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, now codified under s.174 of the Companies Act 2006. The case was decided under the older Companies Act 1985.

Facts

Without reading it a director 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 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 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.

Judgment

Hoffmann LJ (without reference to any case law) held that failing even to read the form was negligent, even though it may be common practice. ‘People often take risks in circumstances in which it was not necessary or reasonable to do so.’ Though some documents may be reasonable not to read, for instance ones ‘running to 60 pages of turgid legal prose on the assurance of [a] solicitor’ (because then of course the solicitor may be sued) this one was. It was short. What this case shows is that a minimum attention to one’s tasks must be implicit in the job of a company director. As a director, though one need not make no mistakes of judgment, one may only make mistakes of judgment when one has thought about the issue and decided to make a mistake of judgment.

The other issue was ratification, since Mr D’Jan held 99 shares and his wife 1 out of the full hundred. Mr D'Jan pleaded that in accordance with the principle of the "Multinational Gas and Petrochemical Co" case ["Multinational Gas and Petrochemical Co v. Multinational Gas and Petrochemical Services Ltd" [1983] Ch 258] (shareholders all acting by consensus bind the company's actions) he should not be liable. Hoffmann LJ held that ratification requires actual action, not just a likelihood that shareholders would ratify. Likely hypothetical ratification was not enough to absolve the failure to give ‘any thought to the way in which the proposal had been filled in.’ But owning 99 shares was relevant to the court’s exercise of discretion to relieve directors for breaches of duty under s.727 CA 1985 (s.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.’

ee also

*English tort law
*Companies law

Notes