Oil be the judge of that!
- AuthorPerdeep Grewal
Can directors be held personally liable for representations they make on behalf of a company?
In the case of Inter Export LLC v Jonathan Townley and Yaroslavna Lasytsya  EWCA, the Court of Appeal upheld an earlier decision for damages against a company director who made false representations about her company’s ability to pay the contract price for a cargo of sunflower oil.
In September 2012, Inter Export LLC, a supplier of sunflower oil, entered into a contract with a UK based company for the shipment of $1.2m worth of sunflower oil. Prior to agreeing terms of the contract, in or around July 2012, Inter Export requested multiple assurances from Ms Lasytsya, the defendant director, that her company would be able to make payment. Inter Export relied on these representations and therefore purchased the sunflower seeds, extracted the oil and provided the oil for shipment through a third party.
Inter Export subsequently received SWIFT transfer documents which indicated payment was made. However, by the time Inter Export realised the SWIFT documents were forgeries, the oil had already been shipped. Inter Export failed to receive any payment for the oil.
Inter Export sued Ms Lasytsya and a co-director and sought damages for misrepresentation. The High Court found Ms Lasytsya’s assurance that payment would be made for the oil amounted to misrepresentation and the forged bank SWIFT documents were evidence of the continued misrepresentation. The High Court awarded damages to Inter Export to reflect the market value of the sunflower oil.
Ms Lasytsya appealed to the Court of Appeal and submitted that the findings regarding pre-contractual representations were inadequate; the measure of damages should be limited to Inter Export’s production costs and not the market value of the oil.
The Court of Appeal disagreed and undoubtedly found Ms Lasytsya made representations that the purchasing company had sufficient means to make payment for the oil. Ms Lasytsya was under a continuing responsibility to determine the accuracy of her representations.
With regards to damages, the misrepresentation continued. Inter Export was unable to take any steps to stop the cargo from being dispatched because it believed the payment was sent by SWIFT. The loss was therefore assessed at the value of the oil in the market and not at the cost of processing.
What could this decision mean for you as a director of a company?
A limited liability company is a separate legal entity from its directors and shareholders. This means they would not be liable for the debts of a company. However, the Court of Appeal’s recent decision acts as a useful reminder that company directors should bear in mind their potential personal liability for any representations they make on behalf of a company. Directors have an ongoing responsibility to:
- Ensure any representations made, which another party may rely upon, are accurate;
- Make sure that any representation that your company has funds to pay is a continuing representation; and
- If you become aware that an earlier representation was false at the time it was made, communicate this immediately.
If you are a supplier of goods or a director of a company and would like further advice about misrepresentation, please feel free to contact me for an initial chat. I am based at our Chelmsford office and can be contacted on 01245 453 804 or alternatively, you can email me at firstname.lastname@example.org