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  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
The Supreme Court has refused to craft a special rule for the tort of inducing a breach of contract where the contractual term which has been breached is an exclusive jurisdiction clause. It held that, where proceedings were commenced in Germany in breach of an English exclusive jurisdiction clause, damage was suffered in Germany, as that was where costs were incurred in contesting the proceedings. The English court therefore had no jurisdiction over a claim against German lawyers alleging that they had induced their clients’ breach of contract in bringing the German proceedings: AMT Futures Limited v Marzillier, Dr Meier and Dr Guntner Rechtsanwaltsgesellschaft mbH  UKSC 13.
The refusal to apply a special rule means there may have to be proceedings in more than one member state where it is alleged that a third party has induced the breach of a jurisdiction clause: proceedings against the contractual counterparty must be brought in the jurisdiction agreed in the contract, whereas proceedings against the third party will generally have to be brought either where it is domiciled, or where the offending proceedings were brought.
The Court of Appeal has held that a claimant’s previous settlement with a contract breaker did not discharge his claims against the present defendants for inducing the breach of contract: Anthony McGill v Sports & Entertainment Media Group & 8 Ors  EWCA Civ 1063.
This case provides helpful guidance on when a settlement with one defendant will also discharge claims against other defendants. It suggests that, where the causes of action against the different defendants are separate (ie there is no joint liability), a court will not lightly conclude that settlement with one will discharge the others – unless it is clear that the effect of the first settlement was to extinguish the claimant’s loss.
However, claimants who wish to settle with only one (or some) of a number of potential defendants should tread carefully, including because the position will differ where the defendants are jointly liable (see for example this blog post) – a distinction which may not be clear in all cases. Any such settlement should be carefully structured to ensure other potential claims are not unintentionally released, for example by including an express reservation of the right to pursue other defendants.
A clear statement as to why the claimant is prepared to accept the settlement amount may also be of assistance, given the Court of Appeal’s suggestion that the claimant’s motivation in settling may be relevant in determining whether it should be taken to represent the full measure of the claimant’s loss.
James Leadill, an associate in our dispute resolution team, considers the decision further below.
In a claim for inducing a breach of contract, the Court of Appeal held that a football agent could claim damages for the lost chance of earning commission on a player’s transfer, even though he could not establish that he was more likely than not to have been paid the commission if it hadn’t been for the breach. The case was remitted to the High Court to determine the value of the lost opportunity: Anthony McGill v Sports & Entertainment Media Group & 8 Ors  EWCA Civ 1063.
Although this case does not establish new law, it is a useful example of the courts’ willingness, in certain circumstances, to award damages for the “loss of a chance” where the claimant’s loss depends, not on what it would have done, but on the hypothetical acts of a third party. Where the court is satisfied that a real and substantial chance was lost, even if it is less than 50%, damages will be quantified in percentage terms depending on the courts’ assessment of the relevant chance.
The decision provides an interesting contrast with the Court of Appeal’s decision in Law Debenture Trust Corporation PLC v Elektrim SA  EWCA Civ 1142 (see our blog post) in which it appeared to advocate a more restrictive approach to assessing damages on a “loss of a chance” basis in commercial claims.
James Leadill, an associate in our dispute resolution team, considers the decision further below. Another aspect of the decision, giving guidance on the circumstances in which a settlement agreement with one defendant may also discharge claims against other defendants, will be considered in a separate blog post.