Re D'Jan of London Ltd [1994] 1 BCLC 561

Facts

  • The case concerned Mr. D’Jan, the managing director of D'Jan of London Ltd, who signed an incomplete fire insurance application form for the company’s property.
  • The insurance policy was rendered void following a fire, as mistakes in the application went unnoticed by Mr. D’Jan.
  • The court found that Mr. D’Jan failed to properly check the insurance form, resulting in significant consequences for the company.
  • The situation highlighted the importance of directors thoroughly reviewing important documents to avoid breaches of duty.

Issues

  1. Whether Mr. D’Jan breached his duty of care and skill as a director by failing to thoroughly check the insurance application form.
  2. What standard of care and skill should be applied when judging a director’s conduct: a subjective standard based on personal experience, or an objective standard based on what a reasonably careful person in the same position would do.
  3. Whether a director’s lack of personal knowledge or experience excuses mistakes that result in harm to the company.

Decision

  • The court held that Mr. D’Jan breached his duty of care and skill as a director by negligently failing to review the insurance proposal thoroughly.
  • The legal standard applied was that of the reasonably careful person occupying the director’s role, regardless of the director's personal attributes or experience.
  • Personal inexperience or lack of knowledge did not excuse Mr. D’Jan’s conduct.
  • The case confirmed that negligence, as determined by common law standards, forms the basis for breaches of directors’ duties.

Legal Principles

  • Re D’Jan established that directors are to be judged by an objective standard: the care and skill expected of a reasonably competent person undertaking the same responsibilities.
  • Directors are not required to avoid all mistakes, but must demonstrate reasonable care and thoroughness in their actions.
  • Failing to obtain necessary information or disregarding the interests of the company likely constitutes a breach of duty.
  • The decision shifted focus from subjective, personal standards to an objective, consistent benchmark for director accountability and competence.

Conclusion

Re D’Jan of London Ltd [1994] 1 BCLC 561 remains a leading authority on the duty of care and skill expected of company directors, applying an objective standard rooted in negligence and shaping the legal expectations for director conduct in company law.

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