The plaintiff sued the first defendant for negligent misstatement when the

The plaintiff sued the first defendant for negligent

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The plaintiff sued the first defendant for negligent misstatement when the franchise failed to make profits but made losses instead. Upon the winding-up of the first defendant company, the plaintiffs joined the second defendant in the action and subsequently proceeded against only him when the company was dissolved. The question was whether the second defendant could be held personally liable for the tort committed by the company. The House of Lords held that the second defendant was not liable for the negligent advice given by the first defendant as there was no special relationship between him and the plaintiffs. However, a director who commits fraud against a third party, along with the company, may be personally liable for losses caused ( Standard Chartered Bank v Pakistan National Shipping Corp [2002] BCC 846 (see chapter 29.3). 20.3.4 THE COMPANY MAY EMPLOY ITS OWNERS Since a company is legally separate from its owners the latter may become its employee and entitled to the attendant benefits. Download free eBooks at
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BUSINESS ORGANISATIONS AND AGENCY 369 CORPORATE PERSONALITY Lee v Lees Air Farming Ltd [1961] AC 12 , the majority shareholder (2999 out of 3000) of a fertiliser spraying company was its sole director. He was also employed as the company’s chief pilot on a specified salary. He was killed in a plane crash while working for the company. The widow sued for compensation for his death. It was held that Lee was an employee of the company for the purposes of compensation under the company’s insurance policy. Secretary of State v Bottrill [1999] BCC 177 . In this case, it was held that a sole shareholder/ director of a company was to be regarded as an employee of the company for the purposes of recovering a redundancy payment under an employment contract. Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] EWCA Civ 280 – The claimant was the majority shareholder and director of a company which had become insolvent while owing him arrears of wages. He claimed the arrears of wages as well as redundancy and holiday pay from the company. It was held that as long as the contract of employment was genuine and not a sham, the claims were proper. 20.3.5 THE COMPANY IS NOT AN AGENT OF ITS SHAREHOLDERS An incorporated company is not an agent of its shareholders (including corporate shareholders) and have no actual or apparent authority to bind them. In Gramophone and Typewriter Co Ltd v Stanley [1908] 2 KB 89 , an English company doing business in England owned all the shares in a German company. The question was whether the English company was liable to pay tax on all the profits of the German company. It was held that the fact that all the shares in the German company were owned by the English company did not make the business of the German company the business of the English company so as to render it liable to income tax under English law. The English company was only liable to pay income tax on such profits of the German company as had been received in England.
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