Claims for conversion against company directors

We recently advised asset financiers as to their rights where a company which had taken numerous items of plant and machinery on Hire Purchase purported to sell the assets to a buyer in the European Union who then sold them on to a buyer in Asia.

The Hirer Company was effectively insolvent but it was clear from the investigations we carried out that the purported sale had been arranged by the sole director of the Company, and that no other individual had any real involvement in the transaction on its behalf.

It is often assumed that the corporate veil protects an individual in these circumstances and that redress only lies against the Company as the contracting party in the Hire Purchase Agreement, but that is not the case.

Quite apart from the law of contract there are a series of civil wrongs known as torts which do not require any contractual relationship. The best example is the tort of negligence: if you are run over by a bus, your primary claim is against the bus driver as an individual for driving negligently, but you would also have a claim against the bus company as his employer which will be held to be vicariously liable for his negligence.

In the asset finance context, the tort of conversion is committed when a person (whether for this purpose an individual or a corporate entity such as an LLP or limited company) does acts inconsistent with the ownership and right to possession of the true owner, and this does not require any particular state of knowledge such as that the acts involved amount to a legal wrong.

The leading authority of C Evans & Sons Ltd. v Spritebrand Ltd [1985] 1 W.L.R. 317 sets out the relevant principle as follows: –

“where a company director was sought to be made liable for the tortious acts of his company, the extent of his personal involvement in the company’s tort had to be carefully examined; but that where the director had authorised, directed and procured the acts complained of it was not an essential precondition of his liability that he knew that the acts thus authorised were tortious, or was reckless as to whether or not they were likely to be tortious, unless the primary tortfeasor’s state of mind or knowledge was an essential ingredient of the particular tort alleged.”

This principle has been further explained by the House of Lords in Standard Chartered Bank plc v Pakistan National Shipping Corp [2003] 1 AC 959, where it was held that an individual can incur personal liability in tort for acts committed on behalf of a company, because it is no defence to a claim in tort that the action was taken by the individual on behalf of the company, and not personally.

A more recent application of this principle is the decision of Arnold J in Invertec Ltd v De Mol Holding BV & Anor [2009] EWHC 2471, where he said at para 392:

“The fraudulent misrepresentations I have found established were largely made by Mr de Mol on behalf of DMH. He was the sole negotiator on behalf of DMH, and he signed the transaction documents on behalf of DMH. To the extent that the representations were made by Mr de Wit, Mr de Mol authorised Mr de Wit to make them. Mr de Mol knew that the representations were false and he made, or authorised Mr de Wit to make them, dishonestly. It follows that Mr de Mol is personally liable for the fraudulent misrepresentations: see Standard Chartered Bank v Pakistan National Shipping Corp (Nos 2 and 4) [2002] UKHL 43, [2003] 1 AC 959”.