Re City Equitable Fire Insurance Co [1925] Ch 407 is a UK company law case concerning directors' duties

Directors' duties

Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance...

, 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 CA 2006 section 174, and given the development of the common law in Re D'Jan of London Ltd

Re D'Jan of London Ltd

Re D’Jan of London Ltd [1994] 1 BCLC 561 is a leading English company law case, concerning a director's duty of care and skill, whose main precedent is now codified under s 174 of the Companies Act 2006...

, 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, Mr Bevan, ‘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 privisions in the company’s articles.

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.