View/Open - Research Commons - The University of Waikato

out “ ...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” 116 while the Malaysian section says the director “reasonably believes
that the business judgment is in the best interests of the company.” 117
The Australian section assumes that judgment is rational unless no reasonable person
in the same position would hold such a belief. 118 There are two ways of interpreting
this element; firstly by using the common reasonable man test; whether a reasonable
director in the same situation believes the judgment is in the best interests of the
company. 119 Secondly, it could be interpreted as whether a reasonable director in the
same situation believes that the judgment is rational; hence it is in the interests of the
company. 120 The application of the rule in Australia is considered to be narrower
than in the US because whether or not a judgment is rational will be assessed based
on reasonableness. 121 Professor Farrar regards rationality as a foreign concept to the
Australian court and one which may pose difficulties in interpretations. 122
The Malaysian Companies Act 1965 does not have the word 'rational' and in its place
has the word 'reasonable.' Hence, if a reasonable director believes it is in the best
interests of the company, the director will be protected. The usage of the word
reasonable here connotes an objective test. It is likely that the court will interpret this
condition in accordance with the common concept of reasonableness i.e. whether a
reasonable director in the same situation would have regarded the judgment to be in
the best interests of the company.
116 See section 182(2)(d) Australian Corporations Act 2001.
117 See section 132(1B)(d) Malaysian Companies Act 1965.
118 Austin and Ramsay above n26 at [8.310].
119 Ibid.
120 Ibid.
121 Ibid.
122 Farrar above n35 at 151.
213