The following scenario is relevant to the assignment question.
John incorporates a company called John Enterprises Holdings Limited (JEHL) with John as director and shareholder. One of his friends, Hilton, is also a shareholder. John and Hilton are both wealthy but JEHL is incorporated with a low share capital. There are also several subsidiary companies, all with a low share capital. One of the subsidiary companies, Spray Rite Limited (SRL – of which John is also a director), is involved in spraying pesticides for farmers but one day an employee of SRL sprays a farm with far too much of a particularly poisonous kind of spray. This damages the crop on the farm that is SRL’s client and also damages the crop of a neighbouring farm owned by Kate.
Kate investigates what happened and learns that John had meetings with her neighbour and had some kind of role in the operation although the details are vague. She then consults a lawyer. The lawyer advises Kate that the employee who sprayed the crop will be liable in the tort of negligence to her and SRL will be vicariously liable. However the lawyer also advises that there is little use in suing either the employee or SRL as the employee has very few assets and SRL has a low share capital. Even if legal action was successful there would not be enough to cover the cost of suing let alone recover damages. Kate asks if John can be sued personally and the lawyer advises that directors and/or shareholders cannot usually be sued personally although there have been some situations where the courts have allowed this. The lawyer concludes by saying that the law here can be difficult and he would need more information about John’s involvement.
Assignment Question
The concepts of separate legal personality and limited liability are fundamental to company law. Discuss these concepts and also discuss when the court might hold the director of a company liable in negligence as well as the company despite these concepts. Include reference to leading cases. Also include reference to the scenario to illustrate your answer.
