Court of Appeal considers when director liable as accessory to a tort committed by a company

The Court of Appeal has held that a director was not personally liable as an accessory to a tort committed by a company and has given guidance on the applicable principles: Barclay-Watt v Alpha Panareti Public Ltd [2022] EWCA Civ 1169.

For a director or senior manager to be held personally liable as an accessory to a tort committed by a company requires that person to have assisted the company in the commission of a tortious act pursuant to a common design. Whether the test is satisfied can be a difficult, or elusive, question, requiring the balancing of competing principles, and statements of legal principle must be understood in the context in which they are made.

The competing principles are that individuals are entitled to limit their liability by incorporating a company while, on the other hand, a person should be liable for their tortious acts and should not escape liability merely because they are a director of a company.

So far as the context is concerned, consideration needs to be given to the nature of the tort in any particular case. Statements of principle which have been made in the context of strict liability torts (such as certain intellectual property torts, trespass and conversion) and deceit are not necessarily directly applicable to other torts - such as in this case, where the company's liability was dependent on its assumption of a duty to the claimants in circumstances where the director had no direct dealings with those claimants and had not assumed any duty to them.

The decision suggests that, while every case will be fact dependent, it may be difficult to establish accessory tort liability against a director or senior manager outside of the circumstances where such liability has traditionally been found to exist. Something more will be needed than the director controlling or being closely involved in the actions of the company. This will be particularly so where the tort consists of a negligent failure to take a step (in this case to warn about currency risks) as opposed to a deliberate act or omission, as in those circumstances it will be difficult to demonstrate a common design to do what makes the conduct tortious.

Background

The case concerned the marketing of luxury properties in Cyprus to the claimants, who were individuals resident in the UK. Alpha Panareti Public Ltd (APP) was the developer of the properties, which were marketed through a network of salespeople employed by APP's agent companies. A key part of the marketing was the ability to buy the properties using a Swiss franc mortgage from a Cypriot bank at a low interest rate, which would be financed by sterling or Cyprus pound rent receipts.

Mr Ioannou  was one of two directors of APP, the other being his father, and he was the driving force behind the company. He was closely involved with all aspects of the marketing, including the plan to recruit and train the salespeople and the production of supporting literature and DVDs, but he did not deal directly with the claimants.

There were delays with the development and none of the claimants received completed properties. There was therefore no rental income. The value of sterling and the Cyprus pound also fell against the Swiss franc, resulting in the cost of the mortgages spiralling. The claimants commenced proceedings against APP and Mr Ioannou alleging misrepresentations and negligent advice during the marketing of the properties.

The High Court, Sir Michael Burton GBE, held that APP owed a duty of care to put the claimants on notice of the currency risks involved in borrowing in Swiss francs, given that this was a fundamental part of their offering, and they were in breach of that duty. The claim against Mr Ioannou was, however, dismissed as he had not assumed any personal responsibility to the claimants.

APP appealed, and the claimants cross appealed in relation to the claim against Mr Ioannou.

Decision

The Court of Appeal (Males LJ giving the main judgment with which Phillips and Andrews LLJ agreed) dismissed the appeal and the cross appeal.

APP appeal

APP had authorised and encouraged the statements made by the salespeople who had been sent out by APP to maximise sales and were APP's agents for this purpose. APP had responsibility for warning the claimants about the currency risks, whether or not the Cypriot bank also had any such responsibility. The currency risk was obvious and should have been understood by APP and the salespeople.

Claimants' cross appeal

The claimants originally put their case in two ways: an allegation that Mr Ioannou was a primary tortfeasor on the basis of personal assumption of responsibility under the principles in Hedley Byrne; alternatively that Mr Ioannou was an accessory to the tort committed by APP. By the time of the appeal, the claimants were only arguing accessory liability.

The issue therefore was whether Mr Ioannou was liable as an accessory to the tort committed by APP within the principles laid down by the Supreme Court in Fish & Fish v Sea Shepherd [2015] UKSC 10:

• The defendant must have assisted the commission of an act by the primary tortfeasor in a substantial way, in the sense of not being de minimis or trivial.
• The assistance must have been pursuant to a common design on the part of the defendant and the primary tortfeasor that the act be committed. Mere assistance or facilitation is not enough. A common design will normally be expressly communicated but it can be inferred.
• The act must constitute a tort as against the claimant

The Court of Appeal noted that the question of whether a director or senior manager should be held personally liable as an accessory to a tort committed by a company is a fact sensitive question. It can be a difficult, or elusive, question, requiring the balancing of competing principles, and statements of legal principle must be understood in the context in which they are made. That context includes the nature of the tort in any particular case. Statements of principle which have been made in the context of strict liability torts (such as certain intellectual property torts, trespass, conversion) and in the context of deceit are not necessarily directly applicable to other torts, such as in the present case, where liability was dependent on the assumption of responsibility by the company.

Williams v Natual Life Health Foods Ltd [1998] 1 WLR 890 was compelling persuasive authority against the personal liability of Mr Ioannou. In Williams, the individual defendant was the managing director and principal shareholder of the corporate defendant and had played a prominent part in preparing misleading financial projections provided to the claimants. The claimants unsuccessfully argued that he had assumed personal responsibility to them for the misrepresentations made. In the House of Lords, the claimants sought for the first time to run an alternative case, that the director had incurred personal liability as a joint tortfeasor. This argument was not open to the claimants at this late stage but was also rejected on the merits by Lord Steyn in obiter comments with which the other members of the House of Lords agreed:

".. the argument is unsustainable. A moment's reflection will show that, if the argument were to be accepted in the present case, it would expose directors, officers and employees of companies carrying on business as providers of services to a plethora of new tort claims. The fallacy in the argument is clear. In the present case liability of the company is dependent on a special relationship with the plaintiffs giving rise to an assumption of responsibility. [The director] was a stranger to that particular relationship. He cannot therefore be liable as a joint tortfeasor with the company. If he is to be held liable to the plaintiffs, it could only be on the basis of a special relationship between himself and the plaintiffs. There was none. I would therefore reject this alternative argument."

The same could be said in the present case. Accessory liability ought to be kept within reasonable bounds and it should be possible to carry on business by means of a limited liability company without exposing the individuals carrying on that business to personal liability. A finding in favour of Mr Ioannou did not offend against the principle that a person should be liable for their own torts because Mr Ioannou did not have personal dealings with the claimants or assume any responsibility towards them individually and he did not himself commit any tort. If Mr Ioannou was an accessory on these facts, the court commented, it was difficult to see why any director or senior manager heavily involved in a company's marketing of an unsuitable investment should not incur personal liability for a negligent but non fraudulent failure to warn of the risks of that investment. This would drive a coach and horses through the concept of a limited liability company.

It was not straightforward in this case to apply the tests for accessory liability set out in Fish & Fish. In particular, it was difficult to identify the common design. Even if it could be said that there was a common design to market the properties by promoting the benefits of the Swiss franc mortgage, the tortious conduct was the failure to warn about currency risks. Given that there was no conscious decision not to warn, it was difficult to say there was a common design not to do so.

Given the court's conclusions on accessory liability, it was unnecessary to consider whether Mr Ioannou would have had a defence on the basis that he was just carrying out his constitutional role as a director. The court observed obiter, however, that it was clear that this defence was intended to be of narrow application and it would be an unacceptable anomaly if a senior manager would incur personal liability as an accessory, but a director would not.