Directors of a company may be held personally liable for inducing a company to breach a contract if they did not act in good faith.
Being a company director carries onerous obligations to the company, and the risk of personal liability. Directors are not generally personally liable to third parties simply because they act as agents of the company, unless they have provided a personal guarantee or acted fraudulently. However, there are a number of situations in which a director may be held personally liable for the company’s defaults, some of which are set out in legislation, others which are derived from case law.
What claims can directors be held personally liable for?
In relation to tort claims (civil wrongs such as negligent misstatement, deceit, infringement of copyright or intellectual property rights), directors are generally held personally liable for their own defaults. The position is, however, different when it comes to procuring the company to commit a breach of contract.
It is a long-held principle of law that a company director will not be held personally liable for procuring the company to commit a breach of contract provided that the director was acting in good faith (Said v Butt [1922] KB 497).
However, the more recent case of Antuzis v DJ Houghton Catching Services Ltd [2019] EWHC 843 confirmed that in cases where the director is not acting in good faith, they may be held personally liable.
A case study
The claimants in Antuzis were Lithuanian nationals, employed by the defendant to work on farms, catching chickens for slaughter. They contended that their employer had breached various statutory obligations, and express or implied terms of their employment contracts, by failing to pay overtime, holiday pay or the national minimum wage.
The court held that by knowingly and intentionally causing the defendant company to commit these breaches, the directors failed to exercise reasonable care, skill and diligence, failed to act in the best interests of the company, irrevocably damaged the company’s reputation, and caused the company to lose its gangmasters’ licence, which it needed to employ workers.
The directors were held liable to the claimants for aggravated damages, as well as the financial loss suffered as a result of these breaches.
While it may alarm some to learn that a director may be held personally liable where a company is in breach of its contracts, employment or otherwise, it should be borne in mind that the circumstances of this case were unusually extreme. The court was in no doubt that the directors unlawfully and deliberately breached their fiduciary duties, and caused the company to breach its statutory duties and contractual obligations.
Personal liability law
The starting point in law remains that a director will not be held personally liable if they act in good faith.
For a potential claimant, Antuzis widens the pool of potential defendants to include company directors. For a claim to be successful, the claimant would need to evidence the fact that that the director did not act in good faith in relation to the company. It would usually be advisable to pursue a claim against the party with the deepest pockets (which will often be the company), however Antuzis may provide potential claimants with an alternative route, which may be particularly useful in circumstances where the company is not in good financial health.
Our Dispute Resolution team has considerable experience with these types of claims, acting for both claimants and defendants. If you are involved in or are contemplating this type of dispute and require assistance, please do not hesitate to get in contact.