Corporate Liability and Directors' Duties in Australia

This article discusses the concept of corporate liability and directors' duties in Australia. It explains the provisions of the Corporation Act and Tort Law and provides examples of cases where directors can be held liable for wrongful acts. The article also covers the principle of vicarious liability and the difference between primary and secondary liability.

Running head: CORPORATE LAW
Question & Answer
Name of the Student
Name of the University
Author Note

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Assessment Item 1
Answer of (A)
There are various cases where the members of a company held liable for certain illegal
acts including negligence. The dispute arise when it becomes hard to proof whether the offender
himself will be liable for the wrongful acts or whether the whole company will held liable for
that. The court has, for the first time, in the case of Salomon v Salomon decided that the
company is a separate legal personality and it will not held liable for the negligent or wrongful
acts of the members. In Australia, offence relating to negligence is fall within the scope of Tort
law and in case where the members of a company are engaged in any negligent act, it will fall
under the provisions of the Corporate Tort. An act can be called as negligent act if the wrongdoer
has failed to show reasonable care during the course of their employment. The Corporation Act
has imposed certain duties on the directors so that they can perform their acts carefully.
According to section 180 of the Act, the directors are required to act in good faith while doing
their business. It is not required to involve in any wrongful gain during the course of their
business. In case of ASIC v Adler (2002) 168 FLR 253 the court has observed that if the
directors are negligently using their position and act for certain illegal way, they will be held
liable for that.
In Australia, many cases are pending before the Court regarding the wrongful acts of the
directors and many times, it can be observed that certain directors are also the shareholders of the
company. The case of the Cassimetes (2012) is an ideal example regarding the same. In this
case, it has been observed that the directors of the company had failed to show sufficient care to
the investors and the investors had to face lots of trouble for that. When they are interrogated by

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the court, they took the plea that they are also the shareholders of the business and they had to
face troubles too. The court has rightly observed in that case that it is the duty of the director to
take all the reasonable care for securing the interest of the shareholders and in this case, they
have failed to comply with the same. Therefore, the directors could not take the plea that they
have shares in this case. According to the provisions of the Corporation Act, the provisions of the
section 180 to section 183 are applicable to all the directors. It has further been stated that in case
the directors could not meet the requirements and even unable to satisfy the provision mentioned
under section 180(2) of the Act, they have to face civil and criminal penalties. The civil penalty
provision has been comprised in section 1317E of the Corporation Act. Criminal penalty
provision has been engraved under section 183 of the Corporation Act.
In the case of Kramer v Kramer (1979), it has been held that the directors have certain
fiduciary duties and they have to perform it diligently. In case they have failed to do so, they will
be held guilty for it. The acts and duties of the directors are governed by the Corporation Act and
according to section 1317E of the Act, if the directors have failed to perform their duties, they
will have to face penalties for that. However, it is to be noted that the act of negligence is civil in
nature and therefore, if the directors are held liable for any negligent act, they will have to face
civil penalties that are laid down in section 1317E of the Act.
In the case of Turquand v Marshall (1869) LR 4, it has been observed, being a director
of a company, they play important role and considering the potentialities of the directors, it has
been observed that the directors must not misuse their position. If they held liable for misusing
their position, they will make a breach of their duty. According to the Tort Law of Australia,
breach of duty comes under the provisions of the negligence. However, according to the law of
Australia, the negligent must be gross in nature and mere negligence will not attract the provision

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of the Tort Law. By gross negligence it can be stated certain situation where the company or any
shareholders has to suffer lot of problem. There are certain cases where the acts of the directors
are directly linked with the company and if the acts of the directors are performed for the
benefits of the company, the whole company will be held liable for that.
Answer of (B)
The concept of separate identity of a company has separated its liabilities from its
members. However, a company can vicariously be liable for the wrongful acts of its employees.
According to the law, directors are the minds of the company and without them; companies
could not perform its job officially. Therefore, where the directors are involving in any wrongful
acts for securing the interest of the company, the company will be held liable for such crime.
This principle is known as corporate liability. The term vicarious liability is depended on the
master servant principle where it has been observed that the master will be liable for the
wrongful acts of the servant if the wrong has been done due the course of their employment. This
term has been applied in case of Tort Law. Crime means where the intention and act of the
accused are illegal. It has been observed in Tesco Supermarket Ltd v Nattrass [1972] AC 153
that both the knowledge and state of mind are essential for proving the criminal activities of a
company. In Ferguson v Wilson (1866) LR 2 Ch App 77, the court states that a company can be
held liable for criminal breach of contract.
Every company is required to perform their work safely and the company should follow
the provisions of the Occupational Health and Safety Act. If a company has to make profit and
incorporate for certain illegal acts, the company will be held liable for the same. The liability of a
company can be divided into two parts: primary and secondary. When the company itself does a
wrong act, it will be regarded as primary liability and when the agent or an employee does a

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wrongful act, it will be regarded as secondary liability. The primary liability of the company has
been established in the case of Lennard’s Carrying Co. Ltd v Asiatic Petroleum Co Ltd [1915]
AC 705. The directors are regarded as the mind of the company and therefore, if they act to gain
illegal profit for the company, the company will be held liable. In the case of Bolton
Engineering Co, Ltd v T J Graham & Sons Ltd [1957] 1 QB 159, it has been held that if an
agent of a company held liable for any criminal activities and if outcome of the act is attached
with the interest of the company; the company will be held liable for such criminal acts under the
principle of vicarious liability.
In Hollis v Vabu Pty Ltd (2001) 207 CLR 21, it has been observed by the court that the
agent of the company was held liable for the negligent act and that causes injury to the plaintiff.
According to the court, as the injury has been made during the course of work and the alleged
agent was served for the company, the company will be held liable under the principle of
vicarious liability. In case of Securities of Australia Pty Ltd v Clinton Joseph Brilly [2008]
NSWCA 204, it has been observed by the court that if a company has been incorporated with
certain fraudulent purpose, the corporation will be held liable and the veil will be pierced
automatically. In S & Y Pty Ltd v Commercial Union Assurance Co. (1986) 82 FLR 130, the
court has observed that if the directing mind of a company is accused of murder during the
course of his employment, the company will be held liable for the same. However, a company
will not held liable if the directing minds of the company has done certain illegal acts against the
interest of the company and it has been observed in the case of R v Gomez [1993] AC 442. The
direct liability of a company has been established in Hamilton v Whitehead (1988) 166 CLR
121.

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It has been held in R v Australasian Films Ltd (1921) 29 CLR 195 that if an agent of a
company attempted to defraud the revenue at the time of his work or employment, the company
will be held liable for the crime until the fraud has been made for the interest of the company. If
the fraud has been made for any personal interest of the agent, company will not be liable for the
offence. The company can be held liable under the Criminal Code Act 1995 if any act of the
company come under the provision of chapter 2 of the Code.

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Reference:
ASIC v Adler (2002) 168 FLR 253
Australia Pty Ltd v Clinton Joseph Brilly [2008] NSWCA 204
Bolton Engineering Co, Ltd v T J Graham & Sons Ltd [1957] 1 QB 159
Ferguson v Wilson (1866) LR 2 Ch App 77
Hamilton v Whitehead (1988) 166 CLR 121
Hollis v Vabu Pty Ltd (2001) 207 CLR 21
Lennard’s Carrying Co. Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
R v Australasian Films Ltd (1921) 29 CLR 195
R v Gomez [1993] AC 442
S & Y Pty Ltd v Commercial Union Assurance Co. (1986) 82 FLR 130
Tesco Supermarket Ltd v Nattrass [1972] AC 153
Turquand v Marshall (1869) LR 4