Re D'Jan of London Ltd
Encyclopedia
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
. The case was decided under the older Companies Act 1985
.
, could refuse to pay up when a fire the company’s Cornwall premises destroyed £174,000 of stock. The company had gone into insolvent liquidation by the time Mr D'Jan realised that the form had been incorrectly completed. The liquidators sued Mr D'Jan to recoup the lost funds on behalf of the company's creditors (who together were owed £500,000). They alleged both negligence and misfeasance under s 212 of the Insolvency Act 1986
.
was an accurate statement of the common law
duty also (now codified in CA 2006 section 174). Because Mr D’Jan held 99 and his wife 1 out of the 100, Mr D'Jan pleaded that in accordance with the principle of the Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd, that shareholders all acting by consensus bind the company's actions, his actions were ratified by the company and he should not be liable. Hoffmann LJ held that actual ratification is required, not just a likelihood that shareholders would ratify. However owning 99 shares was relevant to the court’s exercise of discretion to relieve directors for breaches of duty under section 727 CA 1985 (now section 1157 CA 2006) because it ‘may be reasonable to take a risk in relation to your own money which would be unreasonable in relation to someone else’s.’ His judgment went as follows.
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...
of care and skill, whose main precedent is now codified under s 174 of the Companies Act 2006
Companies Act 2006
The Companies Act 2006 is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. It had the distinction of being the longest in British Parliamentary history: with 1,300 sections and covering nearly 700 pages, and containing 16 schedules but it has since...
. The case was decided under the older Companies Act 1985
Companies Act 1985
The Companies Act 1985 is an Act of the Parliament of the United Kingdom of Great Britain and Northern Ireland, enacted in 1985, which enabled companies to be formed by registration, and set out the responsibilities of companies, their directors and secretaries.The Act was a consolidation of...
.
Facts
Without reading it, Mr D'Jan signed a change to an insurance policy which was erroneously filled out by his insurance broker, a Mr Tarik Shenyuz. He did not read it before he signed, and it contained a mistake, which was that the answer 'no' was given to the question of whether in the past he had 'been director of any company which went into liquidation'. This meant the insurance company, Guardian Royal Exchange Assurance plcGuardian Royal Exchange Assurance
Guardian Royal Exchange Assurance plc was a large British insurance company. It was listed on the London Stock Exchange and was a constituent of the FTSE 100 Index.-History:...
, could refuse to pay up when a fire the company’s Cornwall premises destroyed £174,000 of stock. The company had gone into insolvent liquidation by the time Mr D'Jan realised that the form had been incorrectly completed. The liquidators sued Mr D'Jan to recoup the lost funds on behalf of the company's creditors (who together were owed £500,000). They alleged both negligence and misfeasance under s 212 of the Insolvency Act 1986
Insolvency Act 1986
The Insolvency Act 1986 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK.-History:...
.
Judgment
Hoffmann LJ held that failing even to read the form was negligent, even though it may be common practice, but that Mr D'Jan's liability should be reduced because as majority shareholder and debtor it was primarily his owned money that he risked, rather than other people's. The duty of care owed by directors in section 214 Insolvency Act 1986Insolvency Act 1986
The Insolvency Act 1986 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK.-History:...
was an accurate statement of the common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
duty also (now codified in CA 2006 section 174). Because Mr D’Jan held 99 and his wife 1 out of the 100, Mr D'Jan pleaded that in accordance with the principle of the Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd, that shareholders all acting by consensus bind the company's actions, his actions were ratified by the company and he should not be liable. Hoffmann LJ held that actual ratification is required, not just a likelihood that shareholders would ratify. However owning 99 shares was relevant to the court’s exercise of discretion to relieve directors for breaches of duty under section 727 CA 1985 (now section 1157 CA 2006) because it ‘may be reasonable to take a risk in relation to your own money which would be unreasonable in relation to someone else’s.’ His judgment went as follows.
See also
- Re Cardiff Savings BankRe Cardiff Savings BankRe Cardiff Savings Bank [1892] 2 Ch 100, often called the Marquess of Bute's case is a UK company law case, concerning the duty of care owed by members of the board...
[1892] 2 Ch 100 (The "Marquess of Bute's Case") an older case on the subject - Re City Equitable Fire Insurance [1925] Ch 407
- Bishopsgate Investment Management Ltd v Maxwell (No 2)Bishopsgate Investment Management Ltd v Maxwell (No 2)Bishopsgate Investment Management Ltd v Maxwell [1993] BCLC 814 is a UK company law case concerning a director's duty to act for proper purposes of the company. This case is an example of what would now be CA 2006 s 171.-Facts:...
[1993] BCLC 814 - Diligentia quam in suis
- English tort lawEnglish tort lawEnglish tort law concerns civil wrongs, as distinguished from criminal wrongs, in the law of England and Wales. Some wrongs are the concern of the state, and so the police can enforce the law on the wrongdoers in court – in a criminal case...
- Companies law