ASIC v Rich [2003] NSWSC 85 | Case summary

5934/01 AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION v JOHN DAVID RICH & ORS JUDGMENT (Revised for typographical errors 24 February 2003) 1 HIS HONOUR: This is a civil proceeding in which the plaintiff ("the Commission") seeks relief of various kinds against the three executive directors of One.Tel Ltd and its non-executive chairman of directors (Mr Greaves, who is the third defendant), for breach of their statutory duty of care. 2 One.Tel was a company listed on the Australian Stock Exchange. It was placed into voluntary administration in May 2001 and then into liquidation in July 2001. The first and second defendants, Mr Rich and Mr Keeling, were the joint managing directors of One.Tel from March 1995 until 17 May 2001. The fourth defendant, Mr Silbermann, was the finance director from July 1997 to 29 May 2001. They occupied executive positions within the corporate group of which One.Tel was a part. 3 Between 1 January and 29 May 2001 there were four non-executive directors of One.Tel, namely Mr JD Packer, Mr LK Murdoch, Mr RS Adler and Mr Greaves. The Commission alleges that Mr Greaves had been a qualified chartered accountant and had substantial practical commercial experience in listed public companies, as the finance director or chief financial officer of Fairfax Ltd, Optus Ltd and Wormald. It contends that Mr Greaves was better qualified and more experienced than all of the other One.Tel directors, as regards board supervision of the financial management of the Group. Paragraph 4 of the SFASC states that Mr Greaves was a director of One.Tel from February 1995 to 31 March 2001; he was chairman of directors from May to December 1995, and then from July 1997 until 31 March 2001; and from at least July 2000 to 31 March 2001, he was chairman of the Finance and Audit Committee, one of the functions of which was to consider the funding requirements of One.Tel. The Commission alleges that Mr Greaves was remunerated for his services in the sum of $50,000 per annum plus superannuation, while the other non-executive directors at the relevant time received no fees for their services. 4 The substance of the Commission's allegation against Mr Greaves is that he had special responsibilities beyond those of the other non-executive directors, by reason of his positions as chairman of the board and the Finance and Audit Committee, and also by reason of his high qualifications, experience and expertise relative to the other directors. Those responsibilities led to a higher standard of care and diligence, according to the Commission, which Mr Greaves failed to meet. 5 Mr Greaves complains that he was a non-executive director, in essentially the same position as the three other non-executive directors who have not been sued by the Commission, notwithstanding that he was chairman of the board and of the Finance and Audit Committee. He has filed a notice of motion seeking to strike out the Commission's statement of claim as against him, or alternatively to strike out specified paragraphs so far as they relate to him, or alternatively to obtain proper answers to his requests for further and better particulars. 6 At the time of the application, the Commission's pleading was the "Further Amended Statement of claim" ("FASC"). Since the first hearing day of the application, a new version of the statement of claim, the "Second Further Amended Statement of Claim" ("SFASC"), has been filed. The question that now presents itself for decision is whether to grant Mr Greaves any of the relief he seeks in respect of the SFASC. I offer the general observation that, compared with typical pleadings one encounters in hearing cases in this Division of the Court, the SFASC is exemplary in its clarity, precision and detail. It may be that these very virtues have laid the Commission open to the complaints now made by Mr Greaves, which raise some legal issues exposed by the structure of the pleading, and also the question of the proper limits of a plaintiff's obligation to supply particulars. 7 The application has been made on the following bases, directed to the Statement of Claim in its previous form: (a) no reasonable cause of action was disclosed, because the duties to which Mr Greaves was alleged to have been subject are not known to law (Supreme Court Rules, Part 13 rule 5; Part 15 rule 26 (a)); (b) the form of the FASC had a tendency to cause prejudice, embarrassment and delay in the proceeding (Part 15 rule 26 (b)); (c) the Commission failed properly to particularise its case against Mr Greaves in a number of respects, which he claimed to be fundamental (Part 16 rule 1). The structure and content of the SFASC 8 The Commission's case is that each of the four defendants contravened s 180(1) of the Corporations Law during the period from January to March 2001. To make out this case, it has organised the SFASC by reference to the following headings: · the parties and the offices · the responsibilities · the statutory duty · One.Tel Group's circumstances · knowledge of Rich, Keeling and Silbermann · knowledge of Greaves · the conduct of a reasonable director. The pleading under these headings is obviously intended to establish the content of the duty owed by the defendant directors to One.Tel under s 180(1). 9 The SFASC then pleads contraventions by each of the defendant directors. It alleges that their contraventions were serious so as to justify their disqualification from managing a corporation. It then claims that One.Tel suffered loss or damage by reason of the contraventions. 10 Relief is then claimed under the civil penalty provisions of the Corporations Act 2001 (Cth), in the form of multiple declarations of contraventions of s 180(1) by each of the four defendants, and orders against them prohibiting them from managing a corporation, and requiring them to pay compensation to One.Tel, and the Commission's costs. Fourteen declarations of contravention are sought against each of Mr Rich and Mr Keeling, nine are sought against Mr Greaves and seven are sought against Mr Silbermann. All of the contraventions alleged are contraventions, in various ways, of s 180(1). 11 The pleading draws attention, in an acute way, to the ingredients that must be established for contravention of s 180(1). 12 Section 180(1) of the Corporations Law, now replaced by the identically worded section of the Corporations Act 2001 (Cth), is in the following terms: "180(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer." 13 Central to the Commission's case against Mr Greaves is its assertion that he had special "responsibilities" (in the sense in which this word is used in s 180(1)(b)) by virtue of his various positions and expertise. The SFASC sets out the alleged responsibilities under the heading "the responsibilities". 14 Paragraph 9 of the SFASC pleads the following as the responsibilities of Mr Greaves: "9. During the period 1 January to 31 March 2001, by reason of the offices and positions held by him, the particular circumstances then pertaining to the One.Tel Group, and his own qualifications, experience and expertise relative to the other directors, Greaves had the following responsibilities: (a) to take reasonable steps to ensure that he and the other members of the Board monitored management of the One.Tel Group, properly assessed One.Tel's financial position and performance, and properly and promptly detected and assessed any material adverse development affecting its financial position or performance; (b) to take reasonable steps to ensure that he and the other members of the Board were informed of all material financial information concerning the One.Tel Group which was necessary to enable the Board to monitor management, to properly assess its financial position and performance, and to properly and promptly detect and assess any material adverse development affecting its financial position or performance; (c) to take reasonable steps to ensure that the material financial information referred to in (b) above included information which revealed: (i) the adequacy of the cash reserves within the One.Tel Group; (ii) the actual, and not simply the estimated, financial position and performance of the various segments of the business of the One.Tel Group; (iii) key events or transactions, which affected the financial position or performance of the One.Tel Group; (d) to take reasonable steps to ensure, in conjunction with the Joint Managing Directors, that systems were established, maintained and monitored which resulted in the material financial information referred to in (b) above: (i) being accurate and reliable; and (ii) flowing from management to the Board so as to enable the Board to monitor management, to properly assess the financial position and performance of the One.Tel Group and to properly and promptly detect and assess any material adverse development affecting its financial position or performance; (e) to take reasonable steps to ensure that the One.Tel Group employed a Finance Director with the financial qualifications, skills and experience reasonably appropriate for a person holding that position and having the responsibilities set out in paragraph 10 below; (f) to take reasonable steps to ensure that public statements made on behalf of the company did not mislead the ASX or the investing public; (g) to take reasonable steps to ensure that One.Tel: (i) complied with ASX Listing Rule 3.1 by immediately informing the ASX of any information concerning the company of which the company was or became aware and which a reasonable person would expect to have a material effect on the price or value of shares in the company; (ii) did not contravene section 1001A(2) of the Corporations Law by intentionally, recklessly or negligently failing to notify the ASX of information which was not generally available and which a reasonable person would expect if it were generally available to have a material effect on the price or value of shares in the company; (h) to take reasonable steps to ensure that if the One.Tel Group was to continue its existing operations the cash reserves within the Group were maintained at a level which ensured that the companies within the Group were able to pay their debts as and when they fell due; and (i) to make recommendations to the Board as to the prudent management of the One.Tel Group, including as to its funding requirements, cessation of its business and/or appointment of an administrator. Particulars (i) The offices and positions held by Greaves are set out in paragraph 4 above and the circumstances and relative experience relied upon by the plaintiff are summarised in paragraph 8 of the letter dated 18 April 2002 from ASIC to Watson Mangioni; (ii) Further and better particulars of the reasonable steps which it was necessary for Greaves to undertake in order to give effect to his responsibilities, insofar as they are relevant to the contraventions alleged against him, are set out in the particulars to paragraphs 28, 29 and 30 below." 15 The pleaded responsibilities of Mr Greaves may be summarised, for convenience, as responsibilities with respect to: · the general performance of the board (sub-paragraph 9(a)); · the flow of financial information to the board (including information about cash reserves, actual segment performance and key transactions) (sub-paragraphs 9(b) and (c)); · the establishment and maintenance of systems for information flow to the board (sub-paragraph 9(d)); · the employment of a finance director (sub-paragraph 9(e)); · the public announcement of information (sub-paragraphs 9(f) and (g)); · the maintenance of cash reserves and Group solvency (sub-paragraph 9(h)); and · making recommendations to the board as to prudent management of the Group (sub-paragraph 9(i)). 16 The responsibilities of Mr Rich and Mr Keeling as joint managing directors, and Mr Silbermann as finance director, are pleaded in broadly similar terms, in paragraphs 8 and 10 respectively. Two points should be made about paragraph 9, when compared with those other paragraphs. 17 First, every responsibility except the last one is alleged to be a responsibility "to take reasonable steps to ensure". The previous version of the statement of claim asserted that Mr Greaves had the responsibility "to ensure" the matters pleaded in the first eight sub-paragraphs, but in the present version the obligation is qualified by the words "take reasonable steps", presumably to make it clear that the Commission does not allege that Mr Greaves had an unqualified obligation to produce the outcomes stated in the various sub-paragraphs. 18 Secondly, while paragraph 8 pleads that Mr Rich and Mr Keeling had certain stated responsibilities by reason of their offices as Joint Managing Directors, and paragraph 10 pleads that Mr Silbermann had certain stated responsibilities by reason of his office as Finance Director, paragraph 9 refers not only to Mr Greaves' offices (director, chairman of directors, and chairman of the Finance and Audit Committee), but also to the particular circumstances pertaining to the One.Tel Group and Mr Greaves' own qualifications, experience and expertise relative to the other directors. The case that the Commission seeks to make out is not a case about the duties of a company chairman at large, but about the duties of a company chairman who is also chairman of the audit committee, having regard to the particular circumstances of the company and his special personal qualifications. 19 To understand the significance of paragraph 9 to the SFASC as a whole, it is necessary to consider the contentions made under some of the other headings. 20 Under the heading "the statutory duty", paragraph 11 of the SFASC makes it clear that the responsibilities pleaded in paragraph 9 are intended to be the "responsibilities" referred to in s 180(1)(b). Paragraph 11 contends that Greaves was obliged to act with the degree of care and diligence which a reasonable person would exercise if that person had been a director of One.Tel in the circumstances of One.Tel pleaded in the Statement of Claim, and had occupied the offices and had the same responsibilities as Greaves. 21 Under the heading "One.Tel's financial circumstances", paragraphs 12 and 13 and the Schedule to the SFASC describe, in considerable detail, the One.Tel Group's financial circumstances in the period from 1 January to 17 May 2001. These are "the corporation's circumstances" referred to in s 180(1)(a). Broadly speaking, the SFASC contends that the Group's financial position and performance progressively deteriorated, so that by 28 February the Group required a cash injection of at least $270 million if it was to continue its existing operations and meet current and reasonably foreseeable liabilities, and by 31 March it required at least $287 million. These figures exclude planned expenditure of approximately $365 million for capital works relating to the construction of infrastructure for its mobile telecommunications network. 22 The Schedule to the SFASC, and particulars supplied by the Commission to Mr Greaves' solicitors, add some more specific contentions, to the effect that the circumstances relating to the deterioration of the financial position and performance of the One.Tel Group included: · selective deferral of creditors, affecting month-end cash balances; · depletion of cash reserves contrary to forecast movements, increases in overdue creditors and lack of liquidity; · the sudden and unplanned transfer of $26 million from the UK operations to the Australian operations in late February 2001 over the objection of senior executives in the UK operations; · the need for very substantial increases in the provisions for doubtful debts of the companies in the Australian operations; · unanticipated operating losses for the One.Tel Group and its Australian operations. 23 The knowledge of Mr Greaves is addressed in paragraph 18. In that paragraph the Commission contends that Mr Greaves ought to have known, by stated dates, the month-by-month information concerning the Group's financial deterioration during the period from January to the end of March 2001, and would have known that information if he had taken the reasonable steps set out in paragraphs 28 and 29. 24 The conduct of a reasonable director is addressed in paragraphs 19 and 20. Those paragraphs assert that a reasonable person occupying the offices occupied by Mr Greaves, and having the same responsibilities as he had, would have known of the circumstances concerning the Group's financial position and performance at about the time they occurred, and having that knowledge, would have · promptly ensured that the board was informed, and · on or after 28 February 2001, immediately recommended to the board that the Group cease trading or appoint an administrator unless a cash injection of at least $270 million (or at least $287 million on or after 31 March 2001) was obtained. 25 The allegations under the heading "contraventions by Greaves" are set out in paragraphs 28, 29 and 30, and also in paragraph 39. Paragraphs 29, 30 and 39 are closely related to the pleading of Mr Greaves' responsibilities in paragraph 9. Thus, for example, the assertion in paragraph 9(a) - that Mr Greaves had responsibility to take reasonable steps to ensure that he and the other members of the board monitored management, properly assessed One.Tel's financial position and performance, and properly and promptly detected and assessed any material adverse development - is matched by paragraph 29 (a), which alleges that between 1 January and 31 March 2001 Mr Greaves failed to monitor management of the One.Tel Group, properly to assess One.Tel's financial position and performance, and failed properly and promptly to detect and assess material adverse developments. 26 The first contravention asserted against Mr Greaves, in paragraph 28, is not directly correlated to any of the responsibilities pleaded in paragraph 9, although it relates less directly to several of them. It alleges that Mr Greaves failed properly to ensure that he and the board were aware, month by month, of the financial circumstances of the Group, and that he failed to recommend to the board on 28 February or later that the Group cease to trade or that an administrator be appointed unless a cash injection of at least $270 million was obtained. There are extensive particulars to paragraph 28. They allege that Mr Greaves did not and could not promptly ensure that the board was aware of the Group's financial circumstances, and that he did not make the necessary recommendation to the board, because of his failure to · ensure that he and the board adequately, properly and promptly addressed the soundness of the underlying financial position of the Group by requiring that certain information concerning the cash and creditors, debtors and earnings positions of the Group be supplied to the board at least monthly, and by requiring that the board be promptly provided with monthly management accounts, and by requiring that board meetings take place at least fortnightly and for a sufficient length of time to ensure that the board was properly informed, and by requiring that the board papers contain certain specified information; · require that there be a functioning and effective Finance and Audit Committee independent of the executive directors; · require that the board establish a process of ongoing internal review by an internal auditor of the accuracy and reliability of the accounting and financial systems and the financial information that flowed to the board; · assess for himself whether the information supplied to him and the board concerning the financial position and performance of the Group was accurate, complete, reliable and timely. 27 Paragraph 28 is a centrally important part of the Commission's pleaded case. I shall attempt to summarise its effect in somewhat more colloquial terms. The Commission will endeavour to prove that Mr Greaves, as a foundation director, chairman of the board, chairman of the Finance and Audit Committee and the person with the highest qualifications and experience in financial matters amongst the directors, should have been more active and vigilant with respect to the Group's financial circumstances in January, February and March 2001. That he should have required that the board be given better information about cash, creditors and debtors, and that monthly management accounts be supplied to the board. That he should have required other specified information to be provided in board papers. That he should have convened board meetings at least fortnightly, and made sure that they were substantial meetings in which the directors came to understand the Group's true financial position. That he should have required a properly functioning audit committee and internal review of the Group's financial systems and information. That he should even have personally assessed the quality and timeliness of the information provided to the board. Because he did not do these things, he failed to ensure that the board was properly informed, month by month, of the Group's deteriorating financial position and its need for a cash injection, and he failed to recommend that the company cease trading or that an administrator be appointed unless a cash injection was obtained. 28 Various letters supplying further and better particulars make other, more specific allegations that Mr Greaves did not take steps that he should have taken. They are conveniently summarised in the Commission's written submissions. It is unnecessary for me to set those allegations out here. The summary of the particulars to paragraph 28 is sufficient to give the flavour of the Commission's allegations. 29 Looking at the pleading as a whole, one can see that according to the Commission's case, the statutory duty of care and diligence led to the imposition upon Mr Greaves, in the circumstances, of a series of more specific duties, each of which he failed to discharge (cf Byrne v Baker [1964] VR 443). The specific duties arose because a reasonable person, in the corporation's circumstances, occupying Mr Greaves' offices and having the same responsibilities as he had within the corporation, would have acted in the manner specified by the Commission's pleading. Since the reasonable person contemplated by s 180 (1) would have acted in those ways, Mr Greaves had specific duties to do likewise. 30 It is not easy to fit "responsibilities" into this structure. A principal contention of Mr Greaves is that the author of the pleading has misunderstood the function of the word "responsibilities" in s 180(1). Counsel for Mr Greaves submits that the word "responsibilities" in s 180(1)(b) "refers to the specific tasks delegated to the relevant director as part of the distribution of functions of the corporation, whether such distribution is identified in the articles, through resolution or otherwise. It is there to emphasise that the determination of whether or not the director has discharged his/her statutory duty is not limited to his/her title, but the tasks that fell within his/her bailiwick." To assess this argument, it is necessary to review the recent legislative history of the present section. Recent legislative history of the statutory duty of care 31 Just prior to the commencement of the Corporations Law on 1 January 1991, the Companies Codes of the various States contained the following provision: "229 (2) An officer of a corporation shall at all times exercise a reasonable degree of care and diligence in the exercise of his powers and the discharge of his duties. Penalty: $5000." 32 The section rather self-consciously omitted the word "skill", an omission that the Full Court of the Supreme Court of Victoria had regarded as a significant omission from predecessor legislation: Byrne v Baker at 450. 33 Initially the Corporations Law adopted substantially the same wording, in s 232(4). However, reforms were proposed in the Public Exposure Draft of the Corporate Law Reform Bill 1992. Section 232(4) was to be altered in two principal ways. 34 First, the duty was to be reformulated so as to become a duty to exercise the degree of care and diligence "that a reasonable person would exercise in exercising those powers, and discharging those duties, as an officer of a corporation in the corporation's circumstances". The Explanatory Paper for the Public Exposure Draft (paragraph 94) expressed the concern that the extent of the duty of care under the old provision may have been measured by reference to the particular director's knowledge and experience - a "subjective standard" that was too low. The purpose of the amendment was to provide "guidance and clarity" and a more "useful description" of what was required of company officers, and to "reinforce" that the duty of care was an objective one (paragraph 98). 35 The reference to "the corporation's circumstances" in the new formulation was explained in paragraph 100 of the Explanatory Paper. The purpose of this wording was to recognise that: "What constitutes the proper performance of the duties of the director of a particular company will be dictated by a host of circumstances, including no doubt the type of the company, the size and nature of its enterprise, the provisions of its articles of association, the composition of its board and the distribution of work between the board and other officers" ( Commonwealth Bank of Australia v Friedrich (1991) 9 ACLC 946, at 955 for Tadgell J; see also Explanatory Memorandum to the Corporate Law Reform Bill 1992, paragraph 86, which specifically mentions the state of the corporation's financial affairs and the urgency and magnitude of any problem). 36 The Explanatory Paper drew a distinction between the director's circumstances (raising such matters as whether the director was an executive or non-executive director, or a paid or honorary director), and the company's circumstances (Explanatory Paper, paragraph 101). The Paper said the Court would not be required to consider matters relevant to the director's circumstances unless they were also relevant to the company's circumstances. 37 The second alteration proposed by the Public Exposure Draft was to introduce subsection (4AA). I shall set it out in full, because there are some resonances between it and the SFASC: "(4AA) In determining whether or not an officer of a corporation has contravened subsection (4), regard must be had to such as the following as are relevant in the particular case: (a) what information the officer acquired, and what inquiries the officer made, about the corporation's affairs; (b) what meetings the officer attended; (c) how far the officer exercised an active discretion in the matters concerned; (d) what the officer did to ensure that the corporation made adequate arrangements: (i) to ensure the people who prepared reports, or gave advice or opinions, on which officers or employees of the corporation relied were honest, competent and reliable, and were in other respects such as to inspire confidence in their reports, advice or opinions; and (ii) to monitor and ensure compliance with the law, and with the corporation's constitution, by the corporation and its officers and employees; and (iii) to ensure that persons who took part in the corporation's management did whatever was necessary to avoid a conflict of their pecuniary or other interests with the proper performance and exercise of their functions and powers; and (iv) to ensure that decisions made by persons on the corporation's behalf were adequately monitored; and (v) to ensure that persons who made decisions on the corporation's behalf had adequate information about the subject matter of the decisions; (e) what the officer did to ensure that arrangements of the kind referred to in paragraph (d) were given effect to; and to any other relevant matter." 38 The idea behind subsection (4AA), as explained in paragraph 99 of the Explanatory Paper, was to identify a series of factors relevant to the exercise of the objective standard of care and diligence established by subsection (4). The intention was that the courts would have regard to such of these factors as were relevant to the particular case, in considering whether an officer had contravened s 232(4). At the same time, directors would be able to look at the list of factors and see the kinds of matters that a court would consider if a question were ever to arise as to their discharge of the statutory duty. 39 The Corporate Law Reform Bill 1992, as introduced into Parliament, abandoned the proposed subsection (4AA). The Explanatory Memorandum explained that the list of factors had been removed having regard to a number of submissions, which had suggested that the guidance intended to be provided was not necessary and could be counter-productive. 40 The Bill persisted with the reference to a "reasonable person" and "the corporation's circumstances", but it qualified the standard by requiring that the reasonable person be "in a like position". The new wording, enacted without further change, was as follows: "(4) In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances." 41 The explanation for the new wording, given in the Explanatory Memorandum accompanying the Bill, was less than lucid. The new wording would maintain "the endorsement of a more objective test … while at the same time ensuring that our courts have complete freedom to take into account all relevant considerations in applying the test" (paragraph 39). Subsection (4) would "reinforce that the duty of care is an objective one" (paragraph 82), the use of the words "a reasonable person" being intended to "confirm that the required standard of care and diligence is to be determined objectively". 42 Paragraph 39 of the Explanatory Memorandum stated that the addition of the phrase "in a like position" would enable the court to look both at any special expertise held by individual directors and the distribution of functions within the corporation. Paragraph 85 of the Explanatory Memorandum returned to the question: "Australian law recognises the special background, qualifications and management responsibilities of the particular officer may be relevant in evaluating his or her compliance with the standard of care. At the same time, Australian law also recognises that decisions must be made on the basis of the circumstances at the time and without the benefit of hindsight." 43 In my opinion, while the Explanatory Memorandum makes it clear that the words "in a like position" were intended to bring into account any special expertise, experience or knowledge of the defendant director, so as to raise the standard of care in the particular case, it leaves open the question whether those words were intended to authorise the Court to take into account any lack of expertise, experience or knowledge, so as to lower the standard of care in the particular case. To say that subsection (4) does not change the law, but merely confirms the present position (Explanatory Memorandum, paragraph 83) is to compound the uncertainty: see Vrisakis v Australian Securities Commission (1993) 9 WAR 395. 44 Section 180(1) replaced s 232(4) as part of the "CLERP" amendments to the Corporations Law (Corporate Law Economic Reform Program Act 1999 (Cth)), which took effect on 13 March 2000. Subsection (2) introduced a statutory "business judgment" defence. The essential difference between s 180(1) and former s 232(4) is that the new section removes the reference to "in a like position in a corporation", and inserts a reference to "the office held by" and a reference to "the same responsibilities" as the defendant director. 45 To understand the purpose of the amendment, it is necessary to consider the proposal paper that preceded the Bill. This was Paper No 3 of the Corporate Law Economic Reform Program, "Directors' Duties and Corporate Governance". It appears from paragraph 6.2 of that Paper that the new wording was a response to concerns in the business community about the implications of the Court of Appeal's decision in Daniels v Anderson (1995) 37 NSWLR 438. According to the Paper, "while the majority in that case recognised that not every director can be expected to have equal knowledge and experience of every aspect of the company's activities, they took the view that non-executive directors were subject to the same standard of care and diligence as executive directors and that the standard was an objective one". This had raised concerns, according to the Paper, about the likelihood of finding suitably qualified persons to act as company directors. 46 The Paper said that some concern had been expressed that the statutory formulation of the standard of care and diligence may not sufficiently allow differences in qualifications and experience of individual directors to be taken into account, on the ground that the word "position" may connote the particular circumstances of the director's office, rather than the director's personal qualities. The Paper accordingly proposed an amendment that would provide that "a director or other officer of a corporation would be required to exercise their powers and discharge the duties with the degree of care and diligence that a reasonable person would exercise if they · were a director or officer of the corporation in the corporation's circumstances; · occupied the directorship or office within the corporation held by the director or officer; and · had the director or officer's experience, powers and duties." 47 This proposal was modified in the Bill, by substituting for the third bullet point the reference to "the same responsibilities within the corporation". The Explanatory Memorandum to the Bill said that doubt had been expressed about whether s 232(4) enabled the courts to have regard to the circumstances of the particular officer as well as their position in the corporation. The draft provisions had been rewritten to clarify that "whether the officer has breached the standard of care and diligence is determined both by regard to the corporation's circumstances and the officer's position and responsibilities within the corporation." The relationship between these two propositions is far from clear. The amendment that would have expressly enabled the courts to take into account the circumstances of the particular officer was the third bullet point proposed in Paper No 3, which was abandoned in the Bill. 48 It may be that the third bullet point was replaced by the reference to "the same responsibilities within the corporation" because the third bullet point may have been inconsistent with the case law. In Daniels v Anderson the Court of Appeal held that the common law duty of the director "will vary according to the size and business of the particular company and to the experience or skills that the director held himself or herself out to have in support of appointment to the office" (at 505), but that the duty was not "merely subjective, limited by the director's knowledge and experience or ignorance or inaction" (at 503). The third bullet point might have made the duty merely subjective. Substitution of "the same responsibilities within the corporation" enabled reference to be made to the experience or skills that the director held himself out to have in support of his appointment to the office, on the basis that the director's actual responsibilities within the company would be affected by what was represented at the time of appointment, but lack of experience or skills would not be taken to reduce the director's responsibilities below a minimum threshold. 49 This suggests that the word "responsibilities" was intended to direct attention to the factual arrangements operating within the company and affecting the director in question - as opposed to the legal duty of care, implying specific legal duties in particular circumstances. The content of those specific duties would be affected by the factual matters specified by the section, relating to the corporation's circumstances, the nature of the director's office, and the director's responsibilities. The director's responsibilities would include arrangements flowing from the experience and skills that the director brought to his or her office, and also any arrangements within the board or between the director and executive management affecting the work that the director would be expected to carry out. The precise duty of care flowing from these arrangements would be subject, of course, to a minimum standard of care and diligence set by the statute in reflection of the common law position. 50 Therefore, it is in my opinion incorrect to say, as counsel for Mr Greaves did, that the word "responsibilities" refers only to specific tasks delegated to the relevant director, through the articles or by resolution or otherwise. It is a wider concept, referring to the acquisition of responsibilities not only through specific delegation but also through the way in which work is distributed within the corporation in fact, and the expectations placed by those arrangements on the shoulders of the individual director. In my opinion the Commission's pleading is consistent with and reflects this concept. Mr Greaves' qualifications, experience and expertise, and his occupation of the position of "foundation" director, chairman and chairman of the Finance and Audit Committee, are all matters that may make up or contribute to the responsibilities within the corporation that Mr Greaves had (regardless of whether the chairmanship and committee chairmanship were "offices" for the purposes of the first part of s 180(1)(b)). The company chairman and the law 51 The Commission does not claim that the responsibilities pleaded in paragraph 9 arose solely from Mr Greaves' position as chairman of directors, but it nevertheless seeks to place some weight on the fact that he was chairman. Counsel for Mr Greaves contended that, except with respect to the "ceremonial or procedural matters" such as the chairing of meetings of directors and shareholders, a company chairman has no greater responsibilities or duties than other directors. This poses the question: is the office of chairman of directors capable of carrying with it additional responsibilities of the kinds pleaded in paragraph 9 of the SFASC? 52 The Corporations Act gives little guidance as to the responsibilities of the company chairman. The position of chairman is not sanctified by any definition or mandatory provision in the Corporations Act. The chairman, being a director, falls within paragraph (a) of the definition of "officer" in s 9, but not by virtue of the chairmanship as such. If he or she were not a director, there may be room for argument whether paragraph (b) of the definition would be applicable. Some provisions of the Corporations Act recognise the position of chairman, but they are replaceable rules. For example, s 248E authorises the directors to elect a director to chair their meetings; s 248G gives the chair a casting vote; and s 249U authorises the directors to elect an individual to chair a meeting of the company's members. 53 In the absence of mandatory statutory provisions, the law leaves it to the corporate constitution to make provisions for the appointment and functions of a chairman: Woolworths Ltd v Kelly (1991) 4 ACSR 431, 445 per Mahoney JA; and as to the chairman's functions and duties with respect to proxies, ASIC v Whitlam (2002) 42 ACSR 407, esp at [144]-[145]. Typically, however, precious little is said about the chairman in the corporate constitution. One.Tel's constitution is no exception. Clause 6.11 says the directors may elect one of their number to the office of chairperson of directors. The office of chairperson of directors may, if the directors so resolve, be treated as an extra service or special exertion performed by the director holding that office for the purposes of article 6.3(e). That permits the directors to arrange for special remuneration to be paid to the director who is the chairperson. The chairperson is required, if present within 10 minutes after the appointed time, to preside as chairperson at each meeting of directors, although the deputy chairperson is to preside if the chairperson is not willing to do so. By article 6.12 the chairperson does not have a casting vote. The picture of the "chairperson" that emerges from One.Tel's constitution is of someone who presides over meetings, and so the company's constitution is no more helpful than the Corporations Act on the question of whether the chairman has non-procedural functions and responsibilities. 54 Counsel for Mr Greaves referred to a line of cases in which courts have seen the chairman's responsibilities as responsibilities relating to the conduct of board and member meetings. Thus, in Wishart v Henneberry (1962) 3 FLR 171, a branch rule provided that the president would preside at all meetings and would preserve good order, so that the business may be conducted properly. Spicer CJ, Dunphy and Joske JJ said (at 173): "Authority to preside over a meeting does not give dictatorial power. It merely makes the chairman, 'first among equals', and imposes on him certain duties including taking the chair and carrying on the business so that the business of the body in question before the meeting is disposed of as the meeting desires, and also preserving order at the meeting." 55 In Colorado Constructions Pty Ltd v Platus [1966] 2 NSWR 598, 600 Street J recognised that it is an indispensable part of any meeting that a chairman should be appointed and should occupy the chair. His Honour's observations were quoted and applied by Young J in Kelly v Wolstenholme (1991) 4 ACSR 709, 712, where his Honour identified some of the matters falling within the general concept of procedural control, including nomination of the person entitled to speak, dealing with the order of business (if not dealt with in the written notice of meeting), putting questions to the meeting, declaring resolutions carried or not carried, in due course asking for general business and declaring the meeting closed. These cases were applied by Owen J in Woonda Nominees Pty Ltd v Chng (2000) 34 ACSR 558, where his Honour observed (at paragraph [35]) that "the essence of chairmanship is actually exercising procedural control over the meeting". 56 What emerges from these cases is that the chairman has specific authority of a procedural kind when chairing meetings of directors or members. These cases do not attribute to the chairman any wider non-procedural functions or responsibilities, but they do not deny the possibility that wider responsibilities might exist. 57 Some other cases contemplate that the chairman of directors of a listed company may have responsibilities going beyond procedural duties in chairing meetings. In Dovey v Cory [1901] AC 477, Lord Davey referred (at 492-493) to "the duty of the general manager and (possibly) of the chairman to go carefully through the returns from the branches, and to bring before the board any matter requiring their consideration". This passage was referred to by Clarke and Sheller JJA in Daniels v Anderson at 496. Dovey v Cory is a case that may set the standard of care of company directors too low, in light of modern community expectations. It is interesting, however, that even as early as 1901 the possibility that the chairman may have a special duty was contemplated by his Lordship. 58 In Woolworths Ltd v Kelly, Mahoney JA found that a person who is chairman of a board of directors has "additional rights and duties and additional opportunities" (4 ACSR at 445). He continued: "Ordinarily it is the function of a chairman to settle the agenda of the meetings of the board: at least he exercises a significant influence upon it. He is in a position, in the sense here relevant, to ensure that proposals are brought forward for consideration by the directors at their meetings. And this, in a particular case, may affect the content of fiduciary duties which he owes to his company." 59 Mahoney JA's observations dealt with the content of the fiduciary duties of a person who is both a director and chairman of the board. The case was not about the duty of care. The chairman's non-procedural functions were considered by Rogers J in AWA Ltd v Daniels (1992) 7 ACSR 759, where the duty of care was in issue. He said (at 867): "The third division of function is between the directors and the chairman of the board of directors. The chairman is responsible to a greater extent than any other director for the performance of the board as a whole and each member of it. The chairman has the primary responsibility of selecting matters and documents to be brought to the board's attention, in formulating the policy of the board and in promoting the position of the company. In discharging his or her responsibilities the chairman would co-operate with the managing director if the two positions are separate or otherwise with senior management: cf Brown & Grogan Company Directors, 3rd ed 1974, pp 97, 99, 100; United Kingdom Company Affairs Committee Report 1972." Nothing said by the Court of Appeal on appeal from Rogers J's judgment ( Daniels v Anderson (1995) 37 NSWLR 438) calls these observations into question. 60 Counsel for Mr Greaves invited me to limit these observations by reference to their context. He pointed out that Rogers J's remarks were conceptual remarks made in order to explain the position of a non-executive director. They immediately followed his Honour's observation that non-executive directors are not required to give continuous attention to the affairs of the company. They do not explain whether his Honour had in mind an executive or non-executive chairman. He submitted that, in any case, Rogers J was not meaning to identify duties in the sense of obligations carrying legal consequences. His Honour intended to do no more than identify general functional differences in the activities of the organs of the company. His observations should not be treated as a statement at large of the legal duties of a company chairman. 61 I am confident that Rogers J's remarks should be confined to the chairmen of listed public companies, having regard to the great diversity in corporate size and organisational arrangements outside the listed arena, a diversity which Rogers J himself acknowledged (at 867). However, when limited in this way, his observations are capable of being read as an assertion of responsibilities or functions constituting or giving rise to legal duties, applicable to a non-executive chairman. In other words, it is reasonably arguable that AWA Ltd v Daniels articulates either general duties imposed by the law on the chairman of a listed public company, or (more probably, in my view) factual "responsibilities" conceptually equivalent to the responsibilities now envisaged by s 180(1)(b). 62 Thus, there are two modern pronouncements, by Mahoney JA and by Rogers J, which assign to the chairmen of listed companies some functions and responsibilities going beyond the supervision of meetings. However, the position of the company chairman was not central in either case. Mahoney JA did not refer to any authority to support his view, simply deriving his conclusion by inference from the chairman's function in settling the agendas of meetings. I doubt that the wide range of responsibilities pleaded in paragraph 9 of the SFASC could be derived purely by inference from the chairman's procedural duties. The approach of Rogers J is more interesting for present purposes. The authority that he relied upon for his view about the chairman's responsibility was essentially non-legal "practice" material, which his Honour evidently used to identify the work generally or typically done, in fact, by company chairmen in listed companies. 63 In my opinion, this approach is supported by Re City Equitable Fire Insurance Co [1925] 1 Ch 407, where Romer J said (at 427 - in a passage cited by Rogers J at 866): "In order, therefore, to ascertain the duty that a person appointed to the board of an established company undertakes to perform, it is necessary to consider not only the nature of the company's business, but also the manner in which the work of the company is in fact distributed between the directors and the other officials of the company, provided always this distribution is a reasonable one in the circumstances, and is not inconsistent with any express provisions of the articles of association." 64 The literature cited by Rogers J was not evidence of the specific distribution of work in AWA, but it provided an indication of the way listed public companies are typically organised. Consistently with Romer J's observations, evidence of corporate practice about the distribution of work between the chairman and other directors is relevant to the establishment of the factual responsibilities of the chairman, if not directly relevant to the establishment of his or her legal duties. 65 Rogers J referred to only two sources for his conclusions about the chairman's position, and counsel for Mr Greaves urged me to disregard or discount his Honour's remarks for that reason. Perhaps the weight of his Honour's observations is affected by that limited foundation. In the present case, however, the Commission will seek to avoid any similar criticism. It intends to establish the responsibilities of Mr Greaves, as alleged in paragraph 9 of the SFASC, by expert evidence of two kinds, namely expert opinion evidence of responsibilities ordinarily undertaken by the chairmen of listed public companies in Australia, and the tender of relevant extracts from books, articles and papers by learned commentators describing the customary responsibilities and the role of chairman of a listed public company. (I should note that the Commission also preserves its right to contend that as a matter of law, certain minimum duties necessarily adhere to the office of chairman.) In my opinion, the Commission's approach is consistent with the remarks of Romer J and also with the approach exhibited by Rogers J. 66 The Commission wishes to demonstrate that it is the usual practice in listed companies that the chairman be responsible to a greater extent than any other director for ensuring that the board is familiar with the financial circumstances, position and performance of the company, and ensuring the performance of the board of its supervisory duties. The Commission relies on affidavits by Roderick Cameron and Richard Warburton as expert opinion evidence of the usual responsibilities of the chairman of a listed company. 67 In its written submissions, the Commission has summarised their evidence as follows: "The relevant section of the Cameron Affidavit … describes the role of a reasonably careful and diligent chairman of a listed public company when acting in accordance with the usual practice in Australia as follows: (a) the chairman must adopt a leadership role of the conduct of the board's responsibilities and lead and manage the board in the discharge of its duties, by ensuring that the board is in a position to perform and does perform its responsibilities; (b) this role includes setting the agenda for the performance of the board's responsibilities, ensuring board meetings take place with sufficient frequency and adequate information and that the board is kept properly informed of the financial position and performance of the company (generally in the case of the last-mentioned task through an effective audit committee); (c) the chairman leads the board in the monitoring of management, the assessment of the company's financial position and performance and the detection and the assessment of any material adverse developments; (d) this involves directing, if so advised by the audit committee, and requiring, the provision of material financial information to enable the board to discharge its responsibilities; (e) it also involves ensuring that he and the board are informed as to the adequacy of the cash reserves of the company, including, especially where debtors outstanding are very substantial, and analysis of debtors including an aged listing; (f) if the chairman has an experienced financial background, ensuring that the person appointed as finance director has appropriate qualifications, expertise and experience; (g) the chairman will be concerned to be personally satisfied about the accuracy of public statements made on a company's behalf, and the company's compliance with the ASX Listing Rules; (h) where the business of the company is being established, and expenditure exceeds and is expected to continue to exceed income, the chairman will take a close and active interest in the cash reserves of the company, including the steps that should be taken to ensure that cash reserves are maintained so as to enable the company to pay its debts as and when they fall due."

"The Warburton affidavit states in summary the following concerning the role ordinarily performed by the chairman of a listed public company in Australia: (a) ensuring that board meetings are held sufficiently frequently and for a sufficient length of time to ensure that the board is properly informed about and understands the company's financial position; (b) where the company is developing a new business and there is substantial movement of cash, the chairman will keep a close watch on the movement of cash, will ensure that the other non-executive directors are also in a position to do so, will ensure that the board has a constant understanding of the company's cash flow, and will ensure that he or she and the other non-executive directors know and understand all material information affecting the cash flow; (c) if the company is in start-up phase, the chairman will ensure that systems are implemented to properly monitor the cash flow in and out of the company and that he is promptly informed of any matters materially affecting the company's cash flow; (d) the chairman will ensure that there is an active and functioning audit committee, among other things to assess the general standards of performance of the financial system and management; (e) the chairman of the company will ensure that the company has a process of ongoing internal audit review by an internal auditor." 68 The Commission contends that the practices described by Mr Cameron and Mr Warburton are reflected in various reports and academic writing. In its written submission it cites the following: · "The chairman has all the responsibilities which are held by other members of the board, but to a greater extent than any other director, he is responsible for the performance of the board as a whole and of each member of it. He has the primary responsibility for ensuring appropriate membership with the board, for making necessary changes in board membership, for setting an example to all his colleagues in all matters affecting the company, for acting as spokesman for the board both inside and outside the company, and promoting the position of the company … It is the function of the chairman to see that policies are initiated, to secure the agreement and approval of his board for what they consider to be the right policies, and to ensure by appropriate instructions and continued monitoring that the policies are put into effect by those with executive responsibilities" (The Responsibilities of the British Public Company, Final Report of the Company Affairs Committee, as endorsed by the Confederation of British Industry Council on 19 September 1973). · "The chairman has ultimate authority for the running and overall well-being of the organisation" (Hedrick-Struggles, The Role of the Chairman, page 5). · "An essential aspect of the chairman's responsibilities is to make sure that board members have relevant, up-to-date information on the progress of the company. They need to do this if they are to carry out their directorial duties competently. No board can function effectively without timely and appropriate information" (Sir Adrian Cadbury, A Company Chairman (2nd edition, 1995), page 16, referring also to pages 14-15, 30 and 64). · "If the market is misled about how the company is faring or if conflicting views about its prospects are being expressed from within the business, then it is the chairman who will be held responsible. It is the chairman who is accountable to shareholders for the financial state of the company" (Sir Adrian Cadbury, op cit, page 18). · "It is part of the job of chairmen to go through the board papers, as if they were outside directors, to ensure they provide board members with all information which they need for the proper discharge of their responsibilities" (Sir Adrian Cadbury, op cit, pages 77-8). · "Your main focus as chairman is to ensure that the board concentrates its energy and wisdom on the appropriate matters requiring decisions and is competent to come to suitable conclusions" (J Harper, Chairing the Board (2000), page 7). 69 The flow of corporate governance literature has not been stemmed since the hearing of Mr Greaves' application. I note that in January 2003 the UK Department of Trade and Industry published a report by Mr Derek Higgs entitled "Review of the Role and Effectiveness of Non-Executive Directors". Mr Higgs' report recommends some changes to the "Combined Code" in the United Kingdom, including some changes with respect to the division of responsibilities between the chairman and chief executive. Annexure D, headed "Guidance for the Chairman", contains some emphatic statements which appear to reinforce the Commission's evidence. 70 The Commission's evidence does not purport to establish, directly, that Mr Greaves had specific duties on particular occasions. It seeks to establish his "responsibilities" by reference to usual practice. Much of the literature of corporate governance is in the form of exhortations and voluntary codes of conduct, not suitable to constitute legal duties. It is sometimes vague and less than compelling, and must always be used with caution. Nevertheless, in my opinion this literature is relevant to the ascertainment of the responsibilities to which Mr Greaves was subject during the period from January to March 2001. Taken as a whole, the Commission's evidence appears to me to provide a reasonably arguable case for the view that Mr Greaves had the responsibilities pleaded in paragraph 9 of the SFASC. 71 It may appear, at first blush, to be unduly harsh on a person in Mr Greaves' position that evidence of this kind might be relied upon to establish that in 2001 he was subject to responsibilities and, ultimately, legal duties never before set out in a statute or by judicial decision. It should be remembered, however, that the Court's role, in determining the liability of a defendant for his conduct as company chairman, is to articulate and apply a standard of care that reflects contemporary community expectations. It is now commonplace to observe that the standard of care expected of company directors, both by the common law (including equity: see Re HIH Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72, 166-8) and under statutory provisions, has been raised over the last century or so. One might correspondingly expect that the standard for company chairmen has also been raised. In Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, Tadgell J said (at 126): "As the complexity of commerce has gradually intensified (for better or for worse) the community has of necessity come to expect more than formerly from directors whose task is to govern the affairs of companies in which large sums of money are committed by way of equity capital or loan. In response, the parliaments and the courts have found it necessary in legislation and litigation to refer to the demands made on directors in more exacting terms than formerly …". 72 Over the dozen years since Tadgell J wrote those words, there has been an enormous outpouring of literature concerning corporate governance, and there has been much debate in the Australian commercial community as to the effects the new thinking should have in practice. The Court must perform the difficult task of articulating a standard of care by reference to community expectations, in an area not frequently traversed in litigation. It seems to me preferable for the Court to embark upon this task with a measure of assistance from the kind of evidence the Commission proposes to advance, than to choose the only other alternative, namely to rely on unassisted armchair reflection. The duty to keep informed 73 Counsel for Mr Greaves contended that the "responsibilities" pleaded in paragraph 9 were inconsistent with established law concerning the extent to which directors can rely upon others. In addition to the older cases such as Dovey v Cory and Re City Equitable, he relied on American authority and more recent English authority. 74 The American authority is Graham v Allis-Charmers Manufacturing Company, 188 A.2d 125 (1963). In that case, a derivative action was brought on behalf of a corporation against directors for damages said to have been sustained by the corporation by reason of anti-trust violations. The Supreme Court of Delaware, agreeing with the decision of the Court of Chancery, dismissed the complaint. The evidence did not show that any director had actual knowledge of anti-trust activities by corporate employees, or any actual knowledge of any facts which should have put them on notice that anti-trust activities were being carried on. The plaintiffs argued that the directors were liable as a matter of law by reason of their failure to take action designed to learn of and prevent the anti-trust activity. This theory of liability was rejected, Wolcott J saying (at 130): "The precise charge made against these director defendants is that, even though they had no knowledge of any suspicion of wrongdoing on the part of the company's employees, they still should have put into effect a system of watchfulness which would have brought such misconduct to their attention in ample time to have brought it to an end. However, [ Briggs v Spaulding , 141 US 132] expressly rejects such an idea. On the contrary, it appears that directors are entitled to rely on the honesty and integrity of their subordinates until something occurs to put them on suspicion that something is wrong. If such occurs and goes unheeded, then liability of the directors might well follow, but absent cause for suspicion there is no duty upon the directors to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists." 75 The English case is Huckerby v Elliott [1970] 1 All ER 189, where a company was found liable for gaming offences. Criminal proceedings were taken against the directors, under a provision which made a director liable in respect of an offence committed by a body corporate if the offence was proved to have been attributable to neglect on the part of the director. It was held that a director who left matters concerning licences to her co-director was not liable under this provision. Lord Parker CJ said he knew of no authority for the proposition that it is the duty of a director to, as it were, supervise his co-directors or to acquaint himself with all the details of the running of the company. Citing Re City Equitable, he said it was perfectly proper for a director to leave matters to another director or to an official of the company (at 194). 76 In my opinion these cases indicate that it is sometimes permissible for a director to leave matters to management or even to other directors, but they do not prevent it from being contended that in particular circumstances a director could not safely trust subordinates. In the Final Report of the Royal Commission into the Tricontinental Group of Companies (31 August 1992), the Commissioners referred to Romer J's observation in City Equitable (at 428) that reliance on others becomes unreasonable only where the known circumstances are "of such a character, so plain, so manifest and so simple of appreciation" that no-one could rely upon them. The Commissioners remarked (at paragraph 19.66) that "so relaxed an approach is not appropriate in the modern context", and continued (at 19.67-19.68): "If it appears to a non-executive director that an executive director, or some other officer, or employee, lacks the expected skills, or is not exercising them, then continuing reliance without further inquiry is likely to be unreasonable, even for the 'ordinary man', let alone a non-executive director who does in fact possess some relevant skills which should assist him to form a judgment. Should such a director be entitled to ignore suspicious signs of a substantial problem, take comfort in bland assurances from senior executives, seek no further information, and do nothing else unless and until struck by uncontrovertible proof of the disaster? Some recent cases have already been mentioned in which judges have emphasised the need for directors to be of an inquiring mind. Without pausing to draw fine distinctions between various situations, an elementary concept of 'care' would suggest that directors should be moved to inquiry, by a matter giving rise to suspicion, well short of something that was so 'plain, manifested and simple' that it could not be ignored." 77 In any event, even where a director is entitled to trust subordinates, he or she is not necessarily exonerated from being informed. In Daniels v Anderson, Clarke and Sheller JJA (at 499) approved the statement of Tadgell J in Commonwealth Bank of Australia v Friedrich (5 ACSR at 126) that a director is required by law to be capable of keeping abreast of the company's affairs, sufficiently to act appropriately if there are reasonable grounds to expect that the company will not be able to pay all its debts in due course. Their Honours said (at 500) that in some respects at least, "the director must inform himself or herself about the affairs of the company", and they added (at 501) that "the responsibilities of directors require that they take reasonable steps to place themselves in a position to guide and monitor the management of the company". They also approved (at 503) a statement of Pollock J in Francis v United Jersey Bank, 432 A.2d 814 (1981), at 821-3, that "directors are under a continuing obligation to keep informed about the activities of the corporation", and (at 504) the statement by Lee J in Federal Deposit Insurance Corporation v Stanley, 770 FSupp 1281 (1991) at 1310, that "all the directors of a bank have a duty to be generally familiar with the business and financial conditions of the bank and to devote a sufficient amount of time and energy to overseeing the affairs of the bank to allow them to discharge their responsibilities to the depositors and shareholders". 78 Santow J's summary of the duty of care of directors in ASIC v Adler (41 ACSR 72 at [372]) also adopts the proposition that a director is under a continuing obligation to keep informed about the activities of the corporation and in particular, its financial status. 79 If the duty to keep informed exists for all company directors, it must be a duty imposed on the company chairman, whose "responsibilities" may be enhanced. 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ASIC v Rich

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