The Judicial Judgment Of The Fault In Violation Of The Directors’ Duty Of Diligence

This article discusses the judicial judgment of the fault in violation of thedirectors’ duty of diligence (hereinafter referred to as “the fault). The structure is asfollows:The first chapter analyses the abstract criteria of the judgment of the fault. Thereare objective and the subjective judgment criteria. By adopting the standard ofobjectivism-oriented and subjectivism-supplemented, the court can accuratelyevaluate the behavior of the directors and make a balance between incentives andconstraints to the directors. Objectively, this standard requires that all directors shouldbe prudent and reasonable as an ordinary person when dealing with company issues insimilar circumstances. In subjective aspect, if there is an evidence to prove that acertain director has professional skills or knowledge or he is rated as expects in someareas, the court should measure his fault according to his actual level. The judge canuse the life experience, the rules and practices in different fields and the opinions fromexperts to help him determine that whether the director has fault or not.The second chapter demonstrates about the specific factors of the judgment ofthe fault. It is impossible to measure the fault only according to one ‘ordinary prudentperson’standard. In specific case, the judge should also consider these factors: thepossibility of a director to perform his duties, the industry, and the quality of thedirector, different types of directors, and the behavior of directors.The third chapter analyses the justifiable cause of the fault. The nature of thebusiness determines that every decision is in a risk. The legislation should providesome situations in which the director can be reasonably regarded as legal. When thebehavior of the director doesn’t violate the laws and regulations, the public interestsand doesn’t infringe a third person, the court should hold that the behaviors are legalwhen there are rules from articles of association, resolutions from the shareholders’ meeting and board of directors, or the behaviors are in accordance with the protectionof the business judgment rule.