High Court finds company director liable for misrepresentations made on behalf of the business

The High Court has found a father and son liable for deceit and unlawful means conspiracy in respect of misrepresentations made to secure lending for their family business. The son, a director of the borrowing entity, had sufficient knowledge to found liability for various misrepresentations made both by him and by the father, despite the court finding that his role in the family business was "to do as he was told" by the father: Njord Partners SMA-Seal LP v Astir Maritime Ltd [2024] EWHC 1682.

The decision demonstrates how a director (or any other individual) may be liable in respect of another party's misrepresentation on the basis of the "common design" principle of accessory liability in tort (as distinct from actively procuring the commission of a tort).  It applies the Supreme Court's recent restatement of that principle in Lifestyle Equities CV v Ahmed [2024] UKSC 17 (discussed here):  a person may be jointly liable as an accessory to a tort as a result of assisting another to commit that tort, provided that the assistance is more than trivial and is given pursuant to a "common design" between the parties. The accessory must have had knowledge of the essential facts that made the act unlawful (though not necessarily knowledge that it was unlawful).  

The court rejected an alternative argument that a company director could be liable for the tort of deceit solely on the basis that they failed to correct a statement made by someone else on behalf of the company, which they knew to be false. That reflects the general principle that silence in itself will not give rise to liability for deceit unless there is some legal duty to speak.    

Background

Tahir Lakhani ("Tahir") and his son Ali Lakhani ("Ali") worked in the ship recycling business.  Astir Maritime Limited ("Astir") was incorporated to act as borrower of a US$45 million revolving loan facility.  Ali was a director of Astir and a 50% shareholder (equally with a brother) of Astir's parent company.  

The loan facility enabled Astir to draw down funds on a rolling basis to finance "permitted transactions", on the basis that each drawdown was to be repaid within a specified time.  The facility was secured by various guarantees, including a personal guarantee by Tahir.

The lenders brought proceedings against Astir, Tahir and Ali alleging fraudulent conduct regarding the loan facility in three respects:

1. In support of the guarantee from Tahir, Astir had provided the lenders with a "statement of net worth" purporting to show that Tahir's personal assets were worth more than US$46 million (the "Asset Representations"). It was subsequently established that many of the listed assets were not owned by Tahir personally, and that the stated value of some was materially inflated or did not reflect encumbrances.
    
2. When making draw down requests, Astir had produced "approved borrower statements" (bearing Ali's electronic signature), which confirmed that the transactions being funded were "permitted transactions" and that there was no continuing default under the loan facility (the "ABS Representations"). It was accepted in the proceedings that, for some of the statements, both of those representations were untrue.

3. When repayments of drawn down funds were not made within the specified time, Tahir provided various excuses for the delays (the "Delay Representations"). Tahir admitted that those representations were false and were intended to deceive the lenders into allowing the loans to continue.

The lenders alleged that Astir, Tahir and Ali's respective involvements in the misrepresentations gave rise to liability under the torts of deceit and unlawful means conspiracy.

Astir was subsequently dissolved and removed as a party.

Decision

The High Court (Mr Richard Salter KC) found for the lenders on each of their actions for deceit – ie.

• against Tahir in relation to the Asset Representations and the Delay Representations; and
• against Ali in relation to the Asset Representations (as an accessory to Tahir's deceit) and the ABS Representations.

The lenders also made out their case against Tahir and Ali for unlawful means conspiracy, based on those deceits.

The following summary focuses on the claims against Ali.

The Asset Representations

The judge held that, by authorising the statement of net worth, Tahir had made the alleged representations, without an honest belief in their truth and with the intention of the lenders relying on them to provide the loan facility.

As against Ali, the lenders put their claim on two alternative legal bases:

1. First, that he was personally liable for deceit because, as a director and owner of Astir, he was legally responsible for statements made to his knowledge on behalf of or for the benefit of Astir. It was said that Ali had "manifestly approved and adopted" the Asset Representations made by Tahir, and was therefore also liable for them as a primary tortfeasor (relying on Libyan Investment Authority & others v King [2023] EWHC 265).  
    
2. Alternatively, that Ali was a “party to" Tahir’s lies such that he was an accessory to Tahir's primary tort. It was submitted that Ali in fact helped in the preparation of the statement of net worth and was a knowing and active party in a scheme to defraud, or complicit in the commission of deceit pursuant to a common design.
    

1.  Personal liability

The judge rejected the argument that Ali was personally liable for deceit, commenting that:

"… there is no general principle that a company director who fails to correct a statement which he knows to be false made by someone else on behalf of his company thereby (and without more) becomes personally liable in the tort of deceit…".

The judge reaffirmed the long-standing principle of law that mere silence, however morally reprehensible, does not support an action for deceit. Some legal duty to speak is generally required before mere silence becomes actionable.

Further, the authorities clearly establish that a party will only have manifestly approved and adopted another's representations as their own, so as to give rise to personal liability, if the approval was communicated to the representee in some way, either expressly or (perhaps) impliedly. The judge commented that, given the facts, it might have been possible to infer that Ali communicated some adoption of the Asset Representations in his interactions with the lenders.  However, the lenders had not pleaded the fact of any such communication and had not led any evidence or cross-examined Ali in that regard.  All that had been pleaded was that Ali had "never corrected” Tahir’s lies – which could not of itself amount to manifest approval or adoption.

2.    Accessory liability

The judge summarised the substantive law regarding tortious accessory liability based on "common design".  He noted that, while there had been slightly different formulations of the law in earlier Supreme Court authority, the relevant principles had been consolidated and re-stated by the Supreme Court very recently in the Lifestyle Equities decision, as follows:

"… a person who assists another to commit a tort is made jointly liable for the tort committed by that person if the assistance is more than trivial and is given pursuant to a common design between the parties ..."

However,   

"… knowledge of the essential features of the tort is necessary to justify imposing joint liability on someone who has not actually committed the tort ..."

It followed that a person may be liable in deceit as a joint tortfeasor if they are a knowing and active party to a scheme to defraud, even if the relevant representation has been made by someone else.

Ali's case (supported by Tahir) was that he played no part in the making of the Asset Representations and, in any event, did not know them to be untrue. 

The judge rejected that evidence. He concluded that it was part of a carefully constructed but untruthful joint effort between Tahir and Ali. It was certainly true that Tahir was very much the decision-maker for the entire business and that nothing important happened without his approval. But that did not mean that Ali did not know, at least in general terms, what was going on in the business or took no role in it.  The judge found that the assistance Ali provided in the preparation of the net worth statement was “more than trivial”, and pursuant to a common design with Tahir.  Ali also knew enough about the family's assets to be aware that the statement included assets that were not owned in Tahir's name, and were materially inflated. 

Accordingly, the elements for accessory liability for the Asset Representations were established.

The ABS Representations

Ali's evidence was that his electronic signature may have been attached to the ABS documents without his knowledge and that, in any event, he was unaware of their contents or of the payment defaults and other facts that made the statements in the documents false.

Having regard to all the evidence regarding Ali's involvement in the family business, the judge was prepared to infer that, while the documents were most likely prepared by employees and at the instruction of Tahir rather than Ali, the application of Ali's signature must have been with his knowledge and authorisation. 

As to Ali's knowledge of falsity, the judge was prepared to accept that Tahir probably did not discuss with Ali the matters that made the ABS representations untrue: "Ali’s job was primarily to do as he was told by Tahir, and to sign or to approve the use of his signature when and where he was told to".  However, Ali knew (at least in general terms) that the ABSs were important documents, containing statements that would be of importance to the lenders in deciding whether to permit the drawdowns. Accordingly, even if he was to be believed that he did not read the ABS documents, then he was entirely reckless about their contents, making no attempt to verify the truth of the statements. He therefore did not have an honest belief in their truth.  

Unlawful means conspiracy

Based on his factual findings regarding the conduct of Tahir and Ali, the judge was satisfied that all the required elements of the tort of unlawful means conspiracy were made out - including a sufficient “combination, arrangement or understanding” between Tahir and Ali, some “concerted action (in the sense of active participation)” and use of the unlawful means (deceit) as part of the concerted action.

In respect of the tort's requirement of an “intention to injure” the claimant, the judge did not believe that either Tahir or Ali specifically wanted to injure the lenders. However, this was a "zero-sum" situation where they could not obtain their desired ends of securing the borrowing without bringing about loss to the lenders (ie. their being deprived of the funds without adequate security).  It was well established that, in such circumstances, the inevitability of injury can be sufficient to establish the intention to injure.