Crossing borders: extraterritorial application of Australian directors’ duties

2017-02-09T02:19:26Z (GMT) by McKeown, Peter Julian Joseph
Australian corporations operate in an increasingly international environment. It has intuitive appeal that Australian law should regulate the conduct of directors of Australian corporations even if it occurs outside Australia. This however can create tension with the competing rights of the foreign state in whose territory this conduct occurs to regulate such conduct. This thesis examines two questions. Firstly, does Australian law governing directors’ duties in fact apply to activities of a director of an Australian corporation which occur or have effect outside Australia? Secondly, as a matter of policy, should Australian law apply to such activities, and if so when? The thesis concludes that the current Australian law on this issue needs to be developed further. In examining the first question, this thesis analyses Australian law on directors’ duties in both its statutory and general form. The statutory analysis centres on the general extraterritoriality provision in subsection 5(4) of the Corporations Act 2001 (Cth) (‘CA’) and particularly its application to part 2D.1 on directors’ duties. Under this provision, each statutory director’s duty applies, ‘according to its tenor’, extraterritorially. With regard to Australian general law, comprising common law and equity, it is Australian private international law that determines the choice between Australian law and foreign law. The choice of law rules require, in a first step, a categorisation of the duty allegedly breached by the director. Three categories need to be distinguished: contract, tort and equity. For each category, choice of law rules can lead to the application of Australian law if the relevant conduct occurs overseas. However, the circumstances in which Australian general directors’ duties have extraterritorial application differs depending on whether the duty is of contractual, tortious or equitable origin. In considering the second question of whether and when Australian law should have extraterritorial application to directors’ duties, both a policy and comparative analysis is undertaken. This thesis concludes that Australian law should have extraterritorial application to directors’ duties providing there is a close connection with Australia in the particular circumstances. If there is no close connection with Australia but a closer connection with a foreign state that state’s laws should apply. The thesis concludes that subsection 5(4) of the CA on extraterritoriality operates appropriately in relation to directors’ duties in part 2D.1 CA. However, it is recommended that the provision be reworded to remove some ambiguity. In relation to the choice of law rules for general directors’ duties, the thesis recommends that a mandatory choice of law rule be prescribed for equity based causes of action for breaches of directors’ duties.