This is the second in a two-part series considering the case of Northamber PLC v Genee World Ltd & Ors (Rev1) [2024] EWCA Civ 428. Last week the focus of the discussion was the cost consequences of a party's silence in the face of an offer to mediate.
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, Northamber succeeded in its claim against Genee for breach of the exclusivity agreement ("the Agreement") which appointed Northamber as the sole source of Genee's products in the UK. Northamber's claim against IES for inducing this breach of contract, however, failed, as did the claim for unlawful means conspiracy.
Northamber appealed on various grounds, relevant for present purposes is ground 1:
- That the judge erred in law in dismissing Northamber's claim against IES for inducing breach of contract because he wrongly held that there had been no act of inducement on the part of IES [25].
At trial, the judge found that between 1 July 2017 and 12 November 2018, Genee had made significant sales of products in breach of the Exclusivity Agreement which included sales to IES [19]. Northamber's case was that IES, knowing of the Exclusivity Agreement and intending it to be breached, induced the breach by Genee by placing orders which Genee accepted, IES paid for, and Genee fulfilled [31].
On appeal, the Court relied on dicta of Popplewell LJ in Kawasaki Kisen Kaisha Ltd v James Kemball Ltd [2021] EWCA Civ 33 at [21] (citing Global Resources Group v Mackay [2004] CSOH 149, 2009 SLT 104 with approval) in setting out the requisite elements of the tort – in order for A to be liable in tort for inducing B to breach a contract with C:
- 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].
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 Northamber were IES' placing of orders ("the orders") with Genee, he thought it difficult in the circumstances to see how the orders had induced or persuaded Genee to breach the Agreement when by the time Genee started selling directly to IES from 31 March 2018 onwards, "Genee had already supplied a substantial amount of Genee World Products to entities in the UK other than IES".
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 Northamber's appeal.
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 Court of Appeal discussion was British Motor Trade Association v Salvadori [1949] Ch 556. In that case, there was an embargo upon reselling of new cars which were in short supply following World War II so that each purchaser was required to enter into a covenant with the manufacturer not to resell the car within 12 months. The defendants, in full knowledge of the covenant, purchased the cars from persons who had themselves recently entered into the covenant and resold them at a far higher price. In giving judgment, Roxburgh J at 565 – 566 remarked:
"... 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 D.C. Thomson & Co. Ltd. v. Deakin [1952] Ch 646 and Rickless v United Artists Corp [1988] QB 40. It countered the submission that Kawasaki v Kemball had impliedly overruled Salvadori stating that this "cannot be correct given that Kawasaki v Kemball approved Global v Mackay and Global v Mackay followed BMTA v Salvadori" [53].
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 Court of Appeal also concluded that the problem of mere facilitation was not necessary to deal with for present purposes, as it was "plain" that IES had gone beyond "mere facilitation". The involvement of IES had in fact been necessary for the breaches to occur, "because breach of an exclusivity clause requires a counterparty". Consequently:
"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 Lord Hoffmann in OBG v Allan, IES had a sufficient causal connection with Genee's breaches; and in the language of Lord Nicholls, there was causative participation by IES in Genee's breaches. In the language of Toulson LJ in Meretz v ACP adopted by Popplewell LJ in Kawasaki v Kemball, IES operated on the will of Genee. It follows, given that IES had the requisite knowledge and intention, that IES is liable as an accessory for Genee's breaches. It would have been different if IES had had no knowledge of the Exclusivity Agreement" [61].
(Kawasaki Kisen Kaisha Ltd v James Kemball Ltd [2021] EWCA Civ 33 at 33 applied).
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 Court of Appeal noted, had IES had no knowledge of the Agreement [61] – [62].
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 House of Lords in OBG, hence the warning, though equally "it does not necessarily follow that such cases are no longer authoritative" [40].
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.