Jul 17, 2017

Can A Director Be Sued Personally for an Alleged libelous letter written by Him? |Rosemond Phil-Othihiwa

It is worthy of note that upon incorporation a company assumes a separate legal entity different from the promoters, shareholders, directors, secretaries, auditors and other members of the company. Section 37 CAMA. This provision enacts the fundamental principle of corporate personality. This concept was laid down under the common law in the celebrated case of Salomon Vs Salomon and Co Ltd(1897) AC 22 where the House of Lords per Lord McNaughten stated the position as follows;

“I cannot understand how a body corporate such as this made capable by statute can lose individuality by issuing the bulk of its capital to one person, whether he be a subscriber to the memorandum or not. The Company is at law a different person altogether from the subscriber… Nor are the members (subscribers) liable…”

The meaning of directors is defined under section 244(1) of the Companies and Allied Matters Act, Cap C20, LFN 2004 as persons duly appointed by the company to direct and manage the business of the company.

However, it is merely an artificial person. Therefore it can only act under the instrumentality of human beings, operating as its agents, either as members in a general meeting, directors or officers. The law generally will attribute the conducts of such individuals to the company and this is the basis of the company’s liability in tort, contract and even crime.

In Bolton (Engineering) Co. Ltd v. Graham & Sons (1957) 1 Q. B 159, Lord Denning stated that:

“A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also had hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does…”

This ratio is on all fours with the decision earlier considered in Lee v Lee Air Farming Ltd (1960) 3 ALL E.R 420  where the court held that Lee is a mere agent of the Company. In Okolo v Union Bank of Nigeria , 2004) 3 NWLR (PT 859)SC 87 , the Supreme court held that a director of the company is in the eye of the law and agent of the company, such that when a Director enters into a contract for a company, the principal which is liable on it not the directors. However, a person will be personally liable for a Contract made in his own name without disclosing either the name of or the existence of a principal to the other Contracting party even though he may in fact be acting on a principal’s behalf. Directors and officers are nevertheless the agents of the company and, under the principles of agency law, are jointly and severally liable with a company for torts committed.

There is no legal reason therefore why a claimant should not sue the directors if they also have assets (which may include a Directors and Officers insurance policy). However, in the light of the House of Lords’ decision in Williams v Natural Life Foods Limited [1998]2 All ER 577 a director is only likely to be found liable if there has been a voluntary assumption of responsibility towards a third party. It is only in exceptional circumstances that directors can face personal liability to third parties, such as in the case of fraud and the well-known doctrine of ‘lifting the veil.’ In the House of Lords case of Standard Chartered Bank v Pakistan National Shipping Corporation (No 2) [2002] 1 All ER 173 a director knowingly and deliberately made a false statement in order to obtain payment on a letter of credit. The House of Lords held that a director cannot escape liability for deceit on the ground that he acted on behalf of and for the benefit of the company. case of Nathaniel Adeniji v State (1992) 4 NWLR (PT 248) 1 the court held that any business which appears to have been handled recklessly or with intent to defraud, the court may declare that any person who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally liable for all or any of the debts or other liabilities of the Company. It is submitted that the work of the Court have been made easier by Section 506(1) of the CAMA which provides that if in the course of winding up of a company, the act has been carried on in a reckless manner or with intent to defraud, the creditors of the Company or creditors of any person for any other purpose, the receiver or liquidator or contributory of the company may, if it thinks proper to do so, declare that any person who were knowingly parties to the aforesaid be made personally liable.

The court went further in Yesufu v Kupper International N.V53 (1996) 5 NWLR (PT 248) 1 that where a director is in the eyes of the law, an agent of the Company, for which he acts, the general principle of agency will apply. The Supreme Court held that where a director enters into a contract in the name of or purporting to bind the company, it is the Company, the principal, which is liable on it, not the director. The director is not personally liable unless it appears that he undertook personal liability. For instance, a Company’s director cannot be held liable for the loan granted to the Company in good faith.

The fact that a corporation is liable for a tortuous act is not necessarily a bar to concurrent liability of the company’s directors or officers. However, for a claim to proceed against a director or officer, the claim will have to include allegations of their personal tortuous conduct.

Recent case law suggests that the specificity of the pleading is the most crucial factor in determining whether a claim can be made out against a director or officer.

In the case of MR. EMMANUEL AGBANELO V. UNION BANK OF NIGERIA LTD (2000)4iLAW/SC.20/1997 This action was brought by the plaintiff/appellant, against the defendant/respondent in the Warri High Court, claiming general and special damages for dishonoured cheque and damages for libel. The salient aspects of the facts which resulted in plaintiff bringing this action are not really in dispute. Plaintiff, a businessman, and a sole distributor of a biscuit manufacturing Company (i.e. Temitope Bakeries and Catering Services Ltd.) was a Customer of the defendant bank. Defendant bank was at all times material to the facts of this case, carrying on the business of banking. They had branches at No.8 Warri/Sapele Road. Warri, where plaintiff opened and operated a current account in his trade name of EPACO (Nigeria) Marketing Company. Plaintiff applied to the defendant sometime in April, 1986 for the issuance of a Bank Draft in favour of the Biscuit Manufacturing Company, payable at the defendants branch in Surulere. The defendant bank in compliance with plaintiff's instructions issued the bank draft to Temitope Bakeries and Catering Services Ltd. Upon presentation by Temitope Bakeries and Catering Services Ltd. for payment, the bank draft was returned to the Company with the endorsement "1st signature irregular." The defendant bank did not honour payment of the draft. Plaintiff thereupon has brought this action claiming damages that the words endorsed on the draft were defamatory of him and that the draft was negligently issued by the defendant. In the High Court, the trial judge dismissed the claims in their entirety because, he held the claim for libel and for negligence were not proved.

It is important to observe that the Learned trial judge did not give reasons for dismissing the claim for libel. With respect to the claim for negligence his reasoning was concisely that-

"The defendant was the Union Bank of Nigeria Limited, (Warri Branch)and not Warri Bank Nigeria Limited (Surulere Branch) nor the Union Bank Nigeria Limited."

The matter went to the supreme court the court held… “and here is no doubt that on the basis of this theory, so in the instant case. The act of a branch is the act of the company. Hence the act of the employee of the company, done in the course of his employment renders the company vicariously liable irrespective of the branch from which the action emanated. The error of the Learned trial Judge and the Court below arose from the reasoning that the branch of the Defendant Bank was different and a separate entity from the parent body. This is a fu0ndamental error which permeated the entire reasoning and faulted it.” The court further stated, In establishing liability in an action for defamation, it is the established principle of law that the question whether a statement is defamatory or not is to consider what the meaning of the words would convey to the ordinary person.Okolo v. Mid-West News paper Corporarion. (1977)NSCC 11 and Dumbo v. Idugboe (1983) 1 SCNLR 29.

With the above case law the correct position where a director writes an allegedly defamatory content on behalf of his company ,the libeled party’s right of action will lie against the company ,owing to the fact that that they are not personally liable since their act is the corporate act. This is because of the concept of a corporate act, not because of limited liability which applies to shareholders, not directors. Their act is the act of the corporation.

Associate Counsel at OLATUNDE ADEJUYIGBE & CO. SAN

Ed's Note - This article was first published here.
Photo Credit -  tab.ie