


Is this about s 187 – it would be good if you analyse the provision further.MAR response – not sure if the interpretation of s 187 advances the chapter. I will consider further

Admin, 27/06/17,


All nominee directors?


Isn’t the avoiding of prejudice already a policy argument?

The common law and general law remains flexible and under development. The law is

thereby able to be molded to suit the particular circumstances of a company. Aligned

with this point, the shareholders can fashion the terms of the company’s constitution

and/or a shareholders’ agreement in a flexible way to suit the circumstances and the

needs of the company. This can therefore allow the directors to act in the best interests of

the company with narrowed statutory duties as agreed by a minimum of 75% of all of the

shareholders voting on the provisions at the time. Further, pursuant to the Duomatic

principle,154 the shareholders’ unanimous agreement protects the minority shareholders

from the actions of the majority since in these circumstances there is no minority and

thereby no prejudice to any shareholder.

On the basis of the decisions in Kinsella,155 The Bell Group156 and Qintex157 it was

explained earlier in this Chapter that where a company is near the point of insolvency or

insolvent, the shareholders do not have the power of authorisation. The duty to prevent

insolvent trading is a statutory duty which primarily benefits the creditors and the

employees of the company and therefore the statutory duty to prevent insolvent trading is

aligned with the prohibition against authorisation.

Separate from insolvency situations, there is no duty on the majority of shareholders to

consider the interests of other stakeholders. The possibility of the majority of

shareholders making a choice of favouring their private interests over the interests of

stakeholders of the company is aligned with the agreement of the shareholders to

attenuate a director’s statutory duty.

The distinction drawn in respect of insolvency situations above provides a basis for the

application of the attenuated duties approach only to solvent companies on public policy

grounds. The distinction provides a mechanism whereby the shareholders continue to

exercise their powers in their own interests governed by the company’s constitution and

any shareholders’ agreement, including for the purpose of attenuating the duties of the 154 155 156 157

Page 30 of 41


Is that a bad thing? It is the shareholder’s capital that is at stake.MAR response - I agree. Now framed as a positive argument


What case are you thinking of?

directors, but where the protection of creditors and employees is necessary for their

benefit, it is appropriate to prohibit the attenuation of a director’s statutory duties in those

circumstances.

Section 187 of the Corporations Act is important for two public policy reasons. Firstly,

the section has a limited application only to the directors of wholly-owned subsidiary

companies. This means that the only shareholder affected by the decisions of the board

of directors is the parent (holding) company and for this reason, there cannot be any

minority shareholders.

Secondly, section 187 also only modifies the content of specific statutory duties in

sections 181(1)(a) (the duty of good faith) and 184(1) (the duty to use position and

information in good faith). Section 187 has no application to the fiduciary duties

imposed upon directors because the statutory duties are additional to the general law

duties.158 In relation to attenuation of duties, to obtain the protection of section 187, the

directors of the wholly-owned subsidiary must act in good faith in the best interests of the

parent company and if so, they are taken to have acted in good faith in the best interests

of the subsidiary.159 This deeming provision for the conduct of the directors of the

subsidiary ensures that the directors will not be in a position whereby they are in breach

of a duty of good faith to the subsidiary by making a decision which benefits the parent

company. Since the application of the section is very limited in its ability to prejudice

shareholders, the exception does not suffer the same policy issues as other companies

which are discussed below.

There are obiter statements in Cassimatis (No 8),160 which provide for a statutory

interpretation that is consistent with the attenuation of statutory duties in relation to the

statutory duty of care. Firstly, section 180(1) of the Corporations Act and its

158 Allco Funds Management Limited (Receivers and Managers Appointed) (In Liquidation) -v- Trust Company (RE Services) Limited (in its capacity as responsible entity and trustee of the Australian Wholesale Property Fund) [2014] NSWSC 1251, [190] per Hammerschlag J159 Corporations Act 2001 (Cth) s 187.160

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predecessors is concerned with duties only owed to the corporation.161 Secondly, the

codification of the common law duty of care supports an interpretatation that the public

duty is to be interpretated based on the identical private law duty which is owed only the

company.162 Thirdly, the obligations of a director are to be treated in the same way

whether they are enforced as private wrongs to the corporation or as public wrongs.163

The attenuation of a particular statutory duty does not necessarily result in the attenuation

of all statutory duties. By way of example as was opined by Elizabeth Boros, if the

shareholders attenuated section 183 by reducing the scope of what is an improper use of

information, would the conduct of the directors be otherwise contrary to the best interests

of the company?164 If so, the directors will likely be in breach of section 181(1) of the

Corporations Act even where their conduct was not an improper use of information for

the purposes of section 183 of the Corporations Act. The effect of attenuation may

therefore represent a rare instance where a director avoids a breach of any statutory duty.

Finally, there must still be compliance generally with the Corporations Act and the

constitution of the company. This provide protection to the minority shareholders which

together represent more than 25% of the company’s issued shares against changes to the

company’s constitution which would have the effect of attenuating a statutory duty.

There are also substantial reasons why the attenuated duty approach may have a negative

effect and this is discussed below.

Fiduciary duties were applied to the relationship of director and company arising from

the nature of the relationship being analogous to that of a trustee or agent.165 The

fiduciary and statutory duties of directors provide protection of the company (and the

161 Cassimatis, [474] per Edelman J162 Cassimatis, [475] per Edelman J163 Cassimatis, [476-477] per Edelman J; See also Vines v Australian Securities & Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451.164 Boros, E, How does the division of power between the board and the general meeting operate?, (2010) 31 Adelaide Law Review 169, 173.165 Levin v Clark 1962 nswr 686, 700-701; Re Lands Allotment Co [1894] 1 Ch 616, 638 per Kay LJ. See Conaglen, M, Interaction between statutory and general law duties concerning company director conflicts (2013) 31 C&SLJ 403, 404.

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shareholders) from the abuses of power by the directors. The attenuation of directors’

duties changes the statutory duties which as discussed in ASIC v Maxwell166 are for the

protection of the beneficiary company (and therefore also the shareholders) and this

thereby affects the scope of the protection which is obtained by the company.

Since 1958 in Victoria, there has been the possibility of the public enforcement of a

breach of the statutory duty of care. The enactment of section 107 of the Companies Act

1958 (Vic) was the start of a process by State, Territory and Commonwealth parliaments

in Australia enacting specific statutory duties for company directors. This is significant

since Australian public policy reflects a derogation of the right of shareholders to mould

the fiduciary relationship of the directors with the company and therefore the continued

application of the attenuated duties approach which concerned the fiduciary duties of

nominee directors is out of step with both the scheme of Corporations Act and modern

corporate governance principles discussed in Chapter 7.

The ongoing development of corporate governance regulation is supportive of the idea

that the interests of other stakeholders including employees, creditors, customers and the

public should also be considered. This is recognised by, for example, the imposition of

duties on directors against insolvent trading,167 under tax legislation to ensure that the

company complies with its statutory obligations168 and State, Territory and

Commonwealth environmental legislation to ensure the environment is protected for

current and future generations.169 The lawfulness of the attenuation of directors’ statutory

duties suggests that the only beneficiary of the duties is the company, but for the reasons

explained, this should be doubted. The scope of the directors’ statutory duties should be

construed to be for the benefit of the company, the company’s stakeholders and the

public.

The attenuation of statutory duties raises the possibility of a private benefit being given to

a director or their associates. The benefit obtained may outweigh the benefit to the 166 [2006] NSWSC 1052.167 Corporations Act 2001 (Cth) s 588G.168 Taxation Administration Act 1953 (Cth) Sch 1 s 269-15.169 See, eg, Environment Protection and Biodiversity Conservation Act 1999 (Cth).

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company and/or the shareholders and other stakeholders. The giving of a private benefit

will be discussed in Chapter 6 in the context of the prejudice which arises from the right

of a shareholder to vote in their own interests and on the same reasoning, prejudice would

arise from to the attenuation of a statutory duty to the company and its company’s

stakeholders. It is argued by the author that the number of situations where the company,

or its stakeholders will obtain a benefit from the attenuation of statutory duties will be

small. Consequently, allowing the attenuation of statutory duties for a minority of

situations would not be in the overall public interest and would represent a public policy

out of step with other corporate law reforms (such as for example the duty to prevent

insolvent trading) which as discussed provide protection to the company’s stakeholders

and the public.

There is no duty on the shareholders to act in the best interests of the company and this is

permissive of shareholders attenuating the duties of directors where the attenuation would

not be in the best interests of the company. A public policy response to the problem

could be to regulate exceptions to a prohibition against attenuation of statutory duties.

This would a problematic approach to take for two main reasons. Firstly, it is argued in

this Chapter that attenuation is entirely prohibited and the public policy arguments weigh

against a continuation of the attenuated duties approach. Secondly, framing exceptions to

a prohibition against attenuation of statutory duties necessarily requires that value

judgments are made on the type of conduct which is broadly beneficial.

A principle that the interests of the shareholders, creditors, employees and consumers are

not prejudiced is easy to state with clarity, but in reality it leaves the ultimate

interpretation open to the courts. The courts could develop a duty on a major shareholder

to act in the best interests of a company, or it may be open to the courts in comity with

the development of corporate law in the United States of America to introduce, for

example, a fiduciary duty between each shareholders.170 Those potential developments

170 See especially Kortum v Johnson 755 N.W.2d 432 (N.D, 2008); Cambio Health Solutions, LLC v Reardon, 213 S.W.3d 785 (Tenn, 2006); McMinn v MBF Operating Acquisition Corp. 164 P.3d 41 (N.M. 2007); Bellino v McGrath North Mullin & Kratz, PC LLO, 274 Neb. 130, 738 N.W.2d 434 (2007).

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Yes, that may be the case but this is not necessarily the case. Would proper regulation not prohibit attenuation where it is appropriate and prohibit it where it is not?


But is it really a zero sum game? In some circumstances, a benefit to the company will arise from an attenuation of duty – eg in the Regal Hastings scenario.

would result in greater complexity and reduced uncertainty of the corporate law in

Australia.

The best interests of the company has been judicially considered to be limited to the

current shareholders.171 The attenuation of duties does not therefore protect future

shareholders. The current shareholders can make a choice between the need for protective

regulation (as the primary source of rights, powers, duties and obligations) and the right

to freedom to contract based on what they believe is in the best interests of the company

at that time. Those choices may adversely affect the company in attracting new

shareholders in the future at a time when the company is seeking to expand or overcome

an existing significant financial issue.

The attenuation of a statutory duty would undermine the policy intention of section

1317S where the Supreme Courts and Federal Court has the discretionary power to

relieve a director of the consequences of a breach of a civil penalty provision and such an

outcome appears inconsistent with the purpose of the scheme of civil penalty provisions

under the Corporations Act.

The attenuation of a statutory duty would undermine the public policy intention of

section 199A(1) of the Corporations Act. This section prohibits a director from being

exempted from a liability to a company. It was argued earlier in this Chapter that the

prohibition in section 199A(1) could be entirely avoided by reason that the attenuation of

a statutory duty does not result in a director being exempted from a liability to a company

since no breach of duty will arise.

A simple rule which prohibits attenuation of stautory duties is easy to apply under the

law. Such a rule provides certainty to the law and in that respect will reduce disputes

between parties. The outright prohibition represents an efficient mechanism to reach

legal certainty, whereas, a policy which supports partial or full allowance of the

171

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Yes, but future shareholders can decide not to become shareholders.

attenuation of statutory duties would create new legal problems for parties to resolve and

ultimately the courts to rule upon.

Finally, it is necessary to criticise the attenuated duty approach to fiduciary duties of

nominee directors. Nominee directors are motivated to act in the interests of their

appointer for the protection of their appointer’s and their own interests. It is therefore a

paradox to thereby allow the attenuation of a nominee director’s fiduciary duties, the very

duties which would protect the company from the conduct of the nominee director. The

consequence is to elevate the interests of the appointer and their nominee director above

the interests of the company and consequently the interests of the shareholders. Such a

policy is inconsistent with corporate law reforms which seek to protect a company’s

stakeholders and the public.

PropositionThe negative implications of maintaining the attenuated duties approach for companies, their stakeholders

and the public outweigh the benefit to be obtained. On public policy grounds, there should be a prohibition

against the attenuation of a director’s statutory duties.

The policy arguments against the continuation of the attenuated duty approach indicate in

some instances there is prejudice to the company and to its stakeholders and in this

respect this thesis argues that the negative consequences to companies and their

stakeholders outweigh the benefits of adopting an attenuated duties approach. This

Chapter will now address the issues which arise in connection with prejudice to

companies and to their stakeholders.

It is a conclusion of this thesis that under the current Australian law, a constitutional

provision, a resolution for the prospective authorisation of specified conduct or other

conduct of the shareholders giving rise to the operation of the Duomatic principle172 could

not be legally effective to attenuate a particular statutory duty of a company director.

172

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This consideration is of a general nature – it would seem to apply also to general law duties. Is that intended and part of your argument?


Perhaps in some but not in all cases


Does this go against the earlier statement that attenuation should be allowed?

If the High Court’s obiter statements in Angas Law Services173 are correct that different

considerations do apply with respect to prospective authorisation of a breach of statutory

duty as distinct from retrospective ratification of the same breach of duty, with the result

that the director’s conduct was not a breach of statutory duty (whether because the duty

had been attenuated or the company’s shareholders authorised a specific breach of duty),

this would introduce further uncertainty into the operation of the doctrine of ratification

because:

(i) different outcomes would emerge for directors who have breached their statutory

duties because the conduct was retrospectively ratified (and thereby invalid)174 as

distinct from the conduct being prospectively authorised;

(ii) it is unclear what principle(s) or what different consideration indicate that a

prospective authorisation of a breach of statutory duty is lawfully acceptable,

given that it is the director(s) (and possibly their associates) approving their own

future conduct by modifying the content of their own statutory duties to the

company;

(iii) arising from the current state of the law in Australia, it is unclear:

a. in what circumstances the shareholders could approve a resolution or

constitutional provision which would have the legal effect of attenuating a

particular statutory duty;

b. whether a court may consider the authorisation of a breach of statutory

duty by the shareholders in general meeting to be a non-ratifiable wrong;

and

c. whether the attenuation of one statutory duty results in the attenuation of

other statutory duties so as to protect a director from any breach of

statutory duty to the company.

It is argued in this Chapter that the company’s stakeholders (being the shareholders,

creditors, employees and consumers) may in a large number of situations suffer prejudice

as a result of the changed directors’ duties and that there is assumed to be a small number

of possible circumstances where the company and its shareholders may obtain a benefit, 173 Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23.174 Angas Law Services; Macleod; Miller

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Needs more explanation.


Which two situations are you comparing here?

one such example from the cases concerning ratification would be the prevention of a

takeover by issuing shares contrary to the powers of the board of directors. The prejudice

to the company’s shtakeholders arises because the conduct of the directors is not

considered to be a breach of statutory duty to the company. Thereby, there is no cause of

action for any loss or damage arising from the conduct, which but for the attenuation of

statutory duty, would otherwise have been a breach of statutory duty and actionable by

the company, or by a shareholder on behalf of the company pursuant to section 236 of the

Corporations Act.

The existence of prejudice to the company’s stakeholders arising from the attenuation of

a director’s statutory duties and the legal uncertainty created by the different

considerations relevant to prospective authorisation indicates the further need for reform

to the Corporations Act to address the problems discussed in earlier Chapters which arise

from the operation of the doctrine of ratification.

Proposition(i) Under current Australian law, it is unclear whether different principles may apply

to the attenuation of statutory duties when compared to a retrospective ratification

of a breach of statutory duty and accordingly, there is uncertainty in the operation

of the doctrine of ratification;

(ii) The prejudice to the company’s stakeholders likely outweighs the benefits of the a

continuation of the attenuated duties approach; and

(iii) If attenuation of statutory duties is permissible, the legal uncertainty indicates the

need for reform to the Corporations Act to address the problems which arise from

the operation of the doctrine of ratification.

VIII. CONCLUSION

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Why does the CA need to be reformed if the uncertainty arises from a lack of judicial authority? Would it not be enough that the courts recognize and address the issue?


What if the conduct generated a benefit?

The High Court stated in Angas Law Services175 consistent with previous authority

including Miller176 and Macleod177 that retrospective ratification of a breach of statutory

duty is not legally effective to ratify a breach of statutory duty. However, the law

concerning the attenuation of statutory duties arising from prospective authorisation

either by a constitutional provision or the shareholders (whether as a result of the formal

or informal approval) remains under development.

This question whether attenuation of statutory duties is permissible has not yet arisen for

judicial consideration in Australia. Guidance on the possible considerations arise from

the cases which have considered ratification resolutions, but as discussed in Angas Law

Services178 different considerations could apply to prospective authorisation. There

remains the possibility therefore that in certain circumstances, a particular statutory duty

of a director could be changed and this thereby does not result in a breach of statutory

duty.

The possible recognition of the attenuation of a particular statutory duty is inconsistent

with the protection of the legal rights of a company and its stakeholders and accordingly,

this could operate to prejudice a company or all or some of the company’s stakeholders

and this prejudice is likely to be greater than any overall benefits from retaining an

attenuated duties approach.

It was discussed in this Chapter that the company is not the sole beneficiary of the

statutory duties owed by the directors to a company. Accordingly, an underlying

consideration which weighs against allowing the attenuation of duties is the prejudice to

companies, their stakeholders and the public since a director will not be liable for any

loss or damage to a company where their statutory duties have been attenuated.175 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.176 177 In Macleod v The Queen (2003) 214 CLR 230 which concerned the alleged consent of a sole

shareholder to a breach of section 173 of the Crimes Act 1900 (NSW) it was stated that ‘[t]he self-

interested 'consent' of the shareholder, given in furtherance of a crime committed against the company,

cannot be said to represent the consent of the company.’ (at 240)178

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Do you not need to distinguish between general law and statutory duties?

The legal basis for the attenuation of statutory duties is unclear. The obiter statements in

Angas Law Services179 do not indicate why the reasoning in Forge,180 Miller,181 Maxwell182

and MacLeod183 supports a conclusion that the attenuation of statutory duties by

authorisation is permissible. The obiter statements in Cassimatis (No 8)184 conclude there

are principles of statutory interpretation which may provide a basis for the attenuation of

statutory duties, however, the correct interpretation is unclear because it will depend upon

the circumstances of each case, in particular, which statutory duty is alleged to be

attenuated.

The policy arguments in favour of the attenuation of duties are substantial, however, the

historical origins of those argument arises in the context of the fiduciary duties of

nominee directors and the limited exception established by section 187 of the

Corporations Act. The arguments set out in this Chapter demonstrate that even in the

limited circumstances of attenuation of a nominee director’s fiduciary duties and the

changes to the statutory duties of good faith for directors of wholly owned subsidiaries,

there are substantial arguments against retaining the attenuated duties approach.

Moreover, the policy arguments which favour a general attenuated duties approach which

would apply to all directors are more limited than the arguments which are peculiar to the

attenuation of fiduciary duties of nominee directors and directors of wholly-owned

subsidiaries. Based on the anaysis of the issues in this Chapter, there is an insufficient

basis to repeal section 187 of the Corporations Act because of the limited role it plays in

corporate groups, the narrow role it plays in affecting the good faith duties of the

directors of wholly-owned subsidiaries and the recognition that there are different public

policy considerations applicable to corporate groups since there are no minority

shareholders.

179 Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507.180 Forge & Ors v Australian Securities & Investments Commission [2004] NSWCA 448.181 Miller v Miller (1995) 16 ACSR 73.182 Australian Securities and Investments Commission v Maxwell & Ors [2006] NSWSC 1052.183 Macleod v The Queen (2003) 214 CLR 230.184

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There are substantial issues of prejudice which may arise to companies and their

stakeholders whereas there are considered to be limited circumstances where a company

and its stakeholders may benefit from the attenuation of a director’s statutory duties. The

interests of directors should not be the highest priority in formulating a public policy

response to the unresolved issues arising from the doctrine of ratification. The risks

associated with the attenuation of statutory duties largely fall upon the company and its

stakeholders and it is for this reason that a resolution of the apparent prejudice should be

for their benefit and not the benefit of the directors.

It is a conclusion of the foregoing analysis that the legal, public policy and prejudice

issues each suggest that there should be statutory law reform to address the problems

associated with the operation of the doctrine of ratification.

This thesis will now consider the use of corporate property in the context of ratification.

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Michael, 27/06/17,

This chapter engages with the concept of attenuated duties. It identifies the major cases and the principles they stand for, but I think you could still go further with this chapter. It is important that you define in the beginning your key terms, including attenuation of duty and how this relates to authorisation.The discussion of the cases in this chapter, even of the key authorities, could still be deeper. You also don’t seem to have exhausted the academic literature. I have some difficulties with following the structure of your argument and also with your writing, which could be more concise and also more precise. On the question of how general law and statutory duties differ, and why their different character requires a different answer to the question of attenuation, you may find the decision in Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023 very helpful, which discusses the difference between public and private wrong in the context of s 180(1) quite extensively.Your rejection of the attenuation approach is ultimately based on the perceived prejudice that this may cause to minority shareholders and other stakeholders, but you don’t really engage with the possibility that the attenuation may have benefits.The special situation of nominee directors is identified but the discussion remains a little pale. On the basis of your argument, would you also suggest that s 187 should be repealed?

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