Directors as joint tortfeasors: what have we learned from Barclay-Watt v Alpha Panareti Public Ltd?

In the recent case of Barclay-Watt & Ors v. Alpha Panareti Public Ltd & Anor [2022] EWCA Civ 1169, the Court of Appeal considered the question of when a company director should be held personally liable as an accessory to a tort committed by their company.

By deciding in the defendant director's favour the Court of Appeal sought to strike a balance between respecting an individual's right to limit their liability by incorporating a company, (a distinct legal entity), on the one hand and ensuring that claimants have adequate redress when they have received negligent advice on the other.

The facts

The dispute concerned the development and marketing of luxury buy-to-let properties in Cyprus to UK investors. The defendant company had two directors, Mr Ioannou (the Managing Director) and his father. Through its sales team, the company marketed the properties as investment opportunities and as part of the sales package offered a mortgage product with a specific bank which would be denominated in Swiss francs, a currency which was held out to be "exceptionally stable". This was appealing for the purposes of an investment because it allowed for borrowing at low interest rates.

The sales team, however, failed to warn investors that there was a currency risk for loans granted in a foreign currency if there was a substantial fall in value of both sterling and the Cyprus pound against the Swiss franc. Impacted by the 2008 economic downturn, the Cyprus pound and sterling lost value against the Swiss franc and the cost of the mortgages rocketed, increasing the claimants' costs and indebtedness to the bank. What's more, the development of the properties was also adversely affected by the economic downturn, and they failed to complete on time or, in some cases, at all.

The claimants brought claims against the company and against Mr Ioannou personally for misrepresentation and the provision of negligent advice. The claimants alleged that Mr Ioannou was a joint tortfeasor together with the company because he was the driving force behind the company. The claimants tried to argue that, because the marketing scheme was Mr Ioannou's "brainchild" (he had been intricately involved in training the sales team and producing the sales packages which the investors relied upon), he had assumed personal liability. He did not, however, have any personal dealings with the investors themselves.

The case law

The claimants sought to apply the three part test for accessory liability set out by the Supreme Court in Fish & Fish Ltd v. Sea Shepherd UK [2015] UKSC 10:

1. the act must constitute a tort as against the claimant;
2. the defendant must have assisted the commission of an act by the primary tortfeasor (this must be substantial and not de minimis or trivial); and
3. assistance must have been pursuant to a common design on the part of the defendant and the primary tortfeasor that the act be committed (common design will normally be expressly communicated between the defendant and the other person, but it can be inferred).

Applying the principles set out in Fish & Fish, the claimants argued that:

1. the marketing of the properties had constituted a tort against the claimants;
2. Mr Ioannou had assisted in the commission of the company's tort; and
3. Mr Ioannou gave this assistance as part of a common design between him and the company.

In considering the question of personal liability further, the court considered the case of Williams v. Natural Life Health Foods Ltd [1988] 1 WLR 890. In this House of Lords decision, Lord Steyn held that, to establish the personal liability of an individual acting on behalf of a company, there had to have been such an assumption of personal responsibility by the individual sufficient to create a "special relationship" between them and the claimant. It also had to be proved that the claimant relied on the individual defendant's assumption of personal responsibility.

The outcome

The judge at first instance held that the company owed a duty of care to put the claimants on notice of the currency risks, and that it was in breach of duty by highlighting the benefits of a Swiss franc mortgage to investors but failing to warn them of the currency risk they were undertaking by borrowing in Swiss francs.

The trial judge held, however, that Mr Ioannou was not jointly liable with the company. This decision was appealed by the claimants.

The appeal

The Court of Appeal agreed with the trial judge and rejected the claimants' appeal. The court agreed with Mr Ioannou that this case could be distinguished in so far as that Fish & Fish concerned strict liability torts (i.e., those where liability could be imposed without the need to establish fault) and that the principles were not directly applicable to cases where liability is dependent upon the level of fault.

On the facts Mr Ioannou did not "cross a line" which conveyed to the claimant that he was assuming personal liability, nor did he act in a way which went beyond the exercise of constitutional control of the company. When the claimants were induced to contract, it was with the company, not with Mr Ioannou. If there was said to be a common design, the act or omission which made Mr Ioannou's conduct tortious was the failure to warn investors of the currency risk they were undertaking by borrowing in Swiss francs. The trial judge found that there was no "conscious decision" not to include a warning or to mislead investors. He took no active steps to conceal the risk and so it would not be right to say that he "assisted" in the commission of the company's tort. Furthermore, it was the company that had assumed a responsibility towards the claimants, whereas Mr Ioannou had not. The Court of Appeal accepted these findings.

Furthermore, the Court of Appeal held that Mr Ioannou had not assumed responsibility sufficient to create a "special relationship" between him and the claimants.

The impact

This case clearly demonstrates a reluctance by the court to impose personal liability upon individuals acting on behalf of a company and ought to bring a level of comfort to company directors and senior managers. The courts were keen to ensure that the risk of personal liability for directors and senior managers did not become unduly wide and have sought to strike a balance between respecting an individual's right to limit their liability by incorporating a company to carry on their business and ensuring that claimants have adequate redress when they have received negligent advice.

In terms of policy considerations, had the court imposed personal liability on Mr Ioannou it would significantly increase the risk many directors and senior managers would face when undertaking their roles within a company, particularly when they are likely to play a significant role and are heavily involved in, for example, the marketing of investments by the companies for which they work.

The question of whether, and if so in what circumstances, a director should be liable as a joint tortfeasor with the company is a very difficult question of policy and is incredibly fact specific. However, it was clear that, if there was an intention to mislead, or to conceal information, the court would have been more willing to hold a director personally liable.

However, whether a director or senior manager intends to mislead will not always be an obvious question to answer. Would the outcome have been different if Mr Ioannou had reassured investors personally and failed to mention the currency risks?