Milne v Gray and another: Personal liability of directors.

5 June 2008

In two associated actions against the two individual directors and sole shareholders of a limited company (Scotts Private Client Services Ltd) which carried on business as accountants, the pursuers sought damages for fraudulent and alternatively negligent misrepresentation on the part of the directors.

In each case the pursuers invested funds in a scheme offered by an English firm of accountants. The funds were placed with the pursuers and remitted by Scotts. The use made of the funds is a matter which is being investigated by the authorities in both the UK and the USA. The claims were based on representations in Scotts' letters to each pursuer relating to professional indemnity cover.

It was averred that the defenders had no honest belief in these representations; they were thus guilty of fraudulent misrepresentation. The negligent misrepresentation case was based on allegations of assumption of personal responsibility on the part of the directors. Lady Dorrian dismissed both actions in their entirety.

The case is of interest because of the attempt to impose personal responsibility on the directors for services performed by the limited company. It also serves as a reminder of the observations of the late Lord McFadyen in Royal Bank of Scotland v Holmes 1999 SLT 563 that a party averring fraud had to clearly and specifically identify the act or representation founded upon.

Gordon Reid QC of Axiom Advocates appeared for the defenders.

http://www.scotcourts.gov.uk/opinions/2008CSOH84.html