HR v JAPT Revisited

Many commentators have suggested that the case of HR v JAPT has closed the door on the possibility of directors of corporate trustee companies being held personally liable to members. In fact, the decision leaves the door slightly ajar.

The Facts

The background to the case is one that will no doubt often repeat itself. An independent trustee sued a number of parties, including the director of the former corporate trustee company, for mismanagement of an occupational pension scheme. The director was an important target, because, not surprisingly, the corporate trustee company had no money. The director sought to have the action against him dismissed without a trial, on the basis that he could not in law be liable, because of his status as a director. Judgment was given by Mr Justice Lindsay in the Chancery Division. Whilst the director was successful on some grounds, the judge held that he could in law be held personally liable on two grounds and that the case on those grounds should continue.

How did the Plaintiff seek to make the director of the trustee company personally liable? Five arguments were advanced:

1. Directors of corporate trustees owe a direct fiduciary duty to beneficiaries.
2. Directors of corporate trustees owe a direct tortious duty to beneficiaries.
3. The corporate veil of the trustee company should be lifted in such circumstances.
4. Where they have procured or assisted in a breach of trust directors of corporate trustees could be liable as accessories.
5. Directors of corporate trustee companies owe an indirect fiduciary and / or indirect tortious duty to the beneficiaries.

The Result

Mr Justice Lindsay rejected the first three arguments. However, he found that the other two grounds were sustainable in law and must be tried on their facts to determine whether the director was personally liable in this case. This means that the directors of corporate trustee companies can be drawn into lengthy and costly litigation at their own expense and, depending on the facts, can be held liable.

The Accessory Liability Argument

The Plaintiff argued that a director can be liable as an accessory. This argument was successful, but dishonesty on the part of the director would have to be established for liability to attach.

The Indirect Duty Argument

The Plaintiff argued a director can be liable for breach of an indirect fiduciary duty or duty of care to the beneficiary. The reasoning being

1. that the director of the trustee company owed a duty of care to the company itself;
2. by breaching that duty the company suffered a loss, namely the bringing into existence of a claim by the beneficiaries of the pension scheme;
3. therefore, the trustee company had a claim against the director, which as a trust asset, could be brought by the beneficiaries. Importantly, it would not be necessary to establish that the director acted dishonestly to succeed on this ground.

Conclusion

HR v JAPT shows that there are circumstances in which the director of a trustee company can be personally liable, notwithstanding the existence of a corporate structure designed to provide protection from such claims. The liability may not be as strict as that of a trustee, but the cost of defending a case to trial could be just as great.