(New Zealand) The New Zealand statute required a holder of specified investments to give notice of its holding to a regulator as soon as it became aware of its holding. Unbeknown to any others in the company apart from one colleague, its chief investment officer improperly acquired such investments on the company’s behalf. The former managing director of Meridian used the company’s funds to make it a substantial security holder but neither he nor anyone else gave the requisite statutory notice requiring every person who became a ‘substantial security holder’ to give notice of his interest both to the company and to the Stock Exchange as soon as he knew he was a substantial security holder. The question was whether his acts or omissions were the acts or omission of the company so as to render the company liable to the statutory penalties.
Held: The company was liable. It was a matter of construction in each situation to decide whether an employee’s knowledge is to be imputed to his employer. It might be so imputed where this was necessary to make legislation effective.
Lord Hoffmann said that the rules for attributing the acts of a director to the company are primarily in its constitution, but ‘These primary rules of attribution are obviously not enough to enable a company to go out into the world and do business. Not every act on behalf of the company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company’s primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability or tort.
It is worth pausing at this stage to make what may seem an obvious point. Any statement about what a company has or has not done, or can or cannot do, is necessarily a reference to the rules of attribution (primary and general) as they apply to that company. Judges sometimes say that a company ‘as such’ cannot do anything; it must act by servants or agents. This may seem an unexceptionable, even banal remark. And of course the meaning is usually perfectly clear. But a reference to a company ‘as such’ might suggest that there is something out there called the company of which one can meaningfully say that it can or cannot do something. There is in fact no such thing as the company as such, no ding an sich, only the applicable rules. To say that a company cannot do something means only that there is no one whose doing of that act would, under the applicable rules of attribution, count as an act of the company.
The company’s primary rules of attribution together with the general principles of agency, vicarious liability and so forth are usually sufficient to enable one to determine its rights and obligations. In exceptional cases, however, they will not provide an answer. This will be the case when a rule of law, either expressly or by implication, excludes attribution on the basis of the general principles of agency or vicarious liability. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person ‘himself’ as opposed to his servants or agents. This is generally true of rules of the criminal law, which ordinarily impose liability only for the actus reus and mens rea of the defendant himself. How is such a rule to be applied to a company?
One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all; for example, a law which created an offence for which the only penalty was community service. Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by a resolution of the board or an unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.’
Lord Hoffmann: ‘. . . their Lordships would wish to guard themselves against being understood to mean that whenever a servant of a company has authority to do an act on its behalf, knowledge of that act will for all purposes be attributed to the company. It is a question of construction in each case as to whether the particular rule requires that the knowledge that an act has been done, or the state of mind with which it was done, should be attributed to the company. Sometimes, as in In re Supply of Ready Mixed Concrete (No. 2) [1995] 1 A.C. 456 and this case, it will be appropriate . . .. On the other hand, the fact that a company’s employee is authorised to drive a lorry does not in itself lead to the conclusion that if he kills someone by reckless driving, the company will be guilty of manslaughter. There is no inconsistency. Each is an example of an attribution rule for a particular purpose, tailored as it always must be to the terms and policies of the substantive rule.’
Judges:
Lord Hoffmann, Lord Keith of Kinkel, Lord Jauncev of Tullichettle, Lord Mustill, Lord Lloyd of Berwick
Citations:
Gazette 19-Jul-1995, Times 29-Jun-1995, [1995] 2 AC 500, [1995] BCC 942, [1995] 3 All ER 918, [1995] UKPC 5, [1995] 3 WLR 413, [1995] 2 BCLC 116
Links:
Jurisdiction:
England and Wales
Cited by:
Cited – Crown Dilmun, Dilmun Investments Limited v Nicholas Sutton, Fulham River Projects Limited ChD 23-Jan-2004
There was a contract for the sale of Craven Cottage football stadium, conditional upon the grant of non-onerous planning permissions. It was claimed that the contract had been obtained by the defendant employee in breach of his fiduciary duties to . .
Cited – Majrowski v Guy’s and St Thomas’ NHS Trust CA 16-Mar-2005
The claimant had sought damages against his employer, saying that they had failed in their duty to him under the 1997 Act in failing to prevent harassment by a manager. He appealed a strike out of his claim.
Held: The appeal succeeded. The . .
Cited – KR and others v Royal and Sun Alliance Plc CA 3-Nov-2006
The insurer appealed findings of liability under the 1930 Act. Claims had been made for damages for child abuse in a residential home, whom they insured. The home had become insolvent, and the claimants had pursued the insurer.
Held: The . .
Cited – Moore Stephens (A Firm) v Stone Rolls Ltd (in liquidation) HL 30-Jul-2009
The appellants had audited the books of the respondent company, but had failed to identify substantial frauds by an employee of the respondent. The auditors appealed a finding of professional negligence, relying on the maxim ex turpi causa non . .
Cited – Ferguson v British Gas Trading Ltd CA 10-Feb-2009
Harassment to Criminal Level needed to Convict
The claimant had been a customer of the defendant, but had moved to another supplier. She was then subjected to a constant stream of threatening letters which she could not stop despite re-assurances and complaints. The defendant now appealed . .
Cited – Orr v Milton Keynes Council CA 1-Feb-2011
The employee was involved in offensive and insubordinate behaviour with his team leader. He was dismissed by a more senior manager, after a hearing in which the first manager gave evidence but which the claimant did not attend. It was later shown . .
Cited – Reilly v Sandwell Metropolitan Borough Council SC 14-Mar-2018
Burchell case remains good law
The appellant head teacher had been dismissed for failing to disclose the fact that her partner had been convicted of a sex offence. She now appealed from rejection of her claim for unfair dismissal.
Held: The appeal was dismissed. The . .
Cited – Royal Mail Group Ltd v Jhuti SC 27-Nov-2019
‘if a person in the hierarchy of responsibility above the employee determines that she (or he) should be dismissed for a reason but hides it behind an invented reason which the decision-maker adopts, the reason for the dismissal is the hidden reason . .
Cited – Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd SC 30-Oct-2019
The Court was asked whether a claim against a bank for breach of the Quincecare duty is defeated if the customer is a company, and the fraudulent payment instructions are given by the company’s Chairman and sole shareholder who is the dominating . .
Lists of cited by and citing cases may be incomplete.
Financial Services, Vicarious Liability, Company
Updated: 25 April 2022; Ref: scu.83660