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Wednesday, 13 October 1999
Page: 9623


Senator MURRAY (4:28 PM) —Senator Conroy's presentation was shorter than I expected. Given the rather lengthy and quite strong discussion he and I had, I must say that Senator Conroy knows well how to argue his corner both privately and publicly. Once again these amendments have been delivered with the right intention in mind, but we have some reservations. These two amendments relate to the obligation of good faith which is cast on directors and specifically the obligation which, if reached, will give rise to civil rather than criminal liability. The effect of the amendments is to add a requirement into the good faith obligation that directors must exercise their powers with due regard to—and this is the important area—and active consideration of all relevant issues and information.

At first glance that sounds very reasonable; however, we have problems for two reasons. Firstly, the obligation of good faith is about acting in the best interests of a corporation and acting for a proper purpose. The obligation of good faith is not about diligence or consideration of all issues. In other words, it is about an attitude not about performance. It is my view that the substance of the amendment which the Labor Party has moved would be better dealt with as an amendment to obligation to act with care and diligence rather than duty of good faith, because active consideration of issues is a matter of diligence rather than good faith.

Secondly, we would be concerned that the active consideration of all relevant issues requirement would open up a Pandora's box in terms of interpretation. If you imagine a judge who is a stickler for black letter law, he or she might interpret this very widely indeed. He would ask himself or she would ask herself: what precisely does `active consideration of all relevant issues' mean? Does `active consideration of all issues' mean that a full due diligence exercise needs to be conducted of the type that is conducted prior to the issue of prospectuses, with all the consequent costs attached to that? To what length does a director have to go to inform himself or herself of all the relevant issues? There is no reference to information which is reasonably within reach and to reasonable judgment in these matters.

The interpretation of the expression `the active consideration of all relevant issues' opens the door to a very wide interpretation as to what an average director would have to do to satisfy that obligation. As I have remarked, we believe that the duty of care and diligence combined with the business judgment rule impose an appropriate duty on directors. In fact, part of the business judgment rule requires directors to inform themselves about the subject matter of the judgment. Any reasonable judiciary would regard that as a proper informing process—in other words, one having due regard to the appropriate information. Because of that and because these particular sections have been widely discussed and reviewed, we think that on balance, despite the good intention of the shadow minister, we cannot support these amendments.