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other reference as to the development of the law in this area was made. The decision,
however, can be viewed as an indication that the court has beginning to shift to the
objective test. The test whether the directors have acted in breach of their duty is
objective is later enunciated by the court in Kawin Industrial Sdn Bhd (in
liquidation) v Tay Tiong Soong. 101
Generally, in discharging their duties, directors are expected to act on the basis of the
knowledge, skill and experience of a reasonable director. However, the court is also
required to take into consideration the knowledge, skill and experience of the
director in question. The statutes, therefore, have not changed the common law
position but merely clarified the standard required. 102
9.4 Business Judgment Rule
The debate on whether Australia and New Zealand should adopt the business
judgment rule started as early as 1980s. 103 The term 'business judgment rule'
originated from the United States, and has the main purpose of protecting directors
who employed mechanisms in dealing with takeover defences. 104 The courts in the
common law jurisdictions have generally been reluctant to meddle with the affairs of
the company and the directors‟ decisions. 105
This can be seen from the judgment by the Privy Council in Howard Smith Ltd v
Ampol Petroleum Ltd 106 which stated that “there is no appeal on merits from
101 [2009] 1 MLJ 723.
102 Farrar “The Duty of Care” above n86 at 42.
103 For background details see Farrar above n25 at 147-152; Austin and Ramsay above n26 at [8.310].
104 Farrar ibid, at 152.
105 See generally and the cases discussed in Austin and Ramsay above n2 at [8.060].
106 [1974] AC 821at 832.
209