Judgments - OBG Limited and others (Appellants) v. Allan and others (Respondents)Douglas and another and others (Appellants) v. Hello! Limited and others (Respondents)Mainstream Properties Limited (Appellants) v. Young and others and another (Respondents)

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    50.  Lonrho plc v Fayed [1990] 2 QB 479 was arguably within the same principle as the National Phonograph Co case. The plaintiff said that the defendant had intentionally caused it loss by making fraudulent statements to the directors of the company which owned Harrods, and to the Secretary of State for Trade and Industry, which induced the directors to accept his bid for Harrods and the Secretary of State not to refer the bid to the Monopolies Commission. The defendant was thereby able to gain control of Harrods to the detriment of the plaintiff, who wanted to buy it instead. In the Court of Appeal, Dillon LJ (at p 489) referred to the National Phonograph case as authority for rejecting an argument that the means used to cause loss to the plaintiff could not be unlawful because neither the directors nor the Secretary of State had suffered any loss. That seems to me correct. The allegations were of fraudulent representations made to third parties, which would have been actionable by them if they had suffered loss, but which were intended to induce the third parties to act in a way which caused loss to the plaintiff. The Court of Appeal therefore refused to strike out the claim as unarguable and their decision was upheld by the House of Lords: see [1992] 1 AC 448.

    51.  Unlawful means therefore consists of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant. It does not in my opinion include acts which may be unlawful against a third party but which do not affect his freedom to deal with the claimant.

    52.  Thus in RCA Corporation v Pollard [1983] Ch 135 the plaintiff had the exclusive right to exploit records made by Elvis Presley. The defendant was selling bootleg records made at Elvis Presley concerts without his consent. This was an infringement of section 1 of the Dramatic and Musical Performers' Protection Act 1958, which made bootlegging a criminal offence and, being enacted for the protection of performers, would have given Elvis Presley a cause of action: see Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173, 187). The Court of Appeal held that the infringement of the Act did not give RCA a cause of action. The defendant was not interfering with the liberty of the Presley estate to perform the exclusive recording contract which, as Oliver LJ noted (at p 149) was "no more than an undertaking that he will not give consent to a recording by anyone else." Nor did it prevent the Presley estate from doing any other act affecting the plaintiffs. The bootlegger's conduct, said Oliver LJ (at p 153):

    "merely potentially reduces the profits which [the plaintiffs] make as the result of the performance by Mr Presley's executors of their contractual obligations."

    53.  It is true that there was no allegation that the defendant intended to cause loss to the plaintiff, although, given that the defendant was selling records in competition with the plaintiff, such an allegation would have been easy to make. But I do not think that it would have made any difference. The wrongful act did not interfere with the estate's liberty of action in relation to the plaintiff.

    54.  Likewise in Isaac Oren v Red Box Toy Factory Ltd [1999] FSR 785, one of the claimants was the exclusive licensee of a registered design. The defendant sold articles alleged to infringe the design right. The registered owner had a statutory right to sue for infringement. But the question was whether the licensee could sue. In the case of some intellectual property rights, an exclusive licensee has a statutory right of action: see, for example, section 67(1) of the Patents Act 1977. But the exclusive licensee of a registered design has no such right. So the licensee claimed that the defendant was intentionally causing him loss by the unlawful means of infringing the rights of the registered owner. Jacob J rejected the claim on the principle of RCA v Pollard. The defendant was doing nothing which affected the relations between the owner and licensee. The exclusive licence meant that the licensee was entitled to exploit the design and that the owner contracted not to authorise anyone else to do so. As Jacob J said, at p 798, para 33:

    "It is true that the exploitation of the licence may not have been so successful commercially by reason of the infringement, but the contractual relations and their performance remain completely unaffected."

    55.  Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173 was an attempt to found a cause of action simply on the fact that the conduct alleged to have caused loss was contrary to law. The defendant's conduct was alleged to be a criminal offence but not actionable by anyone. In this respect it was unlike RCA v Pollard and Isaac Oren v Red Box Toy Factory Ltd, in which it could at least be said that the conduct was a wrong against someone in contractual relations with the claimant. Lonrho owned and operated a refinery in Rhodesia supplied by a pipeline from the port of Beira. When Rhodesia declared independence in 1965, the UK imposed sanctions which made it unlawful for anyone to supply the country with oil. As a result, the refinery and pipeline stood idle until the independence regime came to an end. Lonrho alleged that Shell had prolonged the regime by unlawfully supplying Rhodesia with oil through other routes and thereby caused it loss. The House of Lords decided that the alleged illegality gave rise to no cause of action on which Lonrho could rely. Again, there was no allegation that Shell had intended to cause loss to Lonrho, but I cannot see how that would have made any difference. Shell did not interfere with any third party's dealings with Lonrho and even if it had done so, its acts were not wrongful in the sense of being actionable by such third party.

    56.  Your Lordships were not referred to any authority in which the tort of causing loss by unlawful means has been extended beyond the description given by Lord Watson in Allen v Flood [1898] AC 1, 96 and Lord Lindley in Quinn v Leathem [1901] AC 495, 535. Nor do I think it should be. The common law has traditionally been reluctant to become involved in devising rules of fair competition, as is vividly illustrated by Mogul Steamship Co Ltd v McGregor, Gow & Co [1892] AC 25. It has largely left such rules to be laid down by Parliament. In my opinion the courts should be similarly cautious in extending a tort which was designed only to enforce basic standards of civilised behaviour in economic competition, between traders or between employers and labour. Otherwise there is a danger that it will provide a cause of action based on acts which are wrongful only in the irrelevant sense that a third party has a right to complain if he chooses to do so. As Jacob J said in Isaac Oren v Red Box Toy Factory Ltd [1999] FSR 785, 800:

    "the right to sue under intellectual property rights created and governed by statute [is] inherently governed by the statute concerned. Parliament in various intellectual property statutes has, in some cases, created a right to sue and in others not. In the case of the 1988 Act it expressly re-conferred the right on a copyright exclusive licensee, conferred the right on an exclusive licensee under the new form of property called an unregistered design right (see section 234) but did not create an independent right to sue on a registered design exclusive licensee. It is not for the courts to invent that which Parliament did not create."

    57.  Likewise, as it seems to me, in a case like Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173, it is not for the courts to create a cause of action out of a regulatory or criminal statute which Parliament did not intend to be actionable in private law.

    58.  It is not, I think, sufficient to say that there must be a causal connection between the wrongful nature of the conduct and the loss which has been caused. If a trader secures a competitive advantage over another trader by marketing a product which infringes someone else's patent, there is a causal relationship between the wrongful act and the loss which the rival has suffered. But there is surely no doubt that such conduct is actionable only by the patentee.

    59.  Sales and Stilitz, "Intentional Infliction of Harm by Unlawful Means" (1999) 115 LQR 411-437, take a very wide view of what can count as unlawful means, arguing that any action which involves a civil wrong against another person or breach of a criminal statute ("any act that the defendant is not at liberty to commit") should be sufficient. In their opinion, a requirement of a specific intention to "target" the claimant should keep the tort within reasonable bounds. Tony Weir in the Clarendon Law Lectures "Economic Torts" is of much the same opinion. But other writers consider that it would be arbitrary and illogical to make liability depend upon whether the defendant has done something which is wrongful for reasons which have nothing to do with the damage inflicted on the claimant: see Roderick Bagshaw's review of Weir in (1998) 18 Oxford JLS 729-739 at p. 732. I agree.

    60.  I do not think that the width of the concept of "unlawful means" can be counteracted by insisting upon a highly specific intention, which "targets" the plaintiff. That, as it seems to me, places too much of a strain on the concept of intention. In cases in which there is obviously no reason why a claimant should be entitled to rely on the infringement of a third party's rights, courts are driven to refusing relief on the basis of an artificially narrow meaning of intention which causes trouble in later cases in which the defendant really has used unlawful means. This, as I shall in due course explain, is what may have happened in the Hello! case.

    61.  I would only add one footnote to this discussion of unlawful means. In defining the tort of causing loss by unlawful means as a tort which requires interference with the actions of a third party in relation to the plaintiff, I do not intend to say anything about the question of whether a claimant who has been compelled by unlawful intimidation to act to his own detriment, can sue for his loss. Such a case of "two party intimidation" raises altogether different issues.

    62.  Finally, there is the question of intention. In the Lumley v Gye tort, there must be an intention to procure a breach of contract. In the unlawful means tort, there must be an intention to cause loss. The ends which must have been intended are different. South Wales Miners' Federation v Glamorgan Coal Co Ltd [1905] AC 239 shows that one may intend to procure a breach of contract without intending to cause loss. Likewise, one may intend to cause loss without intending to procure a breach of contract. But the concept of intention is in both cases the same. In both cases it is necessary to distinguish between ends, means and consequences. One intends to cause loss even though it is the means by which one achieved the end of enriching oneself. On the other hand, one is not liable for loss which is neither a desired end nor a means of attaining it but merely a foreseeable consequence of one's actions.

    63.  The master of the Othello in Tarleton v M'Gawley may have had nothing against the other trader. If he had gone off to make his fortune in other waters, he would have wished him well. He simply wanted a monopoly of the local trade for himself. But he nevertheless intended to cause him loss. This, I think, is all that Woolf LJ was intending to say in a passage in Lonrho plc v Fayed [1990] 2 QB 479, 494 which has proved controversial:

    "Albeit that he may have no desire to bring about that consequence in order to achieve what he regards as his ultimate ends, from the point of view of the plaintiff, whatever the motive of the defendant, the damage which he suffers will be the same."

    64.  On the other hand, I think that Henry J was right in Barretts & Baird (Wholesale) Ltd v Institution of Professional Civil Servants [1987] IRLR 3 when he decided a strike by civil servants in the Ministry of Agriculture in support of a pay claim was not intended to cause damage to an abattoir which was unable to obtain the certificates necessary for exporting meat and claiming subsidies. The damage to the abattoir was neither the purpose of the strike nor the means of achieving that purpose, which was to put pressure on the government.

    Back to the three appeals

    65.  My Lords, after this somewhat lengthy clearing of the ground I can come to the three appeals before the House. In arriving at these statements of general principle, I have derived great assistance from many who have written on the subject in addition to those whom I have specifically cited and in particular, if what I have said does anything to clarify what has been described as an extremely obscure branch of the law, much is owing to Hazel Carty's book An Analysis of the Economic Torts (2001).

    Mainstream Properties Ltd v Young

    66.  I shall start with the Mainstream case, because it is the easiest and provides a useful stepping stone to the other two. Mainstream was a development company owned and controlled by Mr Moriarty. He engaged Mr Young as a working director and Mr Broad as a manager and left the business to them. In 2000 they diverted the purchase of development land at Findern in Derbyshire to a joint venture consisting of themselves and the respondent Mr De Winter, who financed the project. Judge Norris QC, in a detailed and lucid judgment, found that this was a breach of their contractual and fiduciary duties to obtain the property for Mainstream.

    67.  There is no challenge to these findings but the question in this appeal is whether Mr De Winter is liable in tort for inducing Mr Young and Mr Broad to break their contracts. The cause of action is therefore the original Lumley v Gye tort, based on accessory liability. The judge found that Mr Young and Mr Broad could not have acquired the property without Mr De Winter's financial assistance. His participation was therefore causative. He also knew that they were employed by Mainstream and that there was an obvious potential conflict between their duties to Mainstream and their participation in the joint venture. But the judge found that Mr De Winter was a cautious man who had raised the question of conflict of interest with Mr Young and Mr Broad and had received an assurance that there was no conflict because Mainstream had been offered the site but refused it. This was untrue but Mr Winter genuinely believed it. He had been given a similar (and more truthful) assurance concerning another project which Mr Young and Mr Broad had brought to him in the previous year and that, said the judge, "was now proceeding smoothly without objection".

    68.  On these findings of fact the judge found that Mr Winter did not intend to procure a breach of the contracts of employment or otherwise interfere with their performance. The claim against him was therefore dismissed. This finding was upheld by the Court of Appeal (Sedley and Arden LJJ and Aikens J).

    69.  In my opinion this case comes squarely within British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479. On the finding of the judge, Mr De Winter honestly believed that assisting Mr Young and Mr Broad with the joint venture would not involve them in the commission of breaches of contract. Nor can Mr De Winter to be said to have been indifferent to whether there was a breach of contract or not, as in Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691, or made a conscious decision not to inquire in case he discovered a disagreeable truth. He therefore did not intend to cause a breach of contract and the conditions for accessory liability under the Lumley v Gye tort are not satisfied. Nor is there any question of his having caused loss by unlawful means. He neither intended to cause loss to Mainstream nor used any unlawful means.

    70.  Your Lordships were referred by Mr Randall QC, who appeared for Mainstream, to a number of authorities. But they concerned different questions and none of them cast any doubt upon the proposition that one cannot be liable for inducing a breach of contract unless one intended to cause a breach. For example, in Smithies v National Association of Operative Plasterers [1909] 1 KB 310 the union undoubtedly intended to cause a breach of the workmen's contracts of service. But they claimed to be entitled to do so because the employer had not adhered to a collective agreement. The Court of Appeal rejected this defence but the case has nothing to do with the requirements of knowledge and intention. In Greig v Insole [1978] 1 WLR 302 the International Cricket Conference knew that the cricketers were contracted to play for Mr Kerry Packer's company but put pressure upon them to withdraw, indifferent as to whether this would cause breaches of contract or not. As Slade J observed, the case fell within the principle of Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691. This case clearly does not. The other cases cited by Mr Randall were similarly concerned with indifference, conscious decision not to inquire or different torts.

    71.  Finally, Mr Randall said that even if the judge's findings exonerated Mr De Winter from the charge of inducing a breach of the obligation of good faith which required Mr Young and Mr Broad to make the Findern property available to Mainstream, it did not provide any answer to a claim that he had induced a breach of their obligation to give their full time and attention to Mainstream's business. Mr De Winter did not say he had inquired into whether they had asked Mr Moriarty for permission to participate in the joint venture; the evidence was that they had not asked and that if they had, permission would not have been given.

    72.  This is a point which appeared for the first time in supplemental submissions to the Court of Appeal. The Court of Appeal did not deal with it. There had been no suggestion at the trial that Mainstream was making a separate claim for loss of the services of Mr Young and Mr Broad while they were working for the joint venture. Nothing was put to Mr De Winter about whether he thought they were free to do so. No attempt was made to assess what might have been the damage flowing from such a breach. In my opinion it is not open to Mainstream now to reformulate its case in this way. I would dismiss the Mainstream appeal.

    OBG Ltd v Allan

    73.  OBG Ltd and OBG (Plant and Transport Hire) Ltd (which I shall refer to together as OBG as if they were one company, which for practical purposes they were) carried on business laying and maintaining underground pipes. OBG's main customer was North West Water Ltd ("NWW"), with whom it had a profitable running contract in Civil Engineers Conditions of Contract form for laying and maintaining water pipes, under which it was paid monthly against Engineer's certificates. There were also other customers. OBG employed a specialist sub-contractor called Raymond Centriline Ltd ("Centriline") to line pipes with mortar mix or epoxy resin.

    74.  In the spring of 1992 OBG had the misfortune to fall out with NWW, which took the view that recent work had been substandard and that it had been overcharged. There was an investigation as a result of which the Engineer "decertified" substantial past payments. NWW set off the decertified sums against money due on current certificates and withheld further orders. The result was that OBG's cash flow dried up and it became insolvent in the sense of being unable to pay its debts as they fell due.

    75.  OBG attempted to obtain financial support from Centriline, which had an interest in its future not only as a sub-contractor but also as a creditor to the tune of over £1m. In the course of these negotiations Centriline took an assignment from Royal Bank of Scotland of an all-monies debenture secured by the floating charge over OBG's assets and undertaking. The negotiations fell through and on 9 June 1992 Centriline appointed the defendants, Mr Allan and Mr Stevenson, as administrative receivers under the floating charge.

    76.  Unfortunately OBG had owed nothing to the bank and no secured debt was assigned with the debenture. Centriline was advised by its solicitors that it could tack its own unsecured debt onto the empty debenture. This advice is admitted to have been wrong; indeed, negligent. Centriline was therefore not entitled to appoint receivers. But it and the receivers believed in good faith that the appointment was valid.

    77.  The receivers went into possession of the premises and chattels owned by OBG and took control of its affairs. NWW elected to treat the insolvency of OBG as an event of default and terminated its contracts. The receivers arranged for the completion of the contracts with other customers. There followed lengthy negotiations with NWW, with the receivers claiming that OBG was owed money under the contracts and NWW asserting cross-claims. Eventually, in November 1993, the receivers agreed in principle to accept £400,000 in full and final settlement.

    78.  By this time it was clear that OBG was challenging the validity of the appointment of the receivers. The company had gone into creditors' voluntary liquidation on 19 June 1992, ten days after the appointment of the receivers. The liquidator had taken advice on the validity of the appointment. NWW was reluctant to conclude a settlement with the receivers unless the liquidator also became a party. On 19 October 1995 OBG, acting by the liquidator, issued these proceedings, claiming a declaration that the appointment had been invalid and damages. On 15 August 1997 the settlement with NWW was finally executed, with the liquidator concurring.

    79.  Judge Maddocks QC tried the case in stages. After hearing argument on the validity of the appointment, he made a declaration on 31 January 2001 that it had been invalid. There is no challenge to this ruling. He adjourned the question of what damages, if any, OBG could in consequence claim.

    80.  There followed some interlocutory hearings and pleadings in which OBG was asked to state the basis on which it made its claim. This was put in various ways, but I need not concern myself with the claims that it would have survived to become profitable or that its assets would have been realised more advantageously in administration, because the judge found on the facts that neither of these things would have happened. Insolvent liquidation was inevitable.

    81.  OBG's case, as it emerged, was that by taking control of OBG's assets and undertaking on 9 June 1992, the receivers became liable in damages for their value on that date. Liability was alleged to be strict. The cause of action giving rise to this liability was, as to the land and chattels, trespass and conversion, and as to the contractual claims, wrongful interference with contractual relations. The defendants admitted liability for trespass to the land and conversion of the chattels, but denied that they had unlawfully interfered with the contractual rights. OBG's alternative case was that the receivers had converted the entire assets and undertaking, including the contractual claims. The answer of the receivers was that conversion is a tort against chattels and not against contractual claims.

    82.  The judge dealt with the case on the basis that if he found that either of these causes of action was well-founded, he was concerned only to value the company's assets and undertaking on 9 June 1992 and then to give credit for the sums for which the receivers had accounted to the liquidator. The rest was damages. He assessed this figure at £1,854,000, most of which was attributable to the difference between the value which he put on the claims against NWW as at 9 June 1992 and the £400,000 for which the company had agreed to settle them five years later.

    83.  There was no allegation that the receivers had been negligent. Nor was it regarded as necessary to ask whether the assumption of control by the receivers had caused the disparity between the value at that date and the amount subsequently realised - whether, for example, the value of the assets had fallen for a reason which had nothing to do with who was in control of them. The receivers were alleged to be strictly liable, on one basis or the other, for the value of the assets on the day they were appointed. Nothing that happened after that date, or would have happened if they had not been appointed, was regarded as relevant.

    84.  The judge found that OBG had a cause of action for interference with contractual relations. He referred to Lord Macnaghten's dictum in Quinn v Leathem [1901] AC 495 and Greig v Insole [1978] 1 WLR 302. It was true that the receivers had not interfered with performance of the contracts, still less caused them to be breached. They had conducted negotiations in the bona fide belief that they were entitled to act on behalf of OBG. But, he said, "that factor serves only to create the interference more directly." He rejected the alternative claim for conversion of contractual rights.

    85.  The Court of Appeal (Peter Gibson, Mance and Carnwath LJJ) unanimously upheld the judge's rejection of the conversion claim but by a majority (Mance LJ dissenting) allowed the appeal against the finding of wrongful interference with contractual rights. OBG pursued both causes of action in the appeal to your Lordships' House and I shall deal with them in turn.

    Interference with contractual relations

    86.  The present case amply illustrates the dangers of a broad reading of Lord Macnaghten's reference to "interference" in Lumley v Gye and the promiscuous application of cases on accessory liability (such as Greig v Insole [1978] 1 WLR 302) to a case which, on any view, can only be a case of primary liability. There are only two possible causes of action: procuring a breach of contract in a way which creates accessory liability under Lumley v Gye or causing loss by unlawful means. It is, I think, plain and obvious that the requirements for liability under neither of these torts were satisfied. There was no breach or non-performance of any contract and therefore no wrong to which accessory liability could attach. And the receivers neither employed unlawful means nor intended to cause OBG any loss.

 
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