COMPANIES LIMITED BY GUARANTEE
Directors’ Duties –Factsheets for Board Members
(The law is as stated at August 2012)
Factsheet 7: Duty to retain discretion
The Australian Centre for Philanthropy and Nonprofit Studies
Faculty of Business
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Queensland University of Technology
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Factsheet 7:
Duty to retain discretion
Duty to retain discretion
The CLG’s constitution and the CA give officers discretions such as admitting a person to
membership of the company, borrowing money or empowering management to do things in the
company’s name. Officers must give active and proper consideration to any exercise of their
discretion and not merely follow the dictates of another.
You breach this duty if you place yourself in a position where you are unable to make a decision in
the best interests of the company, for instance, if you make an agreement with someone which
restricts or fetters how you will vote at board meetings; or if you act blindly at the directions of
others.
An experienced Chair’s view
Officers can’t just leave such discretions to the CEO, the founder, or a lawyer or accountant. They
can take advice, but must actually make decisions themselves. The breach often occurs with a board
that just leaves everything to their CEO or founder or chairperson. Another example might be a
board with representatives of member organisations, e.g. an unincorporated association, or a
funder, e.g. a government funder, and those parties try to dictate to the board.
Reasonable reliance on information or advice provided by others
Relying on the advice of experts and professionals can sometimes be a defence to a breach of one of
your duties. However, while you should ask for information or advice when you do not have
expertise, you must use the information and advice to make board decisions properly. This is part of
your exercise of powers and discretion and your responsibility under the CA for making decisions.
Relying on professional or expert advice is reasonable where:

The preparer of the advice is a reliable and competent employee or professional adviser or
expert; or

You are relying on another director or officer in relation to matters within their authority; or

You are relying on a committee of directors within the committee's authority (if you were
not a part of that committee); and
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
The reliance is made in good faith and after making an independent assessment of the
information or advice. Your subjective knowledge of your CLG and the complexity of its
structure and operations is the benchmark of decision making. This means that you should
be honest and diligent, reconsider whether you think the advice is sound and how a court
will judge the actions of someone in your position, considering the needs of your
organisation.
Responsibility for Actions of Your Delegate
You may delegate your powers in writing under section 198D of the CA, unless your constitution
prohibits delegation. You should always exercise care in delegating your powers because under
section 190, you are responsible for your delegate’s actions. However, you will not be held
responsible if:

you believed on reasonable grounds at all times that the delegate would exercise this
conferred power abiding by all the Director’s Duties regulated by the CA or your company’s
constitution; and

you believed on reasonable grounds and in good faith and after making proper inquiry, that
the delegate was reliable and competent in relation to the power delegated.1
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