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A QUICK LOOK AT... NORMAN V THEODORE GODDARD [1992] B.C.C. 14; [1991] B.C.L.C 1028

In this case, Hoffman J (as he then was) was asked to consider the standard by which Mr Quirk, a company director, should be judged in respect of his decision to place company money in the hands of Mr Bingham, a fraudster. Bingham was a partner in the defendant solicitors’ firm who specialised in tax law, and he had persuaded Quirk to invest the company’s money in a company based on the Isle of Man. Bingham led him to believe that this company was controlled by Theodore Goddard; however, it was in reality controlled by Bingham, who stole the money. The company subsequently sued Theodore Goddard, who argued that Quirk was in breach of the duty to his company as a director,  and that he should therefore be required to contribute under the Civil Liability (Contributions) Act 1978 to any damages payable by Theodore Goddard.

Hoffman J held that the standard by which a company director should be judged was that set out in s214(4) of the Insolvency Act 1986, this being the degree of care and skill both as in fact possessed by the particular director, and that expected of a reasonable person in that position. It was held that this standard should be applied to company directors generally, and not just in cases involving wrongful trading in insolvent companies. On the facts, however, it was found that Quirk had not fallen below this standard, as (applying Re City Equitable [1924]) he had been entitled to trust Bingham in the absence of grounds for suspicion – particularly given that all the other partners in Theodore Goddard had placed in him the same degree of trust.