A recent decision by the Court of Appeal in Barclay-Watt v Alpha Panareti Public Ltd [2022] EWCA Civ 1169 brings further clarity on the principles that the Court will apply in determining whether a company director is personally liable for having assisted a wrongful act committed by the company.

Facts

Alpha Panareti Public Limited (APP) marketed luxury properties in Cyprus and appointed agents and salesmen to market the new build properties to investors residing in the UK. APP coupled this with a mortgage scheme whereby a Cypriot bank (Alpha Bank Cyprus) offered the investors low-interest mortgages denominated in Swiss francs. The properties were advertised as ‘armchair’ investments with the view of letting the properties in return for anticipated rental income to cover the mortgage repayments, specifically due to the stability of the Swiss francs. Unfortunately, economic changes resulted in significant falls in the exchange value of the Cypriot pound and sterling against the Swiss franc. This in turn spiralled up the mortgage costs whilst the properties in which the claimants had invested were incomplete, leaving the investors severely indebted to the Cypriot bank. As a result, the investors did not receive the completed properties or the anticipated rental income.

Mr Andreas Ioannou was a director of APP and the “driving force” behind the company’s scheme, although he had no direct involvement with the investors. The investors, including Mr Barclay-Watt, sought recovery of the sums spent on buying the properties. At first instance, the investors issue proceedings against APP and Mr Ioannou and successfully claimed that APP failed to warn the investors of the risks around the currency fluctuations, but the investors were unsuccessful in a claim against Mr Ioannou as director of the company.

The investors appealed to challenge the decision that Mr Ioannou was not personally liable, specifically on the basis that Mr Ioannou was jointly liable as an accessory to APP’s negligence in accordance with the principles set out in the case of Sea Shepherd UK v Fish & Fish [2015]. Hacon J summarised them as follows: “… in order to fix a joint tortfeasor with liability, it must be shown both that he actively co-operated to bring about the act of the primary tortfeasor and also that he intended that his co-operation would help bring about that act (the act found to be tortious).”

Court of Appeal Decision

The Court of Appeal dismissed the appeal, reiterating that whilst APP had a relationship with the investors and thereby assumed responsibility towards them, Mr Ioannou was not liable to the claimants for the failure to advise them on the currency fluctuation risks and therefore there was no assumption of personal liability. It also held that Mr Ioannou was not an accessory to APP’s negligence in accordance with the principles set out in the above-mentioned case and therefore was not liable to the investors as a joint tortfeasor.

Two-stage test

The Court of Appeal applied a two-stage test from Lifestyle Equities CV v Santa Monica Polo Club Ltd ([2021] EWCA Civ 675).

1. The first stage is to consider whether the individual substantially assisted in the commission of the tort by the company under a “common design” by both parties. In other words, whether the individual’s participation and conduct in the wrongful act was sufficient to consider them a joint tortfeasor.
2. The second stage is to consider if the director’s position afforded the individual ith a defence. Lifestyle Equities confirms that an individual may have a defence by virtue of their directorship status if their conduct amounts to no more than carrying out their constitutional role in the governance of the company. Similarly, a director will not be treated as a joint wrongdoer if the conduct in issue merely consists of voting at board meetings (MCA Records Inc v Charly Records Inc [2001] EWCA Civ 1441).  

In Barclay-Watt, the conditions specified in Fish were not met. In particular, the Court held there was no “common design” as it was APP that was marketing the properties to the investors and the claimants contracted with APP. In other words, APP committed the tortious acts and not Mr Ioannou personally. As Mr Ioannou was not personally liable, the court did not need to consider the second stage of the test. The Court of Appeal concluded that to allow the claim would lead to an “unduly wide view of the personal liability of directors”.

Conclusion

Whilst the term ‘separate legal personality’ is still a fundamental principle of Company Law, the Court of Appeal made it clear that the assessment of joint liability is highly fact specific. It also emphasised the court’s reluctance to impose personal liability on individuals acting on behalf of a company.

For further advice and assistance please contact our Business Services Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Freezing Injunctions are the means of preserving assets that are at risk of becoming moved out of reach and dissipated.

In the case of Lakatamia Shipping Company Ltd v Morimoto 11 December 2019 [2019] EWCA Civ 2003, Haddon-Cave LJ provided guidance on the approach the Courts should adopt when facing an Application for a Freezing Order.

The well-established principles he repeated were as follows:

1. There must be a real risk that a future Judgment would not be met because of an unjustified dissipation of assets (such as concealment or transfer).
2. Solid evidence of this risk is necessary and a mere generalised assertion that it may happen or mere inference is insufficient.
3. If there is more than one Respondent, the risk has to be separately established against each individual.
4. The fact that the Respondent had been guilty of dishonesty is not in itself enough; such dishonesty must point towards a risk of dissipation.
5. The use of off shore structures can be significant when assessing the risk, but does not in itself equate to such a risk as it is recognised that these structures can serve an entirely legitimate purpose.
6. What must be threatened is unjustified dissipation. The purpose of a Freezing Injunction is not to provide general security for a claim, nor to restrain a Respondent from operating its business in a legitimate way.

When applying for a Freezing Injunction, this case shows the emphasis placed upon the Applicant to show that it could establish the risk of dissipation in a good arguable case. The Applicant does not have to prove the risk on the balance of probabilities, though does have to show that the risk is “more than barely capable of serious argument.”

The heart of the test is therefore a plausible evidential basis for saying that there is a risk of dissipation. Haddon-Cave LJ said in his Judgment that the test is “not a particularly onerous one.”

The case of PJSC Commercial Bank –v- Kolomoifky 15 October 2019 [2019] EWCA Civ 1708 considered an Applicant’s duty to make full and frank disclosure when applying for a Freezing Order without notice. The majority of requests for Freezing Orders are from those seeking to apply without notice to avoid the risk of putting the other party on notice of the Application and thereby prompt the action that is feared.

The Court identified the following principles:

1. The Applicant has to make full and fair disclosure of all material facts. What is material is decided on an objective basis by the Court and is not dependent upon the Applicant’s assessment nor those of his legal advisors.
2. Proper enquiries must be made by the Applicant before the Application is issued at Court. In other words, the Applicant must disclose not only what he knows but what he would have known if he had made proper enquiries. The nature of those enquiries and their extent would depend upon the circumstances. If the Application is particularly urgent, less extensive enquiries may be appropriate.
3. Whether the Injunction should be discharged depends principally on the importance of the non-disclosed fact to the issues to be decided by the Judge.
4. However, it is necessary to consider whether the non-disclosure was innocent, or deliberate.
5. If a non-disclosure was innocent (the Applicant did not know the fact or did not appreciate its relevance) it is an important factor to be noted but is not decisive. The duty to make enquiries must be borne in mind. A non-disclosure is unlikely to be considered innocent if the Applicant failed to make relevant enquiries for fear of discovering inconvenient facts that may thwart such an Application.
6. If the non-disclosure was deliberate or substantial, the Court is likely to discharge the Injunction.
7. What is in the interests of justice remains the key priority for the Court. That may include continuing with the Freezing Injunction Order, but marking the non-disclosure in some other way, such as with a suitable Order as to Costs.

The Court of Appeal have overturned the decision of a Judge who has set aside a Freezing Injunction on the basis that while the Applicant should have gone further than it did in making full and frank disclosure and that there was no basis for holding that the failure was deliberate in the relevant sense.

This decision highlights that it is important for the Applicant when applying for a Freezing Injunction to carefully consider what to disclose and why and further, to make all relevant enquiries that can be made in time available so that full and fair disclosure can be fulfilled. Further, it is necessary to be able to explain convincingly why material which has not been disclosed was considered objectively not to be relevant.

A Freezing Injunction still remains a challenging Injunction to secure to provide a party with peace of mind. Recent Case Law during 2019 shows that even though the test for risk of dissipation was a relatively low one of a good arguable case, for the risk to be established there must be evidence and not a mere assertion or inference. An Applicant must make diligent enquiries so that relevant evidence is before the Court to comply with its obligation to make full and fair disclosure.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk