Non-Executive Directors’ General Law Duty of Care and Delegation of Duty: But do we need a Common Law Duty of Care?

Abstract

extract] In Australia, the common law of negligence has developed to a point of being risk adverse. However, non-executive directors operate in a commercial environment which demands of them risk taking. Unless the common law is prepared to descend from its pedestal of high principle, it will not be able to develop a duty or standard of care that takes into account the commercial realities within which non-executive directors operate. But, even if the common law does descend to the level of pragmatism, it is still questionable why there is a need to develop a common law duty of care, given that non-executive directors are subject to fiduciary duties, an equitable duty of care and diligence and such statutory duties as the legislature may care to impose. Furthermore, it is difficult to demonstrate that the demands of practical justice, public interest or corrective justice require such a development. On the other hand, equity, with its well known reputation for flexibility, has attempted to balance two antithetical concepts: risk taking and responsible corporate governance. There is no reason why traditional equitable concepts cannot be moulded to meet modern expectations of the role of non-executive directors.