Lloyd's Maritime and Commercial Law Quarterly
CORPORATE PERSONALITY AND ASSUMPTION OF RESPONSIBILITY
John H. Armour *
A company’s personality is a legal fiction. When it “does” something, this can only be effected by the real actions of an individual associated with it, and the attribution of those actions to the company.1 Where the actions in question give rise to liability, we can conceive of this being fixed on either the company or the individual, or both. The appropriate choice in a given context depends on the purpose behind the rule generating liability—whether it be tortious, contractual or criminal. Where the individual is a shareholder, the corporate law principle of limited liability may also figure in the choice. The recent House of Lords’ decision in Williams v. Natural Life Health Foods Ltd
2 concerning the application of Hedley Byrne liability in the context of what was effectively a one-man company, provides a good illustration. It demonstrates that, although the “assumption of responsibility” doctrine is nominally tortious, in purpose it is closer to contract than to most torts. It also affirms—perhaps with questionable justification—the absolute force of the principle of limited liability in English law. This piece will seek first to elucidate the legal framework in which the issues were set, and secondly to offer an analysis of some of the policy considerations relevant to the decision.
Richard Mistlin ran a very successful health food shop in Salisbury as a sole proprietorship. In order to capitalize on his success, he set up a company through which to franchise the brand to others. Mistlin was the principal shareholder and managing director. Through its promotional literature—which among other things promised potential franchisees “independence and security”—the company represented that it had expertise in the franchising of health food. This was true insofar as Mistlin had previous experience in the health food business, although not of franchising it, and one of the other directors, Ron Padwick, had previous experience in franchising transactions, although not of health food. The plaintiffs wanted to set up a health food shop in Rugby, and approached Mistlin’s company about a franchise. In the pre-contractual discussions, turnover forecasts were prepared for the plaintiffs which subsequently turned out to be wildly optimistic. Mistlin was involved in the preparation of the figures, and it appears that he authorized their issue to the plaintiffs notwithstanding private reservations expressed to him by Padwick. The plaintiffs’ shop was not a success, and they sued the company for misrepresentation and negligent misstatement.
* Lecturer in Law, University of Nottingham. I am grateful to Michael Bridge, Geoffrey Morse, Dan Prentice and especially Stephen Bailey for their comments on earlier drafts. I also thank the participants in a University of Nottingham Centre for Commercial Law seminar at which I presented this material.
1. See Meridian Global Funds Management Asia Ltd v. Securities Commission [1995] 2 A.C. 500, 506–507, per Lord Hoffmann.
2. [1998] 1 W.L.R. 830.
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