This is the second in a two-part series considering the case of
This week the focus is on a different (yet equally as enticing) aspect of the case: the degree of participation necessary for a third party to be liable for inducing breach of contract.
For the background facts of the case, readers are referred to part one.
This case will be of interest to all those who act for clients in cases where inducement arises such as conspiracy, fraud, unlawful competition, restraint of trade, director's duties and similar commercial contexts where there is a desire to establish joint or accessory liability.
The substantive appeal
At first instance,
-
That the judge erred in law in dismissing
- There must be a breach of contract by B;
- A must induce B to break the contract with C by persuading, encouraging or assisting them to do so;
- A must know of the contract and know that their conduct will have that effect;
- A must intend to induce the breach of contract either as an end in itself or as the means to achieving some further end; and
- A must have no lawful justification for that conduct [30].
At trial, the judge found that between
On appeal, the Court relied on dicta of Popplewell LJ in
The trial judge held all of the elements to be satisfied except for (2). Having noted that the only acts of inducement relied upon by
Having already sold to others in breach of the Agreement, there was no evidence that Genee "needed any inducement or persuasion to supply IES" [32(a)].
He concluded that the mere placing of orders by IES was insufficient to impose liability for inducing breach of contract, which "amounted to much more than simply giving Genee the opportunity to breach the Exclusivity Agreement, which, on the evidence is all that IES's orders did" [32(b)].
The Court of Appeal
The Court of Appeal disagreed, unanimously allowing
The Court of Appeal pointed to the tort's inception in the famous Lumley v Gye (1853) 118 ER 749, established upon the general principle that a person who procures another to commit a wrong incurs liability as an accessory: "thus, the tort amounts to accessory liability for breach of contract" [34].
Central to the
"... any active step taken by a defendant having knowledge of the covenant by which he facilitates a breach of that covenant is enough ...." [43].
Counsel for IES argued that (1) Salvadori is no longer good law; and (2) that Roxburgh J had been wrong to say that mere facilitation was enough [53] and [55].
The Court emphatically rejected the submission that Salvadori was no longer good law.
In doing so, it recounted subsequent authorities, demonstrating that the decision had been later affirmed in both
As for mere facilitation, the Court characterised the dividing line between mere facilitation of an infringing act and procuring an infringing act as one which had caused some difficulty in subsequent cases on joint tortfeasance [60]. However the
"Just as in BMTA v Salvadori, IES did not merely place orders with Genee, it was willing to pay (and did pay) the price charged by Genee. Thus, IES induced Genee to commit the relevant breaches of Exclusivity Agreement.
In the language of
(
It was immaterial that Genee had already shown itself willing to breach the Exclusivity Agreement by supplying other customers. Each sale in breach of the Agreement required a purchaser, and IES had done more than merely facilitated the relevant breach. It might have been different, the
A final note of interest: the parties were urged to treat the authorities between Quinn v Leathem [1901] AC 495 and OBG v Allan (and particularly from Thomson v Deakin and OBG v Allan) with caution. This is on the basis that during the period between those two cases, the "unified theory" adopted in Deakin prevailed, wherein the torts of inducing breach of contract and causing loss by unlawful means were treated as one. This was subsequently rejected by the
Conclusion
So, it can be seen, in the context of Exclusivity Agreements: it takes two to tango. Where the involvement of a defendant is necessary for the breach by the contracting party to occur, the Court will have little difficulty in imposing liability for inducing breach of contract.
The judgment provides a useful summary of the authorities as well as confirmation (if it was ever in any doubt) that Salvadori, and the associated remarks of Roxburgh J, remain good law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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