Directors are bound to comply with the provisions of the Companies Act and to carry out generally all duties placed upon them by either the Act or the articles. As regards the duties of directors with respect to the general administration of the Companies affairs, they were considered in detail and laid down by Romer J.( as he then was ) in Re: City Equitable Fire Insurance Company’s Case
(i) as follows : “In order to consider the duties that a person appointed to the Board of an established Company undertakes to perform, it is necessary to consider not only the nature of the Company’s business but also the manner in which the work of the Company is in fact distributed between the directors and other officers of the Company , provided this distribution is always a reasonable one in the circumstances and is not inconsistent with any express provisions of the articles of associations. In discharging the duties of his position, thus ascertained, a director, must, of course, act honestly but he must also exercise some degree of both skills and diligence.
To the question, what is the particular degree of skill or diligence required of him, the authorities do not, I think, give any very clear answer. It has been laid down that so long as a directors acts, honestly he can not be made responsible in damages, unless guilty of gross or culpable negligence in a business sense. But as pointed out by Nevill J. in Re Brazilian Rubber Plantation Estate Ltd., one cannot say a man has been guilty of negligence, gross or otherwise, unless one can determine what is the extent of the duty which he is alleged to have neglected.
For myself, I confess to felling some difficulty in understanding the difference between the negligence and gross negligence, except in so far as the expressions are used for the purpose of a distinction between the duty that is owed in one case and the duty that is owed in the other. If two men own the same duty to a third person and neglect to perform that duty, they are both guilty of negligence and it is not altogether easy to understand how one can be guilty of gross negligence and the other negligence only. But if it is said that of two men, one is only liable to the third person for gross negligence, this, I think, no more than that the duties of the two men are different.
The one owes a duty to take a greater amount of care than does the other. See the observations of Will J. in Grill v. General Iron Screen Collier Co. If therefore a director is only liable for gross or culpable negligence , this means that he does not owe a duty to his Company to take all possible care. It is some degree of care less than that. The care he is bound to take has been described by Nevill J. in the case referred to above as “reasonable care”, to be measured by the care and ordinary man may be expected to take in the circumstances only his own behalf.
In saying this, Nevill J. was only following what was laid down in Overned Gurney company v. Gibb, as being the proper test to apply, viz.“ whether or not , the directors exceeded their powers entrusted to them or whether if they did not so exceed their powers, they were cognisant of circumstances, of such a characters so plain, so manifest and so simple of appreciation that no man with ordinary degree of prudence acting on his own behalf, would have entered into such as transaction as they entered into.
“There are in addition, one or two other general propositions that seem to be warranted by the decided cases :
(i) a director need to exhibit in the performance of his duties as greater degree of skill than may reasonably be expected from a person of his knowledge and experience. A director of Life Insurance Company, for instance does not guarantee that he has the skill of and actuary or of a physician. In the words of Lindley M. R.: “if directors act within their power, if they act with such care as is to be reasonably expected of them having regard to their knowledge and experience and if they act honestly for the benefit of the Company they represent, they discharge both their equitable as well as legal duty to the Company. It is perhaps only another way of stating the same proposition to say that directors are not liable for mere errors of judgment.
(ii) A director is not bound to give continuous attention to the affairs of the company. His duties are of and intermittent nature to be performed at periodical Board meetings and at meetings of any committee of the Board upon which he happen to be placed. He is not bound, however, to attend all such meetings, though he ought to attend wherever in the circumstances he is reasonably able to do so. (iii) In respect of all duties that , having regard to the exigencies of business or the articles of association, may properly be left to some other official, a director is, in absence of any grounds for suspicion, justified in trusting that official to perform such duties honestly.”