Allen t/a David Allen Chartered Accountants v Dodd & Co Ltd

Liability for inducing breach of contract requires actual knowledge that the induced act will breach a binding and enforceable contract. Awareness of a risk, possibility or probability of breach is insufficient. Deliberate blind-eye conduct may be treated as knowledge, but negligence is not enough. An honestly held belief, based on responsibly obtained legal advice, that the contract or relevant term is unenforceable prevents liability even if the advice is mistaken. Absolute certainty or definitive advice is unnecessary: advice that non-enforceability is more probable than not may suffice.

Mr David Allen, trading as an accountancy firm, employed Mr Pollock under agreements containing post-termination restrictive covenants. Mr Pollock joined competitor Dodd & Co Ltd. Dodd obtained legal advice indicating that the covenants were probably unenforceable, although some risk remained.

The High Court held that the covenants were enforceable after severance and that Mr Pollock had breached them. It nevertheless dismissed the claim that Dodd had induced the breach, finding that Dodd had honestly relied on legal advice and had not turned a blind eye to the contractual obligations. The appeal concerned whether that state of mind was sufficient to establish the tort.

The appeal was dismissed. The court held that Dodd’s state of mind did not satisfy the mental element for inducing a breach of contract.

1. Following the reasoning in OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1, the claimant must prove that the defendant actually realised that the induced act would breach the contract. Knowledge that the act might breach the contract, or that the defendant ought reasonably to have appreciated the position, is insufficient.
2. A deliberate decision not to inquire may be treated as knowledge where it amounts to turning a blind eye. That is distinct from negligence or gross negligence. Mere suspicion is not enough, as illustrated by British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479 and Mainstream Properties Ltd v Young.
3. The court followed the approach to mistakes of law in Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303; [2008] Ch 244. Advice that it was merely arguable that no breach would occur might be insufficient, but that issue was left open. Advice that non-enforceability was more probable than not was sufficient. A defendant need not hold an absolute belief or obtain definitive advice.
4. Dodd knew of an apparent contract and the risk that the restrictions might be enforceable. It obtained advice at an early stage, supplied relevant information, sought further advice when new information emerged, and honestly relied on the advice received. Those findings excluded both actual knowledge and deliberate blindness.
5. For completeness, the court stated that the tort is accessory to the contract breaker’s liability and requires a binding and enforceable contract. That general proposition was not necessary to the outcome because the covenants were found enforceable. The court also endorsed the policy of allowing responsible reliance on legal advice, even where the advice later proves wrong.

• Court of Appeal (Civil Division): in [2020] EWCA Civ 258, the appeal was dismissed.
• High Court of Justice, Business and Property Courts in Manchester: in E40MA103, HHJ Halliwell held that the restrictive covenants were enforceable after severance and had been breached, but that Dodd was not liable for inducing the breach.