08 May 2008
Directors' personal liability
The Court of Appeal in the recent case of Contex Drouzhba Limited v Wiseman considered the issue of whether directors can be held personally liable for implied representations when signing a contract on behalf of a company.
Some of the law that the Court considered was over 200 years old and provides that a person will not be liable for misrepresentation regarding another person when obtaining credit, money or goods, unless the representations are in writing and signed by the person making the representations. In addition, a person who has made such a false representation would be liable for deceit.
In this case, the dispute concerned an agreement to purchase goods which would be paid for in the future. The purchasing company failed to pay for the goods and the party that had brought the claim (the Claimant) contended that the director who had signed the contract on behalf of the purchasing company had made fraudulent misrepresentations that the company would be able to pay for the goods.
The High Court found in the Claimant’s favour.
The defendant appealed the decision. He contended that he had not made representation as to the company’s ability to meet any obligations under the contract and, even if he had, he was entitled to be covered by the defence that the representation was not made in writing.
The Court considered whether an implied representation (rather than a written representation) could make the director personally liable and held that in this case, it did, although in other cases it may not.
The ruling could have a positive bearing on the options available to creditors of companies in insolvency proceedings. Creditors could argue that they have a right of action in deceit against directors who have behaved in a fraudulent manner (in addition to normal recourses available against directors who have traded fraudulently).
For further information
please contact Nigel Maud on 01483 887766