If you’re chasing recalcitrant company debtors this may be a useful case to have up your sleeve. For directors of debtor companies it’s a clear statement that they can’t simply disregard their creditors and hide behind the security of the limited liability of their companies.
The rule that a guarantee for a debt must be in writing can be traced back to the Statute of Frauds Act 1677. However that rule was circumvented as the result of a case in 1789 (Pasley v Freeman), which decided that if someone fraudulently represented that another was creditworthy, then that representation could form the basis of an action. Unsurprisingly the Courts became clogged up with allegations, sometimes true but often not, that such fraudulent representations had been made.
To address that problem, along came the Statute of Frauds (Amendment) Act 1828, usually known as Lord Tenterden’s Act. Section 6 of that Act said that someone can be personally liable to creditors for deceit if they make a representation to another person, in order to obtain credit, which is fraudulent. However, the representation must be in writing and signed by the person to be charged. So imagine the surprise of Mr West and Mr Phillips when the Court of Appeal found them personally liable for their company’s debts to Roder UK Limited even though they had put nothing in writing (Roder UK Limited v West and Phillips).
Messrs West and Phillips ran a marquee hire company called Titan Marquees Limited. Titan had done business with Roder, a wholesale supplier of marquee equipment, over several years. In March 2007 Roder instructed a debt recovery firm who threatened proceedings. Titan made an agreement with the recovery firm to repay the debt by monthly instalments of £1,000. After three months they realised that repayments at that level were unsustainable, and reduced the figure to £500. Even those payments petered out after a few months.
In March 2009, Roder’s office manager contacted Mr Phillips who explained that there was an insurance claim pending and that once the payout was received the payment plan would be resumed. In fact, there was no insurance claim.
Some while later, the managing director of Roder spoke to Mr West, who said that Titan was selling up at the end of the trading season (marquee hire is a highly seasonal business) and that all debts would be paid off out of the sale proceeds. In fact, there was already a contract in place to sell the business and there would be no further capital payment.
In May 2010 Roder finally issued proceedings against Titan for the outstanding unpaid invoices, and against Mr West and Mr Phillips in the tort of deceit. The basis of the claim against the directors was that, as a result of their representations, Roder had delayed issuing proceedings and had refrained from exercising their rights under the retention of title clause in their terms of trade.
The Court agreed with Roder. Mr Phillips’ representation about the insurance payout was false, and he knew it; Mr West’s claim about the business sale was reckless and without regard to the likelihood of Titan being able to meet its debts in full. They could not rely on section 6 of Lord Tenterden’s Act because the representations were not made to obtain credit or goods. The credit was already obtained, and that it had been extended beyond the 30 days’ contractual term was hardly with the consent of Roder once the payment plan broke down. There was no chance that, in 2009 when the representations were made, Roder would supply further goods. So the directors had to pay up even though they had put nothing in writing.
See BAILII for a copy of the transcript of the judgement in this case.
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