Re Barings plc (No 5)
| Re Barings plc (No 5) | |
|---|---|
 |
|
| Court | High Court |
| Full case name | Secretary of State for Trade and Industry v Baker (No.5) |
| Citation(s) | [2000] 1 BCLC 523 |
| Case history | |
| Prior action(s) | [1999] 1 BCLC 433 |
| Court membership | |
| Judge(s) sitting | Jonathan Parker J; Morritt LJ, Waller LJ and Mummery LJ |
| Keywords | |
| Care and skill, Directors' duties | |
Re Barings plc (No 5) [2000] 1 BCLC 523 is a leading UK company law case, concerning directors' duties of care and skill. Some reporters and commentators call this case "No 5"[1] while others refer to it as "No 6" in the saga of litigation concerning Barings Bank.
Facts
Nick Leeson was a dishonest futures trader in Singapore for the former Barings Bank. He traded in the front office[clarification needed] and also did work, in breach of an internal audit recommendation, in the back office[clarification needed]. He fraudulently doctored the bank's accounts, and reported large profits, while trading at losses. After an earthquake in Kobe, Japan, the stock market went into a downward spiral, and the truth of his losses were uncovered. The Secretary of State sought director disqualification orders under the Company Directors Disqualification Act 1986 against three directors of Barings for their failure to supervise his activities. They were alleged to be incompetent, and therefore "unfit to be concerned in the management of a company" (sections 6-8).
Judgment
High Court
Jonathan Parker J held that the three directors should be disqualified. Unfitness was determined by the objective standard that should ordinarily be expected of people fit to be directors of companies. Directors must inform themselves of company affairs and join in with other directors to supervise those affairs. Having no adequate system of monitoring was therefore a breach of this standard. Directors may delegate functions, but they nevertheless remain responsible for those functions being carried. Furthermore, the degree of a director's remuneration will be a relevant factor in determining the degree of responsibility with which a director must reckon.[2]
Court of Appeal
Morritt LJ, Waller LJ and Mummery LJ upheld Jonathan Parker J's decision in full. Morritt LJ delivered judgment for the whole court.
See also
- UK company law
- US corporate law
- Gross negligence
- Business judgment rule
- Barnes v. Andrews, 298 F. 614 (S.D.N.Y. 1924) a US corporate law case, where a director of the Liberty Starter Co, now insolvent, was accused of having contributed to the failure by being inattentive on the board. Learned Hand J held, "It is easy to say he should have done something, but that will not serve to harness upon him the whole loss, nor is it the equivalent of saying that, had he acted, the company would now flourish. An inattentive director or directors cannot be held liable for a corporate loss if it is shown that proper attentiveness to corporate affairs by all the directors would still not have prevented the loss complained of. In order words, it must be demonstrated that the accused director's slothfulness was a cause of the company's loss. This notion of causation is thus a critical element in any action brought against a poorly performing board of directors and has had a tremendous impact on the course of modern corporate governance."
Notes
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- WT Allen, JB Jacobs and LE Strine Jr, 'Function over Form: A Reassessment of Standards of Review in Delaware Corporation Law' (2001) 26 Delaware Journal of Corporate Law 859
