Director accountability: When can they be personally liable for company wrongdoing?
We advise many directors who wrongly believe that there are effectively no circumstances in which they can be held personally responsible for the acts of the Company. Finding out that, in fact, they may carry a personal liability can come as a nasty and unexpected shock.
Companies and their directors can be held jointly liable for the commission of a tort. A company director and the company itself can be liable if the director is sufficiently bound up in the company’s acts to make the director personally liable. In such cases, the director is considered a joint tortfeasor, or an accessory, meaning they are equally liable alongside the company.
Joint tortfeasors include persons acting together to commit a tort, including the situation where one defendant has substantially assisted, procured or induced the commission of the tort by the primary wrongdoer, or when the tort was committed in furtherance of a common design.
The question whether a director or senior manager should be held personally liable as an accessory to a tort committed by their company is elusive, fact-sensitive and context-dependent. A balance must be struck between the corporate veil principle (that a company is a separate legal entity from its shareholders and directors) and the principle that tortfeasors should not escape liability for tortious acts simply because they are company directors.
In a recent landmark decision Lifestyle Equities v Ahmed (2024), the Supreme Court clarified the extent of liability as an accessory of company directors where a company is found liable. In this case, the wrongful act was the infringement of a trade mark. The directors were initially found liable alongside their company as joint tortfeasors. However, the Supreme Court ultimately overturned the lower courts’ decisions and held that the directors were not liable.
The Court held that there is a knowledge element before accessory liability is established. It was necessary to show that the directors had “knowledge of the essential facts which make the act done wrongful“. It was unjust to hold an individual, whose act causes another person to commit a wrong, jointly liable for the wrong as an accessory if the individual was acting in good faith and without knowledge of facts which made the act of the other person wrongful, even where the tort was one of strict liability. This point was not particular to company directors and did not depend on any special feature of their role.
It was also held that there is also no logical requirement that the knowledge required for accessory liability has to mirror that required for primary liability. In this particular case, as the directors were found not to have known of the existence of the trade marks, they could not be jointly liable for their company’s infringement.
The Court did not however go so far as to accept the argument that directors could avoid personal liability as joint tortfeasors simply because their acts are treated in law as being the company’s acts. The Court observed that there is no principle of English law which exempts a director, acting in that capacity, from ordinary principles of liability for wrongful acts.
Individuals can therefore seek to limit their personal liability by incorporating a company, but this does not grant them complete immunity from responsibility for the company’s wrongful acts. It is therefore essential that directors take legal advice from experienced commercial dispute solicitors before committing their company to steps which could result in litigation against that company.
Speak to an expert
Our team of expert commercial litigators have considerable experience dealing with fraud and establishing dishonesty in such cases. We can guide you through the complexities of bringing a dishonest assistance claim, ensuring that all the necessary facts are carefully pleaded and supported by robust evidence. Contact us on 0800 652 8025 or send an enquiry.
