Liability of Directors in Dronebotics Case Study

This case study explores the liability of directors in the context of Dronebotics, a company involved in designing and manufacturing autonomous drone systems. The study examines the actions of the directors and their potential legal consequences.

CASE STUDY 2
Based on the case study, it is evident that Primo Construction Limited (‘Primo’) is
involved in fulfilling various tenders for Landstock Limited. Shane, who is the director of Primo
realizes that there may be an upcoming opportunity to make money as Landstock needs a
warehouse to be built for unloading shipments. Shane understands that Landstock will be open to
tender invitation from other construction companies for construction of the warehouse. Hence, he
goes ahead and establishes a new company, which he names Iconstruct. Shane does not inform
the other managers at Primo of this action. He also submits a low-priced tender for the
construction of the warehouse through Iconstruct, knowing very well that Primo would submit a
tender for the same. Since Shane’s company quoted the least price, she ends up being offered the
tender.
A.
The Employment Act Section 183(1) prohibits utilization of enterprise confidential
information to fulfil personal interests. This includes company data, which if used outside the
enterprise premises may negatively affect the performance of the organization. In the instance of
ASIC v. Stephen William Vizard (2005), the company director’s position was abstained on the
basis of the fact that he misused organization information (Klausner, Michael 2013). The judge,
in this case, emphasized on the role of company director in relation to the society. In Australian
Competition and Consumer Commission v. ABB Transmission and Distribution Ltd (2002)
emphasis was placed on the damages that were caused by misuse of the company by the directors
rather than the character of the offenders (Yosifon, David 2010).
Section 183 of the Employment laws dictates that directors should uphold their fiduciary
duties, and they should avoid compromising on the trust that the organisation has placed on
them. In Fodare Pty Ltd. v. Shearn (2011), the court determined that the fiduciary duties require
directors to perform their duties with utmost diligence and avoid misusing company position
(Bruner, 2013). A common instance in which misuse of company information occurs is Insider
Trading as outlined in Division 3 of employment laws. Insider trading is considered to be an
offence based on how it has been committed; The following factors determine the criminality of
insider trading (Letsou, Peter 2010).

 If the confidential information is controlled or owned by a particular party or the
company.
 If the information being used has been patented by the company.
 If the available data influences operations of the organization and the profit
margins that are expected.
 If the associated person is actually involved in trading activities of the company.
 If the information in question is strictly restricted to a particular source.
Based on the aforementioned acts, cases, and Section 183(1) of the employment laws, it
is unarguable that Shane definitely committed a criminal act. She breached the organization’s
expectations since she couldn’t effectively perform her duties (Bainbridge, Stephen 2015).
Comparing the case of Shane to instances that justify insider trading to be a criminal
undertaking, it can be argued that Shane definitely committed a criminal act by using company
information, and is therefore liable. The position that Shane held at the company, which was
shareholder and director, allowed him to have prior knowledge about Primo. He knew that Primo
would present a tender proposal to Landstock for the construction of a warehouse (Edelman,
2010). Most importantly, he knew very well the price at which the tender could be offered. The
decision to form a new company was very intentional since Shane choose to hold back that
information from other directors. Shane understood that company policy would be used to eject
him from the board of directors. Therefore, using the Corporations Act 2001, Shane has
definitely breached the law. Shane can be taken to court on the basis of committing insider
trading, use of company information for personal gains, thereby, failing to act in good faith, and
violation of general duties assigned to a manager (Lin, Officer, & Zou, 2011).
The employment Laws dictates that Shane has to be reprimanded as she has committed a
crime of using company data to fulfil personal gains. This is aggregated by the fact that he was
both a director and shareholder of the concerned organization (Furlow, 2009). The employment
laws dictate that such an offender is liable to pay fines of up to $450,000. The offender may also
be liable for imprisonment of 10years in combination with the fines that should be imposed.
Hence, as it stands, Shane is viewed as a criminal. In 2016, a judge in Sydney ruled in relation to
insider trading that was undertaken by Oliver Curtis. The defendant ended up receiving a jail

term of 10 years as it was determined that he had made proceeds of up to $1.4 million from his
activities in the farm (Lanis, Roman, and Richardson 2011). The profits that he had acquired
from the trade were illegal and the sentence was rightfully justified. Based on this instance, it is
clear that the consideration that can be extended to a particular case reduces based on the nature
of the case as defined in the Employment laws. In our situation, Shane made the offence with full
knowledge of the implications that would result. Secondly, Shane was able to profit from the
crime while at the same time obstructing Primo’s ability to benefit from the transaction (Hahn,
Peter and Meziane Lasfer 2011).
In addition to the outlined penalties, it is possible that Shane’s civil obligations will have
to be imposed. This is defined in the laws, and it is based on the fact that the defendant may have
violated personal and general duties. If it is established that Shane failed to fulfil his civil
obligations, he may be forced to pay an additional $200,000 depending on how the court will
instruct (Johnson, & Garvis, 2008). This will allow Primo to uphold Commonwealth
conventions, as it will be able to repay the finances that were deposited into Shanes account by
Landstock. Finally, it is expected that directors who are involved in acts of insider trading be
dismissed from holding any managerial position in the company. This has been outlined under
Section 206 of Employment Laws (Keay, Andrew 2010).
CASE STUDY 3
Dronebotics Ltd is a new business establishment that is involved in the designing,
manufacturing, and supply of automate Drone systems. The main clients of this type of product
are companies that specialise in flying automatic drone systems. The drone system software is
designed in a way that will allow the gadgets to monitor, inspect, and conduct survey. The
drones are also designed to fly unmonitored to the base station. CorpGrain Limited
(‘CorpGrain’), which is an agribusiness firm, approaches Dronebotics as it needs an autonomous
drone system to be developed. This will allow the company to monitor towering grain Silos.
Physical inspection by human beings may be very difficult for such tasks. The drone system
should comply with onerous safety stipulations.

Based on the case, Diane and Frank are the registered executives of the organization that
is responsible for developing the drones. These two directors feel that the project should be taken
up so that the operations of Dronebotics can cover many more industries. The case study has
revealed that the directors intend to take the risk associated with entering into this agreement,
while at the same time conducting business operations of Dronebotics. On the other hand, Kelly
and Ron, are not registered executive directors, but they have a stake in the company. For them,
they do not favour the agreement as they don’t see the feasibility of entering into this contract.
Ron and Kelly argue that Dronebotics is not a very well-established company in the industry.
Therefore, it is highly unlikely that the company will be able to deliver on the delivered promise
of a highly efficient and autonomous drone system as required by CorpGrain. The two managers
also feel that the company does not have the adequate technological capability to deliver on
expectations of CorpGrain. Most importantly, it is expected that adequate research will have to
be conducted prior to the undertaking this massive project so that it is possible to come up with
an efficient software. All these activities need money and it’s not something that Dronebotics has
at the moment. Ron and Kelly have adequate knowledge with regards to how the matter should
be handled. Therefore, they compile a report addressing feasibility of the project and they submit
it to the board of CorpGrain Ltd, based on the current operation that are being undertaken
(Velasco, 2012).
Scenario A
Based on the relevant statutes and trade laws, the directors of the organisation are
considered to have a liability in relation to Dronebotics. Since the directors also have a stake in
the organization, but they appear to contradict each other’s opinion, the court takes over the
matter. This will help to come up with the most suitable remedy that will leave all parties
satisfied (Johnson, Lyman 2013). In equity matters, directors of an organization are considered to
have a liability on the basis of fiduciary relationships (Richardson, et al., 2013). According to the
trend of things at Dronebotics, the loyalty standard that has been set is extremely high. Most
importantly the duties that have been imparted on the directors help a lot when merged with
directors’ liabilities as defined in the General Duties of Director Act. Sections 183, 182, and 181
of employment laws dictate that general duties related to company directors can be imposed with
general obligations. Based on Jacques v. AIG Australia Ltd. (2014), it is evident that non-
executives and executives faced a general liability. The fact that they fulfil the position of

director in the company, they should fulfil particular legal obligations. However, there is a huge
difference in how the fulfilment of obligations should be undertaken as ascertained by the courts
(Strine, Leo 2014).
In accordance with Section 180(1) of enterprise judgement rules, company directors are
obligated to deliver on their duties while ensuring that diligence and due care is upheld.
Information should appropriately be relayed to the directors on various subjects affecting the
organization. Diane and Frank have failed in exercising their obligations. This is based on the
fact that they failed to attend a meeting meant to address reasons why Dronebotics cannot enter
into a contract with CorpGrain (Phillips, et al., 2013). More importantly, the directors failed to
go through the report submitted by programming experts on feasibility. Hence, is evident that the
directors and non-directors failed exercise due diligence and utmost care in making decisions
(Zou, et al.,2008).
Based on ASIC v. Healey & Ors. (2011), it is undoubtedly important for directors to make
apt decisions as they will be held accountable for any mistakes that arise. Ron and Kelly played
their part as they attended meetings to review the possibility of establishing a contract between
Corp Grain and Dronebotics. Additionally, they attended a meeting in which more information
on the issue could be offered by programming experts. However, the fact that they failed to be
careful and diligent when making a decision cannot be ignored. This may have happened since
they allowed Frank and Diane’s decision to influence them (Muchlinski, Peter 2012).
Scenario B
Based on the technology that is currently being used at CorpGrain, it can be argued that
the project would be easily implemented. This would however depend on the parties’ ability to
accept the terms in relation to the decisions that have been made. In the case that Frank and
Diane fail to inform the other directors about their decisions, then they would have definitely
failed to exercise diligence and care in the process of attending to their duties (Chung, & Wynn,
2008). Coupled with that fact, it is evident that the drone system ended up being delivered
irrespective of the contradicting opinion that was held by some of the executives. This ended up
creating technical complications since there was a notion that Dronebotics was not in a position
to effectively deliver on the expected task (McDonnell, 2014).

The court expects that every director should be liable for making a decision to enter the
contract. Hence, based on the court, all directors would have been charged collectively.
However, a defence can be raised. The first defence can be based on the outlines of Reasonable
and Honest Défense Director. It can be argued that Kelly and Ron listened to the experts and
took appropriate actions. The directors can also defend themselves based on Enterprise
Judgement Regulations as based on ASIC v. Rich (2003). This is better elaborated within Section
180(2) of the employment laws. Considerations can also be made by the court in relation to the
safe harbour act, which protects directors from facing the same ruling since they did not make
similar decisions. This allows the directors to gain certain advantages. Kelly and Ron could
therefore defend themselves on the basis of ruling as provided in ASIC v. Adler (2002).

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