Catching the Leprechaun: Company Liability and the Case for a Benefit Test in Organic Attribution

Abstract

This article proposes a benefit test to form part of the organic theory of attribution, which is used by the courts to determine when a natural person acts “as” the company. The concept of “scope of authority” is marred by considerations of subjectivity and relativism such that rules of attribution are applied inconsistently because the exact limits of corporate actions are subject to flexible interpretation of rules the application of which can be manipulated, permitting the corporate vehicle to be engineered for the successful pursuit of corporate dishonesty. The struggles of the law to deal with this issue were demonstrated by the five judgments and split decision of the House of Lords in Moore Stephens v Stone Rolls Ltd [2009] UKHL 39. The benefit test relies on the actual or intended receipt of benefits derived from a particular act rather than applying formalist legal rules to determine whether an act is intra vires; an unproductive exercise given the willingness of the courts to attribute to the company acts of dishonesty outside actual authority such as fraud under both the organic and agency theory. Thus, the company can be attributed with an act where it is the destination of and not the medium for benefits derived from the act performed by its “mind and will”. Insolvency alters the application of organic attribution because the fiduciary duties of directors owed to the company become creditor regarding, and thus an act causing a benefit in solvency may be against the interests of creditors in insolvency thus breaching fiduciary duties to the company and altering the perception of whether an act benefits the company.

Keywords: Corporate liability, attribution, organic theory, agency, vicarious liability, insolvency, fidicary duties, directors