Companies' civil liability

Company's agents' civil liability

Vicarious liability and principles of agency

1. A principal is bound by the transaction acted by his agents on his behalf if:
   
   1. prior to the transaction the actual scope of the authority was conferred upon them by their principal or
   2. the apparent (or ostensible) scope of their authority.
2. A principal may also be vicariously liable in tort for acts of his agents which, though not authorized, are nevertheless within the scope of their employment.[9]

Rules of attribution

1. Assumption of Responsibility

   This approach has been prevalently taken in the New Zealand Court of Appeal in the case Trevor Ivory Limited v. Anderson, in which it was held that an assumption of responsibility by the agent is a prerequisite of liability for any civil wrong for which the agent was sued.[13]
   
   In was also strongly emphasized in the case of Anderson v. Chilton, where a company director had sold a ship on Anderson's behalf. The director instructed to proceed with the sale paid through the overdrawn bank account of the company. This led in an infringement of Anderson's fiduciary duty, and thus Chilton was sued for knowingly violating a fiduciary duty.
   
   The court's decision was relied on Trevor's reasoning and held that the director had not assumed any responsibility towards Anderson and therefore could not be made personally liable.[14] Another important case on the same approach was Williams v. Natural Life Health Foods Ltd., in which the court did not hold the agent liable for the accuracy of the statement made to the plaintiff because he did not assume the responsibility on the same.[15]
   
   It restated that in order to succeed the claimant has to demonstrate that:
   
   1. The defendant personally assumed liability for the claimant and
   2. The claimant reasonably depended on that assumption of such accountability.
   
   However, neither of such conditions was proved therefore cannot be held personally liable.[16]
   
   This was again made clear in the case of Standard Chartered Bank case, that the director is liable to a third party for the purpose of civil liability. The court reiterated that an inquiry into the assumption of responsibility is required when there is an element of the cause of action against the company's agent.[17] It has also made some observations that the obligations through civil liabilities have relied on actions performed willingly by the defendant.
   
   These obligations are on legal persons who have committed such wrongful acts and therefore the status of defendants as an agent is irrelevant. It was also explained that it is sufficient for the claimant in the case of liability for dishonest assistance, to prove that the defendant had dishonestly assisted another in violation of the claimant's trust responsibilities. Therefore, this will never give a chance to the defendant to take a defense that he was acting as an agent of the company in trespass or breach of copyright or deceit or any statutory wrongs.
   
   However, the liability of the agent depends on the nature of the cause of action because when the defendant is acting on behalf of the company then it is hard to prove the prerequisites of assumption of responsibility and reasonable reliance of such responsibility by him. For example, in the case of contractual civil liability, the plaintiff through an agent's medium entered into a contract with the company, in such cases, it is difficult to prove that the agent is contractually liable for the breach because he has taken such obligation on behalf of the company.
   
   Therefore, the rules of attribution constitute in the company's constitution plays a role in identifying the liability of the company for the wrongful acts done in the course of the employment by the agents through various techniques developed in the doctrine of Organic approach. These rules along with identification of the liability also promote the better supervision of the agents by the companies.
    

2. Identification Doctrine or the Organic theory

   This doctrine is aligned with the artificial nature of corporate personality and provides rise to the metaphysical concept that an individual or agent is recognizable with a corporation, not on the grounds of being an agent or delegate, but with a corporate person embodied in the company.[18] This doctrine was applied in the cases were vicarious liability or principles of the agency were not applicable.
   
   It was a technique of attributing the acts of the senior management namely the board of directors and who are members of the general meeting to a company or who is high up in the company management ladder because these are those agents who act as the company itself which was also called by Lord Hoffmann as a special rule of attribution.[19]These agents are the organs of the company and each of this individual is an embodiment of the company.
   
   The most prominent case in which this identification doctrine or organic approach was applied is Lennard's carrying case, the claimant bought a ship and a cargo owned by the company and were lost because of the vessel being unseaworthy. It sued the company, however u/s 502 of the Merchant Shipping Act 1894, the owner of a ship was not liable for the loss or damage happening without his actual fault or if he was not privy to the fault.
   
   Mr. Lennard, the director of the company under who the ship was registered and was designated as an entrusted person for the vessel, and he knew the seaworthiness of the ship. The issue before the court was whether the company was responsible for the loss of the ship or whether Mr. Lennard's knowledge of the seaworthiness of the ship could be regarded as the knowledge of the company.
   
   The court held that it is not sufficient to decide on the basis that the agent was at the fault. There should also be a situation that the principal was privy to such fault. In the present case, the director failed to provide much evidence that he was the senior management of the company or the life and soul, therefore his acts should not be attributed to the company. Thus, the court opined that the director was not the main organ of the company and thus his actions are not of the company itself. Therefore, the company is not liable.
   
   This doctrine also follows the rules of attribution by also dis attributing the acts of the agents', which means that once the acts of the agents are attributed to the company using an identification doctrine, those acts are, at the same time, dis attributed or not legally attributed to the agent. This theory is known as dis attribution heresy which is emphasized by the commentators and scholars to provide immunity from liability to the agents. [20]
   
   In the case of Trevor Ivory Ltd. v. Anderson, the director gave negligent advice to the client which resultant in losses. The claimant sued the company and the director for the negligent misstatement and sought damages for such losses. The court, in this case, applied the disattribution heresy, opined that in some circumstances the directors are to be identified on the evidence that he is not acting as the company but as the company's agent which will render him to the liability.[21]
    

3. Alter ego status or Directing mind and will

   This doctrine is narrower to the previous identification doctrine, it takes into the consideration that what all agents are directing mind and will of the company so that they can be embodied in the company. This doctrine was introduced in the case of El Ajou v. Dollar Land Holdings plc, which attempts to answer 'directing mind and will ' can be of distinct people concerning distinct operations, not necessarily that of individuals with general management or control over the business.[22]
   
   In this case, the cause of the action arose because the claimant's manager was bribed by the defendant to invest the funds in his business without the claimant's authority. The investment was part of the fraudulent share sales scheme, and only one member of the defendant company was aware of this who was a nominee director of the company.
   
   The sole obligation of this member was to arrange the receipt and disbursement of the cash obtained from such sales. Therefore, the issue before the bench was whether an act of representing the money fraudulently by the defendant is attributed to the company. The court decided, in relation to this transaction, he was the directing mind and will, who had tainted the assets and therefore his actions will be attributed to the company and not of others who have made the decisions.[23]
    

4. Three-step liability attribution

   It is not a doctrine per se, but it has been an approach formulated in the case of Meridian Global Funds Management Asia Ltd. v. Securities Commission, which attempts to eliminate the approach of attributing the act by the approach of directing mind and will for a liability.[24]
   
   In this case, two managers of the company were part of the scheme of misappropriation of money and the issue before the bench was that whether the company is held liable for the manager's knowledge about the misappropriation.
   
   

   The court held the decision by formulating the three-step liability attribution which involves the set of three rules:

   1. Primary Rules: These are those rules which are constituted in the company's constitution. It lies down that the rule of decisions taken up by the board of directors is the decision of the company.
       
   2. General Rules:
      The dispute of liability attribution is solved by applying the general rule of the principle of agency in consonance with the company law rules.
       
   3. Special Rules:
      It specifies those cases where the act or knowledge of the person is required irrespective of being an agent is attributed to the company.[25]
   
   Therefore, the interpretation of the organic approach, in this case, provides the determination of a company's civil liability when the general rule and organic approach does not give the solution.[26]