Lawrep 036 CSLJ JL 0245

Stepping-Stone Liability and the Directors’

Statutory Duty of Care and Diligence
Maeve McGregor*
Long gone are the days that the duty of care and diligence required of
company directors turned on the low standard of crassa negligentia. Today
there is no doubt the law has reached a point where it recognises a core
irreducible content to the standard of care. In recent times, however, a series of
so-called “stepping-stone” decisions have attracted criticism in some quarters
for having raised the standard of care in a manner contrary to statutory scheme.
The concern of this article is to caution against too ready acceptance of such a
view. Stepping-stone decisions neither give rise to an unprincipled expansion
of the statutory duty of care nor depart from the fundamental principle the
duty is owed to the company. This point assumes added significance when
it is recognised that the criticisms levelled at stepping-stone decisions are
ultimately reducible to issues of judicial legitimacy. On the other hand, the
debate, as framed, helpfully focuses attention on the place occupied by public
wrongs or rights under s 180 of the Corporations Act 2001 (Cth). Beyond this,
it raises for consideration the question whether the received understanding
that s 180 is not concerned to ensure the company’s compliance with the law
requires revisiting in light of stepping-stone decisions.
I. INTRODUCTION
In recent times so-called “stepping-stone” decisions under s 180(1) of the Corporations Act 2001 (Cth)
(the Act) have occasioned much in the way of academic controversy.1 Implicit in the general tenor of
certain critiques is a concern these decisions have, contrary to the statutory scheme, raised the irreducible
minimum standard of care and diligence required of company directors.2 On the view advanced by these
commentators, this ostensive shift in the standard of care is predicated on an impermissible judicial
preoccupation with public wrongs or rights. This, ipso facto, has in turn invited the perception that
stepping-stone decisions recast what has long been accepted as a private duty owed to the company
into a general duty owed to the world at large.3 Upon close examination, however, it is apparent these
concerns misconceive the nature of stepping-stone decisions. Despite appearances, the impugned
judgments neither represent an unprincipled expansion of the statutory duty of care nor depart from
the fundamental principle the duty is owed to the company. Although the view these decisions have
redefined the minimum standard of care is not without force, the suggestion this development turns on a
doctrinal sleight of hand or is otherwise not open on first principles is removed from reality.
The focus of this article therefore concerns the conceptual fallacies that animate the central propositions
levelled against stepping-stone decisions. It is argued that certain of these critiques, stripped to their
* BA (Hons), JD (Dist). An earlier draft of this article was submitted as part of the coursework undertaken for the LLM at
Melbourne Law School and awarded the Law Council of Australia’s Santow Scholarship for 2017.
1
See Tim Bednall and Pamela Hanrahan, “Officers’ Liability for Mandatory Corporate Disclosure: Two Paths, Two Destinations?”
(2013) 31 C&SLJ 474; Abe Herzberg and Helen Anderson, “Stepping Stones – From Corporate Fault to Directors’ Personal Civil
Liability” (2012) 40 Federal Law Review 181; Michael Pearce, “Company Directors as ‘Super-Fiduciaries’” (2013) 87 ALJ 464;
RT Langford, “Directors’ Duties: Corporate Culpability, Stepping Stones and Mariner: Contention Surrounding Directors’ Duties
Where the Company Breaches the Law” (2016) 34 C&SLJ 75; The Hon Justice Ashley Black, “Directors’ Statutory and General
Law Accessory Liability for Corporate Wrongdoing” (2013) 31 C&SLJ 511.
2
Bednall and Hanrahan, n 1, 498; Pearce, n 1, 481; see too Robert Baxt, “Corporations and Securities: The Law Relating to a
Director’s Duty of Care and Diligence Given a More Encouraging Interpretation in the Federal Court!” (2015) 89 ALJ 843.
3
Bednall and Hanrahan, n 1, 498; Pearce, n 1, 481.
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McGregor
essentials, betray a procrustean approach to liability under s 180(1) that reads into the statute a limitation
not warranted by its terms. Notably, no satisfactory explanation as to why the scope of s 180(1) should
be so limited is forthcoming in these analyses. It is equally apparent that the accounts of some critics
misapprehend the relevance of public wrongs or rights under s 180(1). Nevertheless, this issue, as raised,
conveniently opens the way for ready penetration of the differences that subsist between the statutory
duty of care and diligence and its counterpart at general law apropos public wrongs or rights. Finally, it
will be demonstrated that there is nothing remarkable about the extent to which stepping-stone decisions
have arguably raised the minimum standard of care. Indeed, once it is accepted that the stream (penalty)
does not rise higher than its source (basis of liability) in these cases, the real question to be answered
emerges: namely, whether the received principle that s 180 is not concerned with any general obligation
on the part of the director to ensure the company complies with the law remains a sound reflection of
the law.
II. STEPPING -STONE LIABILITY

A. An Overview of First Principles
The modern principles governing liability for breach of the statutory duty of care and diligence are
well established. It is not in doubt that the content of the duty is shaped by the private interests and
particular circumstances and attributes of the corporation.4 More specifically, the relevant inquiry
required by s 180(1) is to be objectively assessed by reference to the function the director has undertaken
to perform within the company, as well as his or her particular skills and experience, and the broader
circumstances of the case.5 Importantly, a finding of contravention will only follow if the risk of harm to
the corporation’s interests flowing from the impugned conduct was clear and the potential countervailing
benefits insignificant.6 In terms of understanding the operation of these principles in practice, it might
be observed they reflect an accommodation between competing policy objectives. By their very nature,
the powers attaching to the office of company director envisage commercial risk-taking by directors.7
Underlying the liberty of directors to engage in entrepreneurial risk, however, is an appreciation of the
benefits afforded by observance of sound corporate governance as balanced against the desirability of
ensuring directors are not overburdened with liability.8 For present purposes, it is useful to note the
enduring significance of this policy context as it forms the backdrop to the debate surrounding stepping-
stone decisions.
4
Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 449–450; Permanent Building Society (in liq) v Wheeler (1994)
11 WAR 187, 237–239; Daniels v Anderson (1995) 37 NSWLR 438, 505; Australian Securities & Investments Commission v
Maxwell (2006) 59 ACSR 373, 399 [104]; [2006] NSWSC 1052; Shafron v Australian Securities and Investments Commission
(2012) 247 CLR 465, 476; [2012] HCA 18; Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336
ALR 209, 301 [480], 304 [495]; [2016] FCA 1023.
5
Re City Equitable Fire Insurance Co Ltd [1925] Ch 407, 427; Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115,
125; Australian Securities Commission v Gallagher (1993) 11 WAR 105, 114–115; 10 ACSR 43, 53; Daniels v Anderson (1995)
37 NSWLR 438, 504–505; Australian Securities and Investments Commission v Adler (2002) 168 FLR 253, 347 [372]; [2002]
NSWSC 171, Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617, 858 [1067]; [2005] NSWSC 738;
Australian Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 582 [441]; [2015] FCA 589.
6
Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 449–450; Australian Securities and Investments Commission v
Maxwell (2006) 59 ACSR 373, 397–398 [102]; [2006] NSWSC 1052; Australian Securities and Investments Commission v Mariner
Corp Ltd (2015) 241 FCR 502, 583 [448]–[450]; [2015] FCA 589; Australian Securities and Investments Commission v Cassimatis
(No 8) (2016) 336 ALR 209, 304 [495], 313 [537]; [2016] FCA 1023.
7
Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 449–450; Australian Securities and Investments Commission v
Maxwell (2006) 59 ACSR 373, 397–398 [102]; [2006] NSWSC 1052; Australian Securities and Investments Commission v
Macdonald (No 11) (2009) 230 FLR 1, 51 [236]; [2009] NSWSC 287; Australian Securities and Investments Commission v Mariner
Corp Ltd (2015) 241 FCR 502, 584 [452]; [2015] FCA 589; Australian Securities and Investments Commission v Cassimatis
(No 8) (2016) 336 ALR 209, 305 [497]; [2016] FCA 1023.
8
Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 305 [497]–[498], 306 [506];
[2016] FCA 1023; Herzberg and Anderson, n 1, 195–196; Australian Institute of Company Directors, The Honest and Reasonable
Director Defence (2014).
246 (2018) 36 C&SLJ 245

Stepping-Stone Liability and the Directors’ Statutory Duty of Care and Diligence
The foregoing summation of principle demonstrates the content of the duty is not defined by reference
to a broad-brush approach that gives effect to a fixed and uniform standard of care. That is not, nor
has it ever been, the law. But unlike the position before the late 20th century, prevailing jurisprudence
appears to recognise an irreducible minimum standard of care.9 At one level, it is accepted directors
must take all reasonable steps to place themselves in a position to guide and monitor the management of
the company.10 To this end, directors must meet as often as is necessary to carry out their functions and
maintain a familiarity with the affairs of the company.11 In more recent times, the courts have expressly
imported an objective standard of skill into the duty insofar as directors are now taken to possess basic
financial literacy.12 These considerations, it might be noted, find reflection in the latest edition of the ASX
Principles and Recommendations on good corporate governance.13 Viewing matters from the perspective
of legislative reform, it might be added that the introduction of the civil penalty regime in 1993 was
underpinned by an analogous concern to secure greater adherence to the law.14 On this footing, recent
judicial acceptance of a minimum content to the standard of care is not, on any view, readily susceptible
to the charge of being contra-historical.15
Notwithstanding the unparalleled importance today attached to corporate governance, the courts have
guarded against an approach to the statutory duty that borders on a counsel of perfection. Mere mistakes
do not, generally speaking, demonstrate want of due care and diligence.16 Similarly, it is accepted that
s 180 is not concerned with any general obligation to ensure the affairs of the company are being
conducted in accordance with the law or the Act in particular.17 The corollary to this is that liability is
not automatically sheeted home to the director in circumstances where the company has contravened
the law. Judicial formulation of this principle has its origins in the influential dicta of Brereton J in
Australian Securities and Investments Commission v Maxwell (Maxwell).18 There his Honour sounded
a warning against too readily engaging the statutory directors’ duties in such circumstances lest it be
perceived as an unwarranted form of “accessorial civil liability”.19 Yet, as acknowledged by Brereton J,20
the principle so stated cannot, and should not, be erected into a fixed limitation on the jurisdiction of the
court to grant relief under s 180. It remains open to the court to find that, in the particular circumstances
of the case, the director’s conduct in authorising the company’s contravention amounted to breach of
s 180.
9
Deputy Federal Commissioner of Taxation v Clark (2003) 57 NSWLR 113, 140 [108]; [2003] NSWCA 91.
10
Daniels v Anderson (1995) 37 NSWLR 438, 500–501.
11
Daniels v Anderson (1995) 37 NSWLR 438; Vrisakis v Australian Securities Commission (1993) WAR 395, 405.
12
Australian Securities and Investments Commission v Rich (2009) 236 FLR 1, 133 [7207]; [2009] NSWSC 1229; Australian
Securities and Investments Commission v Healey (2011) 196 FCR 291, 321; [2011] FCA 717.
13
ASX Corporate Governance Council, Corporate Governance Principles and Recommendations (3rd ed, 2014) 18; see RT
Langford, I Ramsay and M Welsh, “The Origins of Company Directors’ Statutory Duty of Care” (2015) 37 Sydney Law Review
489, 516–517.
14
See Vicky Comino, “Civil or Criminal Penalties for Corporate Misconduct” (2006) 34 ABLR 428.
15
See Douglas Menzies, “Company Directors” (1959) 33 ALJ 156.
16
Australian Securities and Investments Commission v Lindberg (2012) 91 ACSR 640, 654 [72]; [2012] VSC 332; Australian
Securities and Investments Commission v Healey (2011) 196 FCR 291, 333–334 [180]; [2011] FCA 717; Australian Securities and
Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 593 [513]; [2015] FCA 589.
17
Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373, 399 [104]; [2006] NSWSC 1052; Australian
Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623, 628 [22]; [2007] FCA 973; Australian Securities
and Investments Commission v Citrofresh International Ltd (No 2) (2010) 77 ACSR 69, 79 [50]; [2010] FCA 27; Australian
Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 582 [444]; [2015] FCA 589; Australian
Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 314 [543]; [2016] FCA 1023. See too RP
Austin and IM Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (LexisNexis Butterworths, 16th ed, 2015) 486.
18
Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373, 399 [104]; [2006] NSWSC 1052.
19
20
Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373, 399 [104], 402 [110]; [2006] NSWSC 1052.
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McGregor
B. Is the Stream Rising Higher Than Its Source?

In a series of cases since Maxwell, some of which have enjoyed more than a fleeting moment of public
exposure, the courts have found directors liable under s 180 for having caused or permitted the company
to contravene the Act.21 In Australian Securities and Investments Commission v Citrofresh International
Ltd (No 2) (Citrofresh), the Court held that the managing director had failed to exercise reasonable care
and diligence by permitting the company to provide “grossly” misleading statements to the ASX in breach
of s 1041H of the Act.22 In both Australian Securities and Investments Commission v Warrenmang Ltd
(Warrenmang) and the Australian Securities and Investments Commission v Elm Financial Services Pty
Ltd proceedings, the directors were found to have breached s 180 by causing their respective companies
to commit several related contraventions of investor protection provisions in the Act.23 An arguably better-
known example involves the fate of the directors and certain officers in the James Hardie proceedings.24
Each of the non-executive directors were held to have breached s 180 by approving a materially
misleading draft ASX announcement in respect of the adequacy of a compensation fund established for
asbestos victims. The managing director, chief financial officer and company secretary/general counsel
were similarly found liable under s 180 for their close involvement in the company’s breach and their
failure to advise the board of certain material matters. Another notable example is Australian Securities
and Investments Commission v Fortescue Metals Group Ltd (Fortescue).25 There the Full Federal Court,
in reversing the decision of the primary judge, found the managing director had breached s 180 in
circumstances where he caused the company to make misleading disclosures to the ASX.26
These so-called “stepping-stone” decisions have attracted academic criticism for having employed what
is described as a “novel” approach to liability under s 180.27 While the essence of the complaint is one
of less than complete clarity, in substance it appears to be premised on issues of doctrinal coherency
that have a direct affinity with the observations of Brereton J in Maxwell. It will be recalled his Honour
rejected the proposition that s 180 might properly be engaged as “a backdoor method for visiting”
on directors “accessorial civil liability for [the company’s] contraventions of the Corporations Act in
respect of which provision is not otherwise made”.28 The difficulty with the abovementioned cases, some
contend, is that they disclose a line of reasoning inconsonant with this received dictum.29 A common
21
It is worth noting that breaches of other statutory directors’ duties are not uncommonly found in the same proceedings: see, eg,
Australian Securities and Investments Commission v Preston [2005] FCA 1805; Australian Securities and Investments Commission
v Warrenmang Ltd (2007) 63 ACSR 623; [2007] FCA 973; Australian Securities and Investments Commission v Sydney Investment
House Equities Pty Ltd (2008) 69 ACSR 1; [2008] NSWSC 1224. More recent Corporations Act 2001 (Cth) s 180 stepping-
stone decisions include Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364;
[2011] FCAFC 19; Agricultural Land Management Ltd v Jackson (No 2)(2014) 48 WAR 1; [2014] WASC 102; Australian
Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023; Australian Securities and
Investments Commission v Sino Australia Oil and Gas Ltd (in liq) (2016) 115 ACSR 437; [2016] FCA 934; Australian Securities
and Investments Commission v Padbury Mining Ltd (2016) 116 ACSR 208; [2016] FCA 990.
Australian Securities and Investments Commission v Citrofresh International Ltd (No 2) (2010) 77 ACSR 69, 80 [52]; [2010]
22
FCA 27; Australian Securities and Investments Commission v Narain (2008) 169 FCR 211; [2008] FCAFC 120.
23
Australian Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623; [2007] FCA 973; Australian
Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 411; [2005] NSWSC 1020; Australian
Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1033; Australian Securities and
Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 544; [2005] NSWSC 1065.
24
Australian Securities and Investments Commission v Macdonald (No 11) (2009) 230 FLR 1; [2009] NSWSC 287; Morley v
Australian Securities and Investments Commission (2010) 247 FLR 140; [2010] NSWCA 331.
25
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364; [2011] FCAFC 19.
26
On appeal the High Court found the relevant representations were not misleading or deceptive; ergo, the finding of liability under
Corporations Act 2001 (Cth) s 180 was overturned: Forrest v Australian Securities and Investments Commission (2012) 247 CLR
486; [2012] HCA 39.
27
Bednall and Hanrahan, n 1, 475. See too Herzberg and Anderson, n 1, 182, though note the authors do not in fact criticise the
approach of the courts in these decisions: see Herzberg and Anderson, n 1, 196.
28
29
See Bednall and Hanrahan, n 1, 498; Pearce, n 1, 464, 481.
248 (2018) 36 C&SLJ 245

refrain in this connection is that the courts effectively impute to the director a form of “civil derivative
liability” for the company’s wrongdoing.30 The principal problem that inheres in this circumstance, so it
is suggested, lies in the incongruence of imposing civil penalty or disqualification orders on the director
for causing the company to breach a provision of the Act that does not itself carry the prospect of
these consequences. This objection seemingly obtains whether or not the relevant provision expressly
provides for accessorial liability, though the two situations raise slightly different coherency of law
considerations.31
There is, however, little attraction to the argument that the impugned cases are subversive of the
principle established in Maxwell. In adapting the observations of Brereton J, it is of first importance to
remember his Honour did not cast doubt on the proposition that, in appropriate circumstances, a director
may offend s 180(1) by permitting the company to contravene the Act.32 Accepting this, the principal
contention advanced in the relevant critiques, that the stream (the penalty) rises higher than its source
(the basis of liability), ought to give immediate occasion for suspicion. The main conceptual difficulty in
the path of acceptance of the argument owes to the failure to identify with any precision the true source
of the director’s liability. So much is exemplified by Bednall and Hanrahan’s cri de coeur that “the
consequences of a form of civil derivative liability should not be more harsh than the consequences of the
primary contravention”.33 Curiously, a similar level of conceptual uncertainty is discernible in arguments
that do not subscribe to the Bednall and Hanrahan thesis. For instance, Herzberg and Anderson explain
that where a director is found to have breached s 180(1) for allowing the company’s contravention, he or
she is met with “a type of civil derivative liability for corporate fault, but one which nonetheless is based
on their own inadequate conduct”.34 On either footing the careful reader would be hard put to identify
the true basis of the director’s liability.
In reality, the question whether the liability attaching to directors in these decisions might be described
as a form of “civil derivative liability” gives rise to an extraneous and unilluminating inquiry that can,
and should, be put to one side. It distracts attention from the fact that s 180 is only engaged if it was
reasonably foreseeable that the director’s conduct in permitting the company to contravene the Act
would jeopardise the company’s interests and thereby fall short of the standard of care and diligence
required by law. When it is remembered that the company’s contravention does not of itself compel the
conclusion the director has breached s 180, the status to be accorded to the company’s contravention
can be stated with congenial clarity. As Black J has observed extra-judicially, it commands no more
significance than other circumstances that might ordinarily arise under the inquiry required by s 180.35
It is accordingly an error to suppose the courts treat what is merely one consideration informing the
broader inquiry under s 180 in this class of case as something which leads inexorably to the conclusion
that the duty has been breached. The truth is otherwise.36
C. “Stepping-Stone” Liability: A Misnomer

There is, as such, no special difficulty in observing that the liability attaching to directors in stepping-stone
decisions cannot sensibly be characterised as “derivative” without recourse to an element of fiction. The
fallacy of the characterisation lies in its propensity to conflate the liability flowing from the company’s
contravention with the separate and distinct liability that might arise under s 180 in given circumstances.
Consider, for instance, Bednall and Hanrahan’s suggestion that “the courts should be slow to impose
a civil penalty or to disqualify a director who has breached the statutory duty of care and diligence by
30
Bednall and Hanrahan, n 1, 498; Pearce, n 1, 464, 481. See too Herzberg and Anderson, n 1, 181–182, 197.
31
See generally Bednall and Hanrahan, n 1, 502–5.
32
33
Bednall and Hanrahan, n 1, 498.
34
Herzberg and Anderson, n 1, 182.
35
Black, n 1, 519.
36
Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 226 ALR 209, 311 [527]; [2016] FCA 1023.
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McGregor
negligently causing the company to breach a provision of the Corporations Act, such as s 1041H, that
is not itself an offence or civil penalty provision”.37 To hold otherwise, the authors contend, would be
“disproportionate” and therefore “unjust”. With respect, this conception is confused and unsatisfactory.
If it is accepted that the director has offended s 180(1), it is not obvious why the court should be debarred
from exercising its full discretion as to civil penalty and disqualification orders in the usual way. Notably,
nothing in the way of reasoning is advanced by Bednall and Hanrahan to reduce the significance of the
non sequitur harboured in their proposition. On the contrary, the validity of their view is propounded
as requiring no particular elucidation. This is problematical, not least because their argument throws
considerable doubt on the legitimacy of the judicial approach in stepping-stone decisions.
It is possible that the conceptual difficulties attending the Bednall and Hanrahan thesis are directly
referable to the unhappy expression “stepping-stone liability”. The phrase, replete within the literature,
was adopted from the remarks of Keane CJ in Fortescue.38 There his Honour used the expression to
describe the forensic method deployed by the Australian Securities and Investments Commission (ASIC)
in cases where it is alleged the director breached s 180 by causing the company to breach the Act.
The first step, so the reasoning goes, involves proceedings against the company for its contravention.
A positive finding of liability on this basis then leads to the second step; namely, that in allowing the
company’s contravention to occur the director jeopardised the company’s interests and thereby failed
to exercise reasonable care and diligence.39 So framed, this loosely reflects the logic by which ASIC
advances its arguments in proceedings of this nature. Taken no higher than that, the concept of stepping-
stone liability does not readily admit grounds of attack. Much of the commentary, however, proceeds on
the false assumption that it represents, in absolute terms, the course adopted by the courts in disposing
of matters of that kind. It is precisely this assumption which betrays the tendency of the concept to lead
into error.
The problems of comprehension that attend the concept of stepping-stone liability stem from the inflated
significance it affords to the company’s contravention. As explained, while important, the company’s
contravention is but one consideration informing the inquiry required by s 180(1) in such cases.40 The
expression stepping-stone liability is therefore inapt insofar as it suggests the company’s contravention
by itself enlivens the director’s liability under s 180(1). By collapsing from sight the separate and distinct
foundation upon which the director’s liability is based, the concept conceivably prompts precision of
thought to evacuate ordinary analysis. Some measure of its capacity to militate against clarity of thinking
in this way is, as noted, reflected in Herzberg and Anderson’s analysis. While the authors correctly
observe stepping-stone liability goes “no further than existing liability provisions”,41 their analysis
stumbles at the point at which they see fit to describe the director’s liability as a “form of civil derivative
liability”, albeit one that is “nevertheless based on [the director’s] own inadequate conduct”.42 In truth,
the liability of the director cannot be simultaneously personal and derivative under the one head of
liability. Nor can it be correct to say that the courts are effectively “filtering directors’ liability for
corporate fault through the lens of directors’ duties”.43 The true position is that the director’s liability
turns solely on the reasonably foreseeable consequences of their own conduct, assessed according to
ordinary principles, in allowing the company’s contravention to occur.
37
38
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364, 370 [10]; [2011]
FCAFC 19.
39
See Langford, n 1, 193.
40
Actual breach by the company may not be a necessary requirement before the director is found liable under the Corporations Act
2001 (Cth) s 180: Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 218 [5]; [2016]
FCA 1023; compare Australian Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 584 [455];
[2015] FCA 589.
41
42
43
Herzberg and Anderson, n 1, 196 (emphasis added).
250 (2018) 36 C&SLJ 245

Upon close observation then, the immediate analytical appeal of the expression “stepping-stone liability”
is more chimerical than it is real. Its underlying logic is pitched at too high a level of generality to be
of much assistance when deeper questions of doctrinal import enter the debate. Much, of course, may
be lost in generalisations. There is obviously a temptation on the part of some to read into the concept
unthinking assumptions regarding the nature of the director’s liability in such cases. The significance of
this circumstance should not be overlooked, given any perceived controversy stepping-stone decisions
elicit is ultimately reducible to questions of judicial legitimacy. Understood thus, the implications of
conceptual imprecision in this context may extend beyond matters of theory. This is borne out, though in
a slightly different context, by the policy argument Herzberg and Anderson venture as to the desirability
of extending the stepping-stone approach.44 Their views, which do not call for repetition here, are, with
respect, persuasive. However, the misconceived basis upon which the authors characterise the director’s
liability – as a form of civil derivative liability – regrettably renders their argument vulnerable to the
very objections advanced in the Bednall and Hanrahan thesis. For this reason, among others, particular
caution needs to be exercised when approaching general theoretical concepts that lack the conviction of
established principle.
D. Residual Concerns of Doctrinal Coherency

Having revealed the fiction involved in conceiving the director’s liability as a form of civil derivative liability,
it remains to address the residual misconceptions grounding the coherency of law complaint levelled
against the stepping-stone approach. The first concerns the appropriate scope of s 180. Pointing to the
generality with which the terms of s 180(1) are expressed, Goldberg J in Citrofresh construed the provision
liberally, noting it contemplates “a multitude of fact scenarios”.45 On this footing, his Honour observed
there was “no reason why a finding that a company director has contravened s 1041H of the Act should not
result, in appropriate circumstances, in a contravention of s 180(1)”.46 In answer, Bednall and Hanrahan
have characterised this construction of s 180(1) as “unjust” on the ground that it exposes the director to
“disproportionate” consequences by treating breach of s 1041H, a non-civil penalty provision, “as, ipso
facto, a breach of s 180”.47 Several comments may be made of this. To begin with, it is an inaccurately wide
representation of his Honour’s statement. Consistently with the views expressed in Maxwell, Goldberg J
did not say that breach by the company of s 1041H would enliven s 180 in all circumstances. His Honour
restricted that possibility to “appropriate circumstances”. In the context of the instant case, Goldberg J
found that the director, by his conduct and involvement in the preparation of the misleading statement to the
ASX, personally caused the company to contravene s 1041H.48 In other words, the finding of liability under
s 180 turned on the director’s conduct in the particular circumstances of that case. There is no occasion to
suppose it rested on any relaxation of the accepted principle that a company’s contravention does not of
itself presuppose a breach of directors’ duties.
Second, once it is accepted that the descriptor “civil derivative liability” is untenable, the true nature of
Bednall and Hanrahan’s complaint emerges. Consider, for example, the authors’ observation that the
approach of the courts in Citrofresh and Australian Securities and Investments Commission v Macdonald
(No 11) (Macdonald (No 11)) visited civil penalty liability on directors “where the legislation does not
contemplate the sanction”.49 Implicit in that statement, read carefully, is a resistance to the notion that
44
Herzberg and Anderson, n 1, 198–203.
45
Australian Securities and Investments Commission v Citrofresh International Ltd (No 2) (2010) 77 ACSR 69, 78 [47]; [2010] FCA 27.
46
FCA 27 (emphasis added).

47
48
FCA 27. Goldberg J, consistently with the subsequent findings of the Full Federal Court on appeal (Australian Securities and
Investments Commission v Narain (2008) 169 FCR 211, 255 [100]; [2008] FCAFC 120), held the director had personally breached
Corporations Act 2001 (Cth) s 1041H: Australian Securities and Investments Commission v Citrofresh International Ltd (No 2)
(2010) 77 ACSR 69, 78–79 [47]; [2010] FCA 27.
49
Bednall and Hanrahan, n 1, 504–505.
(2018) 36 C&SLJ 245251

McGregor
the courts have jurisdiction to relieve under s 180 in this class of case. The fundamental postulate of
the argument is that the director’s conduct in allowing the company to contravene a non-civil penalty
provision is not and cannot be, by virtue of the statutory scheme, relevantly negligent. Yet, with a view to
the reasons stated by Goldberg J, the warrant for reading into the section a limitation of this kind is not
clear. Indeed, the authors provide little in the way of justification for their approach, other than to suggest
it obviates the prospect of apparently “disproportionate” penalties.50 This position cannot, however,
overcome the formidable rejoinder that it misconstrues the basis upon which the director’s liability
properly falls to be assessed. It is not, to reiterate, founded solely on the company’s contravention. On
this analysis, Bednall and Hanrahan’s objections do not, individually or collectively, stand as reasons for
denying a liberal construction of s 180.
Consideration of the forensic advantages said to accompany the courts’ approach to liability in this
context bring to the fore the final argument predicated on issues of doctrinal coherency. As has not
uncommonly been noted, a finding of liability under s 180 might be open in circumstances where a
finding of accessorial liability (if provided for by the relevant provision) may not be.51 This somewhat
unremarkable consequence owes to the specific knowledge requirements that govern the operation of
s 79.52 Of course, this is not to say that “knowing involvement” may not have been established in at
least some of the impugned decisions. The point, rather, is that s 180 gives rise to the possibility of
civil penalty and disqualification orders not otherwise available via the accessorial liability route. While
some consider this is an ideal circumstance, others have sought to frame it as an issue of doctrinal
inconsistency.53 But it is possible both views overstate the position. As Black J puts it, it is “commonplace
in civil and regulatory litigation for different causes of action to lead to different outcomes and different
remedies”.54 On this view, it is irrelevant that the negligence approach under s 180 is arguably less
onerous to make good than the accessorial liability approach.
With reflection, it is plain the stepping-stone approach, properly understood, does not represent an undue or
unprincipled expansion of s 180. The principle, established in Maxwell, that a company’s contravention of
the law will not ordinarily enliven liability under s 180 very clearly allows for the possibility that, at least in
some circumstances, it will. There is nothing to be gained by reading the principle otherwise. The difficulty
with the Bednall and Hanrahan thesis is that it effectively denies the legitimacy of that possibility, particularly
in circumstances where the company’s contravention concerns a non-civil penalty provision. In so doing, the
argument recasts what is a general proposition with an important qualification into a fixed and unyielding
limitation on the power of the court to grant relief under s 180. For reasons explained, the assumption
underlying Bednall and Hanrahan’s argument, that the stepping-stone approach is antithetical to the natural
order of things, does not survive close examination. This much is obvious when it is remembered that the
question whether the director has breached s 180, in all cases, falls to be assessed according to ordinary,
established principles. There is therefore every reason to suppose that it is the Bednall and Hanrahan thesis,
and not the approach of the courts in stepping-stone decisions, which is “novel” and unsupported by principle.
III. A DUTY OWED TO THE CORPORATION

A. A Duty Owed to the Corporation or the World at Large?
The weight of judicial opinion expressly recognises the directors’ statutory duty of care and diligence
as a duty owed to the corporation.55 As Spigelman CJ observed in Vines v Australian Securities and
50
Bednall and Hanrahan, n 1, 498, 505.
51
Bednall and Hanrahan, n 1, 503, 510; Pearce, n 1, 481; Herzberg and Anderson, n 1, 197; Black, n 1, 520.
52
See generally Black, n 1, 512–514.
53
Herzberg and Anderson, n 1, 197; Langford, n 1, 77; compare Bednall and Hanrahan, n 1, 504, 510.
54
Black, n 1, 520.
55
Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373, 397 [102]; [2006] NSWSC 1052; Vrisakis v
Australian Securities Commission (1993) 9 WAR 395, 449–450; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR
187, 239; Australian Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623, 628 [22]; [2007] FCA 973;
Australian Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 583 [445]; [2015] FCA 589; Australian
Securities and Investments Commission v Cassimatis (No 8) (2016) 226 ALR 209, 298–299 [465]–[467]; [2016] FCA 1023.
252 (2018) 36 C&SLJ 245

Investments Commission, this is “suggested by the statutory context and the scope of the parallel
common law duty”.56 Despite the clarity of this position, the complaint that the courts appear to arrive
at findings of liability under s 180 by reformulating it as one owed to the world at large is a recurring
theme in critiques on stepping-stone decisions.57 On its face, the objection is quite without substance.
It is difficult to distil from the decided cases any express departure from the orthodox position.58 It is
also doubtful the courts have taken this radical step even implicitly by their reasoning. As will be seen,
the problem with the argument to the contrary is that it pays no heed to the important relationship
that subsists between the company’s interest in complying with the law and the very interests the law
protects by force of statute.
The corollary to the principle the duty is one owed to the corporation is that a finding of breach of
duty will only lie if it was reasonably foreseeable the director’s conduct might, on balance, harm the
interests of the corporation. In circumstances where the director has caused or allowed the company’s
contravention, this is usually expressed as requiring evidence of “relevant jeopardy” to the company.
While the principle is one of longstanding authority,59 this particular formulation has its origins in the
remarks of Brereton J in Maxwell.60 There his Honour cast doubt on a passage of Barrett J in Elm
Financial Services,61 a matter concerning contravention of ss 180(1) and 181(1) by several directors for
causing a group of companies to breach certain mandatory disclosure provisions relating to financial
products. In finding the claims for breach of directors’ duties established, Barrett J observed that the
contravening conduct could be seen to have “contributed to situations in which persons invited to invest
money were denied basic protections and safeguards that the law demanded they be afforded”.62 To this
Brereton J said:
Anything that Barrett J says in this field is entitled to the greatest respect, but if what his Honour said
in that passage suggests that the relevant duty of the directors was to persons invited to invest money by
way of loan, as distinct from the company, then I am unable to agree. In my opinion, if a contravention of
s 180(1) is to be established, it must be founded on jeopardy to the corporation, and not to the protection
of potential investors.63
The problem with this reading of Barrett J’s observation, as Brereton J appears to concede in the opening
sentence, is that it is not abundantly clear that Barrett J had in mind any relevant duty owed to members
of the public or, more precisely, potential investors. On the contrary, when read in the context of the
judgment as a whole, it is tolerably clear Barrett J was merely extending awareness to the broader
consequences of the directors’ want of reasonable care and diligence. Comparable comments made in
two other judgments in the same proceedings by his Honour lend weight to this view.64 At all events,
it is not uncommon for a court to make reference to the legislative object of a statutory provision.
56
Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451, 463 [84]; [2007] NSWCA 75.
57
See Pearce, n 1, 464, 481; Bednall and Hanrahan, n 1, 509.
58
Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623, 628 [22]; [2007] FCA 973; Australian Securities
and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 583 [445]; [2015] FCA 589; Australian Securities and
Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 301 [478], 313 [537]; [2016] FCA 1023; Australian Securities
and Investments Commission v Citrofresh International Ltd (No 2) (2010) 77 ACSR 69, 78 [44]; [2010] FCA 27; Australian
Securities and Investments Commission v Macdonald (No 11) (2009) 230 FLR 1, 54 [247]; [2009] NSWSC 287.
59
See Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 449–450.
60
61
Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1033.
62
Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1033, [4].
63
Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373, 399–400 [105]; [2006] NSWSC 1052
(emphasis added).
64
Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 411, 413 [7]; [2005]
NSWSC 1020; Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 544, 546
[9]; [2005] NSWSC 1065. As to Barrett J’s long-held view that the duty is one owed to the company, see Reginald Ian Barrett,
“Directors’ Duties to Creditors” (1977) 40 Modern Law Review 226.
(2018) 36 C&SLJ 245253

McGregor
Other stepping-stone decisions, in this respect, are illustrative. In Fortescue, the Court observed that the
managing director’s conduct was “apt to affect the confidence of investors in the management of the
enterprise”.65 Similarly, in Macdonald (No 11), Gzell J made specific mention of the “market reaction
to [the company’s] listed securities” the misleading draft ASX announcement was liable to elicit.66
Observations to this effect do not force the Court into a radical rejection of the basal principle that the
statutory duty is owed to the company.
This analysis focuses attention on the operating distinction between conduct that may compromise the
company’s interests, on the one hand, and the wider implications or consequences carried by that conduct,
on the other. In accordance with the principle the duty is owed to the company, it is, as mentioned,
conventionally to the former the law looks when assessing whether the director has breached s 180.67
The latter, which invariably manifests as third-party harm, is not directly relevant to the inquiry. Stated
at that level of abstraction, there is a seeming simplicity to the task faced by the court when considering
the question of breach. Considered reflection of the recognised categories of harm deemed to answer
the description of “relevant jeopardy”, however, suggests the dichotomy possibly obscures more than it
reveals. It is accepted, for instance, that conduct resulting in actual or potential exposure of the company
to civil or criminal liability or civil penalties under the Act may, in some circumstances, constitute relevant
jeopardy to the corporation.68 So also might conduct that causes the company material reputational and
financial harm.69 The material point here, as Edelman J has remarked, is that the private “interests of the
corporation includes its compliance with the law”.70 The full significance of this observation is thrown
into sharp relief when it is remembered the law protects or safeguards interests other than merely those
of the corporation.
These observations should not be taken to imply that the dichotomy between the company’s interests and
third-party harm, for the purposes of assessing breach, is thereby devoid of doctrinal utility. That is not
so. Nonetheless, such considerations do expose the technical derailment in the argument that stepping-
stone decisions mark at least partial desertion of the principle that the duty is owed to the company. Many
of the obligations imposed on corporations by the Act, particularly mandatory disclosure rules, seek to
protect third parties, such as investors. The concern of the legislature is obvious. When, for instance, a
company makes misleading or deceptive market disclosures, the capacity of investors to make informed
decisions is vitiated and the overall losses are invariably borne by the broader community.71 The same,
mutatis mutandis, applies to contravention of fundraising provisions designed to protect investors.72 It is
accordingly neither unusual nor inappropriate for courts to make reference to the harm, real or potential,
visited on third parties when the director causes the company to contravene provisions of that kind.
Contrary to the argument of those who discern a reformulation of the duty of care into one owed to the
world at large, it does not follow that these considerations form the basis for findings of liability under
65
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364, 424 [183], see too 434
[232]; [2011] FCAFC 19.
66
Australian Securities and Investments Commission v Macdonald (No 11) (2009) 230 FLR 1, 56 [259]; [2009] NSWSC 287.
67
Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 301 [479]–[480]; [2016] FCA 1023, discussing
Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 449–450.
68
Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 301 [482]; [2016] FCA 1023.
69
70
Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 302 [483], 313 [540]; [2016] FCA
1023.
71
See generally Gill North, “Companies Take Heed: The Misleading or Deceptive Conduct Provisions Are Gaining Prominence”
(2012) 30 C&SLJ 342, 343; Angie Zandstra, Jason Harris and Anil Hargovan, “Widening the Net: Accessorial Liability for
Continuous Disclosure Contraventions” (2008) 22 Australian Journal of Corporate Law 51.
72
See Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 544, 546 [9]–[10];
[2005] NSWSC 1065.
254 (2018) 36 C&SLJ 245

s 180. On a careful reading, they merely elucidate the dynamic interplay between the company’s interest
in complying with the law and the interests therein protected by force of statute.
B. Relevant Jeopardy to the Company

The argument that stepping-stone decisions depart from the fundamental principle the duty is owed to the
company assumes a failure on the part of the courts to engage with the requirement of relevant jeopardy.
But close examination of the decided cases affords little support for that view. In Citrofresh, Goldberg J
observed that the director’s involvement in the preparation and publication of the misleading ASX
release exposed the company to legal proceedings which materially affected its “financial interests and
its reputation”.73 Importantly, his Honour noted that “there was no countervailing potential benefit of any
significance to the Company in him doing so”.74 To like effect is Gordon J’s reasoning in Warrenmang.
Citing Maxwell, her Honour found the director had exposed the company to offences for contraventions
of ss 722 and 723 of the Act “for which there was no countervailing potential benefit”.75 Conversely,
the primary judge in the James Hardie proceedings, Gzell J, might legitimately attract criticism for
not expressly addressing the balance of risk objectively occasioned by the impugned conduct in that
case. This anomaly is not, however, overly significant, given the glaring nature of the directors’ breach
of duty in that case.76 As his Honour observed, the directors’ approval of the misleading draft ASX
announcement clearly rendered the company vulnerable to potential legal proceedings and considerable
reputational harm.77
At first glance, it might be thought that the Court in the Elm Financial Services proceedings likewise
failed to directly address the measure of objective risk attending the directors’ conduct in arriving at
findings of liability under s 180(1). But it is relevant to note these proceedings were conducted on the
footing of applications made by ASIC for orders by consent. While this circumstance does not absolve
the Court from its duty to be satisfied that the balance of evidence supports a finding of contravention
of s 180, it is apt to affect the manner of its disposition. In any event, the reasons for judgment make
plain s 180 was engaged on the basis of the companies’ exposure to liability caused by the directors’
“apparently deliberate” authorisation of a series of “flagrant” contraventions of investor protection
laws.78 By contrast, it is difficult to identify with precision considered reflection of relevant jeopardy in
the leading judgment in Fortescue.79 In finding the CEO was “knowingly involved” in the company’s
contraventions of the continuous disclosure and misleading conduct provisions, Keane CJ reasoned the
CEO was, on that basis, also in breach of s 180(1).80 Still, it might be that in accepting ASIC’s case,
which referenced the prospect of pecuniary penalties confronting the company,81 Keane CJ likewise
acceded to ASIC’s submissions as to relevant jeopardy.
73
FCA 27.
74
FCA 27.
75
Australian Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623, 630 [27]; [2007] FCA 973.
76
77
78
Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 411, 412–413 [4]–[7];
[2005] NSWSC 1020; Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1033,
[3]–[5]; Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 544, 545–546
[3]–[4], [8]–[9]; [2005] NSWSC 1065.
79
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364; [2011] FCAFC 19.
80
FCAFC 19.
81
FCAFC 19.
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McGregor
A more recent stepping-stone decision, notable for its forceful rejection of the argument agitated by
ASIC, is Australian Securities and Investments Commission v Mariner Corp Ltd (Mariner).82 This
case concerned an unsuccessful off-market takeover bid by the defendant company. Proceedings were
commenced against the directors under s 180 for allowing the company to make certain misleading
representations as to the proposed price for the takeover bid in breach of ss 621(3) and 1041H of the Act.
On behalf of ASIC it was submitted that the prospect of potential proceedings before the Takeovers Panel
and the Court coupled with the reputational harm likely to ensue in this context answered the description
of “relevant jeopardy” to the company.83 Beach J was, however, unpersuaded the company had even
committed the alleged contraventions.84 Nor, assuming he were wrong in this regard, did his Honour
accept that the directors had breached s 180. The modest theoretical risks identified by ASIC were,
in his Honour’s view, significantly outweighed by the potential benefits that might have flowed from
a successful takeover of the targeted corporation.85 In arriving at this conclusion, Beach J importantly
observed that it was not one of those cases where it could be said the company was “profiting from one’s
wrongdoing” or otherwise not engaged in legitimate business pursuits.86
As this discussion demonstrates, “mere exposure” of the company to potential liability will not suffice
for the purposes of establishing breach of s 180.87 The question of relevant jeopardy can only be
answered by balancing the identified foreseeable risks of harm against the countervailing benefits that
could reasonably have been expected to accrue to the company. Given the task, at least in part, requires
comparison of incommensurables, it is not surprising it often results in nice judgments that do not admit
of quantitative precision.88 With that in mind, it is useful to revisit the significance, if any, attending
the absence of any explicit analysis of potential countervailing benefits in the judgments of Fortescue
and Macdonald (No 11). The tempting analysis, naturally, is that the recognised test was not applied.
But appearances are almost always deceptive. Standing in the way of that confident explanation is the
distinction, implicit in abovementioned cases, between “legitimate but unsuccessful entrepreneurial
activity”,89 as in Mariner, and the circumstance where the company is seen to have “profited from its
wrongdoing”. From the perspective of public policy, it is this distinction which goes some way towards
unravelling the veiled complexity of what is meant by “countervailing benefits” in the eyes of the law.
A curious feature of some critiques on stepping-stone decisions is their tendency to uncritically assume
that any advantage accruing to the company by reason of its contravention of the law constitutes a
“countervailing benefit”.90 The logical upshot to this position can be shortly identified: whatever the nature
of the company’s breach, because the consequences of the contravention did not jeopardise the company’s
interests, indeed the company is seen to have made a profit, it cannot be said that the director breached
s 180(1). Quite clearly, this analysis suffers from several particular defects. First, it stands at variance
with accepted principle to the extent that it gives the test retrospective operation. Second, the notion that
directors might lawfully decide that, in aid or furtherance of the company’s financial interests, the company
should not comply with a provision of the Act falls foul of public policy.91 As Finkelstein J observed:
82
Australian Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502; [2015] FCA 589.
83
84
Australian Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 585 [457], 593 [510]; [2015] FCA 589.
Australian Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 585 [457], [460], 589 [482]; [2015]
85
FCA 589.
86
87
Compare Herzberg and Anderson, n 1, 185.
88
See Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 302 [485]; [2016] FCA 1023.
Vrisakis v Australian Securities Commission (1993) 9 WAR 395, 449 (emphasis added); Australian Securities and Investments
89
Commission v Cassimatis (No 8) (2016) 336 ALR 209, 301 [482]; [2016] FCA 1023.
90
See, eg, Pearce, n 1, 476, 480.
91
Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256, 282 [172]; [2013] FCA 641; Australian
Securities and Investments Commission v Mariner Corp Ltd (2015) 241 FCR 502, 589 [482]; [2015] FCA 589; Australian
256 (2018) 36 C&SLJ 245

[I]f the market was materially misled [by the company’s contravention], it can hardly be right that a
prosecution not commence because, by reason of serendipity, shareholders made a gain. If that were
the approach, the continuance disclosure provisions could be sidestepped by any successful corporation
whose share price continued to climb after investors discovered that the corporation misled the market.
That is not what Parliament had in mind.92
These observations bring to the fore that which was perhaps only implicit in the Court’s disposition
of the issue of relevant jeopardy in Macdonald (No 11), Fortescue and arguably also Elm Financial
Services.93 While the nature of the limited liability corporation presupposes some measure of
commercial risk-taking, common sense reacts against the idea that directors enjoy an unfettered
discretion to engage in any venture likely to contravene the law.94 The clear tenor of authority accepts
that a company’s illegitimate pursuit of financial gain will not supersede the company’s interest in
complying with the law. Acknowledging so much does not, by way of some doctrinal sleight of
hand, alter the received understanding that the directors’ duty of care is owed to the company. The
competing view, which sees the duty reformulated by the courts as one owed to world at large, in
reality involves resistance to the judicially defined categories of harm deemed to constitute “relevant
jeopardy” in given circumstances. If that is indeed the true nature of the complaint advanced, it might
be observed that it would be difficult, and unwise, for the courts to attempt to be more specific. Much
will always depend on the nature of the company’s breach and the particular circumstances of the case.
As Mariner demonstrates, it remains the law that not every contravention by the company will compel
a finding of liability under s 180(1).
IV. PUBLIC WRONGS OR RIGHTS AND THE STATUTORY DUTY OF CARE AND
DILIGENCE
A. The Relevance of Public Wrongs or Rights
A lateral appreciation of the foregoing considerations throws considerable doubt on the proposition
stepping-stone decisions evince something of a departure from the principle the duty is owed to the
corporation. On the other hand, it cannot be seriously maintained the s 180 is concerned solely with
private interests and rights. This is not to gainsay anything said in the preceding discussion, but rather
to unmask the complexity of legal analysis involved in civil penalty proceedings. While it is accepted
that the statutory duty of care and diligence is a duty owed to the corporation, this does not foreclose the
relevance of public rights, or rights analogous thereto, in proceedings brought under s 180. Considerable
guidance on this point is afforded by the erudite judgment of Edelman J in Australian Securities and
Investments Commission v Cassimatis (No 8).95 The issue, as his Honour observed, poses questions of
“high-level theory”96 and, on this footing, perhaps defies simple unifying analysis. Nevertheless, its
consideration usefully provides, to paraphrase Sir Edward Coke,97 the “lock and key” to understanding
the remaining misconceptions grounding the argument that stepping-stone decisions recast the statutory
duty of care into one owed to the world at large.
92
Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364, 435 [233], see too 427
[198]; [2011] FCAFC 19.
93
In both Australian Securities and Investments Commission v Macdonald (No 11) (2009) 230 FLR 1, 107 [635]; [2009] NSWSC
287 and Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364, 427 [201]; [2011]
FCAFC 19 it was observed the company had, or could be seen to have, profited from its wrongdoing.
Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 305 [497]–[498], 306 [506]; [2016]
94
FCA 1023.
95
Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209, 296–300 [454]–[477]; [2016]
FCA 1023.
96
97
Sir Edward Coke, 2 Inst 301.
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McGregor
Until quite recently, it had long been thought that the statutory duty of care enacted in s 107 of the
Companies Act 1958 (Vic) was the first of its kind in the common law world.98 In one respect, this
remains true. The statutory directors’ duty introduced more than half a century earlier in s 116(2) of
the Companies Act 1896 (Vic), while unusual for its time, was expressed as being concerned only with
private rights. As Edelman J remarked, “[t]he obligation was ‘to the company’ [and] the liability was
‘to compensate the company’”.99 Section 116 was enacted by the Turner government along with a series
of amendments to Victorian companies legislation based, in part, on recommendations by the United
Kingdom Davey Committee in the wake of the 1891–1893 crash.100 However, the draft English Bill
annexed to the Davey Committee’s report, which contained the provision s 116 was modelled on, was
never enacted.101 In 1910, s 116 was repealed with a view to harmonising Victorian company law with
that of England.102 Unlike its 19th century predecessor, s 107 made breach a criminal offence and thereby
provided for public sanction and enforcement. It is precisely this consideration which gives force to the
claim it was the “first of its kind” in Australia and the United Kingdom.103
The historical records confirm the shift towards public enforcement of the duty turned on the perceived
need to compel sound corporate governance by provision of deterrents.104 While it is not the burden of
this article to provide an exhaustive history of the statutory duty, it is necessary to appreciate that public
enforcement of the duty has been maintained since 1958.105 Though the criminal sanctions were repealed
in 1999,106 the duty has been subject to the civil penalty regime since its inception in 1993.107 It would
probably be straining things to suggest, on this basis, that s 180 gives expression to both a private duty
and a public duty. There is certainly no authority lending support for that proposition. It is, however, well
established that the statutory duty operates by reference to both private and public rights or wrongs.108
Uninterrupted public enforcement of directors’ duties since 1958 itself exhibits the importance attached
to conceptions of public interest, public policy and commercial reality in modern understandings of
corporate governance in Australia.109 The public character that inheres in the statutory duty is further
reflected by the nature of pecuniary penalty and disqualification orders, as well as the accepted inability
of shareholders to ratify breach of statutory directors’ duties.110 In light of these considerations, there is
no warrant to suppose the dual private and public character of s 180 is an accident of history.
98
See, eg, WE Paterson and HH Ednie, Australian Company Law (Butterworths, 2nd ed, 1976) Vol 2, [124/2]; KM Hayne,
“Directors’ Duties and Company’s Creditors’ (2014) 38 Melbourne University Law Review 795, 804; Pearce, n 1, 468; Vines v
Australian Securities and Investments Commission (2007) 73 NSWLR 451, 466 [98], 472 [137]; [2007] NSWCA 75; Angas Law
Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507, 528 [55], [57]; [2005] HCA 23.
99
Langford, Ramsay and Welsh, n 13, 492; Reginald Ian Barrett, “Towards Harmonised Company Legislation – ‘Are We There
100
Yet’?” (2012) 40 Federal Law Review 141, 145.

101
Langford, Ramsay and Welsh, n 13, 492; Barrett, n 100, 145.
102
Barrett, n 100, 145.
Victoria, Parliamentary Debates, Legislative Assembly, 9 September 1958, 324. See too William Gummow, “The Equitable
103
Duties of Company Directors” (2013) 87 ALJ 753, 756.

104
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507, 528 [58], 530 [62]; [2005] HCA 23.
105
See Companies Act 1961 (Vic) s 124(1); Companies Act 1981 (Cth) s 229(2); Corporations Law (Cth) s 232(4).
Corporate Law Economic Reform Program Act 1999 (Cth); GFK Santow, “Codification of Directors’ Duties” (1999) 73 ALJ
106
336.
107
Austin and Ramsay, n 17, 100.
108
Michelle Welsh, “Realising the Public Potential of Corporate Law: Twenty Years of Civil Penalty Enforcement” (2014) 42
109
Federal Law Review 217.

Forge v Australian Securities and Investments Commission (2004) 213 ALR 574, 654–655 [378]–[383]; [2004] NSWCA 448;
110
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 225 CLR 507, 523 [32]; [2005] HCA 23; International Swimwear
Logistics Ltd v Australian Swimwear Co Pty Ltd [2011] NSWSC 488, [106]; Australian Securities and Investments Commission v
Cassimatis (No 8) (2016) 336 ALR 209, 297 [457]; [2016] FCA 1023.
258 (2018) 36 C&SLJ 245

The foregoing insights betray the air of unreality attending the proposition s 180 is concerned exclusively
with private interests. Those who inveigh against this position must contend with the statements of high
authority that acknowledge so much. In Forge v Australian Securities and Investments Commission, for
instance, the New South Wales Court of Appeal, noting that one of the purposes of a disqualification
order is protection of the public interest, said, “in this sense civil penalty proceedings involve public
rights”.111 Reference to “public rights” in a similar context was also made in Elm Financial Services and
the authorities there cited.112 Beyond this, it has been noted that civil penalty proceedings “are concerned
with public wrongs rather than the vindication of rights and duties between subjects [and] may lead to
the imposition of penalties not typical of the civil law”.113 Unifying these observations, importantly, is
an emphasis on the differences in remedial consequence under s 180 as against the duty’s general law
counterpart. The significance of this consideration, although not immediately obvious, finds a footing in
the Court of Appeal’s rejection of the notion that s 180, as a civil penalty provision, should be taken to
import a lower standard of care than at general law.114 It was there explained that the public consequences
of civil penalties and disqualification orders instead require “consideration of further matters over and
above the contravention itself”.115 The point to be made is that the statute marks a distinction between
the inquiry required by s 180 in determining breach on the one hand, and the inquiry called for in
determining the question of remedies or penalties on the other.
Viewed this way, it is possible to discern with greater precision the place occupied by public wrongs
or rights within the law of directors’ duties. Properly understood and considered, it is clear that public
rights or wrongs legitimately fall for the court’s consideration in its determination of appropriate penalties
or remedies where the allegation of breach of duty is made good.116 The statutory test as to whether
the director’s breach of duty attracts the epithet “serious” and is thereby deserving of a superadded
penalty beyond a declaration of contravention bears this out.117 As explained by the New South Wales
Court of Appeal, seriousness is to be determined first by reference to the degree the impugned conduct
departed from the requisite standard of care and, second, by consideration of the consequences, real
or potential, of the contravention.118 On this footing, judicial acceptance of the relevance of the public
wrongs or rights in civil penalty proceedings does not place the principle that the duty is one owed to the
corporation under pressure. Only dangerously loose thinking regarding the statutory dichotomy between
breach and remedial consequence tends to the opposite conclusion.
Bertrand Russell once said that it is a healthy thing to hang a question mark on things taken for granted.119
It is within this spirit that one should query whether acceptance of the principle the duty is owed to the
corporation should be taken to mutually exclude the relevance of public rights or wrongs in civil penalty
proceedings. This analysis demonstrates not. The problem with the opposing view is that it assumes so
much to be the case, indeed elementary, without due regard to the wider statutory context and history of
111
Forge v Australian Securities and Investments Commission (2004) 213 ALR 574, 654 [381]; [2004] NSWCA 448. See too
Australian Securities and Investments Commission v Adler (2002) ACSR 80, 97 [56]; [2002] NSWSC 483 for Santow J’s influential
discussion of the public interest considerations that animate disqualification orders.
112
Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 411, 412 [3]; [2005]
NSWSC 1020.
113
Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617, 864 [1092]; [2005] NSWSC 738.
Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451, 476 [150], 554 [587], 602 [805]; [2007]
114
NSWCA 75.
115
Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451, 476 [150]; [2007] NSWCA 75.
116
That is, remedies or penalties beyond a declaration of contravention of a civil penalty provision: Corporations Act 2001 (Cth)
s 1317E(1)(a).
117
Corporations Act 2001 (Cth) ss 1317E(1)(a), 1317G(1)(b)(iii).
118
Vines v Australian Securities and Investments Commission (2007) 63 ACSR 505, 551 [229] (Ipp JA), 572 [105] (Spigelman CJ
agreeing); [2007] NSWCA 126. The seriousness of the contravention is relevant to disqualification orders (see Australian Securities
and Investments Commission v Adler (2002) ACSR 80, 97 [56]; [2002] NSWSC 483; Corporations Act 2001 (Cth) s 206C) and
pecuniary penalty orders (Corporations Act 2001 (Cth) s 1317G(1)(b)(iii)).
119
Bertrand Russell, Sceptical Essays (Routledge, 1928).
(2018) 36 C&SLJ 245259

McGregor
s 180. Such an approach is, at least in part, reflected in Bednall and Hanrahan’s article. The authors there
venture the view that the Court’s characterisation of the directors’ contravening conduct in the James
Hardie proceedings as “serious” was arguably influenced by the “commercial and political context” of
the matter.120 As an aside, it might be noted that this is hardly something to be lightly suggested, let alone
accepted. To dignify their contention the authors set out a series of selective passages drawn from the
judgment at first instance121 and the final penalty judgment in the Court of Appeal122 focusing on matters
of public harm.123 The authors later conclude:
We come back to the point that … the directors breached a duty of care owed only to the company, not
the market or to asbestos victims. If the directors had in fact been accused of misleading the market, or
defrauding those suffering from asbestos-related illnesses, these considerations would have been relevant,
but they were not accused of anything but ordinary negligence.124
The notion, implicit in this passage, that the Court’s regard to such matters runs contrary to accepted
principle is, in light of the foregoing discussion, facile and erroneous, and should not be accepted.
By noting the consequences of the contravening conduct for the purposes of civil penalties or
disqualification, neither Court acted otherwise than in accordance with received authority and the
terms of the statute. This point is deserving of emphasis because it illuminates the weakness of any
like argument that fastens upon such observations by the Court as evidence the Court has confused to
whom the duty is owed. A close reading of the impugned judgments in the James Hardie proceedings
in fact reveals the Court to be primarily moved by the degree to which the directors’ conduct departed
from the standard of care reasonably to be expected within the context of the case.125 It is misleading
to contend otherwise. Now, Bednall and Hanrahan might object that the greater point of their argument
was that the question of “seriousness” should, in line with the view propounded by Santow JA,126 focus
solely on whether the contravening conduct itself, as distinct from its consequences, was “ serious”.127
But that is an issue of a different order and should not be used as a Trojan horse to cast doubt on the
legitimacy of the courts’ reasoning in stepping-stone decisions.
V. POSSIBLE IMPLICATIONS OF STEPPING -STONE DECISIONS

It is unequivocally the case that the scope of liability attaching to the statutory duty of care has expanded
over time. As explained earlier, the law has now reached a point where it recognises an irreducible
minimum content to the duty. While it is unnecessary to restate the considerations underpinning that
view, it is useful to examine the reasons for the shift in principle. In Commonwealth Bank of Australia v
Friedrich, for instance, it was sagely observed that “as the complexity of commerce has gradually
intensified (for better or for worse), the community has of necessity come to expect more than formerly of
directors”.128 Twenty years later, the Court in Australian Securities and Investments Commission v Healey
explained that the significance of the director’s office owes to the “profound effect on the community,
and not just shareholders, employees and creditors” the director’s conduct in the management of his
or her company may have.129 It is principally this awareness of the broader implications of corporate
120
121
Australian Securities and Investments Commission v Macdonald (No 12) (2009) 259 ALR 116, 176 [358]; [2009] NSWSC 714.
Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460, 515–516 [232]–[234]; [2012] NSWCA
122
370.
123
124
125
Australian Securities and Investments Commission v Macdonald (No 12) (2009) 259 ALR 116, 125–131 [38]–[43], [77]–[79],
[88]; [2009] NSWSC 714; Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460, 511–515 [211],
[214], [221]–[224], [226], [228], [232]–[233]; [2012] NSWCA 370.
126
Vines v Australian Securities and Investments Commission (2007) 63 ACSR 505, 537–538 [158]–[163]; [2007] NSWCA 126.
127
128
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, 126.
129
Australian Securities and Investments Commission v Healey (2011) 196 FCR 291, 297 [14]; [2011] FCA 717.
260 (2018) 36 C&SLJ 245

failings which finally shattered the arthritic grip of the rationale130 for holding directors accountable to
the low standard of crassa negligentia in the 1990s.131 None of this, however, alters the reality that the
director’s liability under s 180 is not strict and continues to be tempered by the recognised commercial
risk that attends the management of corporations.
The fundamental position advanced in this article is that the stepping-stone approach to liability does not
depart from the ordinary inquiry required by s 180. Nevertheless, there remains a real and substantive
issue as to whether it has given added content to the duty of care and diligence. It is true that s 180 does
not in terms comprise a distinct species of obligation concerned to ensure the affairs of the company are
conducted in accordance with the law. It is not a duty of strict liability.132 But it is worth pausing for a
moment to consider the implications of an approach to liability which proceeds on the assumption that
the private interests of the company include its compliance with the law. At minimum, it introduces into
the law an element of judicial choice as to the circumstances in which directors might be taken to owe a
duty to take reasonable steps to ensure the affairs of the company are conducted lawfully. This suggests
something of a fracturing to the hitherto accepted proposition that s 180 is not concerned with ensuring
the company’s obedience to the law. To that extent, and perhaps to that limited extent only, the principle
perhaps can no longer be stated in terms that admit of no exception or qualification. Whether this is an
accurate reading of the state of the law remains to be seen. No doubt the answer will, in the tradition of
the common law, reveal itself in the fullness of time.
VI. CONCLUSION
The stepping-stone approach has given rise to various concerns focusing, for the most part, on issues of
doctrinal coherency and consistency. The complaints are, however, invariably overstated, conceptually
misconceived and therefore without foundation. There is possibly something to be said for the view
that the stepping-stone approach has redefined the irreducible minimum standard of care required of
company directors. Nevertheless, for reasons explained in this article, there is nothing to suggest the
courts in such cases are acting contrary to the ordinary principles that govern liability under s 180. Since
Maxwell, the courts have expressly recognised that the interests of the corporation include its compliance
with the law. In so doing, the courts have not impermissibly reformulated the statutory duty into one
owed to the world at large, but rather acknowledged the important public policy considerations that
temper the proper management of corporations by company directors in contemporary experience. In
this way, the debate has usefully focused attention on a topic that has received little academic attention;
namely, the dual public and private character of s 180.
130
See Overend and Gurney Co v Gibb (1872) LR 5 HL 480, 487; Re City Equitable Fire Insurance Co Ltd [1925] Ch 407,
428–429.
Daniels v Anderson (1995) 37 NSWLR 438, 505; see further Angela Gibbs and Jon Webster, “Delegation and Reliance by
131
Australian Company Directors” (2015) 33 C&SLJ 297, 298–299.

132
(2018) 36 C&SLJ 245261

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Stepping-Stone Liability and the Directors’

(2018) 36 C&SLJ 245245

II. STEPPING -STONE LIABILITY

246 (2018) 36 C&SLJ 245

(2018) 36 C&SLJ 245247

B. Is the Stream Rising Higher Than Its Source?

248 (2018) 36 C&SLJ 245

C. “Stepping-Stone” Liability: A Misnomer

(2018) 36 C&SLJ 245249

250 (2018) 36 C&SLJ 245

D. Residual Concerns of Doctrinal Coherency

FCA 27 (emphasis added).

(2018) 36 C&SLJ 245251

III. A DUTY OWED TO THE CORPORATION

252 (2018) 36 C&SLJ 245

(2018) 36 C&SLJ 245253

254 (2018) 36 C&SLJ 245

B. Relevant Jeopardy to the Company

(2018) 36 C&SLJ 245255

256 (2018) 36 C&SLJ 245

(2018) 36 C&SLJ 245257

Yet’?” (2012) 40 Federal Law Review 141, 145.

Duties of Company Directors” (2013) 87 ALJ 753, 756.

Federal Law Review 217.

258 (2018) 36 C&SLJ 245

(2018) 36 C&SLJ 245259

V. POSSIBLE IMPLICATIONS OF STEPPING -STONE DECISIONS

260 (2018) 36 C&SLJ 245

Australian Company Directors” (2015) 33 C&SLJ 297, 298–299.

(2018) 36 C&SLJ 245261

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