Directors personally held responsible for company’s failings

Mr Justice Gino Camilleri lifted the corporate veil and ordered the directors of a company to pay the heirs of one of its employees after they attempted to wriggle out of their responsibility by liquidating the company quickly after an accident in Libya. This was decided on 19 July 2013 in Alexander Gray Bannerman et al v. John Camilleri et al.

The heirs of Leonard Bannerman filed an action against John Camilleri and Joseph Camilleri personally, as well as the directors of Mr Bannerman's employer, CBA Oilfield Services Ltd. The plaintiffs said that Bannerman had died in Libya on 13 February 1984 due to the criminal negligence of the defendants. The forensic expert on the case, Dr Abela Medici, stated in his report that the company had failed to provide the minimum level of safety to the deceased. After Mr Bannerman died, the defendants set up a new, identically named company, CBA Oilfield Services Ltd, in March 1984. The plaintiffs stated that this was done in bad faith and therefore asked the Court to declare the defendants responsible for damages.

The defendants denied the claims and countered that the action could be instituted against a company which was being liquidated.

Bannerman was 20 years old when he died. His employer was a subcontractor of an international company which employed Maltese nationals in order to send them to work in Libya. On the day of the incident, Bannerman was asked to install "rebars", and he was sent into a hole to hold a reforming bar. When the bar was placed in concrete, it hit a high voltage cable. The overload protector did not work, and Leonard Bannerman suffered a high-voltage shock of 4,160 volts as a result.

The defendants argued that Occidental of Libya Inc. had been responsible for all health and safety issues. They could not assure themselves that their employees had sufficient safety equipment, and neither were they contractually bound to procure these assurances.

The Court pointed out that the original company was set up in February 1979 and liquidated on 5 March 1984. The company directors explained that establishing a new company with the same name was done for tax purposes. However, the Court found it this difficult to believe, saying that this manoeuvre was clearly an effort to hide the company from its legal responsibilities following the accident.

The Court then quoted from a previous judgement of the Court of Appeal regarding the defence that the action was time barred by two years. The Court of Appeal had held that the action for damages was based on two elements: the criminal responsibility of the directors and the breach of contract. The Court argued that there were, therefore, two applicable prescription periods. Accordingly, since there had been a lapse of two years, the criminal responsibility action was extinct, but the contractual damage was not time barred and the action could proceed.

The evidence showed that Bannerman had signed an employment agreement with CBA Oilfields Services Ltd. That same company had a contract with Occidental Libya to provide personnel and equipment. CBA had bound itself to abide by the employment laws in Libya and to hold a workers' compensation insurance policy. The same agreement stated that the employees were not to be considered employees of the international company. Therefore, CBA was bound to insure its employees. One witness told the court that these types of insurance policies are not issued in Libya. The Court expressed its doubts regarding this statement and did not exonerate the company from issuing the policy.

The Court disagreed with the defendants that they had no contractual obligations to provide insurance coverage to the deceased. The subcontract was to be made in conjunction with the employment contract. CBA was bound to issue an insurance policy and was even paid by the international company to do so. Therefore, CBA employed Bannerman but, knowingly, did not provide him with insurance. It had failed to show the diligence it was bound to, especially when it knew that the work involved was dangerous.

The Court moved on who was responsible to pay the damages and reprimanded the directors of CBA Oilfield Services, who had liquated the company and started an identical one with the sole purpose of trying to shirk its responsibility. The Court quoted the Price Club case, wherein it was clear that the company having abused its corporate status, the Court had the power to hold the management personally responsible. It became clear in the CBA case that the directors had liquidated the company one month after the incident, were abusive and fraudulent and intended only to avoid the responsibility for damages. The Court lifted the corporate veil and held the directors personally responsible for damages in the death of their employee.

As to the calculation of damages, the Court took into consideration the subcontract, which indicated that an employee would be compensated LYD3,500 for bodily injury, Since Bannerman had been killed, this sum was to be doubled - to €163,100. The deceased was 20 years of age when he died, and, therefore, the sum was raised to €200,000.

The Court ordered the directors of CBA Oilfield Services Ltd to pay Bannerman's heirs €200,000.

Malcolm Mifsud is a partner at Mifsud & Mifsud Advocates.