Directors’ Co-liability for Delicts

Abstract

It is an established principle of company law that a company is a separate legal entity and that as a general rule, incorporation confers the benefi t of limited liability on its shareholders and directors (see Salomon v A Salomon & Company Ltd [1897] AC 22 (HL)). This principle, together with the ‘identifi cation’ or ‘alter ego’ theory, which ascribes the directing mind and will of the person acting on behalf of the company to the company itself (see, eg, Lennard’s Carrying Company Ltd v Asiatic Petroleum Company Ltd [1915] AC 705 (HL) at 713; HL Bolton (Engineering) Co Ltd v TJ Graham and Sons Ltd [1957] 1 QB 159 (CA); Tesco Supermarkets Ltd v Nattrass [1972] AC 153 (HL); Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 (PC)), lead to the sometimes problematic conclusion that a person acting on behalf of a company will, in principle, not incur liability personally and that a prejudiced third party must look to the company for recourse (for further authorities on the point, see Louis de Koker ‘Die Aanspreeklikheid van Direkteure vir Delikte Gepleeg in Ampsverband’ 2002 Tydskrif vir die Suid- Afrikaanse Reg 18 at 20 et seq). But the principle that everyone should answer for his delictual acts, is equally established. Where it is sought to hold a director delictually liable, these two principles need to be balanced (on the diffi culties involved in doing so, see John H Farrar ‘The Personal Liability of Directors for Corporate Torts’ (1997) 9 Bond LR 102). It is particularly diffi cult to do this where the director may be co-liable with the company for the infringement of intellectual property rights (see Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc ((1979) 89 DLR (3d) 195 (Fed Ct App) at 202; De Koker op cit at 22).