Attribution and Agency: Difficulties and Distractions

1. Attribution and Agency:Difficulties and Distractions Sarah Worthington, University of Cambridge COMBAR Lecture, 30 October 2017 Law Faculty, Cambridge

2. Difficulties and distractions Distractions: • Special rules for one man companies? • Attribution rules – hierarchy of different rules or one simple question? • Vicarious liability and direct liability? (Williams v Natural Life Health Foods Ltd [1998] UKHL 17) Difficulties: • Attribution of knowledge – the fallout from Re Hampshire Land [1896] 2 Ch 743 • Unravelling distinct claims – what is the company’s claim against third parties? • Authority of agents – ‘abuse of authority’ or ‘no authority’? Worthington [2017] LQR 118 cp Watts [2017] JBL 269 • [Illegality / ex turpi causa – not addressed here]

3. Bowstead & Reynolds on Agency (20th Ed), [1-001] "(1) Agency is the fiduciary relationship which exists between two persons, one of whom [theprincipal] expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom [theagent] similarly manifests assent so to act or so acts pursuant to the manifestation. … (2) In respect of the acts to which the principal so assents, the agent is said to have authority to act; and this authority constitutes a power to affect the principal's legal relations with third parties. (3) Where the agent's authority results from a manifestation of assent … expressly or impliedly made by the principal to the agent himself, the authority is called actual authority, express or implied. But the agent may also have authority resulting from such a manifestation made by the principal to a third party; such authority is called apparent [or ostensible] authority.”

4. Meridian Global [1995] 2 AC 500, 506-507 LORD HOFFMANN: “… But there would be little sense in deeming such a persona ficta to exist unless there were also rules to tell one what acts were to count as acts of the company. … These may be called 'the rules of attribution’. The company's primary rules of attribution will generally be found in its constitution … [But these are not enough, so…] general rules of attribution … agency … 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 company is then also subject to the general rules whereby liability for the acts of others can be attributed to natural persons – estoppel and vicarious liability.] In exceptional cases, however, [even all these] will not provide an answer. … In such a case, [if the rule is to apply to companies at all] the court must fashion a special rule of attribution for the particular substantive rule. … Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company?”

5. Stone & Rolls Ltd v Moore Stephens [2009] UKHL 30 D = Mr Stojevic BANKS Stone & Rolls Auditors Moore Stephens NEGLIGENCE ex turpi causa (YES)/ contrib negligence?

6. Attributing knowledge? • Stone & Rolls summarised the Hampshire Land principle as: the "knowledge of the agent will not be attributed to the principal when the knowledge relates to the agent’s own breach of duty to his principal". Too wide. • Bilta v Nazir – context is everything in deciding the attribution of knowledge; the Hampshire Land principle is defensive only. This is both too wide and too narrow. • My suggested rule: No individual can claim against a company, or resist a claim by a company, if that individual’s claim or defence can be made out only by attributing to the company the individual’s own acts, intentions or knowledge [or those of the individual’s agent]. i.e. TP can’t use own acts etc to manufacture a claim, or a defence to a claim, against the Company.

7. Jetivia SA v Bilta (UK) Ltd (in liq) [2015] UKSC 23 [or Bilta (UK) Ltd (in liq) v Nazir] • Main issues: • Illegality defence so Bilta cannot sue? No. • Attribution of directors’ knowledge to Bilta, so Bilta knows/has consented to the breach by Ds? No. Bilta’s directors DISHONEST ASSISTANCE /CONSPIRACY Jetivia Bilta (in liq) Ex turpi causa -- NO

8. The general case: what claims are open? • COMPANY’S CLAIMS • 1. DIRECTOR is personally liable ie primary claim – Bilta • 2. PARASITIC CLAIMS against the TP: • TP is DIRECTOR’S “ALTER EGO” – Clegg v Pache • TP involved in DISHONEST ASSISTANCE/KNOWING RECEIPT – Bilta, Singularis • TP in a VOIDABLE CONTRACT (KNOWLEDGE) – UBS V KWL • 3. DISTINCT BREACH OF DUTY owed by TP – eg duty of care by auditor or banker – see Stone & Rolls, Singularis • DEFENCES, etc • ILLEGALITY – Bilta, Singularisdiscussion • OTHER DEFENCES – “Co knew and/or consented” – UBS, Singularis • CAUSATION ISSUES GIVEN CO’S KNOWLEDGE – UBS, Singularis • CONTRIBUTORY NEGLIGENCE -- Singularis FIDUCIARY COMPANY THIRD PARTY

9. Singularis Holdings Ltd (in liq) v Daiwa Capital Markets Europe Ltd [2017] EWHC 257 (Ch) D = Al Sanea SAAD Group (1) DISHONEST ASSISTANCE (2) NEGLIGENCE Daiwa Singularis Holdings Ltd Ex turpi causa -- NO

10. UBS v KWL GmbH [2017] EWCA Civ 1567 BRIBE Fiduciary = Value Partners KWL’s Director ADVICE CDO KWL UBS (1) KWL: “CONTRACT IS VOIDABLE” (2) UBS: “KWL LIABLE IN DECEIT”

11. Summary: claims and attribution of knowledge • COMPANY’S CLAIMS • DIRECTOR is personally liable for fiduciary breach • PARASITIC CLAIMS AGAINST TP iro D’s breach • TP is DIRECTOR’S “ALTER EGO” • TP in a VOIDABLE CONTRACT (KNOWLEDGE) • TP involved in DISHONEST ASSISTANCE/KNOWING RECEIPT • DISTINCT BREACH OF DUTY owed by TP – eg TP is auditor or bank, etc, owing a duty of care • THEN NOTE • Illegality – not an issue iro (1) and (2), and probably not (3) • Company’s knowledge = D’s knowledge: issue always irrelevant re (1) and (2) • Company’s knowledge = D’s knowledge irrelevant in Company making out its claim in (3), but may be relevantiroTP’s defences, determining causation and quantum of damages, and contributory negligence FIDUCIARY COMPANY THIRD PARTY

12. Final issue: Agency—the extent of actual authority Question: Do corporate agents have actual authority to act, even though their acts lack bona fides or are for improper purposes? Answer: No, according to English orthodoxy Yes, is a better answer? Stone & Rolls Ltd (in Liq) v Moore Stephens (A Firm) (HL) Thanakharn Kasikorn Thai Chamkat v Akai Holdings Ltd (HKCFA)

13. Actual authority—when can it be relied upon? Modern English orthodoxy [“no actual authority”]: • a corporate agent has no actual authority to act improperly, in abuse of the company's interests; a third party wanting to prove a contract in those circumstances must do so on ostensible authority grounds. Alternative analysis [“abuse of actual authority”]: • A corporate agent has actual authority to act contrary to the company's interests [this is the person whose acts count as the acts of the company], but abuses that authority and is liable to the company. • The contract with the third party is prima facie binding, but voidable by the company as against third parties who are not bona fide….

14. Issues with the orthodox “no actual authority” view • Muddles two quite different contexts: i.e. the P  Ag context and the P  TP context. • Its reliance on ostensible authority does not seem defensible – detailed steps in the logic are typically ignored (Freeman & Lockyer v Buckhurst Park) • It cannot explain a large number of key cases i.e. contracts between companies and its defaulting directors are voidable, not void. • Test is difficult to apply. Should a transaction be judged 'not in the interests of the company' (not bona fide, not for proper purposes, etc) if that is what the agent believes? [Seems yes.]

15. Summary re agency and actual authority My suggestion: Agents do have actual authority to represent their companies even when acting badly: this is the person whose acts count as the acts of the company … Just because something should not be done (as between principal and agent), it does not follow that the doing of it should have no effect (as between principal and third party).

16. Recap….Difficulties and distractions Distractions: • Special rules for one man companies? • Attribution rules – hierarchy of different rules or one simple question? • Vicarious liability and direct liability? (Williams v Natural Life Health Foods Ltd [1998] UKHL 17) Difficulties: • Attribution of knowledge – the fallout from Re Hampshire Land [1896] 2 Ch 743 • Unravelling distinct claims – what is the company’s claim against third parties? • Authority of agents – ‘abuse of authority’ or ‘no authority’? Worthington [2017] LQR 118 cp Watts [2017] JBL 269 • [Illegality / ex turpi causa – not addressed here]

17. Thank you