More than one way to take reasonable steps

she was wise, subtle, and knew more than one way to skin a cat”

- Mark Twain. A Connecticut Yankee in King Arthur’s Court, 1889.

Legislation increasingly expects companies and individuals to take reasonable steps in a number of different contexts. Courts are clear that there is not just one way to take reasonable steps. Whether reasonable steps have been taken depends on wholistic analysis of what was done. A person does not have to find and take the “optimal” steps. This reinforces that there is some flexibility as to how reasonable steps obligations are met.

Examples of reasonable steps obligations include:

• a director contravenes the financial reports and audit requirements if they fail to take all reasonable steps to ensure compliance
• Australian financial services licensees must take reasonable steps to ensure their representatives comply with financial services laws
• accountable entities and accountable persons will be required to take reasonable steps to prevent certain matters under the Financial Accountability Regime Act
• issuers and distributors of financial products must take reasonable steps that are reasonably likely to result in retail product distribution conduct being consistent with a financial product’s target market determination, and
• if a person may have a defence if they took reasonable steps to ensure that a product disclosure statement was not defective.

The courts have made some useful guidance on some of these obligations:

• What is encompassed by taking all “reasonable steps” will differ depending on the entity, the complexity of the entity’s business and the procedures within the entity: Australian Securities and Investments Commission v Healey (2011) 196 FCR 291.
• What is, and, what is not, a reasonable step, will depend on all of the circumstances. In most cases, if not all, a reasonable step would include the creation of a proper system to ensure compliance, a compliance plan, and the adequate supervision of that system: Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (recs and mgrs apptd) (in liq) [2014] VSC 516.
• ASIC recently lost a case against Diversa Trustees Limited. The court found that whether or not Diversa failed to satisfy a duty must be determined on a wholistic analysis that takes into account the full framework of Diversa’s contracts, policies and procedures: ASIC v Diversa Trustees Limited [2023] FCA 1267. ASIC failed to detail why Diversa’s procedures did not constitute the taking of “reasonable steps”.
• A reasonable steps obligation does not require a person to “find and to take the optimal steps”: Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) (2021) 156 ACSR 371.
• Where a person takes reasonable steps, that person does not exhibit a negligent, or reprehensible, state of mind. A person who takes reasonable steps is conscientious, diligent and careful, and endeavours to abide by the law: Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (recs and mgrs apptd) (in liq) [2014] VSC 516.

The cases illustrate that there is more than one way to skin the reasonable steps cat.