INTRODUCTION

The role of a company director carries significant duties and responsibilities. This extends beyond the duty to act in the best interest in the running and management of the company’s affairs but also a duty to ensure compliance with court orders requiring the company to do an act or abstain from doing an act. Directors may be personally liable when a company is found in contempt for disobeying court orders.

This article explores 3 distinct scenarios where directors' acts or omissions, can lead to them being held personally liable for disobeying court orders.

Scenario 1: Director personally named in the court order

The most straightforward scenario is when a director is named as a party in the court order. In such a case, if it is proven beyond reasonable doubt that a director has knowingly breached the terms of the court order, he can be held directly liable for contempt. The director’s knowledge of the terms of the order allegedly breached is a paramount consideration when the court decides whether the alleged contemnor is guilty of contempt[1].

Scenario 2: Director not named in the court order - Aiding and Abetting a breach of court order

When the director is not named in the court order requiring the company to do an act or abstain from doing an act, liability for contempt can still arise in two scenarios. Firstly, similar to how the court can find any third party not named in the court order liable for contempt, a director may be found liable for aiding and abetting the company’s breach if he knowingly assists or encourages the breach of the court order. By aiding and abetting a breach, the director has interfered with and obstructed the course of justice[2] even though he is not named as a party to the order and not bound by the terms of the order.

Knowledge of the terms of the order by the director must be proven for the director to be guilty of aiding and abetting a breach. Even though the contempt is in the nature of interference with or obstruction to the administration of justice, the court has to be satisfied that the third party not named in the proceedings (the director) was aware of the terms of the order and there was an intention to interfere with or obstruct the administration of justice[3].

The distinction between directly breaching a court order and interfering with and obstructing the course of justice is crucial when formulating contempt charges. A charge framed incorrectly may be set aside on the ground that the charge is incurably defective and flawed.

Scenario 3: Director not named in the court order - Failure to ensure compliance with the Court Order

Secondly, a director may be liable under O. 45 r. 5 of the Rules of Court 2012 (“ROC”) specifically for failure to ensure compliance with court order in respect of an order made against the company.

Personal service of the court order on the officer of the company is a prerequisite to enforcement of orders under O. 45 r. 5 against the particular officer[4] unless the Court dispenses with the requirement for service. An order requiring a person to abstain from doing an act, i.e. a prohibitory order, may be enforced notwithstanding service of the order has not been effected if the Court is satisfied that, pending such service, the person has notice of the terms of the order[5]. The court also has general powers to dispense with service of the order, even if not prohibitory, if it thinks just to do so[6].

Personal service is a necessary process to make clear to the officer the terms of the order and the fact that the officer must use his position as an officer of the company to effect compliance of the court order[7]. It is also mandatory that the order served must contain a penal notice informing the officer on whom the order is served the consequences of disobedience[8].

A director’s liability for failure to ensure compliance of court order can arise even where the director played a purely passive role and there is no requirement for active participation[9]. Therefore, failure to supervise, failure to investigate and wilful blindness may form the basis of the director's liability for failure to ensure compliance of the court order[10].

Just as in the first and second scenarios, knowledge of the terms of the order must be proven beyond reasonable doubt before the court can find a director guilty of contempt for failing to ensure the company’s compliance with a court order.

COMMENTARY

Central to any contempt finding for breach of court order, whether against a director or otherwise, is the requirement of proving knowledge of the terms of the order. The applicant seeking to establish contempt must prove beyond reasonable doubt that the alleged contemnor had knowledge of the terms of the order. This requirement of knowledge forms the necessary foundation in building a successful contempt case arising from a breach of court order.

Whether one is applying for or defending contempt proceedings, it is important to recognise the different scenarios where directors’ liability may arise. For applicants, understanding the nature of the alleged act is critical for accurately framing the contempt charges. For those defending, recognizing the scenarios is necessary to develop the appropriate defences.