Business Judgment Rule Case Analysis

This assignment requires an in-depth analysis of the ASIC v Rich case. Students must examine the application of the business judgment rule under section 180(2) of the Corporations Act 2001. The analysis should cover the requirements for applying the rule, including informed decision-making, acting in the best interest of the company, and the absence of personal interests. The assignment also requires an evaluation of the court's reasoning and the case's future relevance to corporate law.

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note

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Table of Contents
Case Introduction.............................................................................................................................2
Duties breached by the directors of Mariner Corporation Limited as alleged by the ASIC...........3
Critical analysis of the decision provided by the court in this case.................................................4
Future relevance of the case............................................................................................................8
Bibliography....................................................................................................................................9

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Case Introduction
The case of Australian Securities and Investments Commission v Mariner Corporation
Limited [2015] FCA 589 is in relation to the breach of directors duties. The proceeding is related
to the legality of the defendants’ conduct of making a takeover bid. The proceeding is not only in
relation to the company but also three of its directors namely Mr Darren Olney-Fraser, Mr
Donald Christie and Mr Matthew Fletcher. The action has been brought with respect to the
breach of Section 631 (2)(b), 1041H and 180(1) of the Corporation Act 2001 (Cth) (CA).
Declarations have been sought by the ASIC against all the defendants in the case and specifically
disqualification from management and pecuniary penalties against the individual directors. The
trial was only in relation to the liabilities of the parties and issues in relation to penalties and
relief were to be heard latter1.
In this case it has been alleged by the ASIC that the defendant company violated the
provisions provided by section 631 (2) (b) of the CA. The allegation was based on the fact that
the company publicly proposed a takeover bid for Austock, recklessly without informing itself
that whether it has the capability of performing its obligations and relation to the takeover bid at
10.5 cents for each share in case considerable proportion all the offers with respect to the bid are
accepted. It has been provided by the ASIC that the organisation did not have financial resources
on 25th June 2012 to fund the bid and in addition had not received relevant assurance from any
third party as well as it did not have any agreement with any third party in relation to provisions
of the required funding.
1 [2015] FCA 589 at 1

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Section 1041H of the CA was allegedly violated by the organisation as the announcement
made by the company resulted in a misleading and deceptive conduct or a conduct which is
likely to deceive and mislead as there was no permission of making a takeover bid shares in
Austock for less than 11 cent every share. The ASIC had also put its reliance on the provisions of
section 621 of the CA2. In addition it was stated by the ASIC that the organisation tried to
mislead the market in relation to its ability of funding the bed at a lesser price or at a price which
was required3.
It has been denied by the defendants of the case that the organization have violated the
provisions set out through section 631(2)(b) along with section 1041H of the CA. in addition it
has been argued by the directors that the allegations which have been made by the ASIC in
relation to the breach of section 180 of the CA are baseless. It has been submitted by each of the
directors that their actions were not in the violation of their duties irrespective of whether the
company itself indulged in the non-complying conduct. It has been asserted by the ASIC that
section 180 of the CA has been violated by the directors whether or not they have breached the
provisions provided in section 1041H of the CA4.
Duties breached by the directors of Mariner Corporation Limited as alleged by the ASIC
It has been allegedly stated by the ASIC that all three directors of Mariner Corporation Limited
have not complied with their duty stated in section 180(1) of the CA. the duty requires the
directors to carry out their operations towards the company with diligence and care. Such care
and diligence is evaluated and analysed when by putting a reasonable person in the same position
2 [2015] FCA 589 at 2 (a)
3 [2015] FCA 589 at 2 (b)
4 [2015] FCA 589 at 2 (b)

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and situation which the actual directors hold. If the reasonable person would have indulged in
making the same decision the duty stands complied by the directors5.
It has been alleged by the ASIC that section 180 of the CA has been violated by the directors and
they have not acted diligently and carefully towards their functions which a reasonable director
would have done by making the company:
1. Contravene the provisions of s 631(2)(b) by making a public proposal
2. Contravene the provisions of s 1041H by making an announcement to the ASX
3. Contravened s 621 (3) by stating that they would make a bid which cannot be made
lawfully (Stating to make the bid at 10.5 cents where they could not do so below 11 cents
legally.)
4. Not take into consideration regulatory constraints on the capacity of the organization of
acquiring more than various share percentage in Austock
Critical analysis of the decision provided by the court in this case
In the given case it has been stated by the court that ASIC have failed to establish their claim
against the directors of the company or the company itself. Therefore the court accordingly
dismissed the case made by the ASIC6.
The following view had been reached by the court in this case
a) The test in relation to the term “Reckless” us a subjective test under the provisions of s
631 (2)(b). Through the application of the test in the situation the company is not
reckless.
5 Corporation Act 2001 (Cth) at Section 180(1)
6 [2015] FCA 589 at 4

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b) Alternatively, in case the test of analysing whether a company or individual is reckless or
not is objective even than the company is not reckless
c) The company did not indulge in any conduct which contravened the provisions provided
in s 1041H of the CA in relation to funding or price representation
d) Alternatively, in case the organization did indulge in a misleading or deceptive conduct in
relation to the representation of price, it would not be entitled to any relief on any
reasonable ground.
e) The directors of the company did not indulge in any action which violated the provisions
of section 180(1) irrespective of whether they violated s 1041H or 631(2)(b)
f) Alternatively in case section 180 has been violated by Mr Olney-Fraser, it cannot be held
that Mr Fletcher or Mr Christie have done the same as they relied upon the information
given to them by Mr Olney-Fraser along with their right to invoke section 189 of the
CA7.
The court in relation the issue considered the provisions provided in s 180(2) of the CA which
discusses to business judgement rule to come to a conclusion that the directors of Mariners have
not violated section 180(1) of the CA. According to the section the primary requirement is that
there as to be a “Business Judgement”. Thus means an act of making a decision in relation to the
business operations of the organization8. Here, the business judgement made by the directors was
to make a takeover bid for Austock. It can therefore be stated that the characterization of the
business judgement rule by the ASIC was not in compliance to the provisions of the Act. The
reliance of ASIC on the case of ASIC v Fortescue Metals Group Ltd9 is also a misconceived
analysis of the decision taken by the directors.
7 [2015] FCA 589 at 5
8 Corporations Act 2001 (Cth) at section 180(2)
9 [2012] HCA 39

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In addition the directors consciously used their business judgements to support the bid. Evidence
has also been provided by the directors that in the given situation funding for the bid would have
even been provided by a “dover dog”. The evidence is viewed in the light of the relevant and
substantial evidence of the directors in such deals.
Another requirement for the business judgement rule is that the bid is made in good faith towards
a proper purpose. The requirement can also be said to have been satisfied. It was decided by the
directors to make the bid and the announcement related to it in relation to the chances of the
company of making significant profit along with the belief that the decision of making the bid
and the announcement is in the best interest of the company.
In relation to the third requirement the person making the decision must not have any personal
interest in the subject matter of the decision. This requirement is also satisfied as there was no
personal interest which the directors had in relation to the bid and announcement10.
One more requirement in relation to the defence under the business judgement rule is that the
directors have the duty of informing themselves in relation to the subject matter of the decision
to the degree that they believed that it is appropriate and correct. In the case of ASIC v Rich11 it
has been stated by the judge that whether the decision was an informed decision or not is
analysed by looking into factors such as importance of the decision, time in had to get
information, cost of getting information, confidence of the directors, nature of the affairs of the
company and availability of material information. The through considering these factors the
judges in the present case held that the decision was informed. Moreover in relation to “to an
extent they reasonably believed to be appropriate” The ASIC cited the case of People’s
10 [2015] FCA 589 at 500
11 (2009) 236 FLR 1

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Department Store Inc v Wise12 where it was ruled that reasonably believed does not included
what the directors actually know but what they are supposed to be knowing. However the court
reject such submission by stating that such a ruling distorts the statutory language as it would
deny the directors any protection unless they are able to show compliance of diligence and care
in relation to other issues. The court in this case considered that the directors relied on the fact
that they have been provided adequate information for making an informed decision by
conducting various discussions and meetings and their knowledge about the level of interest in
Austock13.
The final requirement in relation to section 180(2) is that the decision has to be in the best
interest of the company. The requirement is said to be satisfied when the defendants believed that
the act was in best interest of the company and is supported by reasoning process which is
adequate to describe it is being reasonably correct, irrespective of whether it is objectively
convincing. The court held that the directors had this belief and it is not a kind of belief which
would not be held by any reasonable person14.
In addition it had been stated by Justice breach that it would be wrong to assert that causing the
organization to breach a provision of the act would automatically lead to the violation of section
180 to the contrary of what has been stated in ASIC v Cassimatis15
12 [2004] 3 SCR 461 at [67]
13 [2015] FCA 589 at 472
14 [2015] FCA 589 at 489
15 (No 8) [2016] FCA 1023

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Future relevance of the case
 reasonably believed does not included what the directors actually know but what they are
supposed to be knowing is not correct rather having adequate information to make the
decision would satisfy this element of section 180 (2)
 It is now wrong to assert that causing the organization to breach a provision of the
Corporation Act would automatically lead to the violation of section 180(1)
 The decision would give the directors who rely of their experience and skills power of
taking calculated risks in relation to the organization

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Bibliography
ASIC v Rich (2009) 236 FLR 1
ASIC v Cassimatis (No 8) [2016] FCA 1023 4
Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA
589
Corporations Act 2001 (Cth)
Fortescue Metals Group Ltd v Australian Securities and Investments Commission - [2012] HCA
39
People’s Department Store Inc v Wise [2004] 3 SCR 461 at [67]