|
OUTER HOUSE, COURT OF SESSION
[2008] CSOH 148
|
|
CA24/08
|
OPINION OF LORD HODGE
in the cause
GLOBAL RESOURCES
GROUP LIMITED
Pursuers;
against
ALEX MACKAY
Defender:
ญญญญญญญญญญญญญญญญญ________________
|
Pursuers: Napier QC; Brodies LLP
Defenders: McBrearty; HBJ Gateley Wareing LLP
17 October 2008
[1] In
this action the pursuers seek damages from the defender alleging that he committed
the delict of inducing breach of contract.
In a debate in which the defender sought to have the action dismissed as
irrelevant the main issue which arose was the nature and scope of that delict.
The averred factual
background
[2] The pursuers' averments which
for the purpose of the debate I must take pro
veritate disclosed the following factual background. The pursuers, which provide engineering
services and personnel to the oil industry, (or a company within the pursuers'
group) employed the defender as a business development manager. The pursuers and the defender agreed that the
defender would cease to be an employee and that instead he would provide his
services through G & D Pallets Limited ("GDP"), a company of which he was
and is a director. Thus on 27 August 2007 the pursuers entered into a contract with GDP by
which GDP undertook to provide the pursuers with the defender's services as a
consultant with effect from 1 September 2007 (clause 1). By clause 2 of the contract the defender was
to provide business development services to secure for the pursuers additional
work in their field of activity. Clause
5 of the contract provided: "During the continuance of this consultancy, [GDP]
will ensure that [the defender] uses his best endeavours to promote the
interests of [the pursuers], the Group and its subsidiaries (if any) and that,
while providing services for [the pursuers], he will devote the whole of his
time, attention and abilities to the business and affairs of [the pursuers],
the Group and its subsidiaries". Clause
6 provided that GDP and the defender would not disclose trade secrets or
confidential information during and after the period of the defender's
consultancy.
[3] The
pursuers aver that GDP "is responsible in law for the conduct of the defender
during the period of the consultancy agreement". The substance behind that bald statement is
not clear. In any event the pursuers
aver that in March 2008 they learned that the defender had acted on behalf of a
rival business, Port Services Engineering Limited, and had assisted them to
secure work for which the pursuers were bidding. They also aver that on 24 February 2008 the defender downloaded onto his laptop computer
confidential information such as tender documents and technical drawings which
were the property of the pursuers and which were commercially sensitive. The pursuers aver that the defender by so
acting "unlawfully induced and caused breach or breaches of the contract
between" the pursuers and GDP "in circumstances where he was aware of its
existence and where he knew, or was recklessly indifferent, that by acting as
he did he would bring about its breach".
Parties' Submissions
[4] Mr McBrearty on behalf of the defender
accepted that the averred acts of the defender would if true put GDP in breach
of its contract with the pursuers. He
submitted however that the action should be dismissed as the pursuers had not
relevantly averred a delictual case of inducing breach of contract. A person committed the delict when he induced
or procured another person to break his contract. There were no averments that the defender had
actively associated with GDP by persuading them to break their contract with
the pursuers or at least by facilitating active steps on the part of GDP to
break their contract. It was not
sufficient to establish this delict that a breach of contract by GDP was a
foreseeable consequence of the defender's actions. He referred to British Motor Trade Association v Gray 1951 SC 586, British
Motor Trade Association v Salvadori
[1949] 1 Ch 556, OBG Ltd v Allan [2008] 1 AC 1,
Square Grip Reinforcement Co Ltd v MacDonald 1968 SLT 65 and
Findlay v Blaycock 1937 SC 21. He also referred to definitions of
"induce" and "procure" in the Oxford English Dictionary. The pursuers' complaint was that the defender
had done things which GDP had agreed to prevent in their contract with the pursuers. This did not amount to inducing a breach of
contract.
[5] Mr
Napier QC for the pursuers submitted that the delict of inducing breach of
contract was committed where a defender caused another to break his contract in
the knowledge of the terms of that contract which were being broken by his
conduct. There was no rule that only
inducement in the sense of deliberate persuasion of another to act in breach of
his contract would suffice. The
necessary intention existed if the wrongdoer knew that breach would result from
what he was doing. While it was not
sufficient to establish commission of the delict that the breach of contract
was merely a foreseeable consequence of the wrongdoer's acts, it was not
necessary that the wrongdoer desired the breach as an end in itself or as a
necessary means to another end. In
addition to the cases to which Mr McBrearty referred, Mr Napier referred to Rossleigh
Ltd v Leader Cars Ltd 1987 SLT
355 and
D C Thomson Ltd v Deakin
[1952] 1 Ch 646, CA.
[6] Both
parties took the approach that there were no material differences between the
laws of Scotland and England in relation to this delict
or tort.
Discussion
[7] In BMTA v Gray (above) Lord
Russell (at p.603) approved a concession by counsel that "by the law of Scotland
an actionable wrong is committed by one who intentionally and without lawful
justification induces or procures someone to break a contract made by him with
another, if damage has resulted to that other, provided the contract creates
contractual relations recognised by law".
Until then, as the Lord President (Cooper) pointed out (at p.599), Scots
law had reported instances of the delict only in the field of employment
contracts and of a promise to marry (viz. Findlay v Blaycock). In accepting that there was a wider rule, the
Lord President looked to the reasoning of Roxburgh J in BMTA v Salvadori, as did
Lord Russell. The Court held that the
essence of the wrong was found in knowing and unjustifiable interference in the
contractual relations of others.
[8] In BMTA v Salvadori, Roxburgh J at p.565 spoke of the interference involving
an active association of some kind in the breach of contract. He opined that it was enough if the
interfering party, knowing of the contractual obligation, took an active step
which facilitated a breach of the contract.
Thus if the contracting party were willing to break his contract without
needing persuasion to do so, the interfering party's facilitation of that
breach, for example by being a counterparty to an offending contract, would be
sufficient.
[9] In the
other Scottish cases to which I was referred the judges used dicta from English
authorities to explain the delict. Thus
in Findlay v Blaycock, in which the court dealt with the issue of lawful
justification, holding that a father was
presumed to be acting out of parental duty in inducing his minor son to break
his promise to marry, the Lord President (Normand) referred to dicta on that
issue in the Court of Appeal and the House of Lords in Glamorgan Coal Co v South Wales
Miners' Federation ([1903] 2 KB 545 and [1905] AC 239). In Square
Grip Reinforcement Co Ltd, which was concerned with the scope of the
protection provided by the Trade Disputes Act 1906, Lord Milligan in discussing
the delict referred to several English cases including D C Thomson & Co Ltd v
Deakin. In Rossleigh Ltd v Leader Cars
Lord Mayfield treated BMTA v Gray as the leading Scottish
authority. He did not accept that mere
recklessness or turning a blind eye to the possibility of a breach of contract
was sufficient in Scots law to establish an intention on the part of the
interfering party to procure a breach of contract. In so doing he declined to follow Lord
Denning's approach in Daily Mirror
Newspapers Ltd v Gardiner [1968]
2 QB 762. But otherwise he did not
distinguish the Scots law delict from the English tort. Thus Scots judges have drawn extensively on
English law in defining this delict.
[10] As a
result the recent decision of the House of Lords in OBG Ltd v Allan is
important. In that case their Lordships
disaggregated the tort or delict of inducing breach of contract from the tort
or delict of causing loss by unlawful means.
The House of Lords rejected the analysis that there was a general tort
of interference with contractual rights of which the two torts were
sub-categories. In order to consider the
pursuers' submission in the context of the decision in OBG Limited v Allan, it
may be appropriate to summarise the characteristics of each of these
delicts.
[11] In both
jurisdictions A commits the delict or tort of inducing a breach of contract
where B and C are contracting parties and A, knowing of the terms of their
contract and without lawful justification, induces B to break that
contract. When that occurs, B is liable
to C for breach of contract and A is liable to C for the delict of inducing
that breach. The delict has the
following five characteristics. First,
there is no delictual liability unless B breaks his contract. That is why Lord Hoffmann in OBG Ltd spoke of the liability as a
secondary or accessory liability. While
a Scottish lawyer analysing the delict might not speak of an accessory
liability, the expression is useful nonetheless in its emphasis that the delict
is committed where breach of contract, and not some lesser interference with
the contractual relations, results from A's acts. Secondly, for A to be liable for inducing
breach of contract, he must know that his acts will have that effect. A is not liable if he ought reasonably to
have known that the act which he was inducing B to perform involved a breach of
contract by B if in fact he did not know that.
I noted in paragraph 9 above that there was a suggestion that Scots law
and English law differed as to the circumstances in which A will be treated as
having sufficient knowledge. Although it
is not necessary to decide the point in this case, in which the defender was
aware of the terms of the contract between the pursuers and GDP as he signed
the agreement on behalf of the latter, it respectfully appears to me that if A
consciously decided not to inquire into the terms of the contract between B and C in the knowledge that there was a
contract and that his actions were likely to induce a breach of that contract,
that knowledge and the wilful turning of a blind eye as to the details of the
contract would be sufficient knowledge.
Lord Mayfield in Rossleigh Ltd at
p.360 left open the possibility of liability arising in such circumstances in
which the court could treat the turning of a blind eye as tantamount to an
intention that the contract be broken.
[12] Thirdly,
A must intend to procure the breach of the contract either as an end in itself
or as the means by which he achieves some further end. Thus in the common case where B is an
employee of C and A wants B to work for him instead, A may have no wish to harm
C but in obtaining the economic advantage of B's services he necessarily causes
B to break his contract with C. Mr
McBrearty and Mr Napier were correct in their agreement that it is not
sufficient to establish the delict that B's breach of contract is simply a
foreseeable result of A's actions. In OBG Ltd Lord Hoffmann (at para 43)
stated: "if the breach of contract is neither an end in itself nor a means to
an end, but merely a foreseeable consequence, then in my opinion, it cannot for
this purpose be said to have been intended."
He went on to disapprove of the decision of the Court of Appeal in Millar v Bassey [1994] EMLR 44 and explained his position thus:
"Miss Bassey had broken her
contract to perform for the recording company and it was a foreseeable
consequence that the recording company would have to break its contracts with
the accompanying musicians, but those breaches of contract were neither an end
desired by Miss Bassey nor a means of achieving that end".
In
the present case it is not correct to describe the breach of GDP's contract as
merely a foreseeable consequence in that sense, as Mr McBrearty sought to
argue. The defenders' provision of
services to a competitor of the pursuers, which of itself involved GDP in
breach of its contract, was the means by which the defender pursued his own
economic advantage. It was a necessary
and deliberate step towards that goal.
[13] Fourthly,
A must induce B to break his contract with C by persuading, encouraging or assisting
him to do so. In "Delictual Liability"
(3rd ed.) at p.39 Professor Joe Thomson states that the inducement
must be directed at B, the person in the contractual relationship with the
victim, C, and refers to Middlebrook
Mushrooms Ltd v Transport and General
Workers' Union [1993] ICR 612, CA. In that case a trade union carried on a
campaign against an employer by distributing leaflets to shoppers outside
supermarkets to which the employer supplied its mushrooms, urging the shoppers
to boycott the employer's produce. The
Court of Appeal held that the trade union had not committed the tort of
inducing a breach of contract as the defendant's members directed their
persuasion to the purchasing public and not the (allegedly) contract-breaking
supermarket. See also Calor Gas Ltd v Express Fuels (Scotland) Ltd 2008 SLT 123, Lord Malcolm at para. 47. It is clear from BMTA v Salvadori and BMTA v Gray that the tort or delict is not confined to circumstances
where A has to persuade B to break his contract but can also be committed where
A has dealings with B which A knows are inconsistent with the contract between
B and C. In either event A induces or assists
B to do something (or to refrain from doing something) which involves B
breaking his contract with C.
[14] Fifthly,
if A has a lawful justification for inducing B to break his contract with C,
that may provide a defence against delictual liability. Thus a father may seek to prevent his minor
son from entering what he perceives as an unwise marriage: Findlay v Blaycock (above). A's pursuit of his own economic advantage is
not of itself a justification. Although
the House of Lords did not discuss this fifth characteristic in OBG Ltd it is clear from other cases
that lawful justification can provide a defence. See Glamorgan
Coal Company v South Wales Miners' Federation
referred to
in paragraph 9 above. For example
in Edwin
Hill & Partners v First National
Finance Corporation plc [1989] 1 WLR 225 the Court of Appeal held that a
security holder was justified in protecting its security for the repayment of a
loan to make the dismissal and replacement of a developer's architects a
condition of the provision of further finance to the developer who was
otherwise unable to repay his loan or complete the development.
[15] In this
case there was no dispute as to the first, second and fifth
characteristics. It appears to me that
the issue which was debated turns on the third and fourth characteristics of
the delict. In relation to those, I am
satisfied that Mr Napier's presentation was not a correct statement of the
law. In substance he presented the
delict as being committed when A, in the knowledge of the contract between B
and C, acted in a way which put B in breach of contract with C, whether or not
A had any dealings with B. He accepted
that this meant that in a standard building contract in which there was an
employer, a main contractor and a subcontractor, the subcontractor, who would
be aware of the standard terms of the main contract, could expose himself to a
claim in delict from the employer whenever he acted without lawful
justification in a way which put the main contractor in breach of his contract
with the employer. That is a startling result
and I am satisfied that the law is otherwise.
[16] Mr
Napier cited in support of his submission the judgment of Jenkins LJ in D C Thomson & Co Ltd v Deakin at p.694 where he stated,
"again, so far from persuading or inducing or procuring one of the parties to
the contract to break it, the third party may commit an actionable interference
with the contract, against the will of both and without the knowledge of
either, if, with knowledge of the contract, he does an act which, if done by
one of the parties to it, would have been a breach. Of this type of interference the case of GWK Ltd v Dunlop Rubber Co Ltd [(1926) 42 TLR 376] affords a striking
example". In that passage however
Jenkins LJ was speaking of what was then seen as a wider tort of interference
in contractual relations and in his reference to GWK Ltd was referring to interference by unlawful means, a
circumstance which the House of Lords in OGB
Ltd have categorised as a separate tort, namely the tort of causing loss by
unlawful means. In GWK Ltd the plaintiffs had a
contract with a tyre manufacturer to display the latter company's tyres on its
cars at trade exhibitions. Employees of
the defendants committed trespass on GWK's
property by removing the manufacturer's tyres from GWK's cars at an
exhibition and replacing them with the defendants' tyres. By so doing they intentionally caused loss by
unlawful means.
[17] Where A
acts in such a way it can readily be seen why he might incur liability in
delict without involving B in the acts which put B in breach of his contract
with C. The components of the delict of
causing loss by unlawful means are (a) an intention to cause economic harm to C
and (b) the use of unlawful means in relation to B which affect B's freedom to
deal with or honour his contract with C.
In relation to (a), the relevant intention to cause loss can exist
either where A wishes to inflict loss on C or where C's loss is a means by
which A attains some further end such as his own economic advantage. It is not sufficient that harm to C is a
foreseeable consequence of A's actions.
Thus the subcontractor who breaks his contract with the main contractor
does not by that breach alone incur liability in delict to the employer for
economic loss when the main contractor's breach of his contract with the
employer is merely a known or foreseeable consequence of the subcontractor's breach. In relation to (b), it is necessary that B
has a right of legal redress against A for his use of the unlawful means if B
has suffered loss thereby or that he would have been so entitled had he
suffered loss. See OBG Ltd, Lord Hoffmann at paras 47-51 and 62, Lord Brown of
Eaton-under-Heywood at para 320. The
pursuers do not charge the defender with this delict, making no assertion that
the defender has used unlawful means in relation to GDP which would entitle the
latter to a legal remedy against him.
[18] Nor in
this action are there averments that the defender (A) has acted with GDP (B)
and through inducement, procurement or facilitation has caused GDP (B) to break
its contract with the pursuers (C). If
A, without involving B in any way, knowingly acts in a manner which places B in
breach of his contract with C, he does not commit the delict of inducing breach
of contract. But that may not be the end
of the matter.
The relationship between the
defender and GDP
[19] The
pursuers aver that the defender agreed to provide consultancy services "through
his business, and the company [GDP], of which he was and remains a
director". Thus the pursuers contracted
with GDP as described in paragraph 2
above. In the course of the
debate Mr McBrearty in response to questions from the court acknowledged that
GDP was a company of which the defender was the sole shareholder and the only
director. The defender's family had
previously carried on a business in a partnership known as G & D Pallets
and the defender had originally intended to use the partnership as the
contracting party. But it was agreed
with the pursuers that a limited company would be the contracting party and so
GDP was incorporated.
[20] In my
opinion this gave rise to a question which parties have not fully aired, although
Mr Napier as a fall back submitted that the defender's control of GDP was
sufficient to make the pursuers' case relevant.
In particular there may be arguments as to whether the delict of
inducing breach of contract may be committed where A's control over B is such
that A's actings induced B's breach of his contract with C where there were no
communings or dealings between A and B as one would require to establish the
delict if A and B were independent entities operating at arm's length. It might be considered strange that A could
incur liability for inducing breach of contract by transacting with B at arm's
length but that A could incur no such delictual liability for B's breach of
contract where A, though his control of B,
required to take no active step to persuade B to participate in the
breach whether by allowing him to cause B to break its contract or otherwise. In both cases A would be the person in the
background who pulls the strings (to use Lord MacNaghten's phrase in Allen v Flood [1898] AC 1, at pp.151-152).
On the other hand it may be that the separate legal personality of the
company prevents liability being brought home to the string-puller so that a
party, C, takes a risk of having no effective legal remedy if it chooses to
obtain A's services by contracting with a limited company, B, which has limited
assets, for their provision.
[21] Further,
if there were a contractual relationship between the defender and GDP which was
broken by the defender's actions, that breach of contract might form part of
the basis of the delict of causing loss by unlawful means. See OBG
Ltd, Lord Hoffmann at paras 49 and 51. There would need also to
be evidence that in so acting the defender intended to harm the pursuers by
causing them economic loss. A's pursuit
of economic advantage for himself by advancing the interests of a competitor of
C may be sufficient to amount to an intention to harm C. This is because the promotion of the
competitor's interests to the detriment of C is the means by which A pursues
his goal of self advancement. See
paragraph 17 above.
[22] I am
not persuaded that the pursuers' averments are necessarily irrelevant by
reference to the test in Jamieson v Jamieson 1952 SC (HL) 44, nor am I
satisfied that the case is in a state in which it should proceed to proof
before answer as the pursuers' pleadings lack specification in these
areas. As the relationships between the
defender and GDP in company law and contract, including any contractual
relationship which enabled GDP to offer the defender's services to the pursuers,
have not been set out adequately in the pleadings and as parties have not had
the opportunity to consider the effect of those relationships on the
allegations in this case, I will put the case out By Order to allow parties to
discuss further procedure.
