Directors Who Misled Creditor Personally Liable
When a supplier to a marquee company was not paid for goods it had supplied, the directors told the supplier that the company was waiting for an insurance claim to be settled, after which payments would be made as usual.
In reality, there was no insurance claim pending. A director of the marquee company later claimed that it was being sold. The supplier was told that when the sale went through, the creditors would be paid.
When the supplier remained unpaid, it not only claimed against the marquee company but also sought damages from the two directors.
The supplier argued that both of the representations made to it were false and that it relied on them to its detriment, because it had, as a result, not issued proceedings earlier. In particular, it had not exercised its rights under a retention of title clause.
The judge ruled that the first representation was made falsely and the second was made recklessly because it was made without regard to whether the company could or could not pay its creditors. The supplier had suffered as a result because it had relied on the representations. The actions of the directors had dissuaded the supplier from repossessing its goods or suing for the outstanding sums due to it.
Accordingly, the directors had committed a deceit on the supplier and were personally liable to it for the sum it would have been able to recover under its retention of title clause.
The directors appealed, arguing (in effect) that the law prevents guarantees being actionable unless they are in writing. However, the Court of Appeal accepted that this rule did not apply because there was no question of further credit being offered. In this case, the misrepresentations related to the continuation of outstanding debts and dissuading the creditor from taking action to collect them.