Duty of care and diligence
344 Ms Peters acknowledged that as a director, she owed the Corporation a duty of care under both the general law and statute, but she did not admit that her conduct amounted to a breach of that duty.
345 At one point, Mr Wilson, Ms Peters' counsel, appeared to submit that, for the purposes of s 265-1 and, in particular, the "reasonable person" aspect of that provision, Ms Peters' personal lack of experience and knowledge concerning the role of a director should be attributed to the reasonable person. He cited [165] of Middleton J's judgment in Australian Securities and Investments Commission v Healey [2011] FCA 717; 196 FCR 291 in support of that submission. Any such submission should be rejected. It derives no support from that judgment. Indeed, Middleton J's reasons are to the contrary, as is reflected in the following extracts ([172] and [173]):
172 It is clear that an objective standard of care is applicable to both executive and non-executive directors.
173 This approach to the standard of care has been adopted by the case law. An example of such is found in Gamble v Hoffman (1997) 24 ACSR 369. The court refused to subjectify the standard of care to (namely, in that case) the standard of a person who "left school at the age of 14 years, has no tertiary qualifications and has spent his life … essentially as a fruit and vegetable market gardener". The court, at [373], rejected the assertion that:
[S]ubjective considerations of that nature and extent should affect the minimum content of the duty or standard of care required of the respondents in this matter … …
…
[T]he ambit of the duty and the standard of care depend on particular circumstances. However, the test is essentially objective that is did the officer 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? I doubt whether the factors which Mr Bates advanced would justify a lower standard of care.
346 I do accept, however, Mr Wilson's separate submission that, in assessing for the purposes of s 265-1 what a reasonable person in Ms Peters' shoes would have done, some (but not exclusive) regard can be had to the actions of a person such as Mr Lock. In substance, Mr Lock replaced Ms Peters as a director. He became the Chairperson. Mr Lock referred to discussions which he and Ms Peters had as part of the handover. As noted above, Mr Lock has a strong background in directing and managing Aboriginal corporations. He had experience with Indigenous housing co-operatives and is a former director of Aboriginal Housing New South Wales. He is also a former Chairperson of ATSIC. Mr Lock was called as a witness for the Registrar. I found him to be an impressive witness.
347 Mr Lock took several steps while he was a director and Chairperson of the Corporation to try and address the problems which continued to confront the Corporation in 2013. Some of the steps he initiated were similar to those taken earlier by Ms Peters herself, including:
(a) taking steps to collect outstanding rents;
(b) actively encouraging the Corporation's tenants to attend meetings; and
(c) meeting with relevant public servants to explore possible funding sources and to discuss selling some of the Corporation's Properties to pay for maintenance.
348 As noted above, Mr Lock gave evidence that Ms Peters was a "one horse band". In his view, she tried very hard to run the organisation and "to keep it on its tracks", but those efforts were frustrated by what Mr Lock described as a lack of "internal structure" and Ms Peters being "forced to accept one person's voice". I infer that Mr Lock was referring to either Mr or Ms Monaghan and to the "family connections" which created a formidable obstacle to change. In his affidavit, Mr Lock described Mr Monaghan as the prominent Indigenous elder at the Corporation. Mr Lock resigned as a director and Chairperson of the Corporation after serving in those positions for less than a year. It is evident that, during his term, Mr Lock encountered many of the same difficulties and obstacles as had Ms Peters. Mr Lock said that he resigned for personal reasons, namely health and financial reasons and that is reflected in his letter of resignation.
349 The Registrar's submission that Ms Peters failed to implement advice from sources such as LSRE cannot be fully accepted. Ms Peters instructed LSRE to write formal letters to tenants regarding the risk of eviction for non-payment of rents (see further [355] below). These letters came to nothing, partly because of the "family connections" problem, but also because Ms Peters said that the Corporation lacked the funds to take the tenants to the relevant tribunal to have them evicted. Ms Peters was also involved in various steps which were taken to address the problems relating to maintenance of the Properties and excess water usage (see further below).
350 I do not accept any suggestion that Ms Peters' tenure should be assessed against that of Mr Lock, who resigned after less than a year as Chairperson. As noted above, the reasons for his resignation were unrelated to any frustration he may have felt at the time with the Corporation's operations. I reject the Registrar's submission that Ms Peters should have resigned her directorship earlier than she did. Despite the formidable obstacles and frustrations she experienced, Ms Peters persevered as a director of the Corporation for seven years, many of those years being either Chairperson or Deputy Chairperson. I find that she did so not out of self-interest (as claimed by the Registrar), but rather because she hoped (as it turned out, in vain) that she might be able to bring about constructive change. Having regard to Ms Peters' evidence and demeanour in the witness box, it may comfortably be inferred that part of her motivation for continuing to be a director for as long as she did was because of her desire to be a balance to the "family connections" problems with the Corporation's operations.
351 In assessing Ms Peters' conduct as a director against the benchmark of a reasonable person in her shoes, it is important to pay close attention to the circumstances which confronted her at the time, particularly the difficulties presented by the "family connections" to which Mr Lock alluded, as did Ms Peters herself. In particular, the matter needs to be viewed through the prism of the circumstances which existed at the relevant time and not with the benefit of hindsight. The standard imposed by s 265-1 of the CATSI Act does not capture mere mistakes or errors of judgment, as opposed to negligent or reckless conduct. The relevant principles (albeit by reference to s 180(1) of the Corporations Act, which is in similar terms to s 265-1 of the CATSI Act) were helpfully summarised by Austin J in Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; 75 ACSR 1 at [7242]:
The statutory issue under s 180(1) is not whether the defendants made mistakes in the process of financial forecasting, and a fortiori, it is not whether they formed opinions different from the opinions of ASIC or even of the court. The statutory issue is whether they failed to meet the standard of care and diligence that the statute lays down. The statute requires the court to apply a standard defined in terms of the degree of care and diligence that a reasonable person would exercise, taking into account the corporation's circumstances, the offices occupied by the defendants and their responsibilities within the corporation. That requires the defendants' conduct to be assessed with close regard to the circumstances existing at the relevant time, without the benefit of hindsight, and with the distinction between negligence and mistakes or errors of judgment firmly in mind. If the impugned conduct is found to be a mere error of judgment, then the statutory standard under s 180(1) is not contravened and it is unnecessary to advert to the special business judgment rule in s 180(2). In the view that I have taken of it, explained below, s 180(2) provides a defence in a case where the impugned conduct goes beyond a mere error of judgment, and would contravene the statutory standard but for the defence (cf ASR [351-2]).
352 The Registrar asserted that Ms Peters breached her duty of care because she did not take steps to "ensure" properties were maintained to an adequate standard of living and to "ensure" that there were sufficient funds to meet all of the Corporation's costs and expenses. In particular, the Registrar asserted that she:
(a) failed to ensure adequate rent was charged;
(b) did not require the tenants to pay their rent;
(c) did not require tenants to pay for excess water consumption charges; and
(d) did not ensure the properties were kept in a reasonable state of repair.
353 I accept Ms Peters' submission that the relevant test for fulfilment of the duty of care and diligence imposed by s 265-1 is the standard expected of a "reasonable person", if that reasonable person were in Ms Peters' position and was operating in the Corporation's circumstances. That standard does not turn on whether such a reasonable person would "ensure" that adequate rent was paid. In my view, the Registrar misconceived the relevant standard. A reasonable person acting in Ms Peters' position would have encountered the same obstacles which confronted her in seeking to have tenants pay outstanding rent, namely the "family connections" obstacle, as well as the lack of funds available to the Corporation to bring proceedings to evict tenants.
354 When Ms Peters became a director of the Corporation in 2005, there was a history of tenants failing to pay rent, a failure on the part of the Corporation to keep the Properties in good order (largely because of a lack of funding) and a failure on the part of tenants to attend relevant meetings.
355 These problems continued after Ms Peters became a director, despite the steps she took to have these problems addressed. I accept Ms Peters' evidence that these steps included instructing LSRE to draft letters of demand to tenants. Although it is not clear from the evidence as to who initiated the sending of letters of demand in early 2011 and early 2012, the terms of two separate letters, which were sent out by Ms Jennifer Scheele at those times, are consistent with Ms Peters' evidence. In those letters, the tenant in default of rent at the Wanniassa property was told that if he wished to remain living there he needed to make rent payments and that this could be done via Centrelink. He was also told that the matter was urgent because non-payment badly affected other Corporation tenants. He was warned that a notice to vacate could be issued and that the Sherriff would then become involved. He was further advised that if he had to find other accommodation, this would cost him around $750 or $800 per fortnight for a similar home. Ms Peters personally called upon various tenants who were in default and provided them with Centrelink forms which would enable them to arrange for the rent to be paid automatically from Centrelink benefits. I also note that in mid-2010, when Ms Peters was a director and Chairperson of the Corporation, the rent was increased from $270.00 to $320.00 per fortnight. I accept Ms Peters' evidence of the other steps she took to raise funds to pay for maintenance repairs, including the discussion she had with both Commonwealth and ACT officials as well as the funding she sought from the women's refuge. I also accept her evidence of her involvement in putting in place arrangements for the Corporation to pay the debt owing to the ATO.
356 The following documentary evidence reveals the following multiple steps and actions which were taken by or at least involved Ms Peters with a view to addressing the problems confronting the Corporation, including unpaid rent and water usage charges.
(a) At the annual general meeting held on 28 January 2010, Ms Peters is recorded as having secured on a pro bono basis Mr Lo Pilato's services "to continue supporting the Corporation with our BAS statements", and that Mr Lo Pilato had told Ms Peters that he would contact the ATO to enquire about the Corporation's outstanding tax bill, which would present a saving of $1000 per month for the Corporation.
(b) At the board meeting held on 21 February 2011, one of the items on the agenda was "What to do about non payment of rent on several SHAC houses". Handwritten notes on the agenda paper refer to Ms Peters having sent a letter with a request for maintenance concerning an oven and a hopper bin at one of the Properties. There is another note which records all who were present agreeing that tenants should pay for water.
(c) The minutes of the meeting held on 21 March 2011 (at which Ms Peters was present) record those present agreeing that another tenant should be found for the property at 118 Chippendale Circuit, Theodore if rent was not being paid by the tenant. The minutes further record that there was a discussion regarding rent payments and that, in view of the lack of payment by some tenants still being a problem, "it was agreed that all tenants must pay on a regular basis or move out".
(d) The minutes of the meeting held on 23 May 2011, at which Ms Peters is recorded as being present, there was a further discussion regarding rent payments and that the lack of payment by some tenants was an ongoing issue. The minutes record Ms Peters as advising the meeting that "due to unemployment, after June she may have a lapse in rental payments for up to 12 weeks until the centrelink [sic] payments are available to her". The minutes also record all members who were present agreeing that future repairs on the Properties would only be paid by the Corporation "if tenants attend meetings and present the repairs in writing before any repairs are done" and that new tenancy agreements would be sent to all tenants so that they would be aware of what repair costs will be covered by the Corporation as opposed to the tenants themselves.
(e) The minutes of the Annual General Meeting held on 23 May 2011, at which Ms Peters is recorded as being present, state that Ms Peters was appointed as the Deputy Chairperson and that Mr Lo Pilato continued to assist the Corporation on a pro bono basis.
(f) The minutes of the meeting held on 11 July 2011 do not record Ms Peters as being present but do state that Ms Peters had given notification that she was not currently paying rent and that friends were staying with her and she would ask them to pay rent.
(g) The minutes of the meeting held on 8 August 2011 (which were not attended by Ms Peters) record that Ms Peters had told Ms Jennifer Scheele that Ms Peters was not currently paying rent and that the two people staying with her at 6 Rolph Place were moving out and that Ms Peters expected to pay rent from September.
(h) The minutes of another meeting held later in 2011, which was not attended by Ms Peters, record there being a discussion about non-payment of rent. There is a statement that Ms Peters was contacted by telephone and explained that she had organised electronic payments of rent in respect of her lease at Rolph Place.
(i) The minutes of the meeting held on 19 December 2011, which was not attended by Ms Peters, record that excess water bills were "causing a huge problem because it uses all [the Corporation's] money and there is none left for maintenance repairs", and also that water usage forms would be posted to tenants.
(j) The draft minutes of the meeting held on 27 February 2012, at which Ms Peters is recorded as being present, record a discussion of the problems caused by non-payment of rent at three of the Properties, as well as the "huge excess water bills". Mr Monaghan is recorded as suggesting that if the Corporation had the money, it should pay 50 per cent of each excess water bill and, if everyone agreed, tenants should be billed henceforth for the remainder.
(k) Minutes which appear to be dated 7 December 2012, which record both Ms Peters and Mr Lock together with other people being present state, that the meeting was mainly called to discuss the fact that Ms Peters would be stepping down as Chairperson. It is unclear whether in fact the meeting was held on or about 7 December 2012 (noting again that the agreed fact is to the contrary). Ms Peters is recorded as saying that maintenance repairs had been an issue because of lack of funding and that Mr Williams was helping. Ms Peters is also recorded as saying that it would be better for new leases to be signed at the next meeting after Christmas, "so that we can agree on rent rates etc".
(l) The minutes of a meeting which appears to have taken place on 26 January 2013, at which Ms Peters was present (presumably in her capacity as a member of the Corporation as she was no longer as a director), record her as saying that she had spoken with FaHCSIA and was told that no further funding was available unless the Corporation was remote. Thus, even though Ms Peters had ceased to be a director, she continued to take actions which she thought were in the best interest of the Corporation. I have no doubt that that also was her motivation when she was a director.
357 Mr de Jersey properly acknowledged that the Registrar's allegations against Ms Peters needed to be established to the Briginshaw standard. I am not satisfied that the Registrar has met that standard in relation to his claims against Ms Peters concerning s 265-1.