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Facts:

- A profitable company suffered major losses as a result of some bad investment decisions.

- Trustee in bankruptcy brought action against the directors and auditors alleging negligence and breach of duty.

Issue: What is the common law standard of care for directors and officers?

Held: Objective standard, subjectively applied.

Reasoning:

- The duties of a director depend on the nature of the co's business and the manner in which the co's work is distributed btwn the directors and other officials [i.e., the size of the corp].

- In discharging these duties, he must exercise some degree of skill and diligence; he must take reasonable care.

However;

o A director need not exhibit a greater degree of skill than may reasonably be expected from a person of his knowledge and experience, i.e. directors are not liable for mere errors of judgment;

o A director is not bound to give continuous attention to the affairs of his company - he is not bound to attend all meetings but rather must only attend when he is reasonably able to do so;

o In respect of all duties properly left to another official, the director, unless there are grounds for suspicion (i.e. as to the person's integrity, skill or competence), is justified in trusting that official to perform such duties honestly.

Rule:

- Directors' duty of care → standard is reasonable person given the individual director's knowledge and experience.

- Director not bound to give his full time to the job; must only attend meetings when reasonably able to do so.

- Director is justified in relying on documents prepared by/advice of others in absence of grounds for suspicion.

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16y ago
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14y ago

Re City Equitable Fire Insurance Co Ltd [1925] Ch 407

The chairman of the company committed frauds by purporting to buy Treasury Bonds just before the end of the accounting period and selling them just after the audit. By this method a debt due to the company from a firm in which the chairman had an interest was reduced on the balance sheet by increasing the assets. The liquidator of the company attempted to make the other directors liable for failing to discover the fraud. (They had left the management of the company entirely in the hands of the chairman). The liquidator failed. Romer J laid down the duties of care and skill to be expected of a director:

(a) A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from someone of his knowledge and experience.

(b) A director is not bound to give continuous attention to the affairs of the company.

(c) Where duties may properly be left to some other official, a director is justified, in the absence of grounds for suspicion, in trusting that official to perform his duties honestly.

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10y ago

burit la oii... mnao fact of the case nyo..

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Q: What are facts about the case of city equitable fire insurance co ltd 1925?
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