Australia: Directors' liability for corporate conduct: false information and the reasonable diligence defence

Key Points:

A director will not be able to establish that they have exercised reasonable diligence to prevent the commission of an offence if they have supplied the person who committed the offence with false information.

As some readers will be aware, the collapse of the Westpoint group of companies was the subject of a major investigation by the Australian Securities and Investments Commission. This article though concerns the prosecution of Mr Carey by the Western Australian Commissioner for Consumer Protection.

While the decision in Carey v Commissioner for Consumer Protection [2013] WASCA 195 is unsurprising given the facts, the judgments discuss the due diligence defence and provide a useful analysis of the relevant principles.

Westpoint sells apartments too cheaply

Mr Carey was a director of Westpoint Realty Pty Ltd. He was also a director of Lanepoint Enterprises Pty Ltd, a subsidiary of Westpoint.

Lanepoint had acquired a parcel of land in a suburb of Perth for the purpose of redeveloping the land by constructing apartments on it. Westpoint was engaged by Lanepoint to sell apartments in the first stage of the redevelopment off the plan.

Sometime after these apartments had been sold, Mr Carey decided that they had been sold too cheaply. He instructed that the contracts for the sale of the apartments should be terminated, and the apartments should be resold to other purchasers at significantly higher prices. Mr Carey was aware that agents employed by Westpoint were to be instructed to give effect to that decision.

Charges under section 12(2)(b) of the Fair Trading Act 1987 (WA) (now section 30(1) of the Australian Consumer Law (WA)) arose from representations made by Westpoint's agents to the purchasers of five apartments which resulted in the purchasers agreeing to terminate their contracts for the purchase of an apartment in first stage of the redevelopment. The representations, which the agents knew to be untrue, were that the project was not going ahead, or might never be finished, and that the purchasers' only option was to agree to terminate their contracts and obtain a refund of all the moneys that they had paid.

Was Mr Carey liable for the conduct of the agents?

The agents and Westpoint were convicted of making a false or misleading representation concerning the use to which land was capable of being put, contrary to section 12(2)(b) of the Act. Under section 81(1) of the Act, Mr Carey was also guilty of breaching section 12(2)(b) unless he could establish the defence included in the section.

Section 81(1) provides that:

"Where a corporation ... is convicted of an offence against this Act, each person who, at the time of the commission of that offence, was a director of the corporation or was the manager, secretary or other similar officer ... is also guilty of an offence unless he proves:

  1. that the offence was committed without his knowledge, or that he did not authorise or permit the commission of the offence; and
  2. that he was not in a position to influence the conduct of that corporation or body or, being in such a position, could not by the exercise of reasonable diligence have prevented the commission of the offence".

The magistrate found that Mr Carey had failed to establish the defence provided by section 81 of the Act and convicted him of five counts of breaching section 12(2)(b). Mr Carey appealed to the Supreme Court, and following the rejection of this appeal, (see Carey v Commissioner for Consumer Protection [2012] WASC 8), he appealed to the Court of Appeal.

Appeal dismissed

Chief Justice Martin (with whom Justice Newnes agreed) observed that Mr Carey did not dispute that he was in a position to influence the conduct of Westpoint. As a result, Mr Carey had to establish, on the balance of probabilities, that by the exercise of reasonable diligence he could not have prevented the commission of the offence. That was a question which was materially different to the question which arose in the cases relied upon by the appellant, which was whether the accused had in fact taken reasonable precautions and exercised due diligence to prevent the offence. Nevertheless, the cases were of assistance because:

"Notwithstanding the differences between s 81 and the statutory provisions applicable in the cases to which I have referred, there are similarities between the various provisions ... In particular, each of the provisions, like s 81, poses the defence in terms of reasonable diligence and does not require or impose standards of perfection."

Given that the findings of fact made by the magistrate were not in dispute, the issue raised by the appeal was whether, on the basis of those facts, the only reasonable conclusion was that Mr Carey "could not by the exercise of reasonable diligence have prevented the commission of the offences". After examining the evidence, Chief Justice Martin concluded that, by exercising reasonable diligence, there was much that Mr Carey could have done to prevent false and misleading statements being made by the agents, including:

  • correcting his false statement that he had received legal advice that Lanepoint had a right to terminate the contracts. It was reasonable to infer that this false assertion may well have encouraged the agents to advise purchasers that they had no option other than to accept the termination of their contract.
  • in exercising reasonable diligence, Mr Carey should have instructed the agents precisely what purchasers were to be told when they were approached to surrender their contracts, preferably after obtaining independent legal advice. It was very likely that such an instruction would have prevented the commission of the offences.

As the defence had not been made out, Chief Justice Martin concluded that the appeal should be dismissed. In a separate judgment, Justice Pullin agreed that the appeal be dismissed.


Although the Australian Consumer Law is a law enacted by the Commonwealth and applied by State and Territory legislation, the content of the Fair Trading Acts differ between the States and Territories. In Western Australia, the Fair Trading Act 1987 has been repealed and replaced by the Fair Trading Act 2010, but section 95(1) of the 2010 Act is the same as section 81(1) of the 1987 Act. No other State or Territory Fair Trading Act has a provision that is identical to section 95(1).

Nevertheless, due diligence defences are common in State and Territory legislation. The inclusion of such defences is provided for by the principles and guidelines for the imposition of personal criminal liability on directors agreed to by a meeting of the Council of Australian Governments held on 23 July 2012. The terminology of the defence varies between jurisdictions, but as Carey illustrates, differences in the wording of the defence are not usually regarded by the courts as being significant.

What does seem clear though is that if a director is to establish a due diligence defence, he or she must not supply false information.

You might also be interested in...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.