Friday 6 August 2010

UK: England and Wales: the director's duty of reasonable skill, care and diligence

Judgment was given last week in Abbey Forwarding Ltd v Hone & Ors [2010] EWHC 2029 (Ch), a case in which several allegations were made against four directors, including that they had breached the duty to exercise reasonable care, skill and diligence under Section 174 of the Companies Act (2006) by allowing the company to become exposed to various liabilities to HMRC.

The trial judge, Lewison J., was not prepared to find that the directors had breached Section 174, noting the system of due diligence in place and the fact that evidence concerning industry practice had been provided by only one individual. With regard to the Section 174 duty, Lewison J. observed (at para. [198]):

In deciding whether directors have fallen short of their duty of skill and care, particularly where the breach of duty concerns the precise way in which the business is run, evidence of what is normal in the field of commerce in which the company operates is of considerable relevance. Although it is only an analogy, in Sansom & Or v Metcalfe Hambleton & Co [1998] 2 EGLR 103 (which was a case of alleged professional negligence) Butler-Sloss LJ said:

"In my judgment, it is clear, from both lines of authority to which I have referred, that a court should be slow to find a professionally qualified man guilty of a breach of his duty of skill and care towards a client (or third party) without evidence from those within the same profession as to the standard expected on the facts of the case and the failure of the professionally qualified man to measure up to that standard. It is not an absolute rule, as Sachs LJ indicated by his example, but, unless it is an obvious case, in the absence of the relevant expert evidence the claim will not be proved."


No comments: