Palmer Birch (A Partnership) v Lloyd & Anor

A person who merely declines, without a legal obligation, to provide further funding to a company does not thereby induce the company’s breach of contract. The position differs where the person actively diverts or withholds funds which, in the circumstances, should have been made available through the company and thereby procures its repudiatory breach.

The tort of unlawful interference requires independently actionable unlawful acts directed against a third party, interference with the claimant’s economic interests, an intention to cause loss, and resulting loss. Justification is a defence to inducement where supported by an equal or superior pre-existing legal right, but it is not a separate defence to unlawful interference or unlawful means conspiracy.

For an unlawful means conspiracy, breach of contract may constitute unlawful means where it is instrumental in causing the claimant’s loss. Damages must reflect the true contractual value of the claimant’s lost expectations, assessed on a final rather than interim certification basis.

The claimant construction partnership contracted with Hillersdon House Ltd to refurbish a substantial property. The defendants were the company’s director and his brother, who had funded the project and exercised extensive practical control over it.

The company failed to pay two interim certificates and later purported to terminate the building contract without a contractual right to do so. It subsequently entered creditors’ voluntary liquidation. The claimant alleged inducing breach of contract, unlawful interference, unlawful means conspiracy and conversion.

The trial was ordered as a preliminary trial of liability, the defendants’ justification and no-loss defences, and the proper principle for assessing damages. The central issues were whether the defendants’ conduct amounted to inducement or conspiracy, whether the company’s separate personality prevented personal liability, and how the claimant’s lost contractual rights should be valued.

1. Inducement by non-funding. Michael Lloyd was not liable for inducing the company’s failure to pay Interim Certificates 34 and 35. The company lacked sufficient funds and he had no legal obligation to provide further funding. Mere failure to replenish a limited company’s resources amounted to prevention, not procurement.
2. Procurement of repudiatory breach. Michael did induce the company’s repudiatory breach by the letter of 22 April 2015. By no later than the end of January 2015, he and Christopher had decided to liquidate the company while preserving the benefit of the works through another vehicle. Funds which could have been made available to the company were instead diverted. This crossed the line from prevention to inducement and constituted an abuse of the company’s separate personality.
3. Justification. The defence failed. Michael had no equal or superior pre-existing legal right which justified procuring the repudiation. His conduct was driven by his own commercial and property interests.
4. Unlawful interference. The claim based on the alleged failure to fund failed. No independently unlawful act by Michael was established on the pleaded case.
5. Unlawful means conspiracy. Michael and Christopher tacitly agreed to bring about the company’s repudiatory breach so that it could avoid the claimant’s existing and anticipated claims. The agreement and intention to injure were inferred from their conduct. Breach of contract could constitute unlawful means, provided it was instrumental in causing the claimant’s loss. Christopher could not rely on his formal directorship because he had not acted bona fide within the company’s constitutional role.
6. Conversion. Michael was liable for converting certain materials belonging to the claimant. The claim against Christopher and the alleged conspiracy to convert failed because his involvement was not proved.
7. Loss and quantum. The established economic torts required consequential loss. The claimant’s damages were not limited to the sums stated in interim certificates. They had to reflect the true value of the lost contractual expectations, including a proper valuation of the works and extension-of-time entitlement on a final certification basis.
8. The claimant succeeded against Michael for inducing the repudiatory breach and conversion, and against both defendants for unlawful means conspiracy. The remaining claims failed. Liability for damages was established, with quantum adjourned for a further trial.

This was a first-instance decision following a preliminary trial of liability and the proper approach to damages. The judgment directed a further hearing concerning quantum.