OBG Ltd & Anor v Allan & Ors

An invalidly appointed receiver does not commit the tort of interference with contractual relations merely by assuming management of the company’s contractual rights. The tort requires an intention to procure a breach or other actionable non-performance, or to prevent or hinder contractual performance. It does not extend to a dispute solely about who should manage one party’s contractual rights.

Contractual rights, being choses in action, cannot be converted. The court could not create a new tort to compensate for an unauthorised takeover of a business’s intangible assets. Liquidators’ additional remuneration and expenses may nevertheless be recoverable as damages for established torts where they were caused by the wrongdoing and were reasonably incurred.

Centriline purported to appoint the first and second defendants as administrative receivers of OBG and its associated company. The appointment was later declared invalid. The receivers nevertheless took control of the businesses, dealt with assets and negotiated settlements of outstanding contracts, including contracts with North West Water Ltd.

HHJ Maddocks awarded damages of £1,854,000, excluding a further inquiry into the liquidators’ costs and expenses. He held that the receivers had wrongfully interfered with contractual relations, although he rejected a claim based on conversion of contractual rights. The receivers and their solicitors appealed. OBG cross-appealed on conversion.

The central issue was whether an invalidly appointed receiver incurs tortious liability for taking over and managing a company’s contractual rights where the receiver neither procures breach nor prevents or hinders contractual performance.

1. Appeal allowed in part; cross-appeal dismissed. By a majority, Peter Gibson and Carnwath LJJ held that the damages attributable to alleged interference with contractual relations had to be removed. The appeal concerning the liquidators’ remuneration and expenses was dismissed.

2. The tort derived from Lumley v Gye protects contractual performance against deliberate procurement of breach, or deliberate prevention or hindrance of performance. The recognised extension in Torquay Hotel, approved in Merkur Island, did not justify a further extension to an invalid receiver’s assumption of management of a contracting party’s rights. The receivers intended to manage OBG’s rights, but did not intend to procure breach, non-performance, or the prevention or hindrance of any contractual obligation. Ordinary interference with the business was therefore insufficient.

3. There could be no conversion of OBG’s contractual rights. A chose in action is not capable of conversion in English law. The Canadian authorities did not analyse a distinct tort applying to intangible assets and gave no basis for creating one. Carnwath LJ added that the statutory definition of goods in the Torts (Interference with Goods) Act 1977 made a major judicial extension especially inappropriate.

4. Mance LJ dissented on the principal issue. He would have held that a purported agent or invalid receiver who actively and without authority takes over the settlement of existing contractual rights, thereby altering the company’s legal position to its detriment, directly interferes with pre-existing legal relations. That approach did not command the majority.

5. The judge’s limited ruling on liquidators’ costs was correct in principle. Additional remuneration and expenses may be damages where caused by the receivers’ established torts, are not too remote, and are reasonably incurred. Costs awarded in the litigation cannot also be recovered as damages. The directed inquiry was left to determine the factual limits of recovery.

• Court of Appeal (Civil Division): Allowed the appeal only to remove damages and interest attributable to interference with contractual relations. It dismissed the cross-appeal on conversion and upheld the ruling that an inquiry into recoverable liquidators’ costs could proceed.
• High Court, Chancery Division, Manchester District Registry: HHJ Maddocks had declared the receivers’ appointments invalid on 31 January 2001. By an order dated 24 February 2004, he awarded £1,854,000 plus interest, excluding liquidators’ costs and expenses, and directed an inquiry into those further costs.