The High Court of England and Wales has revisited the tricky question of when a director should be held personally liable to third parties for wrongful acts committed in that capacity in Claridge’s Hotel Ltd v Claridge Candles Ltd. This case is a reminder to directors of Cayman Islands companies that personal liability can be routed home directly to them by third parties for wrongdoing ostensibly perpetrated by or on behalf of the company.
In an action brought against Claridge Candles and its director, the Court agreed that the sale of “Claridge” branded candles and other goods breached the trademark held by the well-known Claridge’s Hotels. The Court then considered whether the director should be held personally liable for the trademark breach of the company in circumstances where she committed the relevant acts in her capacity as director.
The Courts have described the question of attributing personal liability to a director (or other officer or employee of the company) as an elusive one that will turn on the facts of the particular case. While declining to form principles that might become regarded as prescriptive, the Courts have identified the following propositions from the authorities:
- A director will not be treated as personally liable with the company as a joint tort feasor if he or she does no more than carry out his or her constitutional role in the governance of the company; however
- There is no reason why a person who happens to be a director should not be personally liable with the company if he or she is not exercising control through the constitutional organs of the company and the circumstances are such that he or she would be so liable if not a director.
Personal liability of a director for a wrong committed by the company may be established where:
- The director personally carried out or participated in the wrongful act;
- The director procured or induced the act; or
- The director was party to a “common design” (or a “concerted action”) with the company to secure the doing of the act.
In Claridge Candles, the evidence showed that the director was the only employee, director, secretary and owned or controlled the majority of share capital. In those circumstances, and having found that a breach of trademark had occurred, it was clear that the only natural person who committed the relevant acts was the director defendant and she was held to be personally liable for the breach.