Williams v Natural Life Health Foods Ltd

An agent or company director is not personally liable for negligent advice merely because the agent performed the work, controlled the company or possessed the relevant expertise. Personal liability for economic loss requires objective words or conduct conveying an assumption of personal responsibility towards the claimant. The claimant must actually and reasonably rely upon that personal assumption, rather than solely upon the undertaking of the company.

A special relationship with the principal does not establish a special relationship with its agent. Internal company arrangements and prominent participation in producing negligent advice are insufficient. An agent who is a stranger to the company’s assumption-of-responsibility relationship cannot be liable as its joint tortfeasor on that basis.

The respondents obtained a health-food franchise from Natural Life Health Foods Ltd after receiving a brochure and financial projections prepared on the company’s behalf. The appellant was its managing director and principal shareholder. He contributed substantially to the projections, and the brochure emphasised experience derived from his business activities, but the respondents had no material pre-contractual dealings with him.

The franchise failed, and the respondents claimed damages for negligent advice. Langley J held the company and the appellant liable under the assumption-of-responsibility principle: Williams v Natural Life Health Foods Ltd [1996] B.C.L.C. 288. Following the company’s dissolution, the claim proceeded against the appellant alone. A majority of the Court of Appeal upheld his personal liability: [1997] 1 B.C.L.C. 131.

The central question was whether the appellant had personally assumed responsibility for the company’s advice and whether the respondents had reasonably relied upon that personal assumption.

Disposition

The appeal was allowed unanimously. Lord Steyn delivered the leading speech. Lord Goff of Chieveley, Lord Hoffmann, Lord Clyde and Lord Hutton agreed with his reasons and the proposed order.

1. Per Lord Steyn, the principles governing recovery of economic loss from negligent services were those stated in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, extending the assumption-of-responsibility principle in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. The principle applies to services as well as statements. Liability depends upon an assumption of responsibility and causative reliance.

2. A company is a legal person separate from its directors, employees and other agents. An agent may incur personal liability while also exposing the principal to attributed liability, but a special relationship between the claimant and the principal is insufficient. The agent must personally assume responsibility so as to create a separate special relationship with the claimant.

3. Whether responsibility was assumed is determined objectively. The primary focus is upon words or conduct by the agent, or on the agent’s behalf, which cross the line to the claimant and convey personal responsibility. Internal arrangements between a company and its director cannot establish that responsibility. The director’s control of the company, pivotal role or possession of relevant expertise does not, without more, communicate a personal undertaking.

4. The claimant must also have relied actually and reasonably upon the individual’s personal responsibility. Reliance on the individual’s expertise when contracting with the company is insufficient. The circumstances must justify reliance upon the individual, rather than the company, for indemnification.

5. The brochure and projections did not convey such an undertaking. The respondents had no personal dealings with the appellant, and no communication or conduct crossed the line between them. There was no evidence that they believed he had assumed personal responsibility or could reasonably have looked to him for indemnification.

6. The proposed joint-tortfeasor ground was not open because it had not been pleaded, decided at trial or preserved for the appeal. It also failed substantively. The company’s liability depended upon its special relationship with the respondents, to which the appellant was a stranger. His involvement in preparing the projections could not make him a joint tortfeasor without his own special relationship with them.

The appellant’s costs in the Court of Appeal and House of Lords were ordered to be paid from the Legal Aid Fund under section 18 of the Legal Aid Act 1988, subject to a four-week suspension permitting objection.

1. House of Lords: The appellant’s appeal was allowed unanimously. The Court of Appeal’s decision imposing personal liability was set aside: Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830.
2. Court of Appeal: By a majority, Hirst and Waite LJJ dismissed the appellant’s appeal and upheld his personal liability. Sir Patrick Russell dissented: [1997] 1 B.C.L.C. 131.
3. High Court: Langley J held that both the company and the appellant were liable for negligent advice on the basis of assumed responsibility: [1996] B.C.L.C. 288.