Grantham, Company Director's Personal Liability in Tort' (2003) 62 CLJ 15

C.L.J.
Case and Comment 15
COMPANY DIRECTOR’S PERSONAL LIABILITY »1 TORT
The attribution of the tortious actions of a director to the company

will operate to render the company liable. Does that attribution
also operate to exclude the normal presumption that the director is
liable for his own acts? Commonwealth courts have accorded
primacy to the rules of company law and answered this question in
the affirmative (Trevor Ivory Ltd. v. Anderson [1992] 2 N.Z.L.R.
517; Sealand of the Pacific v. Robert C. McHaffie Ltd. (1974) 51
D.L.R. (3d) 702). In England, the decision of the House of Lords
in Williams v. Natural Life Health Foods Ltd. [1998] 1 W.L.R. 830
seemed to suggest that the answer would be no. In Standard
Chartered Bank v. Pakistan National Shipping Corpn. (Nos. 2 and
4) [2002] UKHL 43, [2002] 3 W.L.R.1547 their Lordships have
made this explicit: directors remain liable for their own wrongs.
Mr. Mehra was managing director of Oakprime Ltd. Oakprime
was the beneficiary under a letter of credit issued by Incombank in
respect of a contract for the sale of bitumen by Oakprime. A
condition of the credit was that the goods be shipped before 25
October 1993. The shipment was delayed, but Mehra agreed with
the carrier, Pakistan Shipping, to backdate the bill of lading. Mehra
then presented the bill of lading and other documents to the
confirming bank, Standard Chartered Bank (SCB). Although SCB
was aware that another document that was required by the terms
of the credit had been presented late, it waived late presentation
and made payment. In seeking reimbursement from Incombank,
SCB stated that all documents had been presented by the due date.
Although Incombank was unaware of either Mehra’s or SCB’s
falsifications, it rejected the documents on other grounds. SCB
thereupon sought to recover from Pakistan Shipping, Oakprime and
Mehra, alleging that they had all joined in issuing a false bill of
lading.
The proceedings centred around two issues. The first was
whether SCB’s knowledge that the due date for presentation had
passed gave rise to the defence of contributory negligence. The
House of Lords agreed with the Court of Appeal ([2001] Q.B. 167:
noted by Beresford (2002) 61 C.L.J. 17) that there was no such
defence. The Law Reform (Contributory Negligence) Act 1945
applied only where the defendant would have had a defence of
contributory negligence at common law. In their Lordships’ view,
there was no such defence at common law to a fraudulent
misrepresentation. Lord Hoffmann stated (at para. [15]):
This case [Edgington v. Fitzmaurice (1885) 29 Ch.D. 459] seems
to me to show that if a fraudulent representation is relied
https://doi.org/10.1017/S0008197303266216 Published online by Cambridge University Press

16 The Cambridge Law Journal [2003]
upon, in the sense that the claimant would not have parted
with his money if he had known it was false, it does not
matter that he also held some other negligent or irrational
belief about another matter and, but for that belief, would not
have parted with his money either. The law simply ignores the
other reasons why he paid.
The second and more interesting issue was whether Mehra was
personally liable for the misrepresentation in the bill of lading. The
thrust of Mehra’s argument, which was accepted by the majority of
the Court of Appeal ([2000] 1 Lloyd’s Rep. 218), was that “because
Mr. Mehra was a director of Oakprime and acted as such when
cheating Standard Chartered, his acts must be regarded solely as
the acts of Oakprime and he should have no personal civil liability
for them” (para. [39] per Lord Rodger). In the House of Lords this
argument was rejected. In Lord Hoffmann’s view, “No one can
escape liability for his fraud by saying ‘I wish to make it clear that
I am committing this fraud on behalf of someone else and I am not
to be personally liable’” (para. [22]). Lord Rodger stated (at para.
[39]):
Standard Chartered have proved all that is required to make
Mr. Mehra—and through him Oakprime—liable in deceit.
That being so, there is no conceivable basis upon which Mr.
Mehra should not indeed be held liable for the loss that
Standard Chartered suffered as a result of his deceit.... His
status as a director when he executed the fraud cannot invest
him with immunity.
Intuitively, the merits of the proposition that as Mehra made
the misrepresentation he was necessarily liable can hardly be
contested. One’s position as a company director clearly should not
be a licence to commit fraud. The more complex question is
whether this proposition can be justified as a matter of principle.
Insofar as an individual is a mere agent of the company (as Lord
Hoffmann thought Mehra was (para. [20])), this proposition is
entirely orthodox. The law of agency does not purport to relieve
the agent from liability for his actions as agent. However, where
the individual is identified by the core rules of company law
(corporate personality and the primary rules of attribution:
Meridian Global Funds Management Asia Ltd. v. Securities
Commission [1995] 2 A.C. 500) as the alter ego of the company, the
proposition is more problematic.
The essential purpose of the core rules of company law is to
ensure that general principles of law, such as those of tort, are
applied to a different entity and that the scope of their application
is limited. Thus, while the director may have committed the acts

C.L.J. Case and Comment 17
constituting the tort, the company law regime modifies the normal
consequences of the director’s actions so as to direct liability to the
company. In this sense the rules of company law have primacy over
general principles of law. Any other view is to deny substance and
effect to the company’s existence. This is not, however, to commit
oneself to the conclusion, apparently reached by the Court of
Appeal, that if a director is regarded as the company’s alter ego it
must be for all purposes. Among the factors that determine the
scope and effect of attribution are the purposes for which the State
sanctions the corporate form. As the corporate form does not exist
to facilitate non-recourse trading with respect to intentionally
wrongful acts, company law does not purport to preclude the
personal liability of the director.
The important point of principle, however, is that the law
cannot, contrary to the implication in Standard Chartered, impose
personal liability on the individual merely because, but for the
existence of the company, the individual would otherwise incur
liability. The permission that this country (and most other States)
has granted to individuals to conduct their affairs through the
corporate entity might be questionable on a moral and social level,
but the fact remains that this permission has been granted and the
protection of the individual from civil liability is a necessary and
intended consequence of granting that permission (Adams v. Cape
Industries pic [1990] Ch. 433, 539).
Ross Grantham
CONFIDENCE, DATA PROTECTION AND THE SUPERMODEL
The supermodel Naomi Campbell told journalists that she shunned

illegal drugs. Unfortunately, those statements were untrue. A
newspaper discovered that she attended Narcotics Anonymous. It
published a sympathetic story saying that she was fighting
addiction. But when she threatened legal action, the newspaper
responded with articles ridiculing her.
Ms Campbell’s action against the newspaper invoked three
theories: breach of confidence, breach of privacy and breach of the
Data Protection Act 1998. At trial ([2002] EWHC 499), she
dropped the privacy claim, conceding that privacy is not protected
by a separate tort, but by an extended concept of confidentiality
(see B and C v. A [2002] EWCA Civ 33) and by the 1998 Act. She
succeeded on both the remaining claims. Morland J. found,
however, that the only breach of confidence was revealing details of

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C.L.J.

Case and Comment 15

COMPANY DIRECTOR’S PERSONAL LIABILITY »1 TORT

The attribution of the tortious actions of a director to the company

https://doi.org/10.1017/S0008197303266216 Published online by Cambridge University Press

https://doi.org/10.1017/S0008197303266216 Published online by Cambridge University Press

CONFIDENCE, DATA PROTECTION AND THE SUPERMODEL

The supermodel Naomi Campbell told journalists that she shunned

https://doi.org/10.1017/S0008197303266216 Published online by Cambridge University Press

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