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Summary LAWS10083 Company law Directors Duties
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LAWS10083 Company law Directors Duties
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Directors Duties - Seminar 3 - Week 3 In regards to substantial property transactions the protection has been made stronger due
to the thorough codification of the common law- this also brings about lesser problems than
those seen in duties and principles as being found in common law
If a duty of care is breached the company can only seek compensation i.e. damages can be
obtained for loss by following the common law regime of damages. There is no voidability of
the contract.
Delaware courts standard i.e. breach of duty of care has to be irrational not the same duty
as that under negligence where the duty is of a reasonable prudent man.
Difference between gross imprudence and gross negligence:
• Overend, Gurney & Co. v Gurney (1868-69) L.R. 4 Ch. App. 701, 714: The directors “may have
acted imprudently, but not with such gross imprudence as to make themselves liable.”
• Lagunas Nitrate Co. v. Lagunas Syndicate [1899] 2 Ch. 392, 435: “Negligence must be not the
omission to take all possible care; it must be more blameable than that: it must be in a
business sense culpable or gross negligence.” The court makes it clear that simply the
omission to take all possible care is not enough, there must some element of wilful or
deliberate conduct that leads to the imprudence. This has the element of bad faith as a
result. This can be seen as disadvantageous to members of the company as the bar is raised
to show a director is negligent or has breached his duty of care- this is because there is a
claim that members have the power to appoint the directors of the company and thus
should suffer the consequences of their appointments and should generally not appoint
directors who would be negligent.
Intermittent and subjective duty of care:
[A director] is not […] bound to take any definite part in the conduct of the company's
business, but so far as he does undertake it he must use reasonable care in its despatch.
Such reasonable care must […] be measured by the care an ordinary man might be expected
to take in the same circumstances on his own behalf.
• What is meant by this standard: the case of Re City Equitable Fire Insurance Case clarified
things up: In Re City Equitable Fire Insurance Company, Limited [1925] Ch. 407, 428-429: the
court articulated a standard that was seen to be subjective but controvery over this shows
that there could have been a misinterpretation of the ruling of the court.
• subjective (?) standard of care: “A director need not exhibit in the performance of
his duties a greater degree of skill than may reasonably be expected from a person
of his knowledge and experience” Comparing this to s.174 of CA 2006: which has
both and objective and subjective element to it: But the standard in s. 174 is higher
than that of this case: here the subjective element allows a director to get away with
something he was not knowledgeable about; whereas in s. 174 the part of carrying
out the functions by the director means that the threshold is higher.
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