Analysis of Duty of Directors under s180(1) of Corporations Act

Part 1 (Legal Analysis):
In Cassimatis,1 Edelman J had stated that the main test that needs to be applied regarding the
nature of duty mentioned in s180(1) is the verdict of Ipp J that has been delivered in Vrisakis.2 In
this case the court had stated that only due to the fact that our director had taken part in the
conduct that involves a predictable hazard of on to the welfare of the corporation does not
essentially indicate that the director has been unsuccessful in exercising the logical care and
diligence while discharging his duties. The issue is the director has used reasonable care and
diligence can be dealt with by matching the predictable danger of harm against the possible
profit that may sensibly be likely for the corporation as a result of the conduct in question. .
Another significant issue that needs to be considered in terms of this matching exercise is the
weight of taking alleviating action like the expense, difficulty or inconvenience. Therefore, it
was stated by Edelman J that predictable hazard of harm that may be undergone by the
corporation falling under the purview of s 180(1) is not limited to financial harm. Therefore such
harm also covers all the interests of the company. These interests comprise the reputation and the
interests concerning the compliance with law and the risk of exposing as a result of breach of
law. The court stated that even if the duty of care is the same, the standard of care that needs to
be fulfilled by a director or the officer of the company depends on the conditions of the company
and also the position and the duties of the director or officer. A reference was made by the court
to the verdict delivered in Shafron.3 In this case, the High Court had mentioned regarding the
1 Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023
2 Vrisakis v Australian Securities and Investments Commission (1993) 9 WAR 395
3 Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465

element identified above, that the responsibilities that have been mentioned in s 180 (1) are not
restricted to statutory duties. Hence, they embrace the responsibilities that are imposed on officer
concerned in the company, irrespective of how and why the responsibilities have been imposed
on such officer. Due to this reason, the same (higher) standard is not applicable in case of the
non-executive directors that have been applied for the executive directors.
For example, in this case, Mr. and Mrs. Cassimatis had claimed that s 180(1) is not applicable in
cases where directors are also the sole shareholders of the company. More particularly that "there
is nothing per se illegal then the director of a solvent company allows the company to pursue a
venture, no matter how risky it is" if the same has been authorized by the shareholders. However,
Edelman J, rejected this argument on account of various reasons. The court stated the interests of
the company covers the interests of the shareholders. Consequently, where the shareholders have
acquiesced to a particular course of conduct than such acquiescence has an impact on the
political content of the duty. However, the acquiescence does not result in relieving or
eliminating the duty where other relevant interests of the company are present, other than the
interests of the shareholders.
On account of the proven facts in this case, it was established that while running the routine
management of Strom, both Mr. and Mrs. Cassimatis were indeed deeply related with nearly
every aspect of the business of the company. Moreover, they had "extraordinary level of control
over the company which includes the control over the financial advisors as well as the process
for giving advice related with the Storm model.
According to one witness, the board meetings of the company can be described as information
sessions that were conducted by the couple. During these sessions, independent, non-executive
directors of the company remained passive. As a result, it was observed by Edelman J. that even

if there is some evidence to suggest a desire on the part of Mr. and Mrs. Cassimatis for
encouraging cetaceans on new ideas, the control that was exercised by them. Over the company
was so extensive that nearly stifled any possibility of contradiction or dissent and they would
have known about it.
Even under these circumstances regarding the responsibilities of Mr. and Mrs. Cassimatis in the
company that the evaluation regarding s 180(1) had to be made. The court found in this regard
that there had been a breach of civil infringement of s 945A(1)(b) and 945A(1)(c), Corporations
Act. The court also discovered the violations mentioned above are not only reasonably
foreseeable. Instead, when these breaches took place, any reasonable director having the same
responsibilities would have been aware of the clientale and demographic of the company, and
therefore should have considered the violations to be likely. Specially, a reasonable director
under the circumstances of the company and with the responsibilities of Mr. and Mrs. Cassimatis
would have recognized that there was chances that inappropriate advice may be provided, in
breach of 945A of even the directors failed to exercise their powers to prevent the company from
applying the Storm model under such inappropriate conditions, which included the use in case of
susceptible clients falling under the class as alleged by the ASIC.
Regarding the consequences of the breach, Edelman J stated that even if several pertinent
investors have undergone life altering, major losses after the global financial crisis, still these
losses were neither essential nor adequate for the breach by Storm of section 945A.. It can be
stated that at least any reasonable director having similar responsibilities and under the
circumstances of the company would have realized that finding out the likely violation at some
point was, if not very likely, but at least a glaring prospect. The results of the discovery included
the suspension or the annulment of the application of Storm's AFSL. As it amounted to a very