Director liability for contraventions of the competition and consumer laws

Top tips

1. Directors will not be protected from personal liability for contraventions of the competition and consumer laws merely because they are acting in their capacity as directors or otherwise on behalf of the company. 
2. Directors should ensure that they are aware of the competition and consumer laws affecting their business and consider whether their own conduct, as well as that of the business, risks contravening those laws.
3. Directors should not expect to rely on indemnities from their company to protect them from liability, which will be prohibited and void if the director is found liable for a pecuniary penalty or guilty of a criminal offence.

Although the Competition and Consumer Act 2010 and its consumer protection component, the Australian Consumer Law, are primarily targeted at preventing conduct by corporations and businesses detrimental to consumers and the economy as a whole, directors are at risk of personal liability for contravening those laws as discussed in our tenth and final episode.

• Matters covered by the competition and consumer laws include:
• restrictive trade practices such as cartel conduct, and contracts, arrangements or understandings restricting or affecting competition
• the consumer protections against misleading and deceptive conduct, unconscionable conduct, and unfair contract terms
• the consumer guarantees, and
• the goods and services safety protections.  

A director may be primarily liable

A director may engage in conduct on their own behalf or on behalf of the corporation that is, in itself, a contravention of the competition and consumer laws, in which case the director will be primarily liable for that conduct.

Example – director primarily liable for misleading and deceptive conduct

The Australian Consumer Law prohibits a “person” from engaging in conduct that is misleading or deceptive or is likely to mislead or deceive. Particularly in smaller companies, or where they are otherwise closely involved in the operations of the business, a director is at risk of being found liable personally for misleading or deceptive conduct where they themselves engage in that conduct, even where they do so while acting on behalf of the company.

A director may be liable for their involvement in a contravention

Even where they are not primarily liable for a contravention of the competition and consumer laws, a director is at risk of liability for being “involved” in such a contravention by their company or a third party. A director might be indirectly personally liable for involvement in a contravention where they:

• aided, abetted, or procured the contravention, meaning that the director has intentionally done something to bring about the contravention or to make it more likely
• induced the contravention, meaning that the director has done something to cause another person or entity to commit a contravention
• in any way, directly or indirectly, knowingly concerned in or party to the contravention, meaning that the director was involved in the contravention ranging from knowing the essential facts of the contravention through to being an active participant in the contravention, or
• conspired with others to affect the contravention.

Example – director deemed liable for cartel conduct by involvement

The cases where corporations are pursued for contraventions of the cartel conduct provisions will almost always reveal the involvement of the company’s directors or other officers in doing something to cause the company to engage in that conduct.

A person – including a director of the corporation – who “aids, abets, counsels or procures” the corporation to contravene a cartel conduct provision, or who “induces, or attempts to induce” that contravention, or who is “in any way, directly or indirectly, knowingly concerns in, or party to” that contravention, is taken to have contravened that cartel conduct provision themselves. They are liable for conviction with a term of imprisonment of up to 10 years and/or a fine of up to 2,000 penalty units (being $313 per unit, totalling $626,000).

Example – director knowingly concerned in company’s conduct

It is common in other cases for directors to be found liable alongside their company for conduct in contravention of the competition and consumer laws due to their “involvement” frequently on the basis that they were “knowingly concerned” in the conduct. The risks to directors are obvious in circumstances where the director – as the person through which the company conducts its operations or who is the “directing mind and will” of the corporation – performs the contravening acts for which the company is found liable. 

Possible penalties and remedies

Directors who contravene the competition and consumer laws risk a range of penalties and remedies.

Possible civil sanctions include pecuniary penalties, orders to pay damages, injunctions, and disqualification from managing companies. For most types of prohibited anti-competitive conduct, the maximum pecuniary penalty for an individual for each contravention is currently $2.5 million.

For criminal offences, the penalties include a term of imprisonment of up to 10 years, a fine of up to 2,000 penalty units (or up to $626,000 at the current rate), or both.

Prohibited indemnities

The competition and consumer laws prohibit companies indemnifying an officer of the company against:

• liability to a pecuniary penalty, and
• legal costs incurred in defending or resisting proceedings in which the director is found liable for a pecuniary penalty or guilty of a criminal offence,

whether by agreement or by making a payment, either directly or through another entity.

A company that contravenes this prohibition risks criminal conviction and a fine.  Anything that purports to indemnify an officer against such liabilities is void to the extent it contravenes this prohibition. 

Directors should also be aware that, under the common law, the courts will not enforce indemnities for company officers against liability for pecuniary penalties or criminal fines. This may prevent directors from being able to rely on directors’ and officers’ insurance policies that purport to cover such liabilities.