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misconception that the case law and the standard of duty are subjective, when in fact
the standard is objective. 86 While the standard itself is objective, case law has taken
into consideration the characteristics of a particular director in order to determine the
class which the director belongs to. 87
In other words, the court will take into consideration the skills as well as the
diligence of the particular director in question and apply the objective standard. In Re
Brazilian Rubber Plantations and Estates Ltd, 88 the court held that the director must
exercise reasonable care in discharging his duty and it should be measured by the
care an ordinary man might be expected to take in the same circumstances on his
behalf. The consequence of such decisions is that the likelihood of directors being
found liable for breach of duty of care and skill is very low, and only in cases
amounting to gross negligence would directors be held liable. 89
There has been a shift in the decisions of the courts in which directors are subjected
to more demanding obligations. 90 In Mountfort v Tasman Pacific Airlines of NZ
Ltd, 91 the High Court stated that the directors will not be liable if the risks taken are
legitimate; in which a reasonable director believe the risks to be a reasonable
business prospect. 92 In other words, the directors will have to show that the decisions
they make have a reasonable expectation of success.
86 John Farrar “The Duty of Care of Company Directors in Australia and New Zealand" in Barry
Rider (Ed.) The Realm of Company Law: A Collection of Papers in Honour of Professor Leonard
Sealy (Kluwer Law International, London 1998) at 42 [“The Duty of Care”].
87 Ibid.
88 [1911] 1 Ch 425 at 437.
89 Shanty Rachagan, Janine Pascoe and Anil Joshi Principles of Company Law in Malaysia (Malayan
Law Journal, Malaysia, 2002) at 412.
90 Dorchester Finance v Stebbings [1989] BCLC 4998; Daniels v Anderson (1995) ACSR 607.
91 [2006] 1 NZLR 104 at114.
92 [2006] 1 NZLR 104 at 114; in reaching to its conclusion, the court has applied the analogy test as
used in medical negligence in English cases i.e. compliance with acceptable professional standards
will be a defence unless those standards are shown to be wholly unreasonable.
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