When will a Director be personally liable as an accessory to a company’s wrongdoing?

A recent decision by the Court of Appeal in Barclay-Watt v Alpha Panareti Public Ltd [2022] EWCA Civ 1169 brings further clarity on the principles that the Court will apply in determining whether a company director is personally liable for having assisted a wrongful act committed by the company.

Facts

Alpha Panareti Public Limited (APP) marketed luxury properties in Cyprus and appointed agents and salesmen to market the new build properties to investors residing in the UK. APP coupled this with a mortgage scheme whereby a Cypriot bank (Alpha Bank Cyprus) offered the investors low-interest mortgages denominated in Swiss francs. The properties were advertised as ‘armchair’ investments with the view of letting the properties in return for anticipated rental income to cover the mortgage repayments, specifically due to the stability of the Swiss francs. Unfortunately, economic changes resulted in significant falls in the exchange value of the Cypriot pound and sterling against the Swiss franc. This in turn spiralled up the mortgage costs whilst the properties in which the claimants had invested were incomplete, leaving the investors severely indebted to the Cypriot bank. As a result, the investors did not receive the completed properties or the anticipated rental income.

Mr Andreas Ioannou was a director of APP and the “driving force” behind the company’s scheme, although he had no direct involvement with the investors. The investors, including Mr Barclay-Watt, sought recovery of the sums spent on buying the properties. At first instance, the investors issue proceedings against APP and Mr Ioannou and successfully claimed that APP failed to warn the investors of the risks around the currency fluctuations, but the investors were unsuccessful in a claim against Mr Ioannou as director of the company.

The investors appealed to challenge the decision that Mr Ioannou was not personally liable, specifically on the basis that Mr Ioannou was jointly liable as an accessory to APP’s negligence in accordance with the principles set out in the case of Sea Shepherd UK v Fish & Fish [2015]. Hacon J summarised them as follows: “… in order to fix a joint tortfeasor with liability, it must be shown both that he actively co-operated to bring about the act of the primary tortfeasor and also that he intended that his co-operation would help bring about that act (the act found to be tortious).”

Court of Appeal Decision

The Court of Appeal dismissed the appeal, reiterating that whilst APP had a relationship with the investors and thereby assumed responsibility towards them, Mr Ioannou was not liable to the claimants for the failure to advise them on the currency fluctuation risks and therefore there was no assumption of personal liability. It also held that Mr Ioannou was not an accessory to APP’s negligence in accordance with the principles set out in the above-mentioned case and therefore was not liable to the investors as a joint tortfeasor.

Two-stage test

The Court of Appeal applied a two-stage test from Lifestyle Equities CV v Santa Monica Polo Club Ltd ([2021] EWCA Civ 675).

1. The first stage is to consider whether the individual substantially assisted in the commission of the tort by the company under a “common design” by both parties. In other words, whether the individual’s participation and conduct in the wrongful act was sufficient to consider them a joint tortfeasor.
2. The second stage is to consider if the director’s position afforded the individual ith a defence. Lifestyle Equities confirms that an individual may have a defence by virtue of their directorship status if their conduct amounts to no more than carrying out their constitutional role in the governance of the company. Similarly, a director will not be treated as a joint wrongdoer if the conduct in issue merely consists of voting at board meetings (MCA Records Inc v Charly Records Inc [2001] EWCA Civ 1441).  

In Barclay-Watt, the conditions specified in Fish were not met. In particular, the Court held there was no “common design” as it was APP that was marketing the properties to the investors and the claimants contracted with APP. In other words, APP committed the tortious acts and not Mr Ioannou personally. As Mr Ioannou was not personally liable, the court did not need to consider the second stage of the test. The Court of Appeal concluded that to allow the claim would lead to an “unduly wide view of the personal liability of directors”.

Conclusion

Whilst the term ‘separate legal personality’ is still a fundamental principle of Company Law, the Court of Appeal made it clear that the assessment of joint liability is highly fact specific. It also emphasised the court’s reluctance to impose personal liability on individuals acting on behalf of a company.

For further advice and assistance please contact our Business Services Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk