Due diligence is a legal concept. It arises when a duty of care exists. This duty can be by directors to shareholders, management to employees, parents to children or manufacturers to the public. Its importance is to do with how our citizens, institutions and corporations can deal fairly with each other. It is the basis of trust without which an open, civilised society cannot prosper. Essentially it asks the question: if you were in the same position, how would you expect to be treated?
This is hardly a novel idea. It has been considered throughout recorded history. What is new is its absorption into the legislative and judicial process within the last 100 years.
Ideas to governance framework
The diagram below shows the ideas to governance framework which led to the adoption of due diligence principles into the law.
Diagram courtesy of Richard Robison, R2A
The world is full of problems. In fact, there appears to be an endless supply of them. One of humanity’s achievements to date has been an ability to overcome some of the important (meaning serious but not societally fatal) ones retrospectively by determining, with the advantage of hindsight, what ought to have been done using the investigative feedback of our judicial systems and then inserting this knowledge robustly into our governance systems.
In a parliamentary democracy like Australia, this swirl of competing ideas is distilled by our parliaments in the form of legislation. Such legislation is supposed to become the minimum social expectation to be articulated and enforced, thereby preventing such identified bad things from reoccurring. In this sense, legislation and the common law represents a form of societal memory, despite (or perhaps overcoming) the passing parade of elected politicians.
Due diligence is one of those ideas that arose from this process and has subsequently crept into legislation in all Australian parliaments. Due diligence represents the societal implementation of the principle of reciprocity (do unto others), formally included into the English common law in Donoghue v Stevenson (1932) and subsequently enacted by Australian parliaments in the corporations law (for example, do not trade whilst insolvent), safety legislation (to eliminate or reduce hazards so far as is reasonably practicable - SFAIRP) and environmental acts (to ensure a proper legacy for current and future generations). It also appears in the common law as a defence against negligence.
The content on this page was based primarily on the following sources:
- Robinson Richard M and Gaye E Francis (2019). Engineering Due Diligence (11th Edition). R2A Pty Ltd, Consulting Engineers.
- R2A Due Diligence Engineers Webinar Recording: Introduction to Engineering Due Diligence.
Edited by Nadine Cranenburgh