The liquidators sued Mr D'Jan to recoup the lost funds on behalf of the company's creditors (who together were owed £500,000).
Hoffmann LJ, sitting as a judge of first instance, held that failing even to read the form was negligent even though it may be common practice, but Mr D'Jan's liability should be reduced because as majority shareholder and debtor it was primarily his own money that he risked, rather than other people's.
Because Mr D'Jan held 99 shares and his wife 1 out of the 100, Mr D'Jan pleaded that in accordance with the principle of the Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd,[1] that shareholders acting by consensus bind the company's actions, his actions were ratified by the company and he should not be liable.
However, owning 99 shares was relevant to the court's exercise of discretion to relieve directors for breaches of duty under section 727 of the Companies Act 1985 (now section 1157 of the Companies Act 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'.
If he signs an agreement running to 60 pages of turgid legal prose on the assurance of his solicitor that it accurately reflects the board's instructions, he may well be excused from reading it all himself.
In my view, the duty of care owed by a director at common law is accurately stated in sec.
She could hardly have brought a derivative action to sue her husband for negligence because he could have procured the passing of a resolution absolving himself from liability.
The difficulty is that unlike the Multinational case, in which the action alleged to be negligent was specifically mandated by the shareholders, neither Mr nor Mrs D'Jan gave any thought to the way in which the proposal had been filled in.
In my judgment the Multinational principle requires that the shareholders should have, whether formally or informally, mandated or ratified the act in question.
In my judgment, although Mr D'Jan's 99 per cent holding of shares is not sufficient to sustain a Multinational defence, it is relevant to the exercise of the discretion under sec.
And although for the purposes of the law of negligence the company is a separate entity to which Mr D'Jan owes a duty of care which cannot vary according to the number of shares he owns, I think that the economic realities of the case can be taken into account in exercising the discretion under sec.
But I think it is also relevant that in 1986, with the company solvent and indeed prosperous, the only persons whose interests he was foreseeably putting at risk by not reading the form were himself and his wife.
I therefore declare that Mr D'Jan is liable to compensate the company for the loss caused by his breach of duty in an amount not exceeding any unpaid dividends to which he would otherwise be entitled as an unsecured creditor.