This old legal principle was recently applied by the England and Wales Court of Appeal in Safeway Stores Ltd & Ors v Twigger & Ors  EWCA Civ 1472. The case was about the Safeway Group being prosecuted for fair-trading breaches and subsequently trying to sue their own directors and employees for compensation, having obviously caused these breaches. As to what extent is unclear, but it seems that no deliberate conduct was involved.
The Court of Appeal applied the above principle, which in simple terms means that you can not sue someone if it is in connection with your own illegal conduct. For example, if you receive a stolen TV form a burglar, knowing it to be stolen, but relying on the thief’s claim that the TV is in working order, when in fact it is damaged, you can’t then later sue the thief for damages. Makes sense.
In Safeway, the Court seems to have applied the principle, but also explained that the liability was ‘personal’ to the company (Safeway Group) and could therefore not be imposed on someone else. Again, this makes sense and is consistent with the understanding that an employee cannot be liable for damages occurred through his negligent behaviour. In other words, everyone makes mistakes, and if employees were fully liable for all their (daily) small and big mistakes which just happen, no one would make decisions anymore – it would just be too risky.
But Safeway doesnt mean that directors and employees are never liable. The recent economic crisis has highlighted the fact that directors are responsible if they act fraudulently or with the knowledge that their conduct can bring the whole company down. Legally, the company is a separate legal entity independent from the CEO or Director who runs it. Third parties therefore have no recourse against the acting directors/CEOs as they only represent the company. But the company can, internally, go after its own directors/CEOs for damages if their conduct was in deliberate breach of their duties.
In Safeway the conduct of the directors/employees fell short of that kind of behaviour and that is what the Court established. It did not, however, say that there is never any liability and that a company can never sue their own directors – there is no immunity.
Employers should keep that in mind.