Jak Trude v Christopher Rajendran Hyman & Anor

The claimant sued the second defendant company in contract and the first defendant (the company’s sole director and shareholder) in tort for procuring or inducing the company’s breach of contract arising under an agreement dated 26 April 2018 (clause 4.2 being materially relied on). The court applied the procedural tests in CPR Pt 3.4(2)(a) (strike out) and Pt 24 (summary judgment) and the substantive law governing accessory liability for procuring or inducing breach of contract, including the rule in Said v Butt and the principles explained in OBG, Kawasaki and Palmer Birch.

The Master held that the pleaded case against the first defendant, as originally drafted, did not plead conduct amounting to persuasion, encouragement or assistance capable of operating on the company’s will and therefore did not disclose a viable cause of action for procuring or inducing breach. The pleaded global allegation that "the Defendants" terminated the agreement and the claim for damages against the first defendant measured as if he were a contracting party were struck out as unsustainable.

However, because the Reply and proposed amendments raised a narrow arguable line that the director may have acted other than bona fide and outside his authority (engaging section 172 duties and avoiding the Said v Butt protection), the court refused summary judgment/complete striking out of the tort claim and granted the claimant a limited opportunity to re-amend to plead knowledge, intention and the alleged breach of duties (including section 172), subject to a short time limit.

Background and procedural posture. The claimant provided property project management consultancy services to the second defendant under an agreement dated 26 April 2018. The first defendant was the second defendant’s sole director and shareholder. The claimant contends he identified and helped negotiate purchase of a development site (the Property) that was instead acquired by a special purpose vehicle (CPL) controlled by the first defendant. The claimant alleges the Company’s termination of the agreement was wrongful and that the first defendant induced or procured the Company’s breach. The first defendant applied to strike out the tort claim against him or for reverse summary judgment and the claimant applied for permission to amend the particulars of claim.

Nature of relief sought. Strike out or summary judgment against the claimant’s tort claim; alternatively, permission for the claimant to amend his particulars of claim to particularise the tort allegation.

Issues framed by the court.

• Whether the particulars of claim disclose a realistic prospect of establishing that the first defendant induced or procured the Company’s breach (elements of inducement: persuasion/encouragement/assistance; causative participation; knowledge; intention).
• Whether the rule in Said v Butt protects a director acting bona fide and within authority from accessory liability and whether the claimant had pleaded facts to displace that protection (for example by pleading bad faith, acting outside authority or breach of duties such as section 172 Companies Act 2006).
• Whether the claimant’s proposed amendments could cure pleading deficiencies and disclose a real prospect of success.

Reasoning and decision. The Master reviewed the law on strike out and summary judgment, the elements of the tort of inducing/procuring breach (as summarised by Popplewell LJ in Kawasaki) and relevant authorities including Said v Butt, Palmer Birch, Antuzis and IBM. On the pleadings as they stood, the claimant’s case against the first defendant relied on the Company’s conduct in transferring the Property and did not plead any acts by the first defendant amounting to persuasion, encouragement or assistance capable of operating on the Company’s will. There was also no pleaded allegation that the first defendant acted other than bona fide or outside his authority, nor adequate pleading of the first defendant’s knowledge that his conduct would result in breach or his intention that breach would follow.

The court therefore struck out the pleaded allegation that both defendants terminated the agreement as against the first defendant and struck out the claimant’s pleaded damages claim against the first defendant as framed. Nevertheless, because the Reply and proposed amendments sought to rely on an argument that the director had acted not bona fide and that his conduct might breach section 172 (and because Palmer Birch and related authorities provide a possible route for liability where a director diverts assets in breach of duties), the Master concluded the claimant’s narrower argument was not merely fanciful. Accordingly the court refused to grant summary judgment or strike out the entire tort claim and granted leave for the claimant to re-amend within a short time, provided the re-amended pleading properly pleaded the first defendant’s knowledge, intention and any alleged breach of duties (including section 172), failing which the claim against the first defendant would be struck out.

Wider context. The Master observed that whether a director’s conduct amounts to bad faith is fact-sensitive and not easily suitable for summary determination in many cases.

At first instance the Master struck out those parts of the particulars of claim which pleaded that "the Defendants" terminated the Agreement as against the first defendant and struck out the claimant’s pleaded head of damages against the first defendant. However, the Master refused to strike out or grant summary judgment on the tort claim in its entirety and granted the claimant a narrowly limited opportunity to re-amend to plead a case that the first defendant acted other than bona fide and/or outside his authority and that he had the requisite knowledge and intention to procure a breach, including pleading any alleged breach of section 172 Companies Act 2006. The refusal to strike out was on the basis that the amended line of argument had a real, if narrowly cast, prospect of success.