Scottish Court of Session Decisions

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:

[13] Fourthly, A must induce B to break his contract with C by persuading, encouraging or assisting him to do so. In "Delictual Liability" (3^rd 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.

[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.