A director of a Bermuda-based company is not responsible for the actions of a fellow director who may be up to no good if they have no reason to suspect him.

That was one of the conclusions to be drawn from a judgment by the Court of Appeal this week which struck out an action of negligence seeking $19.7 million from two directors of Focus Insurance.

In dismissing the case against lawyer Mr. Doug Pullen and reinsurance specialist Mr. David Thirkill, the court pointed out that there was no evidence that they suspected any wrongdoing in the way Focus was being run by Mr. Mark Hardy.

If there was no suggestion of dishonesty on the part of Mr. Hardy, Mr. Pullen and Mr. Thirkill had no reason to supervise him, said the judgment.

"A director is not the watchdog of another director,'' said the three appeal judges.

"A duty of care could only arise if one director had reason to suspect that his fellow director was acting dishonestly.'' But there was no allegation to the Court of Appeal from Focus' liquidators that Mr. Hardy had acted dishonestly, said the Court of Appeal.

It was also not being alleged that Focus' losses would have been prevented if Mr. Thirkill and Mr. Pullen had discharged their duties properly.

One of the main points of interest in the case for local professionals who serve as directors of companies was whether a company's bye-laws can protect directors of failed companies from actions of negligence.

The Court of Appeal reassured them by stating that the law in Bermuda "is not complicated'' over the matter.

Such bye-laws, which virtually all locally-based companies have, did protect directors so long as the conduct of directors "falls short of wilful negligence, wilful default, fraud or dishonesty''.

"We do not consider that it is possible per se for a director to be held guilty of wilful neglect or default by reason of any failure to supervise the acts of a fellow director, especially when he has been authorised to act by the board,'' said the Court of Appeal.

A director could only be found to be liable if he knew of improper conduct by another director or was "reckless as to whether or not he had behaved improperly''.

"We are satisfied that in this case facts have not been pleaded from which such a finding is possible as against Mr. Thirkill and Mr. Pullen,'' said the court's judgment.

The Court of Appeal dismissed an application by Mr. Hardy, his wife, Judith, and businesses Mr. Hardy is involved with, to have the case against them struck out.

The court concluded: "As regards Mr. Hardy, we consider that the pleadings, though in some respects open to criticism, are sufficient to show what is alleged against him.''