Corporate Liability in case of Tort and other Civil Liabilities after Hong Kong Company Establishment


Not only the officials of the company can be made liable in case of wrong done, instead legislation for the Hong Kong company establishment makes company itself liable for any tort or other civil liabilities, covered under either common law or statue. Now you may be reckoning that in case liability is imposed on the company then it would have effect on the company’s profit. So, yes! You are absolutely right in this and imposition of liability would for sure reduces profits of the company, which were available for distribution among shareholders of the company. So, in this sense we can say that shareholders would be the ultimate authority of the burden who would bear the burden of company’s liability. Now you may be thinking that why shareholders would be the ones who would bear the burden of this liability. This is supported with the argument as per which after company formation HK shareholders are the risk bearers in the company and they are basically the centre of attention, for the benefit of whom activities of the company are being undertaken.

Principle of Vicarious Liability

For any tort or any civil liability after set up company in HK, Principles of Vicarious Liability can be invoked to impose liability on the company. Though there exist doubts in the imposition of liability upon the company but after thorough discussion, now it has been established that company would be help principally liable in case of any wrong doing or any acts of its employers or agents, done during the tenure of their employment or authority.

Principle of Primary Liability

Instead of making company liable indirectly, company can still be made liable primarily rather than being made liable vicariously. For example, consider the situation where company is under the duty of care to its employees such as to ensure the safety of its workers or field staff. Failure to comply with this duty of care would hold company to be in breach of duty and on account of this breach of duty, negligence on the part of company would be established, without any need to hold any official or person responsible for such breach. So, this example clearly shows that; if circumstances report then company can be held liable primarily rather than being vicariously liable.

Not only the breach of duty on the part of company would hold company to be primary liable, instead after set up company in HK, company would also be held liable where conduct of certain individuals would be treated as being of the company’s own. Such liability would be supported by the principle of attribution.

Principle of Attribution

Decision of the case of Meridian Global Funds Management Asia Ltd is considered to be the leading case related to the Principle of Attribution and this decision was communicated by the Lord Hoffmann. If we look closely into the remarks of Lord Hoffmann, one would notice that principles set out by the Lord Hoffmann in this case, categorised the matter of attribution to three categories, to determine that whether the certain acts or mental states of any exerciser of authority or act, can be regarded as being company’s own? These three categories are:

  • 1st Category sets out the Primary Rule of Attribution. These rules are set out in the constitution of the company such as any provision in the company’s constitution which says that; decision of company’s board or decision made in the general meeting shall be considered as the decision taken by the company itself.
  • 2nd Category sets out the General Rules of Attribution. These rules are applicable to the natural persons such as the principles of agency law.
  • 3rd Category sets out the Special Rules of Attribution. As it can be easily observed that above two categories are not enough to determine the acts or mental state to be company’s own. So, it was needed for the legislation to formulate the rules or procedures to make the situation more ascertain and helpful for deciding the matter. So, this matter becomes rather of an interpretation of the law than to decide the matter. So, where the intention is to apply these rules, a basic question such as What is the intention for application of this law and act of whom is in question so as to amount to the purpose of act? For the situation where the law to be applied is of statutory nature then content, policy and language of this statutory legislation is taken into account.

Now let’s see how special rules of attribution solved the legal mysteries of post HK company registration services period, by its application.

Referring to the case of Meridian Global we would come to know that; in this case the company, Meridian Global, failed to furnish notice of its securities holdings and this failure amounted to the breach of company’s securities legislation. But, Investment Manager of the company knew about company’s security holdings. To assess the situation better, Privy Council applied the Special Rule of Attribution to attribute the knowledge of company’s investment manager, to the company and when they applied these rules, they came to know that the policy and intention of the statutory provision was to enforce the immediate disclosure of company’s security holdings to the security holder so as to facilitate the market transparency. After application of Special Rule of Attribution, it was found that policy of the statutory provision would lose its sanctity and vitality if the knowledge of the company’s board or of senior managers is attributed to the company.

Referring to the case of Lennard’s Carrying Co would present the situation where the statutory provisions communicated that; the owner of the ship would not be held liable for any damage or loss of the ship, if such damage or loss was not caused by the fault of him or by privity of him and that, if damage or loss of goods, carried on the ship, occurred due to fire. So, it can be well inferred from this reporting that, liability if to be imposed would be a primary liability rather than the vicarious liability as ship-owning company would be responsible for any loss or damage and not any personal liability could be sought or either imposed. The proceedings of the case were based upon the application of the plaintiff whose cargo of benzine was on board of the company’s ship and the cargo was lost on account of the fire due to the defective condition of the boilers and ship was accused of the unseaworthiness. It was found that managing director of another company who managed the ship of the company on the behalf of company, was found to be at fault. The managing director who was accused of the fault was also the director of the company, in question. Seeing all these developments of the case, Viscount Haldane LC communicated that;

To hold the company, in question, to be at fault, it would be necessary to hold any specific person responsible on account of controlling or directing the will of the company. That person could either be company’s board or any other authorised person who have the authority as equivalent to company’s board or conferred under constitution of the company.

House of Lord held managing director’s fault as the personal fault of the company and thus held company liable for the loss or damage as company was found to be failing in discharging and disclosing that the managing director was in fact, the agent of the company.

Knowledge of Board

For the situation where knowledge of the company’s board is to be regarded as the knowledge of the company or attributed to the company then it must be noted that knowledge of single director shall not be sufficient in this regard. This is so because consent or decision of majority of directors is considered as the decision of the board hence same rule applies in this situation and the collective knowledge of the board is required for attributing this to be as board’s state of mind. But for the situation where this attribution is to be assessed or made on the basis of the Special Rule of Attribution then knowledge of single director shall also be sufficient as to attribute this to be the knowledge of the company, for some particular purposes.

Concept of Aggregation

It is possible to accommodate the concept of aggregation in the civil context, in which knowledge or acts of different person(s) or official(s) shall be aggregated or combined, to be attributed as the act or knowledge of company. This concept will be helpful in the situation where liability for the tort could not be imposed on the company, but liability could be imposed on the company if the knowledge of different individual would be aggregate to attribute them as the acts or knowledge of the company. But it must be remembered that concept of aggregation cannot be invoked or used to establish dishonesty or fraud on the part of the company.

Individual Liability

For the situation where company is held liable on account of the tort or on account of some other negligence then any individual who is involved in such act of tort or wrong doing shall also be held liable. For the case of statutory liabilities after company formation HK, the statutory provisions would itself set out the circumstances and situations as per which director or any official of the company would be held liable for their acts. If evidence does not give rise to some individual liability, then it would be totally dependent upon the matter of the case that whether the plaintiff’s course of actions amounts properly to hold the concerned, to be liable of? In case company is held vicariously liable for the wrong done to the plaintiff, on account of wrong done by the agent or employee of the company then liability on the company due to being principal, does not bars agent or concerned person from being liable of the alleged act or fraud and this has been followed up by the principles of agency law. Not only agents or employee but even if director of the company does the same then same rule applies to him or her. But it is not necessary that director would also be held personally liable for the situation where company is liable too but there comes one question which says that, would director be made liable if wrong or tort is established against him or her or will the involvement of the director in the wrong doing, falls within the jurisdiction of secondary liability rather then primary liability. This immunity is also extended to the members of the company and they would not be held personally liable just because company is liable for wrong or tort. But where the members of the company were personally involved in the wrong or tort such as where they owed duty of care to the plaintiff and breach of this duty made them liable then it will be legitimate to held members of the company, personally liable.

There is the myth, or you can say misconception that, if some wrong or any tortious acts of the director(s) or agents can be attributed to the company then that director or agent can dis-attribute him or herself from the wrong or act of tort. It is a complete myth that, attribution of certain tort or wrong to the company for certain purpose, would ultimately dis-attribute the director or agent from being liable to the complaining act so as to relive them from the liability. Hence, it should be clarified that; if certain act of the director or any official the company amounts to the tort or wrong then attribution of company for certain purpose would not relieve the concerned person from liability and they shall be properly held liable for their act of tort or negligence and personal liability shall be imposed on them, where required.