Company directors can still be liable for civil contempt

21 March 2024

In the recent decision of ADM International Sarl v Grain House International SA and Elhachmi Boutgueray [2024] EWCA Civ 33, the Court of Appeal (CA) has confirmed that company directors can still be liable for civil contempt following revisions made to Part 81 of the Civil Procedural Rules (CPR) in 2020. Below we look briefly at what the CA has said about the changes to CPR 81, together with some key takeaways about director’s contempt in the context of this decision.

What are the facts of ADM International Sarl?

On its facts, this case was an appeal against the decision of Mrs Justice Cockerill that both appellants were in contempt of court for breaches of orders endorsed with penal notices. These breaches were punishable by way of a £75,000 fine imposed on Grain House International (GHI) and an order that Mr Boutgueray (company director & CEO) be committed to prison for 12 months. The appeal was against the findings of contempt, and against the fine and custodial sentence.

The committal proceedings which resulted in the findings of contempt against both the appellant company and its director had arisen out of proceedings issued by ADM to enforce a multi-million dollar money judgment obtained against GHI. Following the grant of an asset disclosure order (ADO) in aid of enforcement, GHI had been required to provide information as to its bank accounts and to specify the "value, location and details" of all assets exceeding a specified value. ADM had also obtained a worldwide freezing order (WFO) and further disclosure order (FDO), bringing proceedings against GHI and Mr Boutgueray for alleged breaches of the ADO, FDO and WFO.

The judge at first instance made various findings of contempt against the company based on breaches of these three orders. Cockerill J also held that Mr Boutgueray was liable for the company's contempt because he had known of and been responsible for its breaches.

What did the CA say in ADM International Sarl?

In largely dismissing the appeal against the findings of contempt and associated penalties imposed by the lower court, the CA confirmed that a director's liability for a civil contempt committed by a company for which the director was responsible was a matter of substantive, not procedural, law. As such, the question of civil contempt was unaffected by the removal in 2020 of CPR 81.4(3).

By the Civil Procedure (Amendment No 3) Rules 2020 (SI 2020/747), CPR 81 was entirely replaced by a simplified and reduced Part 81. As explained in the foreword to the Consultation Paper leading to the 2020 Revision by Lord Justice Coulson, the then Deputy Head of Civil Justice, the revisions were intended to omit substantive law which was replicated in the existing Part 81, and to retain and revise procedural provisions which were causing frequent difficulties. The revisions were simply intended to strengthen the procedural rules, as reflected in the new Rule 81.1(2) and (3) which provide that Part 81 "does not alter the scope and extent of the jurisdiction of courts determining contempt proceedings, whether inherent, statutory or at common law", and "has effect subject to and to the extent that it is consistent with the substantive law of contempt of court."

In quashing just one of the findings of contempt, the CA reduced the company’s fine to £50,000 and the director’s custodial sentence to 6 months but, save in these respects, the appeal was dismissed.

What are the key takeaways from ADM International Sarl?

At the heart of this case, and of particular interest to creditors and company directors alike, will be the CA’s consideration of the status of the court’s power to punish the directors of a company who are responsible for its breach of a court order following the introduction of the new CPR 81.

Coined the ‘responsible persons liability principle’, it was acknowledged by the CA that the revised version of CPR 81 in force since October 2020 does not contain a provision equivalent to the previous Rule 81.4, which expressly stated the existence of this principle. However, in handing down the leading judgment, Lord Justice Popplewell makes it clear that the power to punish disobedience of court orders as a civil contempt derives from the court's inherent jurisdiction. This power was merely restated by the former CPR 81.4, and thus was unaffected by the revisions, rather than the previous provision representing the source of the principle that was implicitly repealed.

This outcome was reached for similar but broader reasons to those of Mr Justice Foxton in Olympic Council of Asia v Novans Jets LLP [2023] EWHC 276 (Comm) in which it was found that it is still possible to commit the director of a body corporate for the corporation’s breach of a court order, where jurisdiction to do so had not been removed by the 2020 amendments to the CPR.

It therefore continues to be feasible for a director to be liable for a company's civil contempt where the director was responsible for its commission, providing welcome clarity to litigants interested in procuring a corporate respondent’s compliance with court orders. In particular, directors are not left in the same position as any other third party to an order, namely susceptible only to criminal contempt, with the required mental element of an intention that the order should be breached.

Legal disclaimer

The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions.

Before acting on any of the information contained herein, expert advice should always be sought.

The Dispute Adviser

A legal blog by Melissa Worth
You can also follow and/or contact me on:
Copyright
2024
 © All rights reserved
Design by John Cooper
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram