Litigation & Crime
Cases Tort
Williams v Natural Life Health Foods Ltd
[1998] UKHL 17 Lord Steyn wrote
“What matters is not that the liability of the shareholders of a company is limited but that a company is a separate entity, distinct from its directors, servants or other agents. The trader who incorporates a company to which he transfers his business creates a legal person on whose behalf he may afterwards act as director. For present purposes, his position is the same as if he had sold his business to another individual and agreed to act on his behalf. Thus the issue in this case is not peculiar to companies. Whether the principal is a company or a natural person, someone acting on his behalf may incur personal liability in tort as well as imposing vicarious or attributed liability upon his principal. But in order to establish personal liability under the principal of Hedley Byrne, which requires the existence of a special relationship between plaintiff and tortfeaser, it is not sufficient that there should have been a special relationship with the principal. There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself.
…….. Applying the principle to the facts…. Mr Mistlin owned and controlled the company. The company held itself out as having the expertise to provide reliable advice to franchisees. The brochure made clear that this expertise derived from Mr Mistlin’s experience in the operation of the Salisbury shop. In my view these circumstances were insufficient to make Mr. Mistlin personally liable to the respondents. Stripped to essentials the reasons of Langley J, the reasons of the majority in the Court of Appeal and the arguments of counsel for the respondents can be considered under two headings. First, it is said that the terms of the brochure, and in particular its description of the role of Mr. Mistlin, are sufficient to amount to an assumption of responsibility by Mr Mistlin. In his dissenting judgment Sir Patrick Russell rightly pointed out that in a small one-man company “the managing director will almost inevitably be the one possessed of qualities essential to the functioning of the company”: 156(a). By itself this factor does not convey that the managing director is willing to be personally answerable to the customers of the company. Secondly, great emphasis was placed on the fact that it was made clear to the franchisees that Mr Mislin’s expertise derived from his experience in running the Salisbury shop for his own account. Hirst LJ summarised the point by saying that “the relevant knowledge and experience was entirely his qua Mr Mistlin, and not his qua director:” 153(h). The point will simply not bear the weight put on it. Postulate a food expert who over ten years gains experience in advising customers on his own account. Then he incorporates his business as a company and he so advises his customers. Surely, it cannot be right to say that in the new situation his earlier experience on his own account is indicative of an assumption of personal responsibility towards his customers. In the present case there were no personal dealings between Mr. Mistlin and the respondents. There were no exchanges or conduct crossing the line which could have conveyed to the respondents that Mr Mistlin was willing to assume personal responsibility to them. Contrary to the submissions of counsel for the respondents, I am also satisfied that there was not even evidence that the respondents believed that Mr Mistlin was undertaking personal responsibility to them. Certainly, there was nothing in the circumstances to show that the respondents could reasonably have looked to Mr Mistlin for indemnification of any loss. For these reasons I would reject the principal argument of counsel for the respondents.
The joint tortfeasor point
Counsel for the respondents tried to support the judgment of the Court of Appeal on the alternative ground that Mr. Mistlin had played a prominent part in the production of the negligent projections and had directed that the projections be supplied to the respondents. Accordingly, he submitted, Mr. Mistlin was a joint tortfeasor with the company, the latter being liable to the respondents on the extended Hedley Byrne principle.
I am satisfied that this case was never pleaded as an independent cause of action. Like Hirst LJ in the Court of Appeal (with whom Waite LJ agreed) I am satisfied reading Langley J’s judgment as a whole (and see in particular at p. 303(c)) that he never intended to find that Mr. Mistlin was liable to the respondents as a joint tortfeasor. The possibility of such a cause of action was raised in the Court of Appeal but expressly abandoned. And it was not included in the Agreed Statement of Facts and Issues before the Appellate Committee. In these circumstances the point is not open to the respondents. In any event, the argument is unsustainable. A moment’s reflection will show that, if the argument were to be accepted in the present case, it would expose directors, officers and employees of companies carrying on business as providers of services to a plethora of new tort claims. The fallacy in the argument is clear. In the present case liability of the company is dependent on a special relationship with the respondents giving raise to an assumption of responsibility. Mr. Mistlin was a stranger to that particular relationship. He cannot therefore be liable as a joint tortfeasor with the company. If he is to be held liable to the respondents, it could only be on the basis of a special relationship between himself and the respondents. There was none. I would therefore reject this alternative argument.”
Shinkwin v. Quin-Con Ltd.
[2001] 1 I.R. 519 Fennelly J. in the Supreme Court wrote .
“The second defendant, it seems, falls between these two stools. He is the effective sole shareholder and effective day-to-day manager. I would reduce the issue to this: did he involve himself so closely in the operation of the factory and, in particular, in the supervision of the plaintiff as to make himself personally liable for any of the acts of negligence which injured the plaintiff?
The evidence discloses that the plaintiff dealt personally with the second defendant from the beginning. It is true that the latter’s two sons were more physically active on the factory floor. The second defendant was often absent from the premises. Nonetheless, it was the second defendant who, about eight months before the accident approached the plaintiff about using all the machines. He was always in and out of the machine area if the shop was busy, saw the plaintiff using the machine and the difficulties he had in moving the jig. He worked with the plaintiff on the machine on at least one occasion. He repeatedly warned the employees, on his own evidence, that there was no insurance and was aware of a history of accidents that made it impossible to get insurance. He gave instructions about not playing football for the same reason. All of these factors, even though partially disputed by the plaintiff, demonstrate the intimate involvement of the second defendant in the management of the factory and supervision of the plaintiff, in particular, and his consciousness of the danger of accidents. It is in this context that his concession, in cross-examination, that he was in undisputed control of the factory becomes significant.
McCarthy J. in Ward v. McMaster [1988] I.R. 337 at p. 347 declared his unwillingness to “dilute the words of Lord Wilberforce.We are here concerned only with the first stage of the two stage test adopted by Lord Wilberforce in the passage from Anns v. Merton London Borough [1978] A.C. 728 at p. 751:-
“First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter …”
The criterion of “control” which is proposed in this case is not an addition to the test for the existence of proximity. The open textured language of Lord Wilberforce leaves wide scope for argument as to the character of “proximity or neighbourhood”. Clearly it involves more than a mere test of foreseeability of damage. The assessment of the relevance of control as well as its nature and degree will depend on the circumstances. O’Dalaigh C.J. in Purtill v. Athlone U.D.C. [1968] I.R. 205 at p. 212 noted that “the defendants’ employees were in charge and control of the detonators …” which caused injury to the plaintiff in that case. In my opinion some assessment of the element of control, in the sense of “control of the circumstances,” mentioned by Gannon J. in Tulsk Co-operative Livestock Mart Ltd. v. Ulster Bank (Unreported, High Court, Gannon J., 13th May, 1983), is a useful guide to the decision as to the existence of a duty of care. A person cannot be held liable for matters which are outside his control. He will not be, as the defendant in Ward v. McMaster [1988] I.R. 337 was not, in control of the plaintiff’s independent actions and should be responsible in law only for matters which are within his own control.
In my view, the second defendant, on the particular facts of this case, placed himself in a relationship of proximity to the plaintiff. He had personally taken on a young and untrained person to work in a factory managed by him and personally put him to work upon a potentially dangerous machine over which he exercised control to the extent of giving some though completely inadequate instructions to the workers. He was bound to take appropriate steps to warn the plaintiff of such obvious dangers as failing to stop the circular saw from revolving while adjusting the jig or to ensure that it was guarded. In his supervision and instruction of the plaintiff, he failed to do these things and was consequently negligent.
I do not think the decision in Sweeney v. Duggan [1997] 2 I.R. 531 is relevant, despite its superficial resemblance to the present case. The plaintiff was also the victim of an accident at the hands of an uninsured corporate employer operating, in that case, a quarry. He obtained a judgment against the company but this was unsatisfied and he was left to prove in the liquidation. He tried to fix the defendant, Duggan, with liability in a separate action on the basis that he was the principal shareholder as well as the quarry manager. The principal basis of the claim, however, was that Duggan should have seen to it that the company was insured. His failure to do so caused damage to the plaintiff, but the claim sounded in economic loss. Insofar as the claim was made for damages for personal injury it was statute-barred. It emerges clearly from the judgment of Murphy J. on the appeal that the claim failed because the defendant, Duggan, could not be under a greater obligation to the plaintiff in respect of insurance than was the company, which was his employer. The plaintiff failed to establish that such a term should be implied into his contract of employment. Hence, his claim also failed against Duggan.
Here the plaintiff makes his claim directly in negligence against the second defendant, not as employer or as shareholder but as a person who had placed himself by his own actions in such a relationship to the plaintiff as to call upon himself the obligation to exercise care.
It is not necessary, on the facts of the present case to express an opinion on the issue raised in argument as to the potential exposure generally of factory managers to personal liability. Counsel for the defendant points to the serious implications, inter alia, for insurance and industrial relations of such liability. It may, however, be relevant to observe that there has never been any doubt as to the right of the employer to be indemnified by an employee who, in the course of his employment, negligently causes injury to another (see McCarthy J. in Sinnott v. Quinnsworth [1984] I.L.R.M. 523 at p. 537). Counsel for the plaintiff was prepared, if necessary, to cross that bridge. In the event, I find it unnecessary to do so, because of the special facts of the case.
In the light of what I have said, it is unnecessary also to decide whether, as the plaintiff asks, the plaintiff was employed by the second defendant. I would dismiss the appeal.