Personal liability of directors for inducing company breach of contract

This month in Antuzis and Others vs DJ Houghton Catching Services Limited and Others [2019] EWHC 843, the High Court ruled that the directors of a company can be personally liable for tortious inducement to breach contractual terms.

The Lithuanian Claimants were employed on farms to catch chickens. They claimed that they had been paid less than the statutory minimum prescribed by the Agricultural Wages Act during their employment, had not been paid holiday pay as required by the Working Time Regulations, and that their wages had been unlawfully deducted as a form of punishment and in respect of unlawful rent demands.

The Court considered the provisions of Section of 172 Companies Act 2006, which enshrines a director’s duty to act in good faith to promote the success of the company for the benefit of its members as a whole. In doing so, a director must have regard to (amongst other matters) the interest of the company’s employees and the desirability of the company maintaining a reputation for high standards in business conduct. The Court also gave thought to Section 174 of the Companies Act 2006, which provides that a director must exercise reasonable care, skill and diligence.

Further, the Court noted that the general principle that directors of a company are liable for any torts of the company committed at their direction was qualified by the rule in Said vs Butt [1920] in which it was held that a director of a company is not liable for inducing breach of contract by that company if the director is acting bona fide within the scope of his authority.

Based on the present set of facts, which the Court found to be highly exploitative on the part of the employing company and directors, and in view of the fact that the breach of contract had a statutory element, the directors had failed to comply with their duties to the company and were not acting in a bona fide capacity. They did not honestly believe that they were complying with statutory obligations owed by the company to employees and they did so in a cynical attempt to maximise corporate profits, from which only they benefitted.

The Court therefore concluded that the two directors were therefore jointly and severally liable on a personal basis for the claims.

As was noted in the decision, merely procuring a breach of contract on the part of the company where there were also potentially statutory breaches “cannot be the touchstone for deciding if the director is liable”.  If it were, then directors would in the employment field regularly face personal liability because many aspects of employment contracts have a statutory element.  The key consideration is whether the directors, in so inducing, continue to act in good faith so as to promote the success of the company.

The provisions of sections 172 and 174 of the Companies Act 2006 will be well known to insolvency practitioners, who regularly consider whether directors are guilty of misfeasance by breaching a fiduciary or other duty in relation to an insolvent company.   If guilty of such conduct, a misfeasant director may be ordered to repay, restore or account for any misappropriated money or property to the company, with interest, and/or compensate the company by way of contribution to the company’s assets. In the context of insolvent companies with similar facts as the Antuzis case, insolvency practitioners will no doubt wish to investigate what has happened to the funds which the company (by the directors’ actions) failed to pay to the employees and whether in fact there is some recovery that can be made for the benefit of the creditors.