Conflicted director's failure to disclose was a breach of the duty of care and diligence

The recent case of Hakea Holdings Pty Ltd v McGrath (No 2) concerned Mr McGrath's disclosure obligations as a director. Mr McGrath was the sole director and shareholder of a building company (Denham) and was also a director of the client company (Hakea), which had engaged Denham to construct an aged-care facility. The Federal Court held that Mr McGrath had breached his duty of care and diligence under s 180(1) of the Corporations Act by not disclosing to Hakea that Denham was in severe financial distress and unable to complete the project in a timely fashion. The case is interesting because directors' disclosure obligations in this situation have historically been litigated as breaches of directors' duties to avoid conflicts of interest and/or as breaches of the duty to act in good faith and for a proper purpose, rather than as breaches of the duty of care. For a more detailed discussion of this case and its implications see my note in (2023) 40 Company & Securities Law Journal 1.