Directors procuring breach of contract

 

A person commits the tort of procuring a breach of contract if he intentionally causes the other party to a contract to breach it or prevents or hinders the performance of the contract so that the third party (the other contractual party) suffers loss. 

 

Typically this might be a competitor telling your customer to end a contract with you prematurely so that it might get your business. 

 

Any agent (employee or contractor) acting in good faith for their principal with actual/implied or ostensible authority in procuring such a breach would be covered by agency law so ordinarily would not be personally liable so causing the illegal breach. Instead his principal-his employer would “carry the can”. 

 

This was the essence of the High Court decision of Crystalens Limited v White where two technology companies CYS and CRL had entered into a collaboration agreement that had later foundered and CYS later claimed against the managing director of CRL personally for CRL’s decision not to do any more work for CYS since CRL by the time the action began had gone into administration. 

 

The MD was successful in striking out the claim for the following reasons: 

 

• An agent or director acting bona fide within his authority was not personally liable and did not owe any duty of care in contract or tort to ensure that his employer fulfilled its contractual obligations;
• Only conspiracy or dishonesty could work against the director who enjoyed limited liability protection here and
• CYS could not show the MD had acted in his own interests in causing the breach-rather on the facts the decision was understandable since CYS had failed to pay due invoices repeatedly. 

The element of good faith was an important element of the defence of the MD here and directors should understand the importance of this legally and be able to put this into practice on a daily basis.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.