Connections Between Ethics and Directors' Duties in Australia

The history of the development of directors’ duties in Australia has been one of increasing obligation. Nineteenth-century notions of director competence set a lower standard, and gave more credence to business pressures, than later formulations of the relevant duties. In 1959 Sir Douglas Menzies, a Justice of the High Court of Australia, made the extra-curial comment that ‘[i]t is a generalization not far from the truth, up to the present, that what the law demands from a director of a company is a high standard not so much of ability, care and diligence as of honesty’. However, by the latter part of the twentieth century Australian courts were prepared to use a more objective test when assessing directors’ actions, and the AWA case clarified the objective elements of the critical duty of care. It is now an accepted observation that ‘the standard of care expected of company directors, both by the common law (including equity.) and under statutory provisions, has been raised over the last century or so’. Further clarification of the standard of care and diligence expected of directors occurred more recently with the High Court decisions in the James Hardie litigation, and the Centro case, the latter reflecting ‘the upward trajectory of the duty of care and diligence’ over the last two decades.