3.5.1.4 Legal case factors that did not occur in the prediction model

The absence of some other legal case factors from the logistic regression model in Table 7 is equally interesting, in light of those that did appear. In particular, the factors of ‘policy failure’ and ‘bankruptcy’ as well as ‘unreasonably informed’, ‘unreasonable risk taking’ and ‘incompetence’,1 were found not to have significant effects on the court’s determination of directors’ liability. These findings may suggest that directors enjoy substantive discretion under the framework of ‘serious reproach’, and, moreover, that judges take a more reserved approach to risk taking with its associated potential damage to the company and/or third parties of that company. When it comes to risk taking and directors’ competence, it seems that courts are inclined to give the director the benefit of the doubt, providing the director did not act in ‘subjective bad faith’. I observed that ‘unreasonable risk taking’ was at issue in 46 of the 158 sample cases. This factor on its own may not be problematic; it may not cause a court to assume a director’s personal liability. Only in 13 cases did the court judge the director personally liable, in the absence of directors’ ‘subjective bad faith’. In these 13 cases not involving ‘subjective bad faith’, the director was adjudged liable based on a combination of legal case factors including ‘unreasonable risk taking’. This seems consistent with Staleman v. Van de Ven, in which case the court reasoned that the directors exposed the company to excessive risks and had violated internal norms.

Further, I observed directors’ ‘incompetence’ in only 11 of the 158 cases. In 6 cases the court judged the director personally liable in the absence of directors’ ‘subjective bad faith’. Again, I observed that the factor ‘incompetence’ on its own did not result in a director’s personal liability. In the 6 cases not involving ‘subjective bad faith’, liability was based on a combination of other legal case factors, such as ‘mismanagement’, ‘norm violation’ and ‘foreseeable damage’. An example is provided by Ceteco, where the court considered a range of different factors, including the directors’ ignorance about the company’s risks and failure to control the company’s internal and administrative organisation.