Breach of Director's Duties in AWA Ltd v Daniels

This presentation discusses the case of AWA Ltd v Daniels, focusing on the breach of director's duties. It provides an overview of the case, the background of AWA Ltd, and the financial difficulties faced by the company. The presentation analyzes the relevant sections of the Corporations Act and examines the court decisions. It also explores the relevance and impact of the decision on directors, auditors, and accounting professionals. The presentation concludes with a list of references for further reading.

CORPORATIONS LAW
• BREACH OF DIRECTOR’S DUTIES

CASE INTRODUCTION
• The case in discussion is AWA Ltd v Daniels (1992) 10 ACLC
933; on appeal Daniels v Anderson (1995)
• AWA Ltd is an Australian Company dealing with dealing with
manufacture, import and export of electronic and electrical
products
• The company imported supplies from Japan and other
countries in large quantities
• Due to deregulations of the Australian financial markets and
severe fluctuation in the international currency markets there
was difficulty in conducting business

CASE INTRODUCTION (Contd.)
• To avoid potential risk the company purchased foreign
currencies in contracts for import of goods
• In the year 1985-86 the company stopped purchasing foreign
currency contracts and started to invest in managed hedging
• in the financial year 1986-87 25% of the company’s total
profit was anticipated from managed hedging
• In 1985 a Foreign Exchange Manager was appointed who
showed a profit of over 400% in just eight months
• It was later discovered that only contracts showing profits
were disclosed

CASE INTRODUCTION (Contd.)
• Contracts with losses were concealed by rolling over at
historic rates or paying by unauthorized borrowing of funds
• Two audits were done by Daniels
• None showed any deficiency in company’s accounting
structure
• Not statutory audits
• For failure of auditors AWA lost almost $49.8 million

BREACH OF DIRECTOR’S DUTIES
• Section 180 of the Corporations Act defines duty of care and
diligence of directors towards the company
• Section 181 binds the directors to exercise their powers and
discharge of duties with care and diligence’
• Section 184 states that failing to abide by section 181 of the
act a director would face criminal charges
• Section 588G provides for director’s duties to prevent
insolvent trading by the company.

Analysis of Court Decisions
• Interim judgment found the auditors guilty of neglect under
the general law
• Court of appeal shared liabilities arising from breach of
statutory duty between the directors and auditors
• The auditors were held responsible for failure of fulfillment of
obligations under the section 285 of the Companies code
1981
• Sections 237, 267, 285(4), 237, 535 and 542 of the code were
also discussed

Analysis of Court Decisions (Contd)
O’Connor v SP Barry Limited (1936-1937) 56 CLR
464, 478
In the case it was stated that the cause of
action of a breach of statutory provision
depends solely on the legislative intent to
protect a person and not on the statute that
imposes a duty on the defendant.

Analysis of Court Decisions (Contd)
Pacific Acceptance Corporation Ltd v
Forsyth & Ors (1970) 92 WN (NSW) 29, 125
In the case, it was held that in claims
for breach of statutory duty by auditors
contributory negligence was not available.

Analysis of Court Decisions (Contd)
• Court held Daniels responsible for AWA’s loss
• Daniels requested for appeal
• In the appeal director AWA John Hooke was held responsible
for negligence
• Duty of care of director is not subjective
• To determine scope of duty of care special qualifications of
director may be considered relevant

Relevance and Impact of Decision
• The judgment is important to directors, auditors and
all other professionals who provide accounting
services to clients.
• Defense for contributory negligence was successful
• The liability of damages was shared between the
company and the external auditor
• In previous cases for the negligence of the external
auditors a full damage was awarded to the plaintiff

Relevance and Impact of Decision (Contd.)
• Director’s duties in relation to care, diligence and skill were
discussed
• The duty of care arising under the general law referred to in
section 180 of the corporate act was interpreted in the case
• It was held that directors must maintain a minimum standard of
care skill and diligence-
a. acquire a basic understanding of the fundamental concepts of the
business of the company
b. be under an obligation to be informed about the company’s
activities
c. conduct general monitoring of company’s business
d. be familiar with the financial statements.

Reference
• AWA Ltd v Daniels (1992) 10 ACLC 933
• Daniels v Anderson (1995) (1995) 37 NSWLR 438
• O’Connor v SP Barry Limited (1936-1937) 56 CLR 464, 478
• Pacific Acceptance Corporation Ltd v Forsyth & Ors (1970) 92
WN (NSW) 29, 125
• The Companies Code 1981
• The Corporations Act 2001 (Cth)