''Re City Equitable Fire Insurance Co''

925 Year 925 ( CMXXV) was a common year starting on Saturday (link will display the full calendar) of the Julian calendar. Events By place Byzantine Empire * May 15 – Nicholas I Mystikos, twice the Ecumenical Patriarch of Constanti ...

Ch 407 is a

UK company law The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary lega ...

case concerning directors' duties, and in particular the duty of care. It is no longer good law, as it stipulated that a "subjective" standard of competence applied. Now under

Companies Act 2006 The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...

section 174, and given the development of the common law in '' Re D'Jan of London Ltd'', directors owe an objective standard of care based on what should reasonably be expected from someone in their position.

Facts

The company lost £1,200,000 in failure of investments and the large scale fraud of the chairman,

Gerard Lee Bevan Gerard Lee Bevan (9 November 1869 – 24 April 1936) was a British financier, the man "most responsible for the entire City Equitable debacle", and "a daring and unprincipled scoundrel". In December 1922 he was convicted at the Old Bailey of ...

, ‘a daring and unprincipled scoundrel’. The liquidator sued the other directors for negligence. The auditors were sued too, but the Court of Appeal held they were honest and exonerated by provisions in the company’s articles.

Judgment

High Court

Romer J held that some of the directors did breach their duty of care. But they were not liable to reimburse, because an exclusion clause for negligence was valid. And even in absence of exclusion clauses, in his view, ‘for a director acting honestly himself to be held legally liable for negligence, in trusting the officers under him not to conceal from him what they ought to report to him appears to us to be laying too heavy a burden on honest businessmen.’ Though he felt ‘some difficulty’ with the distinction, negligence would need to be ‘gross’ to visit liability. The principles he set out as follows.

Ch 407, 428-430

Court of Appeal

Pollock MR

Warrington LJ Thomas Rolls Warrington, 1st Baron Warrington of Clyffe, PC (29 May 1851 – 26 October 1937), known as Sir Thomas Warrington between 1904 and 1926, was a British lawyer and judge. Warrington was called to the Bar, Lincoln's Inn, in 1875, and af ...

and Sargant LJ upheld Romer J's decision.

Notes

References