Are Strict Liability Offences Indemnifiable?

In the Autumn 2009 edition of our Directors' & Officers' Liability review we drew attention to the strict liability regime applicable to directors of Phoenix companies by virtue of section 216 of the Insolvency Act 1986. In our recent briefing note, we considered the implications of an attempt by Safeways to seek indemnity from its own directors and employees in respect of its liability to pay penalties for breaches of the Competition Act. Now a new decision of the High Court brings these two themes together. It addresses the question as to whether a director in breach of section 216 of the Insolvency Act 1986 is entitled to sue his professional advisers for an indemnity in respect of his loss, including the fine itself.

The facts

On 4 February 2010, the High Court handed down judgment on a strike out application in proceedings brought by Mr Robert Griffin against UHY Hacker Young & Partners, a firm of chartered accountants which operates a turnaround and recovery unit. Mr Griffin's case against Hacker Young is that they failed to advise him that his conduct might contravene section 216 of the Insolvency Act 1986. It will be remembered that this section prohibits directors of companies that have gone into insolvent liquidation from becoming a director or being involved in the management of a company reusing the same or similar name without giving notice to creditors or obtaining the leave of the court.

Mr Griffin was sole director of a company by the name of Saxon Drinks Limited which went into creditors' voluntary liquidation in 2004. He then became involved in the incorporation of a company called Brand Central Limited which took over the marketing of a brand of soft drink formerly sold by Saxon. As a result, he was convicted by Richmond Magistrates Court of the strict liability offence created by section 216(3) of the Insolvency Act and was fined £1,000.

He brought proceedings against Hacker Young not just to recover the penalty but also additional damages said to flow from the allegedly negligent failure to advise. These damages included the loss of a shareholding in an SEC registered investment advisory company which he could not retain due to SEC disclosure rules following his criminal conviction.

Hacker Young denied Mr Griffin's claim. They argued that they did not owe him any duty of care and were not, in any event, negligent. They also argued that even if Mr Griffin's claim was made out, it would be barred on the grounds of the 'ex...