BLAW5016 and MT565 Fundamentals of Business and Corporation Law Assignment 2022

Curtin Law School
BLAW5016 and MT565 Fundamentals of Business and
Corporations Law
Take Home Test 2 – Semester 2, 2019
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b)
Area of Law Concerned
Whether the directors of Exotic Ltd can be rendered liable for their contravention of
duty of care and diligence with respect to their failure to undertake proper measures
along with failure in reporting financial risks towards shareholders with respect to
foreseeable climatic change risks probable to cause injury towards the company
which might include reputational harm as well.
Relevant Legal Principles
As per the provisions contained in s 180 (1), CA1, any individual who has been
holding the designation of a director or an officer in a company having the authority
to take part in the management of the company would have the liability to ensure all
their actions and powers to be exercised in a careful and diligent manner2. The care
and diligence that is required to be inflicted within the actions of the directors are to
be assessed as per the actions of a reasonable man acting in the similar situation under
the similar designation. Any director who has been acting in contravention of the
provisions of the section would be held liable to incur a civil penalty under s 1317E,
CA3.
It has been held in the case of ASIC v Cassimatis (No 8) [2016] FCA 10234, any
director who has not been diligent or careful while discharging their duties as a
director in conducting the affairs of the company, would be held liable to incur civil
liability.
The duty of a director to ensure their actions to be careful and diligent while
conducting the affairs of the company would also cover the assessment and their
response towards the risks that may be presented or has the probability of being
presented by the alterations in the climatic conditions. The actions of the director
while conducting the affairs of the business needs to be undertaken after assessing the
climatic risks that might impact the business of the company which has significance
with respect to the interest of the company. Such an assessment and discovery of
climatic risks having the probability of impacting the business of the company needs
to be addressed by the directors by adopting 4 positive measures. These measures
1 The Corporations Act 2001 (Cth), s 180 (1)
2 Hill, Jennifer G., and Matthew Conaglen. "Directors’ Duties and Legal Safe Harbours: A
Comparative Analysis." Research Handbook on Fiduciary Law, DG Smith, AS Gold, eds, Edward
Elgar, UK (2017).
3 The Corporations Act 2001 (Cth), s 1317E
4 ASIC v Cassimatis (No 8) [2016] FCA 1023

include to avail further information, disclosure of the risks inculcated within the
financial reporting framework, adopting measures befitting the situation along with
undertaking of steps to mitigate the situation. Any director who has been found to
have avoided or failed to consider and address the probable climatic changes that
might be having the probability of causing injury to the company or has been
negligent in bringing the same to the notice of the shareholder by including such an
assessment of climatic risks in the financial reporting framework, would be held liable
under the provisions of s 180 (1), CA5. This is because assessment of the climatic
change risks along with the disclosure of the same and the adoption of proper
measures to combat the same is to be construed as an action that a diligent and careful
director under the reasonable conditions would take6.
The companies operating in Australia is required to prepare financial reports along
with directors reports annually as per the provisions contained in s 292, CA7. The
companies which are listed are required to prepare as well as launch the financial
report along with directors report every year. Such a company is also required to
include any environmental risk that is probable in the given situation within the
financial report.
It has been held in the case of Rafferty v Madgwicks [2012] FCAFC 378, the failure to
disclose any information which is material as per the circumstances would amount to
a deceptive or misleading conduct.
However, for the purpose of holding a director liable for the failure of incorporating
the climatic change risks, the foreseeability of the climatic change risk is required to
be established has been established in the case of ASIC v Vines [2003] NSWSC 10959.
Application
In the present situation, Exotic Ltd. has been a company involved in waterfront resort
operations honour remote Pacific Island. presided by a Managing Director namely
Joel and two non executive directors namely Bill and Bibi. Owing to algae bloom that
has occurred as a result of a climatic change, there has been a financial distress
presented to the company as the situation requires a treatment of the algae. This has
made the company upon the advice of the Pacific Algae Treatment Inc, which has
5 The Corporations Act 2001 (Cth), s 180 (1)
6 Summerhayes, Geoff. "Australia’s new horizon: climate change challenges and prudential risk."
Speech delivered at the Insurance Council of Australia Annual Forum, Sydney. 2017.
7 The Corporations Act 2001 (Cth), s 292
8 Rafferty v Madgwicks [2012] FCAFC 37
9 ASIC v Vines [2003] NSWSC 1095