Extra duty of care from the chair Early Warner

Should One.Tel chairman John Greaves have maintained a higher "standard of care and diligence" than others, including Jodee Rich and Brad Keeling?

In ASIC v John David Rich & Ors ([2003] NSWSC 85), the non-executive chairman of the company, John Greaves, and other directors were sued by ASIC which sought various kinds of relief for breaches of the statutory duty of care of directors.

It was contended by ASIC that Mr Greaves had been "a qualified chartered accountant and had a substantial practical commercial experience in listed public companies". It further contended that "Mr Greaves was better qualified and more experienced than all of the other One.Tel directors". The substance of ASIC's allegation against Greaves was that he had "special responsibilities beyond those of the other non-executive directors" because of his experience and qualifications. ASIC's view is that he had to meet a higher " standard of care and diligence" than others.

Greaves filed a Notice of Motion to strike out ASIC's Statement of Claim or to strike out certain paragraphs on the basis that he should not be differentiated from other directors.

Austin J rejected that strike-out claim and ruled that the pleadings should remain.

In reaching his conclusions that the pleadings should remain, and that ASIC should be able to proceed with its claim against Greaves (which, of course, is no more than stating that it was a cause of action that should be allowed to run its course in a court of law), Austin J referred to the fact that the duties of company directors have developed over a period of time. He also noted that there were expectations, as a result of both legislative and judicial developments, that fitted within the arguments raised by ASIC - namely that the duties of directors did change over time.

In particular, Austin J accepted that the position of the company chairman was one that could be affected by the way in which the law had developed. He noted that the constitution of One.Tel did not describe the role of the chairman; he also noted that the Corporations Act or common law did not specifically refer to the position of chairman. He discussed a number of cases in which the courts had considered the position of chairman. For example, in Woolworths Limited v Kelly, an earlier decision of the New South Wales Supreme Court (1991) 4 ACSR 431, Justice Mahoney, had found that the person who was chairman of the board of directors "has additional rights and duties and additional opportunities". Rogers J in AWA v Daniels (1992) 7 ACSR 759 had also suggested that the chairman was responsible to a greater extent "than any other director for the performance of the board as a whole and each member of it". Other cases have also commented on the role of the chairman - for example, the recent comments of Gzell J in the NRMA litigation involving the non-voting of proxies (Law Reporter, September). Austin J accepted the proposition put forward by Santow J in ASIC v Adler (2002) 41 ACSR 72 that a director was under a continuing obligation to keep informed about the activities of the corporation and its affairs. In all the circumstances, the court felt that the pleadings should be allowed to stand and ASIC should be allowed to plead its case in the court.

To continue to upgrade the duties of a director in the way in which Austin J and others have done may, of course, raise a different issue in light of comments recently made by the newly appointed member of the High Court of Australia, Justice Dyson Heydon. He has been critical of the High Court's "activism" in developing principles of law.

This comment by Justice Heydon was in turn the subject of criticism by a former Chief Justice of the High Court of Australia, Sir Anthony Mason, in a speech delivered on 21 February.

Whether Justice Austin's willingness to recognise that the role of directors do change over time, that they do reflect the changes brought about by the intensifying of commerce, and that the community "has of necessity come to expect more than formerly of directors whose tasks was to govern the affairs of companies in which large sums of money are committed" (see the comments of Tadgell J in Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 126) is an issue that a Court of Appeal may well have to respond to in the near future. For the author's part, while the judgment of Austin J, learned and detailed as all of his judgments tend to be, does not raise any unusual issues of law which require reversal at this point.

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