No hiding in the shadows – holding directors to account

Two recent cases show the circumstances in which the court will allow contempt proceedings against directors for actions taken by their companies. 

Phonographic Performance Limited v Nightclub (London) Limited involved the defendant nightclub playing without the necessary licence music that belonged to the claimant.  The claimant obtained an injunction which was served both on the company and its sole director, the second defendant.  The nightclub continued to play the claimant’s recordings in breach of the injunction.  Neither the company nor its director attended any of the court hearings.

The court held that there was no doubt that the company was in contempt by continuing to play the infringed music.  Its sole director was the controlling mind of the company but deliberately chose to ignore the injunction.  Accordingly he was also in contempt.  Although it was exceptional to proceed with a contempt hearing in the absence of a defendant, it was appropriate to do so here.  The defendant was aware of the hearing but had chosen not to attend.  However, the court directed that there be a further hearing (and a final opportunity for the defendant to attend) before sentencing took place.

Navig8 Chemicals Pool Inc v Nu Tek (HK) & others also considered a contempt application in the absence of the directors.  In this case the claimant obtained a worldwide freezing order, which required the respondent company to disclose details of its assets within four days.  The second respondent (the company’s sole director) subsequently filed a notice of resignation, being replaced by the third respondent.  The second respondent remained chairman and MD of the company’s parent.   The company failed to comply with the disclosure order and the claimant issued contempt proceedings, which were served on the three respondents.

Again, the respondents failed to attend court and the hearing proceeded in their absence.  The court was satisfied that, notwithstanding the purported resignation, the second respondent remained in effective control of the company and was its shadow director.  The refusal to comply with the disclosure order was deliberate, as was the decision not to attend court.  All three respondents were found to be in contempt.  On this occasion the court was prepared to sentence in the respondents’ absence – an adjournment was unlikely to secure their attendance and a further delay would cause prejudice to the claimant. The second and third respondents were respectively sentenced to 18 and 12 months’ imprisonment.

These cases give a helpful reminder of how seriously the court takes a deliberate breach of its orders.  They are also a warning to any director not to hide behind the actions a company for which they are ultimately responsible.

For further information on how our litigation lawyers can help you to comply with your directors duties.