McConvill, James; Joy, Martin --- "The Interaction of Directors' Duties And Sustainable Development In Australia: Setting Off On The Uncharted Road" [2003] MelbULawRw 4; (2003) 27(1) Melbourne University Law Review 116
[*] LLB (Hons), PhD Candidate (Deakin); Barrister and Solicitor of the Supreme Court of Victoria.
[†] BA (Hons), LLB (Hons) (Monash).
[1] Rick Sarre, ‘Responding to Corporate Collapses: Is There a Role for Corporate Social Responsibility?’ [2002] DeakinLawRw 1; (2002) 7 Deakin Law Review 1, 7–8 (citations omitted).
[2] See generally Bryan Horrigan, ‘Fault Lines in the Intersection between Corporate Governance and Social Responsibility’ [2002] UNSWLawJl 31; (2002) 25 University of New South Wales Law Journal 515.
[3] See, eg, Corporations Act s 299(1)(f), which requires corporations to include in their annual directors’ reports ‘details of the entity’s performance in relation to environmental regulations’. For further discussion of s 299(1)(f), see Tamara Walsh, ‘Accounting for the Environment’ (2002) 19 Environmental and Planning Law Journal 387.
[4] Robert Hinkley, ‘The Profit Motive Can Work with a Moral Motive’, The Australian Financial Review (Sydney), 7 April 2000, 32.
[5] World Commission on Environment and Development, Our Common Future (1987) (‘Brundtland Report’).
[6] Ibid 43.
[7] See D E Fisher, ‘Sustainability — The Principle, Its Implementation and Its Enforcement’ (2001) 18 Environmental and Planning Law Journal 361, 363–5.
[8] Ibid.
[9] See Horrigan, above n 2, 531:
According to ‘triple bottom line’ thinking, corporations should focus holistically on the economic, social and environmental dimensions and implications of their business and not simply on the ‘single bottom line’ of financial considerations, profits, business costs, and share values and dividends. Yet that alternative conception also assumes much about how we should view and regulate corporations.
See also Tom Young, ‘Putting Sustainability into Practice — The Queensland Fisheries Management Debate’ (2001) 18 Environmental and Planning Law Journal 381.
[10] See Douglas Branson, ‘Corporate Governance “Reform” and the New Corporate Social Responsibility’ (2001) 62 University of Pittsburgh Law Review 605.
[11] A succinct explanation of this Bill is provided in Walsh, above n 3, 394–5.
[12] Parliamentary Joint Statutory Committee on Corporations and Securities, Commonwealth Parliament, Report on the Corporate Code of Conduct Bill 2000 (2001) 39. See especially the main conclusions and recommendations of the Committee at 39–40.
[13] Daren Armstrong, ‘The Corporate Code of Conduct Bill’ (2002) 16(2) Commercial Law Quarterly 30.
[14] See Brundtland Report, above n 5, 349 (annex 1, principle 3).
[15] Report of the United Nations Conference on Environment and Development, UN Doc A/CONF.151/26 (Vols I–III) (1992) (‘Agenda 21’).
[16] For an overview of the main chapters of Agenda 21 and the process of reviewing implementation of Agenda 21, see Joseph Tornberg, ‘The United Nations Commission on Sustainable Development’ (2001) 17 New York Law School Journal of Human Rights 957.
[17] WSSD, Plan of Implementation (1992) <http://www.johannesburgsummit.org/html/documents/
summit_docs/2309_planfinal.htm>.
[18] WSSD, The Johannesburg Declaration on Sustainable Development (1992) <http://
www.johannesburgsummit.org/html/documents/summit_docs/1009wssd_pol_declaration.htm> (‘Johannesburg Declaration’).
[19] For a list of existing Type 2 agreements, see United Nations Division for Sustainable Development, Sustainable Development Partnership (Type 2) Summary (2003) <http://www.un.org/esa/
sustdev/partnerships/summary_partnerships.pdf>.
[20] WSSD, Johannesburg Declaration, above n 18, [5].
[21] Ibid [11].
[22] See, eg, Sophie Chapple, ‘The Environment Protection and Biodiversity Conservation Act 1999 (Cth): One Year Later’ (2001) 18 Environmental and Planning Law Journal 523.
[23] See Walsh, above n 3, 388–9.
[24] See Christine Parker and Olivia Conolly, ‘Is There a Duty to Implement a Corporate Compliance System in Australian Law?’ (2002) 30 Australian Business Law Review 273, 282–3.
[25] See the decision of Pacific Dunlop v Ian Kamburn (Unreported, County Court of Victoria, Nixon J, 21 January 1994) which refers to the attitude of the company and the fact that it had taken an enlightened and progressive attitude to comply with the stringent requirements of the legislation and had not put profits ahead of safety. Nixon J reduced the fine from $40 000 to $17 500. See also Philip Bohle and Michael Quinlan, Managing Occupational Health and Safety: A Multidisciplinary Approach (2nd ed, 2000).
[26] Environment Protection Act 1970 (Vic) s 49AF(2).
[27] Section 49AH(1).
[28] Section 49AM.
[29] Section 49AF(1)(d)(ii).
[30] Section 49AG(1)(b).
[31] Section 36BA.
[32] See Brunninghausen v Glavanics (1999) 46 NSWLR 538, in which the New South Wales Court of Appeal held that, notwithstanding the general principle established in Percival v Wright [1902] UKLawRpCh 125; [1902] 2 Ch 421 that a director’s fiduciary duties are owed only to the company and that no fiduciary duty is owed to shareholders, where a transaction does not concern the company but only another shareholder, a director may owe a fiduciary duty to that shareholder. This duty to shareholders must not, however, compete with the fiduciary duty to the company. In Peskin v Anderson [2000] EWCA Civ 326; [2001] 1 BCLC 372, it was confirmed that directors will only owe a fiduciary duty to shareholders if there is some ‘special factual relationship’ (usually a quasi-partnership relationship like in Brunninghausen v Glavanics) between the directors and shareholders giving rise to fiduciary obligations. See also Robert Valentine, ‘The Director-Shareholder Fiduciary Relationship: Issues and Implications’ (2001) 19 Company and Securities Law Journal 92.
[33] Jeffree v National Companies and Securities Commission [1990] WAR 183; Winkworth v Edward Baron Development Co Ltd [1987] 1 All ER 114. But see Spies v The Queen [2000] HCA 43; (2000) 201 CLR 603; Geneva Finance Ltd v Resource & Industry Ltd [2002] WASC 121; (2002) 169 FLR 152. These cases are discussed in James McConvill, ‘Geneva Finance and the “Duty” of Directors to Creditors: Imperfect Obligation and Other Imperfections’ (2003) 11 Insolvency Law Journal 7.
[34] Robert Baxt, ‘Just to whom Do Directors Owe Their Duties? Will This Conundrum Ever Be Satisfactorily Resolved?’ (2002) 30 Australian Business Law Review 445, 447.
[35] Achieved by common law developments, and the introduction of pt 2F.1A of the Corporations Act which abolished the rule in Foss v Harbottle [1843] EngR 478; (1843) 2 Hare 461; 67 ER 189 that ‘the proper plaintiff in an action alleging a wrong done to the company by the directors, by a majority of shareholders or by outsiders, is the company itself’ (emphasis in original). Cf Robert Baxt, Keith Fletcher and Saul Fridman, Corporations and Associations: Cases and Materials (9th ed, 2003) 517. For further discussion, see James McConvill, ‘Directors’ Duties to Creditors in Australia after Spies v The Queen’ (2002) 20 Company and Securities Law Journal 4, 16–17.
[36] [2001] NSWSC 832; (2001) 39 ACSR 401 (‘Geeson’). See also Robert Baxt, ‘Editorial: Disclosure, Auditing, Accounting — And All Matters Financial!’ (2002) 20 Company and Securities Law Journal 248, 250.
[37] Geeson [2001] NSWSC 832; (2001) 39 ACSR 401, 412 (emphasis added). A similar statement about NRMA was made more recently by Master Macready in NRMA v John Fairfax Publications Pty Ltd [2002] NSWSC 563 (Unreported, Master Macready, 26 June 2002). In that case, in which the plaintiff (NRMA) brought an application for the production of certain documents and the examination of journalists who were involved in disclosing information that arose during two NRMA board meetings, Master Macready stated (at [169]):
The plaintiff is a very large organisation fulfilling an important role in this State. We are not here concerned some [sic] local organisation whose members are at loggerheads. Many of the subjects discussed by the board are extremely confidential and serious harm could result from disclosure of such discussions.
[38] Baxt, ‘Just to whom Do Directors Owe Their Duties?’, above n 34, 447.
[39] Horrigan, above n 2, 531.
[40] See, eg, Gary Bryner, ‘The United States: “Sorry — Not Our Problem”’ in William Lafferty and James Meadowcroft (eds), Implementing Sustainable Development: Strategies and Initiatives in High Consumption Societies (2000) 273; Jian-Ming Zhou, Sustainable Development in Asia, America and Europe with Global Applications: A New Approach to Land Ownership (2001) 313–95. See also Kristina Tridico, ‘Sustainable America in the Twenty-First Century: A Critique of President Clinton’s Council on Sustainable Development’ (1999) 14 Journal of Natural Resources and Environment Law 205.
[41] See, eg, Christiane Beuermann, ‘Germany: Regulation and the Precautionary Principle’ in William Lafferty and James Meadowcroft (eds), Implementing Sustainable Development: Strategies and Initiatives in High Consumption Societies (2000) 85.
[42] See, eg, Wang Xi, ‘The Implementation of Rio Declaration and Agenda 21 in China since 1992’ (1998) 3 & 4 Australian Environmental Law News 38; Michael Pickles, ‘Implementing Ecologically Sustainable Development in China: The Example of Heilongjiang Province’ (2002) 14 Georgetown International Environmental Law Review 577.
[43] See, eg, Rhoanna Stanhope, ‘A Vision for the Future? The Concept of Sustainable Development in the Netherlands and New Zealand’ (2000) 4 New Zealand Journal of Environmental Law 147.
[44] See, eg, Sumudu Atapattu, ‘Sustainable Development, Myth or Reality?: A Survey of Sustainable Development under International Law and Sri Lankan Law’ (2001) 14 Georgetown International Environmental Law Review 265.
[45] See Stanhope, above n 43.
[46] See, eg, Don Smith, ‘The European Union’s Commitment to Sustainable Development: Is the Commitment Symbolic or Substantive in the Context of Transport Policy?’ (2002) 13 Colorado Journal of International Environmental Law and Policy 241.
[47] Similar to the offences contained in the Environment Protection Act 1970 (Vic) and the Environment Protection and Biodiversity Conservation Act 1999 (Cth).
[48] Section 6. ‘Ecosystem’ is defined as ‘a dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit.’ ‘Environment’ is defined to include:
(a) ecosystems and their constituent parts, including people and communities; and
(b) natural and physical resources; and
(c) the qualities and characteristics of locations, places and areas; and
(d) the social, economic and cultural aspects of a thing mentioned in paragraph (a), (b) or (c).
[49] The Corporate Code of Conduct Bill 2000 (Cth) s 6 defines the precautionary principle to mean ‘that lack of full scientific certainty should not be used as a reason for postponing a measure to prevent degradation of the environment where there are threats of serious or irreversible environmental damage’.
[50] Opened for signature 5 June 1992, 1760 UNTS 79, preamble (entered into force 29 December 1993). See also Leatch v National Parks and Wildlife Service (1993) 81 LGERA 270, 281.
[51] Section 3(1)(a).
[52] See generally Paula Darvas, ‘Section 249D and the “Activist” Shareholder: Court Jester or Conscience of the Corporation?’ (2002) 20 Company and Securities Law Journal 390, which provides some discussion of the practices of Rio Tinto (and North Ltd, which has been acquired by Rio Tinto).
[53] Corporations Act s 181(1) provides:
A director or other officer of a corporation must exercise their powers and discharge their duties:
(a) in good faith in the best interests of the corporation; and
(b) for a proper purpose.
[54] Robert Baxt, ‘Avoiding the Rising Floods of Criticism: Do Directors of Certain Companies Owe a Duty to the Community?’ (2000) 16(11) Company Director 42, 42.
[55] Corporations Act s 180(2)–(3) reads:
(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
(a) make the judgment in good faith for a proper purpose; and
(b) do not have a material personal interest in the subject matter of the judgment; and
(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the corporation.
The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold ...
(3) In this section:
business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.
[56] The operation of s 180(2) was explained as follows by Santow J in Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253, 349:
in order for the safe-harbour ‘statutory business judgment rule’ to be relied upon, the director must first have made a business judgment. Then that business judgment must satisfy the following requirements, namely made in good faith for a proper purpose; after the director has informed himself as to the subject matter of the judgment to the extent he reasonably believes to be appropriate; in circumstances where the director does not have a material personal interest in the subject matter of the judgment and rationally believes that the judgment is in the best interests of the corporation (s 180(2)). The director’s belief that his or her judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in that position would hold (s 180(2)).
[57] Explanatory Memorandum, Corporate Law Economic Reform Program Bill 1998 (Cth) [6.3]. For an excellent discussion of the reasons for, and operation of, the statutory business judgment rule in Australia, see Robert Baxt, ‘Directors’ Duty of Care and the New Business Judgment Rule in the Twenty-First Century Environment’ in Ian Ramsay (ed), Key Developments in Corporate Law and Trusts Law: Essays in Honour of Professor Harold Ford (2002) 151.
[58] See Grant Moodie and Ian Ramsay, ‘The Expansion of Civil Penalties under the Corporations Act’ (2002) 30 Australian Business Law Review 61. See also Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253.
[59] See s 1324(1), (10). In Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161, 167, Einfeld J held that damages under s 1324(10) were available even if an injunction is not sought: at 167. This was confirmed in Vanmarc Holdings v P W Jess & Associates Pty Ltd [2000] VSC 153; (2000) 34 ACSR 222, 227 (Mandie J).
[60] See, eg, Keith Fletcher, ‘CLERP and Minority Shareholder Rights’ (2001) 13 Australian Journal of Corporate Law 290, 300–1; McConvill, ‘Directors’ Duties to Creditors in Australia after Spies v The Queen’, above n 35, 22–4; Baxt, ‘Directors’ Duty of Care and the New Business Judgment Rule’, above n 57, 163–7.
[61] See Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 73 FCR 161, 167 (Einfeld J). See also Julie Cassidy, Concise Corporations Law (2nd ed, 1999) 316–17; Harold Ford, Robert Austin and Ian Ramsay, Ford’s Principles of Corporations Law (11th ed, 2003) [11.310].
[62] [2002] NSWSC 741; (2002) 42 ACSR 605.
[63] Ibid 609.
[64] Ibid 613.
[65] See Boyce v Paddington Borough Council [1902] UKLawRpCh 174; [1903] 1 Ch 109, 113 (Buckley J); Australian Conservation Foundation Inc v Commonwealth (1980) 146 CLR 493 (‘ACF case (No 1)’). According to Robyn Glindemann in ‘Standing to Sue for Environment Protection: A Look at Recent Changes’ (1996) 24 Australian Business Law Review 246, 247 (emphasis in original):
The ACF case (No 1) was significant because it clearly limited the right of third parties to challenge decisions that would affect the environment. It was made clear by Gibbs J that a person could demonstrate a special interest in a particular environment; however, environmental groups such as the ACF, whose aims and objectives were solely to protect and conserve the environment generally, could not have such an interest. Gibbs J obviously believed that the ACF’s concern was an intellectual one only.
[66] (1989) 19 ALD 70. For a good discussion of the application of the principles established in the ACF case (No 1), see Jan McDonald and Steven Münchenberg, ‘Public Interest Environmental Litigation — Chipping Away at Procedural Obstacles’ (1995) 13 Environmental and Planning Law Journal 140, especially 141–2.
[67] See Stephen Bottomley, ‘The Birds, the Beasts and the Bat: Developing a Constitutionalist Theory of Corporate Regulation’ (1999) 27 Federal Law Review 243, 255 (emphasis omitted):
The theory of corporate constitutionalism begins with the proposition that corporations are more than just artificially created legal institutions (contrary to the suggestions of concession theory) and they are more than just economic institutions (contrary to the argument of contract-based theorists). Corporations have both of these dimensions, but they are also social enterprises and they are polities in their own right.
[68] Ibid 257.
[69] Ibid 255 (emphasis in original).
[71] Eva Cox, A Truly Civil Society (1995) 11.
[72] Refer to the International Organisation of Standardisation <http://www.iso.ch/iso/ en/iso9000-14000/tour/magical.html>. See also Jim Parker, ‘Environment Management Systems and Due Diligence’ (1996) 11(8) Australian Environment Review 10.