Accessory liability in tort: Barclay-Watt v Alpha Panareti Public Limited

On 19 August 2022, the English Court of Appeal handed down judgment in Barclay-Watt v Alpha Panareti Public Limited [2022] EWCA Civ 1169. The case concerned the marketing of luxury properties for sale in Cyprus to predominantly UK and Cyprus resident buyers. The mortgage scheme by which the purchases were funded were denominated in Swiss francs. This generated a currency fluctuation risk for the buyers, whose income and other assets were predominantly in Sterling and Cyprus pound. That risk materialised and the cost of the mortgages spiralled. The fall in the value of Sterling led to what the first instance judge (Sir Michael Burton) described as “the increasing and overwhelming indebtedness of the Claimants to the Bank”.

The main significance of the case on appeal lies in its treatment of the question of accessory liability in tort. The judge had held that the first defendant, Alpha Panareti Public Ltd (“APP”) was liable to the claimants as a result of its marketing of the properties, but that the second defendant, Mr Andreas Ioannou, a director of APP and the driving force behind the marketing plan, was under no personal liability. APP appealed the finding of liability against it, while the claimants lodged a cross-appeal, contending that the judge ought to have held Mr Ioannou personally liable as an accessory to the wrongdoing of APP in accordance with the principles set out by the UK Supreme Court in Fish & Fish Ltd v Sea Shepherd UK [2015] UKSC 10, [2015] AC 1229.

Decision on APP’s appeal

The Court of Appeal (Males LJ, with whom Phillips and Andrews LJJ agreed) rejected APP’s appeal against the liability findings made against it. In short, the Court of Appeal agreed with the judge’s factual findings as to the role of APP and its salesmen.[1] In particular, the Court of Appeal agreed that the salesmen were sent out by APP to maximise sales by (among other things) emphasising the benefits of a cheap loan in Swiss francs, with APP trading on the benefit of the salesmen’s existing relationships with the claimants. There was the necessary assumption of responsibility for liability in tort in the case of APP. Liability against APP was upheld.

Cross-appeal on personal liability of Mr Ioannou

Far more difficult was the question of personal liability as against Mr Ioannou, who was described as managing director of APP, but was formally one of two directors of the company. The Court of Appeal was critical of the brief treatment of this issue by Sir Michael Burton, which it considered elided the way two ways in which the case on personal liability had been put. The first instance judge had found no personal liability.

Males LJ summarised the two potential routes to personal liability as follows.[2] The first way in which the claimants put their case was that Mr Ioannou personally was in breach of a duty to warn them about the currency risks. The judge rejected that case, finding that there was no assumption of responsibility by him personally, and that this claim against him therefore failed, applying Williams v Natural Life Health Foods Ltd [1998] 1 WLR 890. The second way in which the claimants put their case was that Mr Ioannou is liable as an accessory to the tort committed by APP, applying Fish & Fish Ltd v Sea Shepherd UK.

The Court of Appeal gave short shrift to the first route. Males LJ concluded that in light of the judge’s findings that there was no assumption of personal liability by Mr Ioannou and that it would not have crossed the claimants’ minds that there was. He was not a primary tortfeasor.[3]

Males LJ considered the second route in detail and in particular the Supreme Court’s decision in Fish & Fish. That was a case in which the claimant’s vessel was rammed by a vessel commanded by D3, who was both the founder of D2 (a United States conservation society) and a director of D1 (an English conservation charity). D1 held legal title to the attacking vessel as the registered owner, but the beneficial owner and operator of the vessel was D2. There was a preliminary issue whether D1 was liable as an accessory in circumstances where it had passed on the names of some volunteers willing to take part in the operation and had been involved in raising funds to support it, but had otherwise played no effective part in the commission of the tort. The majority of the Supreme Court held that the role played by D1 was of minimal importance in the commission of the tort and that the judge had been entitled to conclude that it was therefore not capable of being liable. Males LJ stressed that despite disagreement as to the factual application in Fish & Fish, the Supreme Court was agreed on the applicable legal principles, with Lord Neuberger specifying three conditions at [55]-[60].[4] Males LJ in Barclay-Watt highlighted three points in relation to Fish & Fish:[5]

“First, Lord Neuberger emphasised the fact sensitive nature of the issue and the need to keep accessory liability within reasonable bounds. Second, the torts in question in this case were torts of strict liability, trespass to goods and conversion. Third, the case had nothing to do with whether an individual director or senior manager would incur personal liability as an accessory to torts committed by the company in circumstances where he had no liability as a primary tortfeasor.”

Applying Fish & Fish, the claimants argued that the three conditions for accessory liability were satisfied in this case. It was said that (1) Mr Ioannou assisted in the commission of an act by APP, his assistance being substantial and not merely trivial; (2) he did so pursuant to a common design between him and APP to sell as many properties as possible by marketing them through the network of salesmen who were intended and directed to promote the merits of taking a mortgage in Swiss francs; and (3) the way in which the properties were marketed constituted a tort committed by APP against the claimants because of their failure to warn them about the currency risks.[6]

The defendant’s riposte was that Mr Ioannou’s role in approving the content of marketing material and attending training sessions for salesmen amounted to no more than his exercise of control over the business of APP in accordance with the company’s constitution. It was argued that this was a case of a negligent omission, the negligent failure to include a warning about the currency risks, which was a very different situation from that considered in Fish & Fish.[7]

Court of Appeal’s analysis

Males LJ started with consideration of the principle of separate corporate personality, referring to the seminal case of Salomon v A. Salomon & Co Ltd [1897] AC 22. He also considered in detail the decision in Williams v Natural Life Health Foods and a number of cases in the field of intellectual property infringement, in particular the judgment of Chadwick LJ in MCA Records Inc v Charly Records Ltd [2001] EWCA Civ 1441, [2002] BCC 650.[8]

For present purposes, it is sufficient to focus on the conclusions of Males LJ.[9] To summarise:

• Whether a director or senior manager should be held personally liable as an accessory to a tort committed by a company is “a fact sensitive question”.
• Personal liability can be a difficult question involving the balancing of competing principles. It is therefore vital to look at the context in which previous judicial statements were made. Statements of principle made in the context of strict liability torts (whether trespass and conversion as in Fish & Fish or intellectual property torts as in MCA Records and subsequent cases) are “not necessarily directly applicable to the tort in the present case, liability for which is dependent on the assumption of responsibility by the primary tortfeasor.”
• The remarks of Lord Steyn in Williams, though obiter, are helpful in the present context as they concern a tort dependent on an assumption of responsibility. Williams is thus “compelling persuasive authority against the personal liability of Mr Ioannou”.
• Refusing to find accessory liability against Mr Ioannou is also consistent “with the principles that accessory liability ought to be kept within reasonable bounds and that it should be possible to carry on business by means of a limited liability company without exposing the individuals carrying on that business to personal liability.” The relevant business in this case was developing and marketing the properties. That was the business of APP, not Mr Ioannou. Similarly, the relevant commitments (including contracts) were entered into by APP and not Mr Ioannou. Moreover, the judge found that it would not have occurred to any of the claimants that Mr Ioannou had assumed any responsibility towards them.
• The inability to mount an assumption of (contractual) responsibility case against Mr Ioannou was significant. Males LJ considered that it should not be surprising that “the principle of limited liability which shields a director or senior manager from personal liability in contract should also apply in the case of a tort, liability for which depends on the existence of a relationship which is equivalent to contract.”
• “[T]he fact that there was no warning renders the company liable because the company was in a relationship with the claimants whereby it assumed responsibility towards them, but Mr Ioannou was not in such a relationship and the need for such a warning did not occur to him.”
• Similarly, it was not appropriate in the context of imposing accessory liability to give a strained meaning of the concept of “common design” between APP and Mr Ioannou in relation to the marketing of the properties.

In light of the foregoing, the Court of Appeal did not need to consider the application and scope of any “constitutional role defence” by Mr Ioannou.[10] The court dismissed both APP’s appeal and the claimants’ cross-appeal. Only APP was found liable to the claimants in damages for the failure to advise them about the currency risks of the Swiss franc mortgage.

Comment

The Court of Appeal’s decision provides valuable guidance on the scope for accessory liability in tort. Specifically, in cases involving directors with managerial responsibility or executive authority. However, the guidance provided was heavily caveated with a consistent reminder to avoid generalisations in this area. The Court of Appeal was crystal clear that questions of accessory liability in tort, at least outside the context of strict liability torts and in particular intellectual property infringement cases, are highly fact-sensitive.

That said, the tenor of the decision is clear. The important starting point in these cases is the principle of separate corporate personality. Where a claimant is unable to persuade a court to pierce the corporate veil altogether, and there is no tenable allegation of substantial or active conduct by the individual defendant(s) beyond, perhaps, participation in board resolutions or routine business as a director or manager, the Court of Appeal’s decision suggests there will be no personal liability. The difficulty with that general guideline is that the formal corporate processes often tell only half the story. Fraud cases are characteristically scant on evidence and involve the need for inferences from the (usually limited) primary facts and documents. As Males LJ himself appreciated when dealing briefly with the question of a “constitutional role defence”, powers of attorney and board resolutions ought not to be regarded as definitive.

As such, the decision in Barclay-Watt serves as a caution for claimants who have a viable claim against the corporate entity, but wish to also pursue a personal claim against a director or manager. In Barclay-Watt, this appeared to have been done because of concerns over the solvency of APP and its ability to satisfy judgment. That is a frequent concern, especially where corporate vehicles have themselves been stripped off assets after the principal wrongdoing.

Lastly, it is important to recognise the other avenues that are often open to claimants in these cases. The Court of Appeal’s decisionsays nothing about tortious conspiracy claims pursued against both the company and individual wrongdoers as co-conspirators (each as primary tortfeasors), nor about company or insolvency law claims against directors, or equitable causes of action. It is a useful decision, but concerned only with one of several possible avenues for recovery.

Philippe Kuhn

30 August 2022

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[1] See at [21]-[28].

[2] See at [39]-[43].

[3] See at [41].

[4] See at [43].

[5] See at [44].

[6] See at [45].

[7] See at [48].

[8] See at [50]-[73].

[9] See at [74]-[82].

[10] See at [83].