Re City Equitable Fire Insurance Co Ltd (1925)

Case Facts for Re City Equitable Fire Insurance Co Ltd (1925):

Gerard Lee Bevan was the chairman of City Equitable Fire Insurance Co Ltd. The company lost £1,200,000 as the chairman committed fraud. The chairman was convinced of his fraudulent activities and he was also sentenced.

Moreover, the liquidator also sued the auditors and other directors of the company with alleged negligence that had brought the company to these losses.

Issue of the Case:

The issue is whether or not the directors and auditors are liable to the actions of the chairman and that their negligence had resulted in the losses of the company.

Case Decision:

The court ruled that only some of the directors did breach their duty towards the company which is the duty of care. However, those directors are not liable to pay or reimburse the money that the company had lost.

The reason for this, according to Romer J, is that the nature of the activities of the company, the company size, and the manner by which the work is distributed among the directors and even employees of the company.

According to Romer J, Directors who lack the competencies to exceed their performance or even perform higher than what is expected of them should not be cited or indicted as someone who can be liable for negligence that is happening within the company.

With this, as City Equitable Fire Insurance Co Ltd is a life insurance company, the directors are not expected to or do not guarantee that the skill of a doctor.

It is not the sole duty of the directors to continuously involve themselves in the affairs of the company. The core duty of the director is to perform boar meetings and other meetings that involves the board.

The director can trust the agents in the company who are involved in the standard and daily transactions of the company by trusting that these agents will perform their duty with all honesty.