0370 270 6000

already registered?

Please sign in with your existing account details.

need to register?

Register to access exclusive content, sign up to receive our updates and personalise your experience on brownejacobson.com.

Privacy statement - Terms and conditions

more pain for directors?

21 June 2010

Directors liability in the twilight zone

In the recent case of Lindsay v OLoughnane it has been held that a director who deliberately lied to a companys customer about the companys financial position was liable to the customer for the tort of deceit and that he could continue to be liable until he corrected the position.

The defendant was a director and principal shareholder of a company offering foreign exchange services. Pursuant to the companys terms of business, customers money was held in a trust account. The defendant director had, for some time, been using client funds for his own purposes. Towards the end of the companys trading, the director started to use funds from one longstanding customer to purchase currency for other customers, in effect using it as a personal bank account. The director then forwarded the claimant customers foreign exchange currency to him when the funds became available. When the claimant asked why there was a delay before he received the funds, the defendant emailed him and falsely said that it had been caused by an error on the part of the companys bank. The claimant made two further trades with the company in September 2008 and unsurprisingly, his money vanished.

The customer brought an action directly against the director on the basis of the tort of deceit and alternatively on the basis that the court should pierce the corporate veil.

The claimants action for deceit was successful. The court held that if the deceit claim had been unsuccessful, it would not have lifted the corporate veil. The measure of damages for the claimants successful claim was the amount lost by the claimant less any recovery from the liquidation of the company.

A claimant must prove four things in order to succeed in an action for deceit:

  • the defendant must have made a representation of fact which could clearly be identified
  • the representation must have been false
  • it must have been made dishonestly
  • the statement must have been intended to be relied upon and was in fact relied upon.

In this case, the judge identified several representations which the claimant had relied upon. All of these representations were implied representations that related to the companys solvency and that it was trading properly and legitimately. The claimants case was successful on the first implied representation, which was made by the defendant personally in email correspondence and arose from the way in which the defendant director accepted the claimants order. This representation continued for so long as the claimant continued to deal with the company and so it was deemed to have been repeated in relation to the September transactions.

The defendant sought to defend the claim on the basis of section 6 of the Statute of Frauds (Amendment) Act 1828 which states that no action may be brought on any representation or assurance relating to the character or creditworthiness of another person, unless the representation or assurance is in writing and signed by the defendant.

It was held that the defendants emails were caught by this section:

"In a modern context, this section will clearly be satisfied if the representation is contained in an email, provided that the email contains a written indication of who is sending the email. It is not enough that it comes from a persons email address without his having "signed" it in the sense of either including an electronic signature or concluding with the words such as "regards" accompanied by the typed name of the sender of the email".

Crucially, if the defendants lies to the claimant had been made in the course of telephone conversations or meetings, with nothing then put in writing by him, the claimants action for deceit would have failed.

This decision follows the decision of the Court of Appeal in Contex Drouzhbar Limited v Wiseman [2007] and again highlights the implications for directors who are acting in the twilight zone between a companys financial difficulty and its possible insolvency. A representation made to creditors some months ago, on which they continue to rely, could still give rise to personal liability, unless the person who made the representation corrects it. If directors have given assurances of solvency where this is no longer the case, they should ensure that further communications are sent to creditors to advise them on the change in the position.

training and events


In-house lawyers' update Manchester office

Our next in-house lawyers' sessions will give in-house lawyers the tools and strategies for dealing with some of the problems caused by recent changes to the law.

View event


In-house lawyers' update Nottingham office

Our next in-house lawyers' sessions will give in-house lawyers the tools and strategies for dealing with some of the problems caused by recent changes to the law.

View event

focus on...


An introduction to EMI share options

Share options granted under the Enterprise Management Incentive Scheme (usually referred to as EMI options) are a popular choice for SME and start-up companies who want to reward and incentivise employees in alternative ways to simply paying them more amounts of cash.



An introduction to EIS and SEIS tax efficient investing

Where a start-up or SME company is looking for external investment, and one or more individuals are looking for investment opportunities which can provide significant tax advantages, it is well worth considering the Enterprise Investment Scheme (“EIS”) or the Seed Enterprise Investment Scheme (“SEIS”).


How to have a settlement discussion with an employee - hear from Kerren Daly

The Acas Code on settlement agreements provides limited guidance on how to conduct settlement agreement negotiations with an employee


Legal updates

The Information Commissioners Office flexes its muscles: first fines under the GDPR

After much speculation about what the first fines issued by the Information Commissioners Office might be we have seen two significant statements of intention to fine in the same month


The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

mailing list sign up

Select which mailings you would like to receive from us.

Sign up