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.
