Jetivia S.A. & Anor v Bilta (UK) Limited (in liq) & Ors  UKSC 23
Jetivia S.A. & Anor v Bilta (UK) Limited (in liq) & Ors is a UK Supreme Court case where the directors of a company committed a fraud which caused the company loss. The company liquidators therefore brought proceedings against the directors for breach of fiduciary duty and others for dishonestly assisting them. The issue for the Supreme Court was whether the company was prevented from bringing a claim against the fraudulent directors because it had technically been a party to the illegal acts through its directors and shareholders. This involved consideration of when the acts and state of mind of a company’s directors and agents can be attributed to the company itself.
The Supreme Court found that the illegality defence could not prevent the company’s claims because the directors’ conduct could not be attributed to the company in a situation where the company was claiming against the directors for a breach of their duties to the company.
The company (“Bilta”) was compulsorily wound up in 2009. Bilta’s liquidators claimed that its former directors had involved it in a VAT fraud scheme, which was intended to injure Bilta because it would render it permanently unable to to meet its VAT liabilities to the UK tax authorities. The liquidators sought damages for the loss and brought proceedings against the directors for breach of fiduciary duty as well as claiming against a Swiss company and its chief executive (the “appellants”) for dishonestly assisting the directors in this breach.
The appellants sought to strike out the claim on the grounds of the illegality defence, i.e. that the courts will not assist any person who bases their claim on an immoral or illegal act. The appellants claimed that, through its directors and shareholders, Bilta was a party to the illegality and this prevented it from bringing the claim.
Attribution of acts and states of mind to a company
Under English law, a company has its own separate legal personality and interests. However, the Supreme Court recognised the difficulty caused by the fact that a company is an artificial construct and has no actual mind of its own. A company cannot act by itself and therefore has to do so through its shareholders and directors.
The Supreme Court felt that whenever there is an issue of whether an act or state of mind should be attributed to a company, the answer will depend upon the context in which the question arises. In many cases, including in the context of illegality, the conduct or state of mind of a company’s officer, agent or employee will be attributed to the company. The Supreme Court found that, particularly where a company officer’s breach of duty leads to loss for a third party, the conduct will be attributed to the company so that the company will be liable to remedy the loss.
The Supreme Court found, however, that where a company is making a claim against its directors, the situation is different. Directors’ owe certain duties to the companies which they serve and in the context of those duties, the acts, knowledge and state of mind of a company must be considered separate from those of its directors. The duties exist for the protection of a company against its directors, so in this context the conduct of the directors’ must be separated from that of the company. The Supreme Court felt that a director should not be able to argue that a company committed or had knowledge of a breach simply because he committed or knew about it. If that were the case then the dishonest director or directors would actually be relying on their own dishonesty as a defence. One Lord stated that reaching any other conclusion would “ignore the separate legal identity of the company, empty the concept of duty of content and enable the company’s affairs to be conducted in fraud of creditors”.
Supreme Court’s approach to the illegality defence
The majority of the Lords believed that the proper approach to the illegality defence should be reviewed and addressed by the UK Supreme Court. However, they did not feel that this was the case in which to do so as there had been no real argument on the matter and the case was really focused on attribution.
Two of the Lords felt that when the defence is raised, the nature of the particular claim brought by the particular claimant and the relationship between the parties should be considered. They highlighted that a director’s fiduciary duties to a company differ if it is insolvent (or bordering on it) as his duty then requires him to have regard to the interests of the company’s creditors. The defence has been developed on public policy grounds. The two Lords felt that the public interest underlying a director’s fiduciary duty here was the obligation to protect the interests of an insolvent company’s creditors. They felt the law should not obstruct the enforcement of this duty and that to allow directors to escape liability for breach of their duty “on the ground that they were in control of the company would undermine the duty in the very circumstances in which it is required”. One further Lord expressly disagreed with this analysis. The proper approach to the defence therefore remains unclear.
The Supreme Court unanimously dismissed the appeal because the conduct of the directors could not be attributed to Bilta in these circumstances, for the reasons discussed above.
Bilta’s liquidators had also sought a contribution from the directors and the appellants under section 213 of the UK Insolvency Act 1986, which provides a remedy against a person who has knowingly become party to the fraudulent carrying on of the business of a now insolvent company.
Section 213 of the UK Insolvency Act 1986 relates to fraudulent trading, the corresponding provision for which is section 340 of the Singapore Companies Act.
The appellants argued that, as they were Swiss and French, this section could not be invoked against them because it did not have extra-territorial effect. The Supreme Court dismissed that argument and unanimously found that section 213 has extra-territorial effect because, in a world of increasingly globalised trade, it would be difficult to see how such a provision could achieve its purpose if its effect was confined to the UK.