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Commercial Litigation: Personal liability of Directors

February 14, 2012

Lindsay v O’Loughnane [2010] EWHC 529 (QB)  was a case as to the Personal Liability of Directors and the tort of deceit.  The claimant planned to buy properties in Cape Verde. He needed to complete the purchases in pound sterling and convert into Euros. He instructed the company of the Defendant to do so.

A number of the transactions completed late and the defendant blamed the bank for the delay.

The defendant then retained two separate deposits of over £500,000 and didn’t complete the transfers at all. He again told the claimant the bank were to blame.

At this point the company entered into Liquidation and the claimants monies were used to pay creditors.

One way in which a creditor is able to bring a claim against a Director is the tort of deceit.

To do this a creditor will need to show

  • The Director must have made a representation or a statement of fact that can be clearly identified for example as to the Insolvency of the Company
  • The representation must be false and been made dishonestly
  • The statement must have been made with the intention it was relied on and in fact it was relied on.
  • Loss is suffered as a consequence.

The defendant emailed the claimant blaming the bank for the delay which the Claimant accepted and as a consequence the claimant made two further monetary advances and the court held that the requirements to succeed in an action for deceit were established.

There had been an implied representation made in the email that the company was trading properly and legitimately.

The defendant tried to argue that that section 6 of the Statute of Frauds Act 1828 applied which provides that a Director may not be charged with deceit in respect of representations made concerning the companies trading position and made with the intent to procure credit if the representation was not made in writing and signed by the director.

The Defendant argued it was an email and therefore wasn’t signed however the court held that the email constituted writing for these purposes.

An effort to lift the veil of incorporation failed. The veil can only be lifted and the Director pursued personally if the activities of the Director fall outside that of the companies normal activities. In this case they did not.

The Defendant was still held liable for the deceit and the Claimant was awarded damages.

It means that Directors have to review previous statements made and consider their conduct if the company is teetering on the brink of insolvency.

It may be advisable to seek a written assurance from a Director that they are able to fulfil an order as then you may be able to fix the Director with personal liability.