The civil court's power to order a prison sentence: A cautionary reminder for company directors

The civil court's power to order a prison sentence: a cautionary reminder for company directors

In the recent case of Olympic Council of Asia v Novans Jets LLP and others [2023] EWHC 276 (Comm) (https://www.bailii.org/ew/cases/EWHC/Comm/2023/276.html), it was held by the High Court that, following the amendment of Part 81 of the Civil Procedure Rules (CPR) back in October 2020 — which deals with applications in relation to contempt of court — the power to commit directors or other officers of a body corporate for breach of an order made against a limited company or limited liability partnership remains.

Even though the application for committal for breach of an order by a body corporate failed on the facts of the Novans Jets case, this decision still serves as a cautionary reminder, not only for company directors, but for those acting as the functional equivalent of a director or other officer. In cases where breach of an order containing a penal notice can be proven against the body corporate, such that it is held in contempt, in addition to the court’s power to fine or seize assets, the court can sentence any director or other officer responsible for the breach to a term of imprisonment.

The facts of the Novans Jets case

The proceedings stemmed from an ‘Aircraft Lease to Purchase Agreement’ (ALPA) by which Olympic Council of Asia (OCA) agreed to charter an aircraft from Novans Jets LLP (the First Defendant). The ALPA provided for a substantial upfront payment by OCA to Novans Jets, together with a prescribed number of block hours for OCA's use, plus a profit-share agreement in relation to the use of the aircraft by third parties outside of those blocked hours. However, following a dispute as to whether certain amounts were due from OCA, Novans Jets purported to terminate the ALPA.

After obtaining judgment at trial and directions for the determination of the profit-share claim — followed by a worldwide freezing order when no sums had been paid — OCA applied for committal of the Second and Third Defendants for contempt of court for breach of a number of disclosure orders requiring information to assist in the assessment of damages. The Third Defendant, Mr Gringuz, although not a director of the First Defendant against whom the allegations of breach were made, he was a director of the Second Defendant, Novans Investment Ltd. This company was a corporate member of Novans Jets and to whom the aircraft had purportedly been sold.

The findings of Mr Justice Foxton

It was held by Foxton J that, despite the absence of what he described as an express 'body corporate provision ' in the revised version of CPR 81, he was still satisfied that the intention was to preserve this power. Prior to October 2020, CPR 81.4(3) had provided that if a person referred to in paragraph (1) is a company or other corporation — where CPR 81.4(1) made provision for a judgment or order to be enforced by an order for committal following non-compliance — the committal order may be made against any director or other officer of that company or corporation.

However, it is implicit from the definition of a 'penal notice' as set out in the amended CPR 81.2 that the courts retain the means to commit those persons who are responsible for the non- compliance by a corporation with an injunction. This definition expressly allows sanctions for contempt, including committal, to be sought against directors or officers of a corporate body. The post-amendment position when it comes to the interpretation given by Foxton J to CPR 81 is further reinforced by CPR 81.1(2) and (3), which confirm that the new rules were neither intended to alter the substantive law of contempt, nor the scope and extent of the court’s jurisdiction.

Mr Justice Foxton also found that the body corporate provision applied equally to limited liability partnerships (LLPs) as it did to limited companies, and extended to both de facto and de jure directors. A director who is not duly appointed but acts as a director is known as a 'de facto' director and is as much liable as a 'de jure' director, namely a director who has been formally appointed. As such, those with similar responsibilities and primary control in relation to an LLP as the directors or other officers had for a company were "insiders" who fell within the body corporate provision.

The key takeaways for company directors

Given the recent clarification from the High Court in the context of CPR 81 as to the court’s post- amendment powers, any company director or other officer, as well as anyone else responsible for the corporate respondent's conduct or with primary control of it, may now be more likely to be joined in any committal proceedings for breach of an order made against a body corporate.

Accordingly, ensuring that a company complies with any court orders is essential to avoiding the potentially catastrophic consequences that these types of proceedings can have, both for the company or LLP itself, but also for a company director or any other officer personally. Equally, even where a penal notice has not been attached to an order, steps should always be taken to ensure compliance so as to avoid any adverse consequences, including the making of a coercive order.

Legal disclaimer

The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions.

Before acting on any of the information contained herein, expert advice should always be sought.

©Melissa Worth, January 2023