Court of Appeal
Sir Martin Nourse (with whom Potter LJ concurred) upheld the decision of the High Court, after Mr Hearsey appealed.
| “ | 12. As for the authorities, Miss Giret has relied principally on the well-known decision of Oliver J in Re Halt Garage Ltd 3 All ER 1016, from which she correctly extracts the proposition that the amount of remuneration awarded to a director is a matter of company management, and that provided there has been a genuine exercise of the company's power to award remuneration, it is not for the court to determine if, or to what extent, the remuneration awarded was reasonable. However, Oliver J went on to recognize that, if the director's remuneration was excessive or unreasonable, it would not avail him to argue that the matter had been decided by the company as a matter of company management.
13. In the last analysis, it seems clear that the reasonableness or not of the remuneration as a whole is not the decisive factor. The question is whether, in the particular circumstances, the company can afford to pay it, and whether the decision to do so has or has not amounted to gross negligence. That that is the correct test appears from the judgment of Templeman LJ in In re Horsley & Weight Ltd Ch 442, 455, where, in a passage relied on by Mance LJ, he said: "There could have been gross negligence, amounting to misfeasance. If the company could not afford to pay out £10,000 and was doubtfully solvent so that the expenditure threatened the continued existence of the company, the directors ought to have known the facts and ought at any rate to have postponed the grant of the pension until the financial position of the company was assured." 14. Miss Giret has relied on a further passage in that judgment, where Templeman LJ warned against the dangers of hindsight in cases such as this. In other words, it is dangerous to start with the liquidation of the company and then to look back and proceed on an assumption that the liquidation has been caused by the excessive payments. However, it is not necessary to show that the liquidation has been caused by the excessive payments. The test is as I have stated it, namely whether the payment complained of was, in the particular circumstances, grossly negligent and made without a due regard for the finances of the company. Here the judge was perfectly entitled, on the facts which he found, to come to the conclusion that that test had been satisfied. Notwithstanding Miss Giret's well sustained argument, an appeal would have no reasonable prospect of success. I would dismiss this application accordingly. |
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