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This paper is part of an AHRC funded project on Business Judgment and the Courts (Project Number: AH/N008863/1), and we are grateful to the funders. We would like to thank Dr Daniel Attenborough, Professor Terry McNulty and the anonymous referees for their very helpful comments, and Dr Francis Okanigbuan for his research assistance. Earlier versions of this paper have been presented at the SLSA and the SLS annual conference in 2017, when it was short-listed for the Best Paper Prize, and also at public lectures at Adelaide, Melbourne and ANU and we are grateful for the constructive feedback received.
Introduction
The judgments that company directors make can have significant consequences, for their companies, for those who hold stakes in companies, such as shareholders and employees and, at times, the wider community.1 Consequently most jurisdictions impose duties on directors to guide and control the way that they act. Despite this, the courts have often refrained from holding directors liable for alleged breaches of the duties,2 instead deferring to directors’ judgments.3 Courts have simply not been willing to substitute their judgment for that of directors. This approach has led, in some jurisdictions, to the development of the business judgment rule (BJR), through either case law as in Delaware in the US or legislation as in Australia. While subject to different formulations across jurisdictions, this essentially provides that if a director's action or inaction can be categorised as a business judgment, the director is presumed not to be liable for what has been done or not done unless the claimant can rebut the presumption that the rule applies. This is generally an arduous task. While no such rule has been officially recognised in the UK,4 this approach has been adopted in a broad range of cases, and is not confined to situations in which directors are being sued for breaching their duty of care.5
Yet there has been no clear explanation in primary or secondary sources regarding what constitutes a business judgment. This paper addresses this gap, by analysing the case law in England and Wales and drawing on significant cases in Australia and Delaware. The paper is not a full comparative study of the English, Australian...