Attribution in Company Law

DOIhttp://doi.org/10.1111/1468-2230.12091
AuthorErnest Lim
Publication Date01 Sep 2014
Attribution in Company Law
Ernest Lim*
In Bilta (UK) Ltd (in liquidation) vNazir (No 2), the Court of Appeal held that the ex turpi causa
defence was inapplicable by refusing to attribute the fraud of the directors and the sole shareholder
to the company in connection with the company’s claim against them and third party
co-conspirators. It is significant that the court has not only clarified the law in relation to
attribution, but it did so by rejecting the majority’s reasoning and endorsing the dissenting
judgment in the House of Lords decision in Stone & Rolls (in liquidation) vMoore Stephens (a firm).
This article evaluates the decision in Bilta by critically examining the fundamental principles and
policies that apply to the three distinct circumstances under which corporate attribution should or
should not take place.
INTRODUCTION
Should the fraud of the company’s sole directors and shareholders, or its directing
mind and will, be attributed to the company? The answer should be ‘it all
depends on the circumstances’. It is essential to distinguish three circumstances
here. The first is where a third party sues the company for wrongdoing com-
mitted by the latter. The second is where the company sues its directors or
officers for breach of duties owed to it. And the final one is where the company
sues a third party for wrongdoing committed against it.
However, the law (particularly since the House of Lords decision in Stone &
Rolls Ltd (in liquidation) vMoore Stephens (a firm)1(Stone & Rolls) has become
muddled and problematic because of its failure to attend to the fundamental
principles and policies underlying the three distinct circumstances above, its
failure to understand the Hampshire Land principle2in its proper context, and its
unthinking resort to a certain term that occludes more than illuminates – ‘victim’
– in this instance.
*Faculty of Law, University of Hong Kong. I would like to thank the anonymous referees for helpful
comments on an earlier draft and John Lowry for advice and encouragement. All errors remain my
own.
1 [2009] UKHL 39; [2009] 1 AC 1391. P. S. Davies, ‘Auditors’ Liability: No Need to Detect Fraud’
(2009) 68 CLJ 505; D. Halpern, ‘Stone & Rolls Ltd vMoore Stephens: An Unnecessary Tangle’ (2010)
73 MLR 497; P. Watts, ‘Stone & Rolls Ltd (in Liquidation) vMoore Stephens (A Firm): Audit Contracts
and Turpitude’ (2010) 126 LQR 14; E. Ferran, ‘Corporate Attribution and the Directing Mind and
Will’ (2011) 127 LQR 239; S. Griffin, ‘The One-Man Type Company and the Removal of
Corporate Personality in the Context of Attribution Rules’ (2011) International Company and
Commercial Law Review 158; M. Naniwadekar, ‘Directing Minds and Agents: An Essay on Fraud
and Attribution’ (2010) Journal of Business Law 271. For critical views of Stone & Rolls and its
progeny, see E. Lim, ‘A Critique of Corporate Attribution: “Directing Mind and Will” and
Corporate Objectives’ (2013) Journal of Business Law 333; E. Lim, ‘Formalism and Companies’
(2013) 13 Journal of Corporate Law Studies 477.
2 This principle is derived from the case of In re Hampshire Land Company [1896] 2 Ch 743 (Hampshire
Land). For criticisms of the Hampshire Land principle, see P. G. Watts (ed), Bowstead & Reynolds
on Agency (London: Sweet & Maxwell, 19th ed, 2014) paras 8-213 to 8-214; P. Watts, ‘Imputed
Knowledge in Agency Law – Excising the Fraud Exception’ (2001) 117 LQR 300, 316–320.
bs_bs_banner
Attribution in Company Law
© 2014 The Author. The Modern Law Review © 2014 The Modern Law Review Limited.
794 (2014) 77(5) MLR 780–807

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT