Contex Drouzhba Ltd v Wiseman and another [2007] EWCA Civ 1201, [2007] All ER (D) 293 (Nov)
Court of Appeal, Civil Division
Waller, Rix and Keene LJJ
20 November 2007
A director signing an agreement for payment terms on behalf of a company may be held to have made an implied representation about the ability of the company to pay, and if so that may constitute a representation in writing, such as to provide the creditors with a direct remedy against the director in deceit. In such circumstances s 6 of the Statute of Frauds Amendment Act 1828 (SFAA 1828) will provide no defence to the director.
Peter Knox QC (instructed by Oury Clark) for the claimant.
Roger Bartlett (instructed by Shah & Burke) for the defendants.
The defendant was the active director responsible for the operations of a limited company. Much of the company’s trade was with the claimants. The company became unable to pay its debts in the ordinary course of business, a fact of which the defendant was aware. He also knew there was no chance of any injection of capital from elsewhere. Despite that knowledge, he signed an agreement on behalf of the company with the claimants, which stated as to payment, that “bank transfer made to the account of the performer [the claimants] made not later than 30 days after the shipment”.
In subsequent litigation, the judge found that in signing the agreement the defendant had impliedly represented that the company had the capacity to meet its obligations to pay for goods to be ordered thereafter, and that that representation had been made fraudulently by the defendant, given his knowledge as to the company’s financial position. On that basis the judge ruled that the defendant was liable to the claimants in deceit. He held that the agreement constituted a statement in writing for the purposes of SFAA 1828, s 6 and therefore the defendant had no defence under that section. The defendant appealed.
LORD JUSTICE WALLER:
Section 6 of SFAA 1828 provided:
“No action shall be brought whereby to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade, or dealings of any other person, to the intent or purpose that such other person may obtain credit, money, or goods upon, unless such representation or assurance be made in writing, signed by the party to be charged therewith.”
The defendant suggested that, if the judge was right, it was a matter of some surprise that there had not been many cases holding liable directors, who had signed contracts or letters on behalf of companies, when the companies were insolvent to the knowledge of those directors. To that point he added the fact that there was legislation dealing with fraudulent trading (Insolvency Act 1986 (IA 1986), ss 213 and 214) by virtue of which, on the application usually of the liquidator, fraudulent directors could be made
liable for the deception perpetrated on creditors but under which legislation the creditors did not get preference one over the other. That legislation required reimbursement by the directors to the company so that creditors shared equally in what was recovered.
Certainly, if the judge was right, there might be situations in which, by the signing of contracts by directors where those directors are guilty of fraudulent trading, creditors would have a direct remedy against the director in deceit, and a remedy that avoided the consequences of IA 1986, ss 213 and 214. Those consequences flowed from the finding of an implied representation of the type found in this case, together with a finding that the contract satisfied the above section of SFAA 1828.
The claimant rightly submitted that the existence of ss 213 and 214 could not affect the question whether a creditor might not have a cause of action in deceit against a director.
If one were to assume a letter written by a director (assume in a personal capacity) dishonestly assuring a creditor as to the solvency of the company of which he was a director, ss 213 or 214 would not have any relevance. Such a letter would clearly comply with the provisions of SFAA 1828 and the creditor would succeed in his claim against the director personally.
It would make no difference if such a letter by its terms made only an implied representation to the same effect: John Hudson & Company Limited v Oaten (unreported, Sir David Cairns, 19 June 1980).
That said, his lordship would also stress that from the requirement for a representation, whether express or implied, to be in writing had to flow the conclusion that a representation by conduct alone would be defeated by the section.
Signing on someone’s behalf
His lordship dismissed the argument argued by the defendant that a director of a company who signed a document on behalf of the company was signing the document as the company and thus there was no signature by the director in his personal capacity as “the person to be charged”.
There might be different factual situations but even if the company would be liable for the deceit carried out by its director, the director had a personal liability for his own fraud.
His lordship turned to whether or not the signature of the director put there on behalf of the company was also the personal signature of the director so as to be the signature by the party to be charged, for the purposes of SFAA 1828. Having regard to the mischief at which SFAA 1828 was aimed, there was no reason why, if a document contained a fraudulent representation being made by a director for which that director would otherwise be held personally liable, his signature on the document would not suffice to comply with SFAA 1828.
His lordship rejected the defendant’s argument on the facts that the implied representation which the judge found to be made by conduct rather than in writing. His lordship should not be taken as saying that every contract signed by a director contained implied representations by the director. Each case would depend on its own facts. But in this case the judge had been right to find the defendant liable.
The appeal would be dismissed.
Lord Justice Rix and Lord Justice Keene agreed.
