UK Supreme Court focuses on directors' knowledge needed for strict liability
Published on 10th Jul 2024
The case makes clear that knowledge of the facts amounting to a tort must be separately pleaded and proven
A recent Supreme Court decision has looked at what knowledge a director must have in order to be found liable for causing his or her company to commit a strict liability tort (that is, one where negligence does not need to be proven for the company to be liable).
At first instance and in the Court of Appeal in Lifestyle Equities CV & Anor v Ahmed & Anor, the directors of a company that had committed a strict liability tort were held to be jointly liable as accessories, even though they had not acted in bad faith and had not realised a tort had been committed. The Supreme Court has now reversed that finding.
Although it was accepted that directors are not exempt from liability just because they act in good faith to promote the success of the company (in accordance with their statutory duties under the Companies Act 2006), nor can they be held liable just because they are directors.
It was concluded that: "knowledge of the essential features of the tort is necessary to justify imposing joint liability on someone who has not actually committed the tort". That is the case even if the tort does not itself require such knowledge. Accordingly, the directors here were not liable.
Although not required to decide the point, the Supreme Court also confirmed that "the only profits which a person liable as an accessory can be required to disgorge are profits shown to have been derived by the accessory from the wrongful acts and not profits realised by the primary wrongdoer".
Although this case was a victory for the directors, that was because the requisite knowledge had not been proven on the facts. In many cases, though – especially where the company is a small one – it may not be too difficult to prove that the directors knew of or at least turned a blind eye to the facts amounting to the tort committed by their company. What this case really does, then, is make it clear that such knowledge by the directors must be separately pleaded and proven.
