State Of Mind: Can Directors Be Personally Liable As An ‘Accessory’ To Wrongdoing?

Company directors should always take special note when the highest courts clarify the rules relating to directors’ duties and their potential personal liability. The specialist corporate lawyers at award-winning firm ParrisWhittaker advise and support directors and companies on liability issues where there may have been wrongdoing.

The rule on director liability

A director of a limited company is usually protected from personal liability. However, if they are responsible for wrongdoing (eg fraud or dishonesty) or have failed to act in good faith, they may be held personally liable.

A ruling handed down by the UK’s Supreme Court (the highest court in the land) has clarified in what circumstances directors may be personally liable as an accessory to another’s wrongful act. The ruling has important persuasive authority on the courts in the Bahamas and across the Caribbean.

Accessories

The case¹ concerned a trademark infringement claim, pursued by two companies against several defendants. The defendants included two directors of a company that sold items bearing a logo and pictures of polo players on horses over a lengthy period.

Some of the defendants were initially found liable, and the two directors were also found liable as accessories at a subsequent hearing. They appealed, arguing (among other things) that where company directors perform their duties in good faith, with reasonable care, they cannot be held jointly liable – along with the company – as their acts are treated in law as being the company’s acts.

Directors’ duties

The Supreme Court rejected that argument, but concluded they were not liable as accessories. It helpfully clarified  the rules on director liability as accessories:

• There is no principle of English law exempting or shielding a director from the ordinary principles of liability in tort for wrongful acts.
• That said, it is unjust to hold an individual, whose act causes another to commit a wrong, jointly liable as an accessory if the individual acted in good faith – and without knowledge of the facts that made the other person’s act wrongful
• Individuals liable as accessories are liable even though they don’t satisfy all the elements of the tort

The court stated the correct approach: someone who causes another to do a wrongful act will only be jointly liable as an accessory if they have knowledge of the essential facts which make the act done wrongful

Here, the court found neither director actually  possessed the required knowledge of the essential facts that made the company’s acts wrongful. On that basis, they could not be held jointly liable as accessories to the infringement.

The court helpfully stated:

“Recognising a company and its directors as separate persons entails that their liabilities are distinct from one another. This can be advantageous for the directors (and other agents of the company) as it means that the company may incur liabilities which are not also liabilities of the directors.

“But it also means that there is nothing inconsistent or incongruous in a situation where a company and a director are each legally liable to a claimant injured by a wrongful act.”

Crucially, the director must possess the requisite knowledge for them to be found liable.

What does this mean?

Directors can be reassured by this decision. It is likely to be difficult if not impossible to demonstrate what a director’s state of mind or knowledge was at the relevant time. This means claims against directors for personal liability in such cases may be less forthcoming.

For urgent advice about directors’ potential personally liability, whatever the circumstances, get in touch with the specialist corporate lawyers at ParrisWhittaker at +1.242.352.6112 or info@parriswhittaker.com

¹Lifestyle Equities v Ahmed [2024] UKSC 17