Business Association Law

s 1. Introduction to Parties

Green Lawn Ltd 1 is a public company which focuses on landscaping and gardening. Currently at the company, there are three directors namely Tharanga who is a qualified landscape designer, Seung who is an engineer and Laura who is the customer service officer of the company. Each of them is holding 20 per cent of the company’s shares, while the other 40 per cent of shares are controlled by minority shareholders. Apart from these three directors, Xing who acts as the consultant of the company, also significantly gets involved in the business for his experience and thus, he is an officer as defined under s 9 of the Corporations Act 2001 (Cth).

2. Duty of Care and Diligence

In May, the company suffered a huge loss due to the lack of an existence of a restraining wall around the pool, which was suggested by a university structural engineering student Jenn who was entrusted by the board to provide guidance on whether a restraining wall was needed. Then, the majority of the board took the advice from Jenn and did not build the wall, despite the strong opposition by Tharanga. In other words, Xing, Tharanga, Seung and Laura might have breached their duties of care and diligence to the company. Both general law and statutory law impose duty of care and diligence to directors or officers of a company, and the duties under different sources are not significantly different 2. The statutory law duty of care is mainly set out in s 180(1) of the Corporations Act, while in mean time in s 180(2) the judgment rule provides directors with defences. In addition to the general principle laid down in s 180, in this particular case, to assess whether directors have breached their duty of care and diligence, in the presence of delegation and reliance, it is also important to look into the requirements in ss 189, 190 and 198, as delegation and reliance on third party information may provide defences for directors and officers. Section 198 gives directors...