No area of company law seems to have generated greater controversy and uncertainty in recent times than corporate attribution. There have been at least seven decisions handed down in the last decade from the highest appellate courts around the common law world, including the UK Supreme Court, the Singapore Court of Appeal, the Hong Kong Court of Final Appeal, the Privy Council and the Canadian Supreme Court. Most judges and commentators have essentially endorsed and adopted the contextual and purposive approach espoused by Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission. While this approach has its merits, it is vulnerable to the criticism that it yields unpredictability and uncertainty. Although the Meridian approach could deliver justice on a case-by-case basis, it does not engender a coherent account of the law that provides sufficient guidance to judges and litigants. This partly explains why the number of appellate lawsuits in this area of law has not diminished. Thus, Lord Sumption’s approach to attribution in Bilta (UK) Ltd v Nazir (No 2) under which the rules of attribution should operate regardless of the context unless the breach of duty exception is applicable seems appealing. This is because it may provide more certainty and predictability than Meridian’s contextual approach, which has been endorsed by the UK Supreme Court in the latest decision on attribution, Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd.
While strong arguments in favour of a context-sensitive, policy-based approach to corporate attribution and the illegality defence have been made, the Meridian approach does not yield sufﬁciently clear and predictable guidance to lawyers and litigants. It has been shown, for example, that the ‘range of factors’ approach to the illegality defence is open to the criticisms of indeterminacy, incommensurability and rights-based reasoning.
In a recent paper, written for an edited collection in honour of Lord Sumption, I critique Lord Sumption’s approach and consider whether we should move away from a context-based to a rule-based approach. My paper proposes a rule-based approach to attribution comprising a two-step framework that consists of asking, ﬁrst, whether the purpose and scope of the defendant’s duties cover the losses sustained by the claimant, subject to any clear statutory restrictions or exceptions. If the answer to this question is ‘yes’, we move on to the second step and ask whether allowing the claimant to sue will result in a wrongdoer (who may or may not be the same person as the defendant) proﬁting from its own wrongdoing. If, however, the answer to the ﬁrst step of the framework is ‘no’, there is no need to move on to the second step. If the answer to the ﬁrst question is ‘yes’ and the second question ‘no’, then the claimant should not be barred from suing the defendant on attribution grounds. In other words, the state of mind or acts of the company’s insiders should not be attributed to the company so as to preclude the company from suing either its insiders or third parties for breach of duties, where the illegality defence is raised by the defendant. However, if the answer is ‘yes’ to both the ﬁrst and second questions, then unless there is a mechanism that can prevent the wrongdoer from proﬁting from its own wrongdoing under the second step of the framework, courts should hesitate in allowing the claimant to sue the defendant.
It is argued that this two-step framework is supported by authorities and is able to explain the reasoning and outcome of important cases including Bilta (UK) Ltd v Nazir (No 2), and is also able to provide a clearer framework for analysing difﬁcult cases such as Safeway Stores Ltd v Twigger and Julien v Evolving Tecknologies and Enterprise Development Company Ltd, as well as controversial ones like Stone & Rolls Ltd v Moore Stephens. Equally importantly, it is submitted that the proposed framework provides a more coherent and principled basis for the law of corporate attribution, thereby improving clarity, certainty and predictability.
Ernest Lim is Associate Professor at the Faculty of Law, National University of Singapore.