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Section 2: Responsibilities, Liabilities and Rights of Council Members
1 Introduction
The information contained in this section is intended to inform members of Council and other committees of the University of their legal responsibilities as members and to provide, particularly in paragraph 8 Principles of Conduct: Guidelines for Council Members, a clear set of principles to which members can refer.
The information was reviewed in 2002 by the University's solicitors, Fisher Jeffries, who endorsed it as an accurate summary of the relevant legal principles at the review date, and again in 2005, in light of changes to the University Act.
2 The Nature of the Corporate Entity
The University is a type of corporation often referred to as a "public statutory corporation". It is incorporated by its own Act of Parliament, the Flinders University of South Australia Act 1966 (referred to hereafter as "the University Act"), for public purposes. The University is not incorporated under the Corporations Act 2001 and, for all practical purposes, is therefore not subject to that Act. At the same time, the University is not an instrumentality or agency of the Crown. Any doubts about this were clarified by the inclusion in 2005 of an explicit provision in section 3(7) of the University Act.
3 The Law that Applies to the University
The University is subject to the University Act, the rules of common law and equity as modified by the express provisions of the University Act, and of any other relevant state or federal legislation. It is also bound by its own statutes, but has the power to alter these.
4 Functions of the University
The functions of the University as a body corporate are prescribed in Section 4 of the University Act.
"The functions of the University include, within the limits of its resources -
(a) the provision of educational facilities at university standards for persons who being eligible to enrol seek the benefits of such facilities; and
(b) the establishment of such facilities as the University thinks desirable for providing courses of study, whether within the University or elsewhere, for evening students, giving instruction to and the examination of external students, and providing courses of study or instruction at such levels of attainment as the Council thinks appropriate to meet the special requirements of industry, commerce or any other section of the community; and
(c) generally, the dissemination of knowledge and the promotion of scholarship."
5 Powers of the University
The powers which the University may exercise are set out in Sections 3(3) to 3(6) of the University Act.
"3(3) Subject to subsection (5), the University is a body corporate invested with full juristic capacity and unfettered discretion, subject to the laws of this State, to conduct its affairs in a manner it thinks fit.
(4) The University may exercise its powers within or outside the State (including outside Australia).
(5) The University must not alienate (except by way of lease for a term not exceeding 21 years), mortgage or charge land vested in or conveyed to the University on trust except with, and in accordance with any terms or conditions of, an approval given by the Governor.
(6) To avoid doubt, subsection (5) does not confer any power to alienate land contrary to the terms of a trust relating to the land."
If, in the exercise of its powers, the University commits or threatens to commit a civil wrong such as a breach of contract, or acts in excess or abuse of its powers, it may be sued privately for damages or other appropriate relief.
6 Statute Law and Common Law
The University is also subject to general statute law and the common law.
Statute law comprises legislation enacted by the South Australian Government and Commonwealth legislation that applies in the State. It includes an increasing number of Acts regulating matters such as taxation, freedom of information, occupational health and safety, the environment, civil rights, etc.
Common law is "judge-made" law developed by the courts through decisions handed down by judges and includes common law and equity. Statute law usually reflects the non-statutory law but can differ in the penalties and remedies and the standard of conduct applied.
If the University commits an offence under any penal statute, state or federal, the University may incur a fine or other penalties set out in the legislation.
The University may also incur a vicarious liability through the actions of its employees or agents, either at common law or under statute.
In summary, the University is answerable in the courts for its performance of its statutory public duties, for its behaviour as a corporate citizen engaged in dealings with other citizens and society at large, and to some extent, for the wrongful acts of persons acting under its authority.
7 Principal Duties of a Council Member to the University
The principal duties owed to the University by Council members are imposed by the University Act. They are the statutory embodiment of fiduciary duties which have long been imposed by the law of equity and may be broadly described as:
the duty to act honestly, in good faith for the benefit of the University;
the duty to avoid actual and potential conflicts between personal interests and the interests of the University.
and of the duty of care, which has been determined by common law. These duties are similar to the duties and obligations imposed on company directors by the Corporations Act, although neither the Corporations Act 2001 (Cth) nor the Public Corporations Act 1993 (SA) apply to members of the University Council1.
Section 5 (4) of the University Act states: "A member of the Council is not, in the exercise of his or her powers or functions as such, subject to the direction of any person or body of persons." Section 18A states: "A member of the Council must at all times in the performance of his or her functions -
(a) exercise a reasonable degree of care and diligence; and
(b) act in the best interest of the University."
Section 18B states:
(1) A member of the Council must at all times act in good faith, honestly and for a proper purpose in the performance of the functions of his or her office, whether within or outside the State.
(2) A member of Council must not improperly use his or her position to gain an advantage for himself or herself or another person, whether within or outside the State.
(3) Subsection (1) does not apply to conduct that is merely of a trivial character and does not result in significant detriment to the interest of the University.
The fiduciary duty involves both the nature of the decision (is it in the interest of the University, has the power been used for the purpose for which it was given?) and the propriety of the conduct of the decision-maker (has the Council member avoided all possible conflict between his or her interest and that of the University?).
Other examples of fiduciary relationships are those between an agent and principal, a trustee and beneficiary, solicitor and client, a director and a corporation.
The duty of care prescribed in section 18A(a) is concerned with competence.
Conduct has been measured in two ways:
an objective standard - the person is expected to take such care as a reasonably prudent person might be expected to take on his/her own behalf;
a subjective standard - the person is expected to exhibit in the performance of his/her duties, the degree of skill that might be reasonably expected from a person of his/her knowledge and experience.
Over time the courts have defined these principal duties and have developed standards of conduct which governments have also included in the legislation that applies to corporations. For the benefit of Council members, these duties, as they have been defined by the courts, are summarised in the following Guidelines.
8 Principles of Conduct: Guidelines for Council Members in Exercise of their Prinicipal Duties To Council
Expressed in the form of directives for members of Council, the principles of conduct developed by the courts may be practically summarised as follows:
Always act honestly;
Always act in the best interest of the University;
Attend Council meetings regularly;
Read Council papers, be attentive at meetings and take an active part in the business of Council;
Be prepared to hear and consider all relevant information before making a final decision as members cannot bring a closed mind to the decision making process; it is the legal obligation of a Council member to bring a fair and unprejudiced mind to any issue before the Council meeting;
Never vote a the direction of another person, either an outsider or another Council member; thus, a member elected by a constituency must not vote at the direction of the constituency; the member who is the presiding member of Academic Senate must not vote at the direction of the Senate;
Never promote one's own personal interest;
Never divert or make improper use of the University's corporate business opportunities or otherwise compete with the University;
Never make improper use of University property or confidential information;
Only exercise the powers for the particular purpose for which the powers were conferred and not for some extraneous purpose, even though the extraneous purpose might appear to be in the interest of the University;
Always act to avoid actual or potential conflict between one's duties to the University and one's own interests;
Always act with reasonable care. Where the courts have had to measure the requisite degree of care and skill, they have generally demanded a subjective standard, ie a degree of skill that might be reasonably expected of someone with the knowledge and experience of the person in question;
Make reasonable efforts to become familiar with the affairs of the University, its public duties and functions;
Make reasonable efforts to be familiar with legislation and the penalties for which the University or its officers personally may be held liable if the University commits and the Council members have permitted an infringement of the legislation;
Ensure Council has in place policies and procedures for the administration of the University's affairs and the conduct of day-to-day business together with a system of Council supervision. Such provisions enable members of Council to trust those put into a position of trust for the express purpose of attending to the details of management.
The guidelines have been drawn up to ensure that Council are aware that higher standards are now expected of all directors (AS Sievers, "Directors' Duty of Care: What is the New Standard?" (1997) 15 Company and Securities Law Journal 392). The prevailing standards that apply are always open to change by Parliament and courts (Professor Baxt, Duties and Responsibilities of Directors and Officers, 17th edition, 2002, Australian Institute of Company Directors).
Whether a court finds that a person has breached legal duties will always depend on the circumstances in a particular case. Nevertheless, it is considered that a Council member who adopts the above guidelines as a standard of conduct and practises them conscientiously would be unlikely to be found personally liable for any damages, fines or other penalties or remedies as a result of acts or omissions as a member of Council.
9 Duties with Respect to Conflict of Interest
Expanding on the general principle that a Council member must not "improperly use his or her position to gain an advantage for himself or herself or another person" (section18B(2)), the University Act contains specific provisions governing the duties of members of Council who have a conflict between their personal or pecuniary interests, and the interests of the University.
These are set out in section 18C:
"(1) A member of Council who has a direct or indirect personal or pecuniary interest in a matter decided or under consideration by the Council - (a) must, as soon as is reasonably practicable, disclose in writing to the Council full and accurate details of the interest; and (b) must not take part in any discussion by the Council relating to that matter; and (c) must not vote in relation to that matter; and (d) must be absent from the meeting room when any such discussion or voting is taking place."
"(6)If a member of Council has or acquires a personal or pecuniary interest, or is or becomes the holder of an office, such that it is reasonably foreseeable that a conflict might arise with his or her duties as a member of the Council, the member must, as soon as is reasonably practicable, disclose in writing to the Council full and accurate details of the interest or office."
Note that all four components of section 18C(1) must be followed: disclose the interest, do not participate in discussion on the relevant matter, do not vote, and be absent during the discussion and the vote.
Personal or pecuniary interest is not defined, except that "a member of the Council will be taken to have an interest in a matter ... if a relative of the member, has an interest in the matter". Relative is specifically defined as being "the spouse, domestic partner, parent or remoter linear ancestor, son, daughter or remoter issue or brother or sister of the member" (sub-sections 18C(8) and (10)). It is possible that there might still be a conflict between an interest involving other relatives of a Council member, falling outside this definition, and the University's interests. Council members must assess the potential for such conflict and disclose it as appropriate. Section 18C does specifically state that
"(2)A member of Council will not be taken to have a direct or indirect interest in a matter for the purposes of this section by reason only of the fact that the member has an interest in the matter that is shared in common with staff members, graduates or students of the University generally, or with a substantial number of staff members, graduates or students of the University."
10 Guidelines in Respect of Conflict of Interest
Expressed in the form of directives for members of Council, the principles of conduct in respect of conflict of interest, as specified by the University Act and developed by the courts, may be practically summarised as follows:
Remember that when considering whether a conflict of interest exists or not, a Council member has an interest if the Council member or a person with whom the member is closely associated on a business or personal basis would, if the matter were decided in a particular manner, receive or have a reasonable expectation of receiving:
-a direct or indirect pecuniary benefit or suffer or have a reasonable expectation of suffering, a direct or indirect pecuniary detriment; or -a personal or non-pecuniary benefit or suffer or have a reasonable expectation of suffering, a personal or non-pecuniary detriment.
Remember when considering whether a conflict of interest exists, that a person is closely associated with the Council member if that person is:
-a spouse, child, de facto spouse or close relation of the Council member (see specifically the definition of relative in s.18C(10) of the Act);
-an employer or employee of the Council member;
-a business partner of the Council member;
-a person with whom the Council member has a current and ongoing professional relationship and from whom the Council member receives fees for professional or other services;
-a corporation of which the Council member is a director;
-a proprietary company of which the Council member is a shareholder;
-a beneficiary under a trust of which the Council member is a trustee.
Always disclose any direct or indirect pecuniary interest and be absent from any discussion or voting on the matter. For example, a member who is a shareholder of a public company would be deemed to have a direct pecuniary interest in a decision of Council to award a tender to that company;
Always disclose a direct or indirect personal interest in a matter before the Council and be absent from any discussion or voting on the matter. For example, a member who is related by birth or marriage to a person who is recommended to Council for an appointment could be deemed to have either a direct or indirect personal interest depending on the nature of the relationship;
Always disclose an individual personal interest in a matter before the Council, and be absent from any discussion or voting on the matter. For example, a member being recommended to Council for an appointment or award could have such an interest;
If unsure whether there is a conflict of a personal interest and a duty to the University Council, ask for clarification from the Registrar before a meeting, or from the Chancellor during a meeting;
Note that all disclosures of conflicts of interest are required in writing, and must be recorded in the Council minutes.
11 Liability of a Council Member to the University
Duties owed to the University arise as a result of the member's acceptance of the position on Council and are owed to the University alone, not to persons outside the University.
Thus, a breach of duty would be a breach of duty owed to the University and would be actionable only by the University.
The Council may remove a Council member from office on the ground of serious misconduct as provided under section 6(6)(d). Section 18D specifically provides that non-compliance with a duty imposed under sections 18A, 18B or 18C "will be taken to be serious misconduct and a ground for removal of the member from office".
The Council would have to decide whether to seek remedies such as damages for losses incurred by the University or recovery of gains made by the member, as a result of a breach of a duty owed to the University. Under section 18E, the University is specifically given the power to bring a civil action against a member or former member of Council for breaches of the duties imposed under sections 18B or 18C.
Were the Council to decide not to take action against a member who was in breach of duty, the circumstances could be such that the Attorney General might decide to intervene and bring an action on behalf of the University in order to achieve a remedy.
In summary, liability on the part of a member of Council to the University would be likely to arise only if loss had been caused to the University by a member of Council who was in breach of his/her duty and it could be shown that the loss was a result of the breach of duty.
12 Liability of a Council Member to Third Parties
Council members owe no duty, under the University Act or at common law, by virtue of their office, to anyone other than the University. Nor can they be made liable to third parties for the debts or other contractual engagements of the University. In this respect, their position is different from company directors who, under the Corporations Act, in limited circumstances relating to insolvent trading by the company, are made personally liable for debts.
A Council member cannot be sued by third parties in respect of wrongful acts of the University, Section 29 of the Act specifically provides immunity to Council members from civil liability. It states
"(1) Subject to this Act, no civil liability attaches to a member of the Council for an act or omission in the exercise or purported exercise of official powers or functions.
(2) An action that would, but for subsection (1), lie against a member of the Council lies instead against the University.
(3)This section does not prejudice rights of action of the University in respect of an act or omission not in good faith."
Merely voting for a resolution which later resulted in the University incurring a legal liability would not expose a member to personal liability.
It is in the area of statutory offences that Council members may be at real personal risk of liability for the wrongful acts of the University. There is an increasing tendency for legislation to impose heavy penalties on corporations for offences under the legislation, and to make the directors and other officers and managers personally liable as well (often referred to as lifting the corporate veil). In some cases, third parties are given the right to proceed against the directors for compensation in respect of the offence.
Examples of this can be found in legislation relating to Occupational Health and Safety, Trade Practices, Environment Protection, Equal Opportunity, Privacy and Fair Trading.
Much of this legislation is capable of applying to the University and of rendering Council members and other executives of the University personally liable for an offence by the University.
Provided, however, that the Council takes reasonable steps to ensure that there is an effective system for ensuring that the University complies with its statutory obligations, it is highly unlikely that a Council member would be held liable for statutory offences.
13 Protection against Liability
The University is not permitted at common law to pay for insurance to indemnify its Council members against liability to the University for breach of their duties to the University.
Such insurance may be available for Council members to purchase personally or as a group, but the cost would have to be met entirely by the Council members personally.
Section 29 of the University Act provides immunity for Council members from civil liability. Additional protection is provided by the University's Directors and Officers policy which provides protection against claims made by third parties against Council members. Council members are not required to contribute to the cost of the policy.
The cover provided for Council members does not include indemnification for fines and penalties imposed by a court resulting from a breach of law which could be either civil or criminal. This is because it is against the public interest to be able to insure against the results of a criminal act or a breach of law imposing civil penalties. An example could be breach of the Occupational Health, Safety and Welfare Act resulting in a fine.
Contrast the position of directors of bodies established under the Corporations Act, which often indemnify their directors or pay insurance premiums required to insure them because these practices are now authorised by express provisions in the Corporations Act, which do not extend to the University.
14 Rights of Council Members
For a member of Council to discharge his/her duties to the University requires the member to have a sound working knowledge of the affairs of the University and of its economic, political and social environment and an understanding of its resources and its commitments. Accordingly, the member has a right to have prompt and direct access to information about the University's business and to place items of business before Council.
The right to information must be balanced against the University's need in very limited cases to maintain the utmost confidentiality concerning details of an agreement or contract with a third party. Council members must have confidence in the executive of the University and, on occasion, this may extend to being prepared to support a decision whether or not the individual Council member has all the details of the decision. However, if a Council member believes that his or her general duty to exercise a reasonable degree of care and diligence can only be met by access to certain information, then ultimately that member of Council cannot be denied the information if he or she demands it.
Where a member insists upon being supplied the information in disregard of a claim for confidentiality by those who handled the matter on behalf of the University, the member would be obliged to act in accordance with the guidelines adopted by Council in relation to confidentiality.
15 Procedures for Lodging Disclosure of Interest by Council Members
15.1 At the commencement of a Council member's appointment, he or she is required to complete a Disclosure of Interests form and lodge it with the Registrar, who will circulate a copy to all Council members with the Agenda papers for the next meeting. If a member's interests change (including a material increase in the nature or extent of an interest), the member must ensure that a new form is lodged as soon as is reasonably practicable with the Registrar for circulation to Council members with the Agenda papers for the next meeting.
15.2 A copy of each Council member's Disclosure of Interests form (Appendix 12) will be held on a University file and will be made available on request through the Registrar for Council members to peruse. The Chancellor and the Registrar are entitled to remind Council about an interest that has been disclosed by a Council member where this is relevant to a matter decided or under consideration by the Council.
15.3 The Council Agenda will contain a regular item to provide members with an opportunity to disclose any personal or pecuniary interests which may affect the proper process for decision-making on any particular agenda item. If a member becomes aware of an additional interest that has not previously been declared, he or she must advise the Chairperson or the Registrar before the meeting or, where this is not reasonably practicable, inform Council of the matter in writing at the meeting, and take other action in accordance with 15.1 above.
15.4 If an actual personal or pecuniary interest in a matter decided or under consideration by Council is disclosed by a Council member, that Council member must not be present during Council discussions of the matter and must not vote on the matter, unless the other non-interested Council members have passed a resolution that:
identifies the Council member, the nature and extent of his or her interest in the matter and its relation to the affairs of the University; and
acknowledges that those Council members are satisfied that the interest is one falling within section 18C(2) of the University Act (namely, an interest that is shared in common with staff members, graduates or students of the University generally, or with a substantial number of staff members, graduates or students) and should not disqualify the Council member from being present or voting on the matter at the Council meeting.
15.5 If a Council member believes there is a potential conflict of interest, the University requires the same standards as apply to an actual conflict. Thus a potential conflict must be disclosed in accord with these procedures, and the Council member must not participate in discussion of or vote on the matter.
15.6 All disclosures made under this section will be recorded in the confidential minutes of Council.
1 However, the University Act does make one reference to the Corporations Act in section 6(7)(f), which provides for the office of a Council member to become vacant if the member is disqualified from managing corporations under Chapter 2D part 2D.6 of the Corporations Act.
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