Directors held liable for inducing breach of contract and unlawful means conspiracy where they placed company into liquidation to avoid outstanding debt

The Technology and Construction Court has upheld economic tort claims against two directors of a limited liability company who placed the company into liquidation in order to avoid the company having to pay its outstanding debts to a building contractor. The building contractor succeeded in establishing that one of the directors had induced the company to repudiate the building contract, and also that they had conspired to injure the building contractor using unlawful means: Palmer Birch (a partnership) v Lloyd [2018] EWHC 2316 (TCC).

The case highlights the risks for individuals who operate through the medium of an undercapitalised limited liability company, in particular that they may not be able to rely on the protection of the company’s distinct legal personality in circumstances where their conduct gives rise to claims under one of the economic torts.

Economic tort claims are not straightforward to establish, in light of the high evidential hurdles that must be met. However, this decision illustrates the potential for bringing an economic tort claim in a relatively novel context, in particular where there is an attempt to abuse the doctrine of separate corporate personality. It seems significant in this case that funds which could have been made available to the company to meet its obligations to the claimant were, instead, diverted to a separate company which was used to complete the works through a different contractor.

Gary Milner-Moore and Catherine Emanuel consider the decision further below. Continue reading

Supreme Court finds contempt of court constitutes unlawful means for the tort of conspiracy

The Supreme Court has held that contempt of court can constitute unlawful means for the purpose of the tort of conspiracy: JSC BTA Bank v Khrapunov [2018] UKSC 19.

The decision is significant as it confirms that third parties may find themselves exposed to litigation and subject to damages if they conspire in the commission of a contempt of court. The Supreme Court made a number of interesting observations on the scope of the economic torts more generally and, on a matter of wider interest, also hinted that the law might develop to allow litigants to recover damages for contempt of court in the absence of a conspiracy.

The latter point could have potentially far-reaching practical consequences. Until now, contempt of court has generally been regarded as a matter between the wrongdoer and the court, rather than a wrong actionable by private parties who have suffered loss as a result. This decision leaves the door open for a litigant to argue that civil damages are recoverable for an opponent’s contempt of court.

Gary Milner-Moore and Kate Emanuel from our disputes team consider the conspiracy aspect of the decision further below.  The decision is also of interest for its consideration of the issue of jurisdiction, which is considered in a separate blog post here. Continue reading

Court of Appeal gives further guidance on how jurisdiction rules apply in economic tort claim

The Court of Appeal has held that the place of the event giving rise to damage in a claim alleging conspiracy to injure by unlawful means is where the conspiracy was hatched. As the claimant bank had far the better of the argument that this was England, the English courts had jurisdiction: Khrapunov v JSC BTA Bank [2017] EWCA Civ 40.

More generally, the decision suggests that when looking for the place of the event giving rise to damage, the court should focus on the events which set the tort in motion, and it is irrelevant for jurisdiction purposes that damage is required before a cause of action is complete.

The test for jurisdiction in tort cases isn’t always easy to apply, particularly in cases concerning economic loss. This is the latest case in which the Court of Appeal has considered the applicable principles. For our posts on the earlier Court of Appeal decisions see here and here.

The decision is also of interest for its consideration of what amounts to unlawful means for the purposes of the tort of conspiracy to injure by unlawful means. That part of the decision will be considered in a separate blog post, to be published shortly.

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Court of Appeal considers where harmful event occurred for the purpose of jurisdiction in economic tort claim

In a claim alleging conspiracy and unlawful interference in the claimant’s business by cutting off supplies, the Court of Appeal has held that the harmful event occurred where the goods should have been delivered to packaging agents. As this was either Italy or the Netherlands, the English courts did not have jurisdiction. It was irrelevant that the failure to deliver meant the claimant was unable to supply its English distributor – that was merely consequential or indirect damage which was insufficient to give the English court jurisdiction under the Brussels and Lugano regime: Actial Farmaceutica LDA v Professor Claudio de Simone, Mendes SRL and another [2016] EWCA Civ 1311.

A defendant domiciled in an EU or EFTA member state can be sued in tort in another member state if the harmful event occurred there. This has been interpreted as meaning both the place where the event giving rise to the damage occurred and the place where the damage occurred.

The place where damage has occurred isn’t always easy to determine, particularly in cases concerning economic loss. This decision (and the earlier Court of Appeal decision in AMT Futures Ltd v Marzillier, Dr Meier & Dr Guntner Rechtanwaltsgesellschaft mbH [2015] QB 699, considered here, which it draws heavily on) give guidance on the correct approach. The search is for the state where the jurisdictionally significant harm has occurred, or where damage has occurred which is closest in causal proximity to the harmful event. In this case, that was the non-delivery to the packaging agents.

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Court of Appeal strikes out aspects of cartel claims based on economic torts

In the latest step in the long-running Air Cargo cartel damages saga, the Court of Appeal has struck out a large portion of the claimants’ case brought on the basis of economic torts, amounting to around 60% of the claims. The court found that it was not possible to demonstrate any intent on the part of the cartelists to injure the claimants: Emerald Supplies Ltd and others v British Airways plc [2015] EWCA Civ 1024.

The claimants brought claims on the basis of the tort of breach of statutory duty based on breach of EU competition law rules (the usual route for claiming damages in such cartel cases) but also, in relation to claims that fell outside the scope of EU competition law rules, on the basis of two common law economic torts: (i) interference with the claimants’ businesses by unlawful means; and (ii) conspiracy to injure the claimants by unlawful means. An essential element of both of these economic torts is that the defendant intended to cause loss to the claimants.

The Court of Appeal held that it could not be demonstrated that BA had intended to injure the claimants; this prospect was “entirely fanciful” and there was no need even to await disclosure to assess BA’s subjective intention. A key part of the court’s reasoning was that BA could have had no idea where any loss would ultimately fall – the claimants might have been able to pass the higher prices on further down the chain. It was not sufficient to say merely that the cartelists must have intended to injure anyone who might suffer loss as a result of their agreement (whether direct or indirect purchasers, or ultimately consumers, who could not pass-on any higher prices). This would open up “an unknown and unknowable” range of potential claimants and there could not be an intent to injure the particular claimant.

The Court of Appeal’s judgment cuts down the scope for claimants to bring damages actions in the UK based on cartel behaviour not covered by EU competition law rules. In the same judgment, the court overturned an order requiring BA to disclose the confidential version of the EU Commission’s air cargo cartel infringement decision into a confidentiality ring, on the basis that this did not comply with EU law rights. For more information, see our Competition, regulation and trade e-bulletin on the decision.

House of Lords overhaul economic torts

The decision of the House of Lords handed down earlier this month has made headlines in the mainstream as well as the legal press. For the mainstream press, the interest in the decision lay in the continuing saga arising out of Hello!’s publication of unauthorised photographs of the wedding of Catherine Zeta Jones and Michael Douglas in 2000. For the legal press, a further interest (beyond the lure of celebrity gossip) lay in the analysis of the law of confidence and the controversy this provoked amongst the Law Lords (OK!’s appeal was upheld by a majority of 3:2 and the opposing views of the Law Lords were expressed in trenchant terms).

However, the appeal of OK! magazine was in fact just one of three appeals which were heard together (OBG Ltd and others v Allan and others; Douglas and another and others v Hello! Ltd and others; Mainstream Properties Ltd v Young and others and another [2007] UKHL 21). The reason these three appeals were heard together was because they raised common issues in relation to the precise scope and nature of torts for economic loss caused by intentional acts. Whilst perhaps not so glamorous as the nuptials of the Douglases and its implications for the continuing development of the law of confidence, the consideration of these economic torts is no less important as it has shone a light into what is a difficult and uncertain area of tort.

Prior to this decision, it was thought that, in addition to the tort of conspiracy, there were three main economic torts; the tort of procuring a breach of contract, the tort of intimidation and the tort of unlawful interference. There was, though, a line of authority which had blurred the distinction between the tort of procuring a breach of contract and the tort of unlawful interference in that it held that the original tort of procuring a breach of contract had been extended to a tort of “unlawful interference with contractual relations” (the so-called “unified theory”).

The House of Lords disapproved of the unified theory, holding that previous cases which had referred to a tort of “unlawful interference with contractual relations” were actually instances of a wider tort of “causing loss by unlawful means”. Further, this wider tort of causing loss by unlawful means subsumed the tort of intimidation but was entirely separate from the tort of procuring a breach of contract. The House of Lords took the opportunity to outline the essential elements of these two torts. Continue reading