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'Fowl' Play - Chicken Company's Directors Personally Liable for Breached Contracts

on Thursday, 18 April 2019.

In Antuzis v DJ Houghton Catching Services Ltd, the director and company secretary were held personally liable for breaches of the claimants' employment contracts.

Personal liability was imposed because the directors had breached their fiduciary duties to the company by knowingly causing the company to breach the contracts with full knowledge that those breaches were of statutory duties and that their actions were not in the best interests of the company or its employees.

Background

The claimants, mainly Lithuanian nationals, worked for DJ Houghton ("the Company") as chicken catchers in what were held as extremely exploitative conditions. The claimants alleged various breaches including failure to pay minimum wage and overtime, being charged unfair employment fees and accommodation fees as well as failure to pay holiday pay. The claimants also alleged that they were penalised when they raised complaints about these issues.

The Judge found the evidence against the Company to be "overwhelming" and the claimants were successful in relation to all of the alleged breaches of their employment contracts. The preliminary issue for the High Court was whether or not the 'corporate veil' could be pierced and the sole Director and the Company Secretary ("the Directors") could be personally liable.

Personal Liability

The High Court considered provisions within the Companies Act, particularly the duty for directors to act in good faith and in a way that promotes the success of the company and the duty to exercise reasonable care, skill and diligence.

In deciding whether the Directors had acted in line with those duties, the High Court considered that their actions had caused the demise of the Company including the loss of its Gangmaster license and potentially irreparable damage to its reputation. The Judge stated that they cannot "have honestly believed that what was being done by them to the chicken catchers was morally or legally sound". The High Court held the Directors personally liable based on the evidence that they both "actually realised" that their actions caused the Company to breach its contractual obligations to the claimants. There was no evidence to show that they had any honest belief that what they were doing would not cause breaches or that it was in the Company's interests.

Preventing Personal Liability in Practice

This case does not remove the protection afforded to directors that act in good faith, within the scope of their authority, and when genuinely and honestly endeavouring to act in the Company's best interests.

For example, a decision by a director not to pay a supplier on time because of cash flow difficulties, although inducing a breach of contract, would not cause personal liability. However, deliberately choosing to use contaminated ingredients in the preparation of food is different. That choice is clearly in breach of multiple statutory obligations, is dishonest, and would severely damage the reputation of the company when it came to light.

Best Practice

While this judgment is highly significant, highlighting that directors can be personally liable to pay damages if they cause their company to operate in breach of contractual and regulatory requirements, particularly if such breaches seriously harm the reputation or financial viability of their company, this decision is unlikely to open the floodgates to claims of personal liability against directors. A genuine mistake would be unlikely to lead to personal liability, even if that mistake causes the company to breach contractual obligations.


For more information, please contact Nadjia Zychowicz in our Employment Law team on 01923 919 375, or complete the form below.

 

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