IBM UNITED KINGDOM LIMITED v LZLABS GmbH & Ors

A director is generally not liable for inducing the company to breach its contract where acting bona fide and within the scope of authority. To displace that protection, the claimant must plead bad faith or lack of authority and the factual basis for the allegation. The relevant inquiry focuses on the director’s duties to the company, including the duty under Companies Act 2006, section 172, assessed in the round. The nature and consequences of the company’s breach, the director’s motivation and the duties allegedly breached may all be relevant. A sparse pleading may survive strike out where the surrounding facts support a sufficient inference, but speculative allegations about a director’s personal capacity or another corporate capacity may be summarily dismissed.

IBM brought claims concerning alleged reverse engineering of its mainframe software in breach of an IBM Customer Agreement. It alleged that LZLABS GmbH, Winsopia Ltd and LZLABS UK Ltd were responsible for the conduct, and that two individuals had induced Winsopia to breach the agreement.

The individual defendants applied to strike out the claims or obtain summary judgment. The corporate defendants sought strike out of pleaded material concerning a non-party and an injunction against that non-party. The issues included the adequacy of the inducement pleading, the protection afforded by the rule in Said v Butt, the capacities in which the individuals acted, and whether the claim had a real prospect of success.

1. Disposition. Paragraphs 11 and 12 of the Amended Particulars of Claim were struck out. The individual defendants obtained summary judgment insofar as the claim alleged that they acted personally or as directors or officers of the First Defendant. The claim could continue in respect of their acts as directors of the Second Defendant, subject to re-amendment.
2. For strike out under CPR Part 3.4(2)(a), the court considers the pleading on the assumption that its factual allegations can be established at trial and asks whether it discloses a legally sustainable cause of action. Under Part 3.4(2)(b), immaterial matters may be removed where they do not support the pleaded claim or relief and may confuse the proceedings.
3. The tort of inducing breach of contract requires breach by B, inducement by A, knowledge of the contract and the consequences of the conduct, intention to procure the breach, and absence of lawful justification. The inducement here was pleaded generally, but the surrounding circumstances gave just enough basis for an inference that the individual defendants had caused the breach.
4. The rule in Said v Butt protects a director acting bona fide and within authority. Bad faith or lack of authority is an integral part of the claimant’s case and must be pleaded with its factual basis. The inquiry focuses on the director’s duties to the company. Section 172 of the Companies Act 2006 is relevant, but not every breach by a company, or every breach of a legal obligation, establishes bad faith.
5. The assessment is fact-sensitive. Relevant matters include the director’s motivation, the nature of the duty allegedly breached, the nature of the company’s obligation and the consequences of its breach. The argument that the Second Defendant’s business was premised on wrongful use of IBM software had a real prospect of success, albeit narrowly, and justified an opportunity to re-amend.
6. The allegation that the individuals acted in a personal capacity, or as officers of the First Defendant, was speculative and had no real prospect of success on the pleaded facts. Their control over the Second Defendant was to be treated as exercised in their capacities as its directors.