the interaction of directors'dutiesand sustainable

THE INTERACTION OFDIRECTORS'DUTIESANDSUSTAINABLEDEVELOPMENT INAUSTRALIA-SETTINGOFFONTHEUNCHARTEDROADJames McConvill, LawyerAllens Arthur RobinsonMelbourne

Martin Joy, Articled ClerkMallesons Stephen JaquesMelbourne

There is growing acceptance incorporate Australia that the longterm economic viability of businessdepends on the willingness andability of companies to implementsystems and policies to ensure thatresources are utilised in asustainable manner into the future.However, Australia's legislators stilllack the resolve to enact legislationimposing an absolute obligation oncompanies and their directors tomake certain that the activities ofthe company comply withestablished principles ofsustainable development. In thisarticle, the authors outline theirproposal for the creation of a dutyupon directors under theCorporations Act 2007 (Cth) toensure that the company interactswith the environment in asustainable manner. The authorsargue that this proposal, ratherthan being overly radical andimposing an unreasonablerestriction on the profit-makingactivities of companies, actuallybuilds upon existing environmentalregulatory and common lawdevelopments, and will effectivelypromote a balancing of economicand social development withenvironmental protection-which is,after all, the overall objective ofsustainable development.

INTRODUCTIONThe political economy ofcorporations is ina state of flux.Increasingly, corporations are beingtold that they have obligationsbeyond returning profits to theirshareholders and must start toincorporate social andenvironmental values into theiroperations. Corporate SocialResponsibility ('CSR') is the newestbusiness model and is set to have asubstantial impact on howcorporations behave and how theyare perceived by the broadercommunity. It truly represents aparadigm shift in the moralframework on which theCorporations Act 2007 (Cth)

(' Corporations Act') is based. AsRick Sa rre has recently written:

... the concept ofCSR requirescorporations not only to abide bythe law, to be good corporatecitizens and to abide bygovernmentand professional compliance codesand requirements, but to do moreto display an elevated level ofquality in aU that they do. It requirescultivation ofan organisational'culture ofmindfulness', a vigilantand constant awareness of thepossibility ofwrongdoing, apersonal ethic ofcare, and anassumption of individualresponsibility for the consequencesofone's actions. This includes anorganisational commitment toensure that companies not onlyconform with the lawandregulatory obligations, butperfor'!'to a higherstandard than that whIchis required by the law. In otherwords, it is a rejection of the notionthat prescribing minimumstandards, and enforcing them bylaw, is an adequate form ofregulation. 1

Whilst the principal driver of thisdynamic has been social pressureemanating from civil society, theemerging trend is that social andenvironmental concerns will beincorporatedintothelegalframework which governscorporations.2This has beenevidenced in various successful andattempted legislative initiativesover recent years.3

The reorientation of the moralframework which instructs thepolitical and economic context ofcorporations is a dynamic whichraises the serious issue of how theprofit motive will be reconciled .withany novel moral duties. If we wishto continue with current levels ofwealth creation, arguablywe mustnot unduly interfere with the profitmotive which has been thehistorical raison d'etre ofcorporations. However, interferencewith the profit motive would be theprecise purpose of any moral

18 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #93 NOVEMBER/DECEMBER 2003

reorientation and corporationsshould reflect the moral values ofcontemporary society. It-thecorporation-is a legal construct, acreature of statute, and the reasonsfor the existence of such a creatureare determined by the legislator'spen. Whether a corporation has anarrow view or a broad focus reallydepends on legislative initiative.Unlike the church, the corporationis not a sacred institution. As RobertHinkley has written:

Corporations ... exist only becauselaws have been enacted thatprovide for their creation andgivethem a licence to operate. ... Thecorporate law establishes rules forthe structure and operation ofcorporations. The keystone of thisstructure is the duty ofdirectors topreserve and enhance shareholdervalue-to make money. ... Nothingin the system encourages (let alonerequires) corporations to be sociallyresponsible or to contribute,cooperate orsacrifice for thebenefit of the community or thecommon good (that is, be a goodcitizenJ.4

The common good is increasinglydefined as not just the bettermentof our economic wealth, but alsothe protection and advancement ofour environmental health. As therecent World Summit onSustainable Oevelopment ('WSSO')demonstrated, the concept ofsustainable development iscurrently the environmental ethicwhich enjoys the broadest supportas the organising principle mostconducive to addressing ourenvironmental concerns. Theconcept of sustainabledevelopment was introduced withthe release of Our Common Futurein 1987.5The report, commissionedin response to the world's growinghorror at the extent andimplications of the ecological crisis,defined sustainable developmentas 'development that meets theneeds of the present withoutcompromising the ability of future

generations to meet their ownneeds'.6

Recent trends have demonstratedthat environmental and generalregulation in Australia is movingtowards the adoption of morestringent environmentalrequirements and a demand thatcorporations concern themselvesnot just with regulatory compliance,but with demonstrating a holisticcorporate commitment to the mor~al

values of our society.7Thesesimultaneous trends are trackingtowards the inevitable incorporationof sustainable development as amandatory organising principle forcorporate behaviour.8The purposeof this article is to propose anoptimal solution to the need tobalance the moral requirement thatcorporations respect theenvironment with the overwhelminghistorical, and contemporary,reason fortheirexistence: toenhance shareholderwealth andthus drive economic development.

BACKGROUNDThe issue of sustainability and itsintroduction as a corporatedirectors' duty must be seen in thelight of two contexts. First, there isthe increasing concern abouthumanity's impact on theenvironment and the desire toredress environmental degradationand realign our actions so that theydo not derogate from the intrinsicqualities of the environment andhumanity's ability to source itsessential requirements fromnatural systems. Second, there isthe trend towards corporationshaving increased moralresponsibility for their actions andtheir place in society-whether thisbe expressed as CSR or adherenceto 'triple bottom line' thinking.9Thetwo are clearly related: part of theincreased moral responsibility ofcorporations requires them to takeaccount of environmental resultswhen assessing their annualoutcomes.

Corporate SocialResponsibility rCSR') is thenewest business model andis set to have a substantialimpact on how corporationsbehave and how they areperceived by the broadercommunity.

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #93 NOVEMBER/DECEMBER 2003 19

Resource usage andprevention of the degradationof ecological capital becomecentral considerations in theorganisation of productivecapacity, so that whilstconsumer-based economicsmay be compatible, therecannot be consumptionpatterns which move inignorance of their effect onthe environment.

What separates the two at themoment, however, is that theformer has been historicallyaddressed through specificregulatory requirements whilst thelatter is still a dynamic emanatingfrom social and shareholderpressure, with little regulatorysupport. Thus, compliance with theformertrend has involved directingthe corporation with a specifictarget in mind. In contrast, the morefluid CSR pressure has beenaddressed by corporationsindependently, with CSR operationsbeing undertaken at thecorporation's discretion. lO Further,CSR obligations can be seen asinfiltrating the entire corporateoperation so that in the case ofsome corporations, there is littlewhich is undertaken without fallingunder a CSR framework of somedescription. In contrast, specificenvironmental regulation is dealtwith on an ad hoc basis, meetingthe requirements when and wherethey arise without fundamentallyaltering the corporate culture.Arguably, however, there is a trendtowards the merging of theserequirements, with environmentalobligations taking on a morepervasive nature and CSRpressures being drawn up intolegislative provisions. TheAustralian Democrats' CorporateCode of Conduct Bill2000 (Cth) isan example. ll First introduced in2000, and described as'impracticable and unwarranted' bythe Parliamentary Joint StatutoryCommittee on Corporations andSecurities in its June 2001 Reporton the Corporate Code of ConductBill2000, 12 the Bill wasreintroduced into the Senate in2002. 13 Introduced by DemocratsSenator Vicki Bourne, the Bill hasthe following objectives (as statedin section 3 of the Billl:

(a) to impose environmental,employment, health and safety andhuman rights standards on theconduct of Australian corporationsor related corporations which

employ more than 100 persons in aforeign country;

(b) to require such corporations toreport on their compliance with thestandards imposed [by the Bill];and

(c) to provide for the enforcement ofthose standards.

On the environmental front, theconcept of sustainabledevelopment captures the idea ofreorientating commerce to be moresensitive to environmentalconstraints. The Brundtland Reportrecommended that the world'snations adopt an ethic ofenvironmental interaction in orderto perpetuate humanity's ability tocommand sufficient resources tolive at constant levels of utility.14Within the broad scope ofenvironmental thought, sustainabledevelopment sits at the moderateend of ethics which seek to directhumanity's dealings with theenvironment. As an ethic,sustainable development permitscapitalist production methods anddoes not require a wholesalerescaling of society. Compared withnon-anthropocentric ethics, whichdemand a more radicalreorientation of the politicaleconomy, it essentially offers abusiness-as-usual model. Thereare, however, certain changes thatare demanded. Resource usageand prevention of the degradationof ecological capital becomecentral considerations in theorganisation of productive capacity,so that whilst consumer-basedeconomics may be compatible,there cannot be consumptionpatterns which move in ignorance oftheir effect on the environment.Likewise, sustainable developmentdoes not demand that the earth'sresources be protected byvastexclusion zones, with humanexploitation absolutely prohibited.Rather, it permits resource usageso long as such usage does notdeplete the resource, at least notoverthe medium- orshort-term.


Expanding the lifetimes ofresources is perhaps the most basicrequirement of sustainabledevelopment. More intrinsic to theconcept of sustainabledevelopment, however, is thepursuit of renewable and reusabletechnologies. Renewable energyperhaps represents the epitome ofsustainable development, capturingthe concept of resource reuse forthe purpose of decreasingcommerce's impact upon theenvironment. Another practicalmanifestation is the concept ofproduct stewardship whereby aproducer takes responsibility notjust for the production of a good butalso for its ecologically responsibleuse and disposal, often in the formof recycling or reuse. A cardboardmanufacturerwhich undertakesinvolvement in the collection andrecycling of its cardboard isperhaps the most commonexample.

The concept of sustainabledevelopment has been at theforefront of international objectivesto deal with the environment in aholistic manner Whilst there havebeen ad hocagreements for issuessuch as climate change or speciesprotection, it has been sustainabledevelopment which has informedthe highest level of internationaldebate on solutions to our currentenvironmental problems. Theaforementioned Brundtland Reporthas been notable in thesediscussions. The definition ofsustainable developmentforwarded by this report, that is'development that meets the needsof the present withoutcompromising the ability of futuregenerations to meet their ownneeds', has been taken as thedefining ethic for subsequentnegotiations. Following this report,the United Nations Conference onEnvironment and Development,also known as the 'Earth Summit',was held in Rio de Janeiro, Brazilfrom 3-14 June 1992. Thisrepresented an important coming

together for the internationalcommunity, both governmental andnon-governmental, and resulted inAgenda 21: United NationsProgram ofAction for SustainableDevelopment,15 an internationalplan of action for theimplementation of sustainabledevelopment. 16 Ten years on frornthe Earth Summit, the WSSD washeld in September 2002 andreaffirmed the world's commitmentto sustainable development, in boththe Plan of Implementation17 andthe Johannesburg Declaration onSustainable Development, 18 as wellas the multitude of lower level,though potentially more influential,'Type 2' agreements. 19

Whilst the JohannesburgDeclaration imposes no obligations,and hence is essentially a politicaldocument, it does affirm the three'pillars of sustainabledevelopment-economicdevelopment, social developmentand environmental protection' .20 Italso confirms the objectives ofsustainable development which are'poverty eradication, changingconsumption and productionpatterns, and protecting andmanaging the natural resourcebase for economic and socialdevelopment' .21 More tangibleobligations appear in the Plan ofImplementation. The main topicsreflect the objectives of sustainabledevelopment, as well assustainable development in aglobalising world, health andsustainable development, region-specific measures and means ofimplementation. Type 2agreements are agreements whichwere concluded between any typeof Summit participant, from nongovernmental organisation tocorporation to government, andwhich did not require theconcurrence of all Summit states.These covered a raft of topics andperha ps offer greater hope for thepractical implementation ofsustainable development.

The concept of sustainabledevelopment has been at theforefront of internationalobjectives to deal with theenvironment in a holisticmanner. Whilst there havebeen ad hoc agreements forissues such as climatechange or speciesprotection, it has beensustainable developmentwhich has informed thehighest level of internationaldebate on solutions to ourcurrent environmentalproblems.


TRENDS INENVIRONMENTALREGULATION INAUSTRALIATrends in environmental regulationhave historically followed threebroad paths: impact assessment,conservation and pollutionregulation. Impact assessmentessentially considers the potentialimpact upon the environment of aproposed project for the purposesof determining whether that projectwill receive governmental approval.At the federal level, this hasoccurred historically under theframework of the EnvironmentProtection (Impact ofProposals)Act 7974 (Cth) and now under theEnvironment Protection andBiodiversity Conservation Act 7999(Cth). The later Act also has the roleof protecting World Heritage Areasand attempting to preserve speciesbiodiversity.22 In this regard, it hasreplaced the World HeritageProperties Conservation Act 7983(Cth) and the Endangered SpeciesProtection Act 7992 (Cth). Pollutioncontrol has occurred much more atthe state level and has essentiallyinvolved point source emissionregulation-imposing fines orfeesfor the discharge of pollution fromprod uction sites.

These forms of regulation haveinvolved the imposition of specificregulatory requirements uponcorporations with clear compliancecriteria. They involve the attainmentof government-specified goalswhich have been determined apriori. Non-compliance carries avariety of sanctions from licencerevocation to substantial fines.Corporations can manage theirenvironmental obligations througha compliance system dedicated toachieving the specific goals. In sofar as the goals represent specificoutcomes, there does not need tobe any deep-seated commitment toenvironmental goals through thecorporation, merely the avoidanceof sanctions.

Perhaps representing anintermediate step in regulatorymodels, several new obligationshave focused on achievingdisclosure of environmentalperformance. This goes further thanmere regulatory compliance as itopens up the corporation toassessment by the community and,importantly, current andprospective shareholders. Thus,section 1013DA of the CorporationsActprovides:

[The Australian Securities andInvestments Commission('ASIC')] may developguidelines that must becomplied with where a ProductDisclosure Statement makesany claim that labourstandards or environmental,social or ethical considerationsare taken into account in theselection, retention orrealisation of the investment.

Such provisions force corporationsto take account of the ecologicalimpact of their activities byattempting to 'embarrass'corporations into action. Further,the growth in 'socially responsibleinvestment' has provided marketincentive for corporations to behavethemselves with regard to theenvironment. 23 Mandatorydisclosure obligations aid thisinterface between the market andmorality.

Beyond reporting requirements,there are moves towardsinfluencing the entire operations ofcorporations. Achieving culturalchange is perhaps the hardest taskof any regulatory initiative as itinvolves changing attitudes, not justattaining a specific outcome whichcan be achieved without anyunderlying commitment to thegoals the outcome represents.These moves are not specific toenvironmental regulation. Forexample, corporate culture is now aconsideration under Part 2.5 of theCriminal CodeAct 7995(Cth) when

determining criminal liability ofcorporations. 'Corporate culture' isdefined in section 12.3(6) of the Actas 'an attitude, policy, rule, courseof conduct or practice existingwithin the body corporate generallyor in the part of the body corporatein which the relevant activities takes[sic] place' .24 Further, corporateculture is starting to be taken intoaccount when determining theavailability of a due diligencedefence against occupationalhealth and safety breaches.25

It is perhaps the recentamendments to the EnvironmentProtection Act 7970 (Vic), however,which represent the farthestreaching attempt to re-engineerthe corporation with respecttosustainable development. TheEnvironment Protection (ResourceEfficiency) Act 2002 (Vic) introducednew provisions which are designedto push Victorian corporationstowards measures which increaseresource efficiency and decreaseecological impact. The newprovisions provide for acooperative/coercive regime underwhich corporations and/orindustries may either enter into avoluntary covenant to increaseresource efficiency and decreasetheir ecological impact, or face therisk that the considerable powers ofVictoria's Environment ProtectionAuthority ('EPA') to force thesechanges will be invoked.

The voluntary covenants areprovided under the new section49AA which provides that asustainability covenant is anagreement bywhich a personundertakes:

(a) to increase the efficiencywithwhich the person or body usesresources to produce products orservices; and

(b) to reduce the ecological impactof those products or services and ofthe processes bywhich they areproduced.


The parties to these covenants areessentially industry members andthe EPA. The covenants may eitherbe firm-specific or industry-wide. Itis indicated in section 49AC(2) thatthe EPA may provide a benefit toany party to a covenant althoughthe Act does not specify the natureof these benefits.

On the other side of the coin, section49AD provides that the EPA canrequest the Governor-in-Council tomake a declaration that 'an industryhas the potential to have asignificant impact on theenvironment.' The effect of adeclaration is that it permits theEPA to request firstly a 'Statementof Ecological Impact' from anindustry memberwhich assessesfourthings:

(a) what resources the enterprise orprocess is using and in whatquantities those resources arebeing used;

(b) how the resource use efficiencyof the enterprise or process can beimproved;

(c) the actual or potential ecologicalimpacts of the enterprise or processand of the products or servicesproduced by the enterprise orprocess; and

(d) how those impacts canbereduced. 26

If the statement discloses:

(a) that an enterprise or process is asignificant user of resources andthat the resource use efficiency ofthe enterprise or process can beimproved; or

(b) that an enterprise or processhas, or the products or servicesproduced by an enterprise orprocess, have major actual orpotential ecological impacts andthat those impacts can be reduced

27

then the powers given to the EPAunder ection 49AH apply.

These powers are quite extensive.Section 49AH(2) allows the EPA to

require the person who producedthe statement:

[a) to produce a plan of proposedactions to implement the resourceuse efficiency improvements orecological impact reductionsidentified in the statement;

(b) to specify in the plan the keyactions that are to be undertakenand the timeframes within whichthose actions are to be taken;

(c) to specify in the plan resourceefficiency or ecological impactreduction targets;

(d) to specify in the plan a methodfor monitoring compliance with theplan ... ;

(e) to implement the plan; and

(f) to take any specified actionunder the pla n that has not beentaken.

Further, section 49AH(3) providesother powers, namely allowing theEPA to require the person:

(a) to assess alternative practicesand product stewardshipapproaches to improve the useefficiency of specified resources orto reduce any ecological impactsidentified by the authority;

(b) to take specified actions to meetspecified resource efficiency, orecological impact reduction targets;and

(c) to publicly report in a specifiedtype of publication or forumspecified information in relation toresource efficiency or ecologicalimpact reduction.

Section 49AH(4) also provides thatthe EPA may require the person tocomplywith a covenant which is inplace for the industry. Theserequirements are backed up byconsiderable sanctions as failure tocomply is an indictable offencecarrying a $250,000 fine. 28

Clearly this is a significant step inenvironmental regulation,representing a move beyondpollution control and environmental


This development in the lawleads to the question ofwhether in time the courtswill extend the obligations ofdirectors further byestablishing some form ofduty to the environment andits resources.

conservation to a situation where anenvironment protection authoritymay step in to re-engineertheoperations of a business. Theconcepts of resource efficiency andecological impact are not defined,although section 49AN providesthat the EPA may make guidelinesto clarify their meaning.Notwithstanding this, theyrepresent targets indicative ofsustainable development, and inthis sense the new provisions canbe seen as the first substantialmovement in Australia towardslegislating for sustainabledevelopment in industry.

There are, however, significantquestions which can be raised aboutthe new scheme. First, there isvague reference to the 'benefits'which may be bestowed upon asignatory to a voluntary covenant.In the absence of any cleararticulation of this element, it isdifficult to see what incentive thereis for a corporation to alter itspractices voluntarily to increaseresource efficiency and to reduce itsecological impact. The clearestanswer is that voluntarily enteringinto a covenant would pre-emptany forced changes to businesspractices in the event of an industrydeclaration under section 49AD.However, voluntarily entering into acovenant does not actually preventa later declaration or even arequest for a statement ofecological impact. Such astatement, the trigger for thesection 49AH powers, can berequired when the business doesnot comply with one or more of theundertakings in a covenant29 or ifthe EPA considers that aninsufficient number of industryparticipants are prepared to enterinto one of the covenants.30 Whilststrict compliance with a covenantwould clearly exempt a participantfrom any statement requirements,this incentive is not sufficiently clearfrom the provisions.

Second, there is serious concernabout the powers granted to theEPA. These are incredibly broad,and although there is provision forappeal to the Victorian Civil andAdministrative Tribunal overtheexercise of the section 49AHpowers, 31 there is a lack of clarityas to whether cost or practicalitywill be taken into account if the EPArequires a business to undertakespecific measures. Further, the typeof changes which would be neededto achieve resource efficiency andreductions in ecological impactwould involve a significant changein the business plan. Clearly therequirements made by the EPA willfeed off the statement of ecolog ica limpact, but notwithstanding this,there is the concern that suchrequirements could be maladroitlysuited to the overall operations ofthe business. An example of this isthe potential for productstewardship requirements to beimposed, which would involve asubstantial extension of thebusiness' involvement in the useand life cycle of its products andservices, potentially raising costsdramatically.

Whilst the idea of sustainablebusiness in and of itself is obviouslynot a negative thing, and indeedforms the premise of this article,there is the concern that the newVictorian provisions are arguablynot the best way to go aboutachieving the paradigm shiftsrequired. They potentially involve asubstantial derogation fromcorporate autonomy in that the EPAcan direct businesses how tooperate and, in doing so,detrimentally affect the financialperformance of the business. Thisof course represents a worst casescenario and it is obvious that theEPA would preferto enter intovoluntary covenants ratherthaninvolve itself in the operations ofVictoria's businesses.Notwithstanding this, perhaps amore fluid approach underwhich ageneral obligation is imposed,


allowing the corporation to achievethis in the optimal manner, is abetter alternative.

A statutory directors' duty to ensurethat the company interacts with theenvironment in a sustainablemanner, as will be outlined below,has the potential to provide a broadframework in which directors mayconduct the operations of thebusiness to achieve sustainableoutcomes in a mannerwhich bestsuits the individual circumstances ofthe corporation. A more fluidapproach would arguably betterpromote an improved managementculture as it brings the requirementinto the operations of the business,ratherthan imposing externalobligations in an ad hocfashion.

As will be seen, however, we do notpropose the directors' duty as asubstitute forthe Victorianprovisions. Rather, we see them ascooperative parts of an interlockingframework encouraging thedevelopment of sustainablecommerce in Australia.

DIRECTORS' DUTIES TOTHE ENVIRONMENT-ISTHIS WHERE WE AREHEADING?Whilst the traditional rule thatdirectors only owe their fiduciaryduties to the company is stillembraced and applied by theAustralian judiciary, in somecircumstances the courts [usuallystate Supreme Courts, ratherthanthe High or Federal Courts) havebeen prepared to recognise thatparticu lar factual situations justifyextending the obligations ofdirectors to apply to otherstakeholders. In recent times, forexample, there has been judicialcommentary suggesting that incertain [albeit limited)circumstances some form of dutymay also be owed toshareholders,32 and perhaps evencreditors.33 It is important to note,however, that the courts havestressed that extending the duties

of directors to apply to thesestakeholders does not in anywayalter the overriding principle thatthe fiduciary duty of directors to actin the best interests of the companyremains their primary obligation.

This development in the law leadsto the question of whether in timethe courts will extend theobligations of directors further byestablishing some form of duty tothe environment and its resources.It has been recognised thatstakeholders in a company, such asshareholders and creditors, are inparticular circumstances directlyaffected by the acts or om issions ofdirectors. Could the samereasoning influence theestablishment of a duty toimplement sustainabledevelopment practices within acompany out of recognition that theenvironment is directly affected bythe way in which companies(through the directing mind and vvillof their directors) interact with theenvironment's natural resourcesand ecosystems?

It is in this context that ProfessorRobert Baxt recently suggestedthat the law of directors' duties mayagain be about to head down an'uncharted road', where traditionalprinciples such as acting in the bestinterests of the company andmaximising profits for shareholderswill be forced to interact with, andaccommodate, contemporaryconsiderations including CSR, triplebottom line reporting and, ofcourse, sustainable development.34

The Potential of ~Public

Duty' ConsiderationsIn ourview, there is no conceptualbarrierto extending the duties ofdirectors to include a positive dutyto ensure that the companycomplies with principles ofsustainable development.35 As hasbeen discussed in brief termsabove, any extension of the duty ofdirectors should not be consideredas a radical upheaval of thetraditional foundations of company

law, but rather as simply theaddition of an extra element in thepolitical economy of corporations.

While we are not yet at the pointwhere we can saywith certainty thatthe courts would uphold anargument that environmentalconsiderations warrant theimposition of an enforceable dutyon directors to ensure that thecompany operates in conformitywith principles of sustainabledevelopment, recent cases haveindicated that the courts are onoccasion willing to look beyond theparameters of the company toconsider the impact that companydirectors have on the community asa whole. In otherwords, themomentum is moving towardsconsidering the interests of thecommunity, in addition to the bestinterests of the company, whendescribing the nature and scope ofthe duties of company directors.

The recent decision of NationalRoads and Motorists'AssociationLtd v Geeson36 highlights that, inparticular circumstances, directorsmay have a 'public duty' to act orrefrain from acting in order toadhere to what is in the bestinterests of the community as awhole, ratherthan according towhat is in the best interests of thecompany. In Geeson, the NationalRoads and Motorists' Association('NRMA) sought an injunctionrestraining the four defendants[Stewart Geeson, Anne Keating andJane Singleton, who were directors,along with John FairfaxPublications) from publishinginformation concerning an NRMAboard meeting held on 17September 2001. During the boardmeeting, NRMA President NickWhitlam had sought an undertakingfrom the board members not todisclose information regarded byNRMA as confidential. Due to thethree board members' refusal toprovide the undertaking, NRMAapplied to the New South WalesSupreme Court for an injunction


preventing the disclosure of allboard papers or other papers readduring the board meeting by thethree directors.

At first instance, Bryson J refusedNRMA's application. In the courseof discussing NRMA's applicationfor an injunction, Bryson Jsuggested that in an organisationsuch as NRMA there may be a'public duty' on the part of directors

to disclose information concerningthe activities of the board to thepublicvia the press. In discussingthe nature of NRMAas a companylimited by guarantee with a largemembership, along with the needfor its directors to accordingly takeinto account public interest issues incarrying out their obligations,Bryson J said:

[NRMA 's}activities are so pervasivethat it does not seem too much tosay that the NRMA is part of thegeneral organisation ofsociety inNewSouth Wales. In my viewinterests of the NRMA as a wholewould be positively served bymaking public, for the informationofmembers and others, events andcircumstances at a board meeting ...The readiness ofmedia to reportsuch things is a reflection ofreal,well-based and widespreadinterest and concern in the community.3?

Although it is reasonable to suggestthat the comments of Bryson Jwere made on the basis that NRMAis a prominent companywith alarge number of members, it ispossible that in time the commentsin Geeson could be extrapolatedinto a common law duty ondirectors to complywith principlesof sustainable development. IfBryson J recognised in Geeson thatthe public had a right to beinformed of the events andcircumstances at a board meetingof a company such as NRMA, thenthere is no reason why in a futurecase it could not be held that thepublic have a right to demand thatdirectors of a company similar to

NRMA have a duty to ensure thatthe company actively takes steps tocomplywith sustainabledevelopment principles. From thispoint, it becomes conceivable that acourt would consider that the dutyof directors had developed so farthat, as a matter of logic and justice,the sustainable development dutyshould apply to all companydirectors.

Accordingly, the statutory duty tointeract with the environment in asustainable manner proposedbelow is not at all radical or out ofstep with trends in environmentaland company law. It is aboutbuilding on these trends anddevelopments [actual andpotential) in environmentalregulation generally, while focusingattention on principles ofsustainable development. As Baxtsaid in a prescient remark:

concepts [such as} ... triple bottomline and social responsibilitiesbecome easily mixed up in thecontext ofdirectors' duties in amore technical sense, and beforelong we could find that we aretravelling down another unchartedroad involving the issue ofdirectors'duties andjust to whom they areowed.38

EXPLANATION OFPROPOSALSociety cannot legislate one way orthe other on the content ofdirectors' duties without first settlingthe extent to which corporationsmust not only comply with legalregulation in a minimalist sense butshould also meet social obligationsbecause of society's creation ofmarket and economic conditions fortheirflourishing [i.e. the 'quid proquo' argument). As Hinkleyindicates, directors' and officers'legal obligations are probably thehighest point of leverage forimplementing change of this kind.39

OverviewIn this part of the article, we outlineand explore our proposed change

to insert a new duty in theCorporationsActwhich wouldessentially require that directorsensure that the company activelycomplies with principles ofsustainable development. The dutywould be imposed on directors,ratherthan the company, to send aclear message to directors that theyare responsible for ensuring thatthe culture within Australia'scompanies develops towardssetting in practice systems andpolicies that are sustainable andrespect Australia's natural

resources.

Based on our research ofsustainable development policiesand corporate law regimes in othercountries [namely the UnitedStates,40 Germany, 41 China, 42

New Zealand,43Sr i Lanka,44the

Netherlands45 and members of theEuropean Union46), we believe thatour proposal [if adopted) would bea world first, making Australia themost progressive jurisdiction interms of implementing law reforminitiatives to promote sustainabledevelopment. The majority of thesejurisdictions have by now expresslyrecognised and endorsed theprinciple of sustainabledevelopment and the rulescontained in Agenda 27, and have inplace general environmentalprotection legislation to imposeliability [civil, criminal or both) oncompanies and their directors whocommit certain environmentaloffences [relating to water and airpollution, and litter).4? However,

none of these jurisdictions hasspecifically given implementation ofsustainable development practices

the status of a primary duty ofdirectors forming part of thejurisdiction's corporations law.

The new statutory duty that we areproposing for Australia'sCorporationsActwould be framedin a positive manner so thatdirectors must take active steps toensure that the corporationinteracts with the environment in a


sustainable manner. We believe thatframing the duty in this way issufficiently specific to overcome anyconcern that the duty would be toowide and unvvieldy and wouldimpose an unfathomable obligationon directors-particularly incompanies whose environmentalpractices are constantly criticised,albeit usually without justification.Large mining companies are anobvious example. If we keep inmind that sustainability is aboutbalance (by maintaining productionof resources for present needs, butalso setting in place systems toprovide for future needsL then solong as these companies candemonstrate that they have in placesystems and procedures to achievethis balance, they will not fall foul ofthe proposed new statutory duty.

Outlining the Proposed NewStatutory DutyThe new duty would be inserted assection 180A of the CorporationsAct, and would be contained in Part20.1 of the Act along with the maingeneral directors' duties (such asdue care and diligence, good faith,use of position) that presently exist.As alluded to above, section 180Awould be framed as a positive duty,with subsection (1) providing:

A director or other officer of acorporation must exercise theirpowers and discharge their dutiesto ensure that the corporationinteracts with the environment in asustainable manner.

In establishing this positive duty,subsection (2) would then go on toprovide that:

Forthe purposes of subsection (1 Lacorporation will be taken to beinteracting with the environment ina sustainable manner if it takes allsteps reasonably practicable toreduce its ecological impact andincrease its resource efficiency.

Definitions of 'ecosystems','environment' and so on, wouldneed to be added to the list ofdefinitions in section 9 of the

CorporationsActand could bebased on the definitions containedin the Corporate Code of ConductBill2000 (Cth).48

There would also be a guidancenote to section 180A stating that theprecautionary principle will gove,-nthe interpretation of this provision.49

The Convention on BiologicalDiversitystates the precautionaryprinciple to be 'where there is athreat of significant reduction orloss of biological diversity, lack offull scientific certainty should not: beused as a reason for postponingmeasures to avoid or minimize sucha threat' .50 This guidance notewould ensure that a lack ofscientific certainty about aparticular method of reducingenvironmental degradation and/orimproving resource efficiency couldnot be used by company directorsas an excuse when faced with theprospect of being found to havecontravened section 180A. In ourhigh-tech environment, withscience progressively changing theway in which we live and work, it iscrucial that the precautionaryprinciple governs the interpretationof the proposed new statutory duty.

The scope of the new duty would belimited in the same way as wasintended by the Corporate Code ofConduct Bill2000 (Cth) by onlyapplying to companies that employover 100 people. 51 Organisations ofthis size should have the capacity toreorganise their policies andprocedures so that they are capableof operating consistentlywithprinciples of sustainabledevelopment. Indeed, many ofthese companies already have inplace policies and systems topromote sustainabledevelopment.52

As the proposed new section 180Awould act in addition to the existingduties of directors under sections180-3 of the Corporations Act,which reflect the traditional rulethat directors owe their dutiessolely to the company and must act

only to maximise profits for theshareholders, there is the potentialfor the new duty and the existingduties to come into conflict inparticular circumstances. Forexample, an aggrieved group ofshareholders may argue that byinvesting the company's money todevelop new policies and systemsso that the company can improveresource efficiency in the long-term(and hence promote sustainabledevelopmentL the directors maycomplywith section 180A, butbreach section 181 (1 )(a)53 by failingto focus attention on maximising thecompany's profits for distributionamong the shareholders in theshort-term.

It therefore becomes necessarywhen imposing a duty on directorsin the nature of the proposedsection 180A to esta blish either thatthe existing duties (relevantlysections 180 and 181 (1 )-(2)) takepriority over section 180A, or to setin place a framework wherebydirectors can go about establishingsystems to complywith section180A without fear of beingpenalised for contravening otherstatutory duties in the process. Webelieve that the second course ofaction is the most desirable if weare to be serious about embeddingsustainable development principlesinto our national corporations law.Whilst in the medium- to longterm, implementation ofsustainable development practicesenhances the profitability ofcompanies due to improvements inresource efficiency, initially (whensignificant cost is involved inchanging a company's proceduresand systems to be capable ofachieving substantial development)there is a conflict between the goalof sustainable development and thegoal of maximising profits forshareholders. We believe that,during this initial period, the lawshould not deter directors fromimplementing sustainabledevelopment practices when thishas such positive medium- to long-

AUSTRALIAN CONSTRUCTION L.AW NEWSLETTER #93 NOVEMBER/DECEMBER 2003 27

term benefits. Similar commentswere recently expressed by Baxt inthe context of a director's widerobligations to the community:

If directors are expected to run theactivities of their companies withthe interests of the communityatthe forefront of their obligations,then they must have adequateprotection in the law (and from thecourts), that should shareholdersfeel they are not receiving the samelevel of dividends they had beenaccustomed to, the directors willnot be in breach of those duties. 54

In ourview, the most effective wayof raising section 180A to theforefront of directors' statutoryduties, whilst at the same time notunduly limiting the ability ofdirectors to maximise shareholderprofits and expand the company, isto introduce an 'environmentaljudgment rule' for each of sections180 and 181 (1 )-(2) in similar termsto the business judgment rule whichpresently resides in section 180(2)(3) of the Corporations Act. 55

The existing business judgment rulein section 180(2}, which applies onlyto the duty of due care anddiligence under section 180(1) ofthe Act and equivalent duties atcommon law and in equity,operates as a defence by providingthat if a director satisfies each of thepreconditions specified undersubsection (2}, 56 then they are takennot to have contravened the duecare and diligence duty undersubsection (1). The ExplanatoryMemorandum to the Corporate LawEconomic Reform Program Bill1998 (Cth) clearly explains therationale behind introducing thebusiness judgment rule:

The fundamental purpose of thebusinessjudgment rule is to protectthe authority ofdirectors in theexercise of their duties, not toinsulate directors from liability.While it is accepted that directorsshould be subject to a high level ofaccountability, a failure to expresslyacknowledge that directors should

not be liable for decisions made ingood faith and with due care, maylead to failure by the company andits directors to take advantage ofoppoftunities that involveresponsible risk taking. 57

If section 180Awas implementedwlthout an environmental judgmentrule acting as a safe harbour devicefor directors, we do not believe thatthe principle of sustainabledevelopment would beappropriately incorporated into theCorporations Act. It could be saidthat a more hardline reforminitiative, whereby directors wouldbe forced to complywith the newduty under section 180A but at thesame time be potentially exposedto liability under the more generalduty provisions, would require atrue balancing of the interests ofthe environment and the economicand social interests of the companyand its members. We believe,however, that this dual liabilityregime would encourage directorsto adopt an extremely minimalistapproach towards sustainabledevelopment and the environmentgenerally. In other words, directorswould do just enough (in terms ofimplementing sustainable practicesand procedures) to escape liabilityunder section 180A, whilst at thesame time not going beyond thispoint of environmentalconsciousness so as to avoid anycla im for breach of the directors'duties provisions of theCorporations Act. Our proposedenvironmentaljudgment rule wouldmake sure that directors are able totake seriously their duty to achievesustainability, without the threat ofpenalties for doing so.

The proposed environmentaljudgment rule would be essentiallythe same as the business judgmentrule, and would operate towardsachieving harmony between section180A and the existing duties underPart 20.1, with section 180A at theforefront. We believe that theenvironmental judgment rule,

which would be outlined in section180A(3)-(4) of the Corporations Act,could be expressed as follows:

(3) Ad irector or other officer of acorporation who makes anenvironmental judgment is relievedfrom liability undersubsection (1},section 180(1) and section 181(1)and their equivalent duties atcommon law and in equity.

(4) In this section: 'environmentaljudgment' means any decision totake or not take action in respect ofa matter relevant to the businessoperations of the corporation whichis rationally made to complywithsubsection (1).

Note: The director's or officer'sjudgment is a rational one unlessthe belief is one that no reasonableperson in their position would hold.

In relation to the existing businessjudgment rule under section 180(2},the definition should be amended toadd a new subsection (aal: 'act orrefrain from acting to ensure thatthe company interacts with theenvironment in a sustainablemanner to satisfy section 180A ofthe Act'. This would make section180(2) consistent with the proposednew section 180A(2) in ensuringthat a decision rationally taken tosatisfy section 180Awould notcontraven section 180(1). Obviously,all the existing requirements ofsection 180(2) would still need to besatisfied.

In terms of enforcement of the newstatutory duty, like all the othergeneral directors' duties under Part20.1, section 180A would be a civilpenalty provision within themeaning of section 1317E(l) of theCorporations Act, which thereforeopens up the possibility of thefollowing remedies: disqualificationfrom managing corporations(section 206C}, compensationorders [s 1317H}, pecuniary penaltyorders (section 1317H) anddeclaration orders (section1317F).58


It is intended that the design ofsection 180A will be such that notonlywill the new duty work inconjunction with the existinggeneral duties of directors underthe Corporations Act, but also (tothe extent possible) complementother initiatives in environmentallegislative and regulatory regimes.For example, we believe that byimposing a duty on directors toensure that the company interactswith the environment in asustainable manner, section 180Awill act as a direct incentive fordirectors of companies based inVictoria to implement voluntarysustainable covenants, which is thedesi red outcome of the newEnvironment Protection (ResourceEfficiency) Act 2002 (Vic). Section180A, combined with the threat ofbecoming subject to a compulsorysustainable covenant imposed byVictoria's EPA, would work toencourage a cooperativerelationship between companiesand the EPA in developingsustainable development practicesinto the future.

Section 1324,Proportionality andCorporate ConstitutionalismWe acknowledge that theintroduction of section 180A into theCorporations Act has the potentialto change the landscape ofcorporate regulation in Australiadramatically as the new duty, usedin conjunction with section 1324 ofthe Corporations Act, wouldpotentially empower environmentallobbyists and interest groups toapply to the courts for injunctions toforce companies to comply activelywith principles of sustainabledevelopment. Particularly in highprofile companies that attract theattention of environmentalists, thiscould stall development and causeserious economic deterioration,rather than setting in place aneffective legal framework whichpromotes sustainability.

Section 1324 extends standing toseek an injunction (either restrictiveor mandatory] and/or damages toASIC and any 'person whoseinterests have been, are orwouldbe affected' by a contravention, orpotential contravention of theCorporations Act. 59 An aggrievedperson or ASIC can seek apermanent injunction under section1324(1) or an interim injunctionunde section 1324(4). In recenttimes, much has been written aboutthe very wide scope and availabilityof section 1324 as a remedialdevice.60 Furthermore, the universalview now held by academics andjudges is that section 1324 shouldbe accorded an expansiveinterpretation.61 This attitude isneatly reflected in the recentdecision of Australian Securitiesand Investments Commission vMauer-Swisse Securities Ltd. 62 Inthat case, Palmer J held that whenexercising its statutory injunctionpower under section 1324, a court isnot confined by the considerationswhich would be applicable if it wereexercising its equitable jurisdictionto grant injunctions (that is, whetherthere is a serious question to betried, where the balance ofconvenience lay, and whetherdamages would be an adequateremedy).63 Rather, according toPalmer J, the 'broad' questionwhich the court must consider in anapplication for an injunction undersection 1324 is 'whether theinjunction would have some utilityorwould serve some purposewithin the contemplation of theCorporations ACt.64

To avoid the possibility of section1324 being abused by so-called'busybodies' who do not have adirect interest in a company'senvironmental practices but aretrying to make a company complywith its obligations under section180A, we propose that a carve outto section 1324 be inserted at thetime section 180A is enacted. Thecarve out provision would qualifysection 1324(1) by stating that only

Furthermore, the universalview now held by academicsand judges is that section1324 should be accorded anexpansive interpretation.


Increasingly, those inmanagerial positions arerecognising that theintegration of economic,social and environmentalconsiderations must becomea central part of the way inwhich business is conductednot just in the long-term, butin the short-to-mediumterm. This trend mustcontinue.

ASIC and Environment Australiahave standing under section 1324 inrelation to a contravention (actualor potential) of section 180A.

We believe that this carve outprovision would complement,ratherthan undermine, section180A. The proposed new section180A is about achieving sustainabledevelopment, which requires aneffective balance of economicdevelopment and environmentalprotection. Sustainabledevelopment is not strictly about .environmental protection. Thecarve out that we have structuredwould provide forthis balancing ofconsiderations, as ASIC andEnvironment Australia are bothresourceful regulators that wouldactively pursue actual or potentialcontraventions of section 180A byway of the injunctions mechanismunder section 1324. At the sametime, the carve out significantlypromotes economic developmentby removing the possibility of lobbygroups and 'busybodies' usingsection 1324 to disrupt thereasonable profit-making activitiesof companies and/or to generatepublicity for their political causes.

Indeed, the carve out provision ismore restrictive than the position atcommon law as to whetherenvironmental groups havestanding to take action to protectthe public interest. Although themain common law rule is that amere intellectual or emotionalinterest in the subject matter of adispute is not sufficient to conferstanding,65w hen the matter raisesenvironmental issues the courts arewilling to take into accountcommunity perceptions and valueswhen determining standing. Forexample, in AustralianConservation Foundation vMinisterfor Resources,66 the Federal Courtheld that the AustralianConservation Foundation ('ACF') hadstanding to dispute the validity of alicence to log the South East forestsforthe purpose of exporting

woodchips, as the communityexpected that a large organisationlike the ACFwould take such actionto protect and conserve the naturalenvironment. Important to thisreasoning was that the ACF had aclearly defined role and receivedgovernment financial support toperform this role. The carve outprovision in section 1324 wouldmean that even well-established,government-funded organisationslike the ACF would not havestanding under section 1324. Eitherthey would have to approachEnvironment Australia or ASIC tomake a section 1324 application ontheir behalf, or decide whether itwould be worthwhile institutingformal court proceedings againstthe relevant company alleged tohave contravened section 180A.

In framing this carve out provisionin a mannerwhich facilitates theuse of section 1324 injunctions todirect compliance with section 180Aby companies, but without undulyinterfering with the production anddevelopment activities ofcompanies, the overall legislativeframework proposed provides thebest manner for the achievement ofsustainable development, whileendorsing the theory of corporateconstitutionalism developed byProfessor Stephen Bottomley.67According to the theory of corporateconstitutionalism, 'a corporation isan institution which, via itsconstitution, mediates public andprivate interests and values'68 andtherefore corporate regulation'should be constituted by state andcorporate inputs' .69

CONCLUSIONAlthough there are already anumber of obligations imposed oncompany directors in Australiatoday, we believe that the statutorydutyto ensure that the companyinteracts with the environment in asustainable manner is far from anunnecessary extra. As Hinkley hasargued, companies should be seenas more than just profit-making


institutions. 70 A company is astatutory creation, and thereforethe legislature is entitled todetermine how a company is tofunction and operate. In ourview,there is no justifiable conceptual orprag matic reason why theachievement of sustainabledevelopment cannot be positionedalongside profit maximisation asthe primary objective of thecompany-with the obligations ofcompanies and duties of directorsand other officers designed toreflect this repositioning.

Such an ambitious reform initiativewill inevitably be criticised bycorporate interest groups for beingtoo intrusive, too wide to beenforceable and for pushing theregulatory envelope too far infavour of environmental protectionat the expense of economic andsocial development. However, ashas been argued throughout thisarticle, such criticism woulddemonstrate a misunderstanding ofthe concept of sustainabledevelopment.

As highlighted by the JohannesburgDeclaration, sustainabledevelopment is about more thanjust environmental protection. It isabout achieving a balance betweeneconomic and social developmentand environmental protection sothat we can provide for both presentand future needs. In otherwords,sustainable developmentinherently accommodatescompanies continuing to go aboutmaking moneyfortheirshareholders through productionand development, so long assystems and policies areimplemented which provide forimprovements in resourceefficiency and ecological impactovertime.

Our proposed statutory duty doesnot interfere with this balancing ofconsiderations in anyway. Althoughensuring that the company interactswith the environment in asustainable mannerwill be at the

forefront of the directors' dutiesunder our proposal, the key themesunderpinning our proposedlegislative framework areproportionality and balance. Acompany's production anddevelopment activities will onlyamount to a contravention of theCorporationsActwhen it offendsthe standards of environmentalprotection that a reasonable personin the community (which includesthe perspective of shareholders andbusinesspeople as well asenvironmentalists) would expect acompany to meet.

Without ecologically sustainabledevelopment and an adequateenvironmental regulatoryframework, companies will simplynot be able to survive into thedistant future. As Eva Cox haswritten, social and human capitalare not only as important asfinancial capital, but socialwellbeing is a precondition forfinancial capital and economicprosperity to flourish. 71

Increasingly, those in managerialpositions are recognising that theintegration of economic, social andenvironmental considerations mustbecome a central part of the way inwhich business is conducted not justin the long-term, but in the shortto-medium term. This trend mustcontinue. With increasing pressurefrom ourtrading partners(particularly in Europe) to ensurethat Australian companies wishingto export their products or serviceshave in place environmentalmanagement systems whichadhere to the InternationalOrganisation of Standardisation'sISO 14,000 standards (requiringcompanies to control the impact oftheir activities, products or serviceson the environmentL72implementation of sustainablemanagement practices is anecessity if Australian businesseswish to maximise their exportingpotential.

Developments on the internationallandscape have meant that theroad to sustainable developmenthas been clearly laid out before us.Given this context, it is crucial thatthe proposal made in this article toimplement a duty under theCorporationsActforcing directorsto implement sustainabledevelopment practices is adoptedto ensure that Australia remains onthe rig ht track.

REFERENCES1. Rick Sarre, 'Responding toCorporate Collapses: Is There aRole for Corporate SocialResponsibility?' (2002) 7 DeakinLaw Review 1 at 7-8 (citationsomitted).

2. See generally Bryan Horrigan,'Fault Lines in the Intersectionbetween Corporate Governanceand Social Responsibility' (2002) 25University ofNew South Wales LawJournal515.

3. See e.g. CorporationsActsection299(1 )(fL which requirescorporations to include in theirannual directors' reports 'details ofthe entity's performance in relationto environmental regulations'. Forfurther discussion of section299(1 )(fL see Tamara Walsh,'Accounting fo r the Envi ronment'(2002) 19 Environmental andPlanning LawJournal387.

4. Robert Hinkley, 'The ProfitMotive Can Work with a MoralMotive', The Australian FinancialReview (Sydney) 7 April 2000 at 32.

5. World Commission onEnvironment and Development, OurCommon Future (1987)('Brundtland Report'J.

6. Ibid 43.

7. See D E Fisher, 'SustainabilityThe Principle, Its Implementationand Its Enforcement' (2001) 18Environmental and Planning LawJournal361 at 363-5.

8.lbid.


9. See Horrigan, above note 2 at531: According to 'triple bottomline' thinking, corporations shouldfocus holistically on the economicsocial and environmental 'dimensions and implications of theirbusiness and not simply on the'single bottom line' of financialconsiderations, profits, businesscosts, and share values anddividends. Yet that alternativeconception also assumes muchabout howwe should view andregulate corporations.

See also Tom Young, 'PuttingSustainability into Practice-TheQueensland Fisheries ManagementDebate' (2001) 18 Environmentaland Planning LawJournal381.

10. See Douglas Branson'Corporate Governance 'R'eform'and the New Corporate SocialRes~onsibility' (2001) 62 UniversityofPIttsburgh Law Review605.

11. A succinct explanation of thisBill is provided in Walsh, above note3 at 394-5.

12. Parliamentary Joint StatutoryCommittee on Corporations andSecurities, CommonwealthParliament, Report on theC~rporate Code of Conduct Bill200.0 (2001) 39. See especially themain conclusions andrecommendations of theCommittee at 39-40.

13. Daren Armstrong, 'TheCorporate Code of Conduct Bill'(2002) 16(2) Commercial LawQuarterly30.

14. See Brundtland Report, abovenote 5 at 349 (annex 1, principle 3).

15. Report of the United NationsConference on Environment andDevelopment, UN DocA/CONF.151126 (Vols I-III) (1992) ('Agenda 27').

16. Foran overview of the mainchapters of Agenda 27 and theprocess of reviewingimplementation of Agenda 27, seeJoseph Tornberg, 'The UnitedNations Commission onSustainable Development' (2001)

17 New York LawSchool Journal ofHuman Rights 957.

17. WSSD, Plan of Implementation(1992) ~http://www.johannesburgsummit.org/htmVdocumentslsummit_docsl2309_planfinal.htm--7.

18. WSSD, The JohannesburgDeclaration on SustainableDevelopment (1992) ~http:lIwww.johannesburgsummit.org/htmVdocuments/summit docsl1009wssd_pol_declarati~n.htm--7('Johannesburg Declaration')'

19. For a list of existing Type 2agreements, see United NationsDivision for SustainableDevelopment, SustainableDevelopment Partnership (Type 2)Summary(2003) ~http://www.un.org/esa/sustdev/partnersh ipsisummary_pa rtnersh ips.pdf--7.

20. WSSD, JohannesburgDeclaration, above note 18 at 5.

21.lbidatll.

22. See e.g. Sophie Chapple, 'TheEnvironment Protection andBiodiversity Conservation Act 1999(Cth): One Year Later' (2001) 18Environmental and Planning LawJournal 523.

23 See Walsh, above note 3 at 3889.

24. See Christine Parker and OliviaConolly, 'Is There a Duty toImplement a CorporateCompliance System in AustralianLaw?' (2002) 30 AustralianBusiness Law Review273 at 282-3.

25. See the decision of PacificDunlop v Ian Kamburn (Unreported,County Court of Victoria, Nixon J, 21January 1994) which refers to theattitude of the company and the factthat it had taken an enlightened andprogressive attitude to complywiththe stringent requirements of thelegislation and had not put profitsahead of safety. Nixon J reducedthe fine from $40,000 to $17,500.See also Philip Bohle and Michael

Quinlan, Managing OccupationalHealth and Safety: AMultidisciplinaryApproach (2nd ed,2000).

26. Environment Protection Act7970(Vic) section 49AF(2).

27. Section 49AH(1).

28. Section 49AM.

29. Section 49AF(1 )(d)(ii).

30. Section 49AG(1 )(b).

31. Section 36BA.

32. See Brunninghausen vGlavanics (1999) 46 NSWLR 538 inwhich the New South Wales Cou~tof Appeal held that, notwithstandingthe general principle established inPercival v Wright[1902] 2 Ch 421that a director's fiduciary duties areowed only to the company and thatno fiduciary duty is owed toshareholders, where a transactiondoes not concern the company butonly another shareholder, adirector may owe a fiduciary duty tothat shareholder. This duty toshareholders must not, however,compete with the fiduciary duty tothe company. In Peskin vAnderson[2001] 1 BCLC 372, it was confirmedthat directors will only owe afiduciary duty to shareholders ifthere is some 'special factualrelationship' (usually a quasipartnership relationship like inBrunninghausen vGlavanics)between the directors andshareholders giving rise to fiduciaryobligations. See also RobertValentine, 'The DirectorShareholder FiduciaryRelationship: Issues andImplications' (2001) 19 Companyand Securities LawJournal 92.

33. Jeffree vNational Companiesand Securities Commission [1990]WAR 183; Winkworth v EdwardBaron Development Co Ltd[1987]1All ER 114. But see Spies v TheQueen (2000) 201 CLR 603; GenevaFinance Ltd vResource & IndustryLtd (2002) 169 FLR 152. Thesecases are discussed in JamesMcConvill, 'Geneva Finance and the


'Duty' of Directors to Creditors:Imperfect Obligation and OtherImperfections' (2003) 11 InsolvencyLawJournal7.

34. Robert Baxt, 'Just to Whom DoDirectors Owe Their Duties? WillThis Conundrum Ever BeSatisfactorily Resolved?' (2002) 30Australian Business Law Review445 at 447.

35. Achieved by common lawdevelopments, and the introductionof Part 2F.1 A of the CorporationsActwhich abolished the rule in Fossv Harbottle (1843) 2 Hare 461; 67ER 189 that 'the proper plaintiff inan action alleging a wrong done tothe company by the directors, by amajority of shareholders or byoutsiders, is the company itself(emphasis in original). Cf RobertBaxt, Keith Fletcher and SaulFridman, Corporations andAssociations: Cases and Materials(9thed, 2003) at 51 7. For furtherdiscussion, see James McConvill,'Directors' Duties to Creditors inAustralia after Spies vThe Queen'(2002) 20 Company and SecuritiesLawJournal 4 at 16-17.

36. (2001) 39 ACSR 401 (' Geeson').See also Robert Baxt, 'Editorial:Disclosure, Auditing, AccountingAnd All Matters Financial!' (2002)20 Company and Securities LawJournal 248 at 250.

37. Geeson (2001) 39 ACSR 401 at412 (emphasis added). A similarstatement about NRMAwas mademore recently by Master Macreadyin NRMA vJohn FairfaxPublications Pty Ltd [2002] NSWSC563 (Unreported, Master Macready,26 June 2002). In that case, in whichthe plaintiff (NRMA) brought anapplication for the production ofcertain documents and theexamination of journalists who wereinvolved in disclosing informationthat arose during two NRMA boardmeetings, Master Macready stated(at 169):

The plaintiff is a very largeorganisation fulfilling an important

role in this State. We are not hereconcerned some [sic] localorganisation whose members areat loggerheads. Many of thesubjects discussed by the board areextremely confidential and seriousharm could result from disclosureof such discussions.

38. Baxt, Just to Whom DoDirectors Owe Their Duties?' abovenote 34 at 447.

39. Horrigan, above note 2 at 531.

40. See e.g. Gary Bryner, 'TheUnited States: 'Sorry-Not OurProblem" in William Lafferty andJames Meadowcroft (edsl,Implementing SustainableDevelopment: Strategies andInitiatives in High ConsumptionSocieties (2000) at 273; Jian-MingZhou, Sustainable Development inAsia, America and Europe withGlobal Applications: A NewApproach to Land Ownership (2001)at 313-95. See also KristinaTridico, 'Sustainable America in theTwenty-First Century: A Critique ofPresident Clinton's Council onSustainable Development' (1999)14 Journal of Natural Resourcesand Environment Law205.

41. See e.g. Christiane Beuermann,'Germany: Regulation and thePrecautionary Principle' in WilliamLafferty and James Meadowcroft(edsl, Implementing SustainableDevelopment: Strategies andInitiatives in High ConsumptionSocieties (2000) at 85.

42. See e.g. Wang Xi, 'TheImplementation of Rio Declarationand Agenda 21 in China since 1992'(1998) 3 & 4 AustralianEnvironmental Law News 38;Michael Pickles, 'ImplementingEcologically SustainableDevelopment in China: TheExample of Heilongjiang Province'(2002) 14 Georgetown InternationalEnvironmental Law Review577.

43. See e.g. Rhoanna Stanhope, 'AVision for the Future? The Conceptof Sustainable Development in theNetherlands and New Zealand'

(2000) 4 New Zealand Journal ofEnvironmental Law147.

44. See e.g. Sumudu Atapattu,'Sustainable Development, Myth orReality?: A Survey of SustainableDevelopment under InternationalLawand Sri Lankan Law' (2001)J4_Georgetown InternationalEnvironmental Law Review265.

45. See Stanhope, above note 43.

46. See e.g. Don Smith, 'TheEuropean Union's Commitment toSustainable Development: Is theCommitment Symbolic orSubstantive in the Context ofTransport Policy?' (2002) 13Colorado Journal of InternationalEnvironmental Law and Policy241.

47. Similar to the offencescontained in the EnvironmentProtection Act 1970 [Vic) and theEnvironment Protection andBiodiversity Conservation Act 7999(Cthl.

48. Section 6. 'Ecosystem' is definedas 'a dynamic complex of plant,animal and micro-organismcommunities and their non-livingenvironment interacting as afunctional unit.' 'Environment' isdefined to include:

(a) ecosystems and their constituentparts, including people andcommunities;

(b) natural and physical resources;

(c) the qualities and characteristicsof locations, places and areas; and

(d) the social, economic andcultural aspects of a thingmentioned in paragraph (al, (b) or(c).

49. The Corporate Code of ConductBill2000 (Cth) section 6 defines theprecautionary principle to mean'that lack of fu II scientific certaintyshould not be used as a reason forpostponing a measure to preventdegradation of the environmentwhere there are threats of seriousor irreversible environmentaldamage'.


50. Opened for signature 5 June1992,1760 UNTS 79, preamble[entered into force 29 December1993). See also Leatch v NationalParks and Wildlife Service (1993)81 LGERA 270,281.

51. Section 3[ 1Ha).

52. See generally Paula Darvas,'Section 2490 and the 'Activist'Shareholder: Court Jester orConscience of the Corporation?'(2002) 20 Company and SecuritiesLawJournal390, which providessome discussion of the practices ofRio Tinto [and North Ltd, which hasbeen acquired by Rio Tinto).

53. CorporationsActsection 181 (1)provides: A director or other officerof a corporation must exercise theirpowers and discharge their duties:

[a) in good faith in the best interestsof the corporation; and

[b) for a proper purpose.

54. Robert Baxt, 'Avoiding theRising Floods of Criticism: DoDirectors of Certain CompaniesOwe a Dutyto the Community?'(2000) 16[ 11) Company Director42at 42.

55. CorporationsActsection180(2)-[3) reads:

(2) A director or other officer of acorporation who makes a businessjudgment is taken to meet therequirements of subsection [1 Landtheir equivalent duties at commonlaw and in equity, in respect of thejudgment if they:

[a) make the judgment in good faithfor a proper purpose;

[b) do not have a material personalinterest in the subject matter of thejudgment;

[c) inform themselves about thesubject matter of the judgment tothe extent they reasonably believeto be appropriate; and

[d) rationally believe that thejudgment is in the best interests ofthe corporation.

The director's or officer's belief thatthe judgment is in the best interestsof the corporation is a rational oneunless the belief is one that noreasonable person in their positionwould hold ...

(3) In this section:

'business judgment' means anydecision to take or not take action inrespect of a matter relevant to thebusiness operations of thecorporation.

56. The operation of section 180(2)was explained as follows by SantowJ in Re: HIH Insurance Ltd (in provliq); Australian Securities andInvestments Commission vAdler(2002) 168 FLR 253 at 349: 'in orderforthe safe-harbour 'statutorybusiness judgment rule' to be reliedupon, the director must first havemade a business judgment. Thenthat business judgment must satisfythe following requirements, namelymade in good faith for a properpurpose; afterthe director hasinformed himself as to the subjectmatter of the judgment to the extenthe reasonably believes to beappropriate; in circumstanceswhere the director does not have amaterial personal interest in thesubject matter of the judgment andrationally believes that thejudgment is in the best interests ofthe corporation [s 180(2)). Thedirector's belief that his or herjudgment is in the best interests ofthe corporation is a rational oneunless the belief is one that noreasonable person in that positionwould hold [s 180(2)).'

57. Explanatory Memorandum,Corporate Law Economic ReformProgram Bill1998 [Cth) [6.3]. Foran excellent discussion of thereasons for, and operation of, thestatutory business judgment rule inAustralia, see Robert Baxt,'Directors' Duty of Care and theNew Business Judgment Rule inthe Twenty-Fi rst Centu ryEnvironment' in Ian Ramsay [edLKey Developments in CorporateLawand Trusts Law: Essays in

Honour ofProfessor Harold Ford(2002) at 151.

58. See Grant Moodie and IanRamsay, 'The Expansion of CivilPenalties Under the CorporationsAct (2002) 30 Australian BusinessLaw Review61. See also Re: HIHInsurance Ltd (in prov liq);Australian Securities andInvestments Commission vAdler(2002) 168 FLR 253.

59. See section 1324[1 L (10). InAirpeak Pty Ltd vJetstream AircraftLtd (1997) 73 FC R 161 at 167Einfeld J held that damages undersection 1324(10) were availableeven if an injunction is not sought.This was confirmed in VanmarcHoldings v P WJess & AssociatesPty Ltd (2000) 34 ACSR 222 at 227by Mandie J.

60. See e.g. Keith Fletcher, 'CLERPand Minority Shareholder Rights'(2001) 13 Australian Journal ofCorporate Law290 at 300-1 ;McConvill, 'Directors' Duties toCreditors in Australia after Spies vThe Queen', above note 35 at 22-4;Baxt, 'Directors' Duty of Care andthe New BusinessJudgment Rule',above note 57 at 163-7.

61. See Airpeak Pty Ltd vJetstreamAircraft Ltd (1997) 73 FCR 161 at167 [Einfeld J). See also JulieCassidy, Concise Corporations Law[2nd ed, 1999) at 316-7; HaroldFord, Robert Austin and IanRamsay, Ford's Principles ofCorporations Law[llth ed, 2003)[11.310J.

62. (2002) 42 ACSR 605.

63. Ibid 609.

64. Ibid 613.

65. See Boyce v PaddingtonBorough Council [1903] 1 Ch 109 at113 [Buckley J); AustralianConservation Foundation Inc vCommonwealth (1980) 146 CLR493 ['ACF case (No 7)'). Accordingto Robyn Glindemann in 'Standingto Sue for Environment Protection:A Look at Recent Changes' (1996)


24 Australian Business Law Review246,247 (emphasis in original):

The ACFcase (No.7 )was significantbecause it clearly limited the rightof third parties to challengedecisions that would affect theenvironment. It was made clear byGibbs J that a person coulddemonstrate a special interest in aparticularenvironment; however,environmental groups such as theACF, whose aims and objectiveswere solely to protect and conservethe environment generally, couldnot have such an interest. Gibbs Jobviously believed that the ACF'sconcern was an intellectual oneonly.

66. (1989) 19 ALD 70. For a gooddiscussion of the application of theprinciples established in the ACFcase (No.7), see Jan McDonald andSteven MUnchenberg, 'PublicInterest Environmental LitigationChipping Away at ProceduralObstacles' (1995) 13 Environmentaland Planning LawJournal 140,especially 141-2.

67. See Stephen Bottomley, 'TheBirds, the Beasts and the Bat:Developing a ConstitutionalistTheory of Corporate Regulation'(1999) 27 Federal Law Review 243at 255 (emphasis omitted):

The theory of corporateconstitutionalism begins with theproposition that corporations aremore than just artificially createdlegal institutions (contrary to thesuggestions of concession theory)and they are more than justeconomic institutions (contrary tothe argument of contract-basedtheorists). Corporations have bothof these dimensions, but they arealso social enterprises and they arepolities in their own right.

68. Ibid 257.

69.lbid 255 (emphasis in original).

70. Hinkley, above note 4 at 33.

71. Eva Cox, A Truly Civil Society(1995) at 11.

72. Refer to the InternationalOrganisation of Standardisation~http://www.iso.ch/iso/en/iso9000-14000/tou r/magical.html~.See also JimParker, 'Environment ManagementSystems and Due Diligence' (1996)11 (8) Australian EnvironmentReview 1O.

James McConvill and Martin Joy'sarticle was previously published inthe Melbourne University LawReview (Volume 4-2003).Reprinted with permission.


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