Directors’‘Tortious’ Liability: Contract, Tort or Company Law?
In recent years authorities in most Commonwealth jurisdictions have accepted that the imposition of personal liability on a director for damage caused to a third party while acting on behalf of the company is constrained by the doctrines of company law.' As the embodiment of the company the director incurs no liability unless and until he assumes personal responsibility. In Williams v Natural Life Health Foods Ltd the Court of Appeal2 also accepted this basic premise, though the majority's application of this principle was widely thought to be wrong.3 Factually, there was little evidence that the plaintiffs had relied upon the director and the Court's conclusion that the director must have assumed personal responsibility because the advice he gave drew on experience gained before the company was formed was quite inconsistent with the need, accepted in previous authority, to restrict personal liability in the case of small and one-man companies. The House of Lords has now reversed that decision.4 However, in holding that the liability of directors under the developing assumption of responsibility tort does not present a special case and that the tort gives effect to a voluntary, contract-like undertaking rather than an imposed duty of care, the implications of their Lordships' decision extend well beyond the facts of the case. The case arose out of a franchise agreement under which the plaintiffs set up a health food shop in Rugby. The franchisor was the first defendant company, formed by Mr Mistlin who had successfully run a similar shop on his own account in Salisbury. Central to the plaintiffs' decision to proceed with the venture were income projections provided by the defendant company. These projections showed favourable income streams with substantial profits after two years. The projections, however, proved to be inaccurate and the plaintiffs were forced to close their shop with substantial losses after only eighteen months of operation. The plaintiffs' claim alleged that the projections were negligently prepared and sought damages from the company, though this claim was not pursued after the company was wound up. A claim was also brought against Mistlin, the founder and managing director of the company, alleging that he owed a personal duty of care in respect of the projections. In the High Court,s Langley J accepted that the projections had been prepared negligently and held the company to be in breach of