Conceptual Confusion: Organs, Agents and Identity in the English Courts

This article aims to address some of the more conceptual questions about companies sitting behind two recent cases. Lord Scott in the House of Lords described Stone & Rolls as difficult but the facts in Stone & Rolls and Safeway could hardly be simpler. Stone & Rolls involved a claim by a fraudulent one-man company against its auditors for negligence for failing to detect its fraud. In Safeway a company was convicted of competition law breaches due to the actions of some of its employees and directors. The company was unsuccessful in an action against those directors and employees on the basis that the wrongdoing employees and directors were identified as the mind of the company and therefore exempt from liability. It is argued that the apparent complexities (and the occasional counter-intuitive outcomes) expose a fundamental misconception about the structure of companies. The first misapplication was brought about by the unwillingness in U.K. company law to acknowledge the place of the board in the company. The rules of attribution as set down by Lord Hoffmann in Meridian Global Funds and applied correctly necessarily mean that the board collectively and the shareholders collectively sit at the core of the company. When directors are acting collectively as part of the board, they are not the agents of the company. Their knowledge as part of the board is attributed to the company by the primary rules of attribution. Absent statutory provisions that override company law principles, or breach of duty, the board of directors collectively should therefore be immune from liability when they act in that role. But when accepting that the members of a board that acts collectively are, as a general principle, immune from liability, it is crucial to accept also that individuals who are directors are likely to have many different legal relationships with a company that in a temporal sense occur concurrently or sequentially. The second misapplication was of the special rules of attribution. For the purposes of a rule, usually statutory, the special rules of attribution can override the principles of company law meaning that the company can be primarily liable for the knowledge and actions of a corporate agent. Crucially though, and unlike, the doctrine of identification, the primary liability brought about by the special rules of attribution is only for the purposes of that statutory rule; it does not change the underlying structure of the company.