Key points
- Parties buying land subject to third-party rights need to take care
- A recent judgment has highlighted the risk of being liable for the tort of procuring a breach of contract
Not all legal cases are simple. Some, like the decision of Asplin J in Lictor Anstalt v Mir Steel UK Ltd and another [2014] EWHC 3316 (Ch), are complicated. Before the judge had heard nine days of evidence in relation to liability, the parties had already asked another judge to consider an application for summary judgment (which was rejected) and been to the Court of Appeal.
The judgment covers an awful lot of jurisprudential ground including questions of whether or not a hot strip mill for processing steel was a fixture that had become annexed to the land, procedural points under the CPR and the Civil Evidence Act 1995, the principles of land registration, the meaning of express and implied contractual terms, common mistake, total failure of consideration, breach of contract, conspiracy, the statutory insolvency regime as well as the question of whether or not Mir, the purchaser of the site containing the hot strip mill, had procured a breach of contract. It has already been considered by Allyson Colby in a practice point (PP 2014/192).
This note focuses on the tort of procuring a breach of contract because the tort is so rare and because buyers of land may be unaware of a potential tightrope they have to walk in relation to it.
The facts
Alphasteel Limited (which went into administration in 2007) owned land in Newport, South Wales, with a hot strip mill situated on it. Hot strip mills are significant bits of engineering: they are used to turn thick slabs of semi-finished steel into thin coils that can be up to half a mile in length. The mill in issue in this case was over 300m long and weighed in excess of 4,000 tonnes; the mill’s size and weight being relevant to the question of whether or not it had been annexed to the land.
In 1991, Lictor (which is an anstalt, a corporate structure unique to Liechtenstein), supplied the parts for the strip mill to Alphasteel. Lictor agreed that Alphasteel could assemble the strip mill and process steel at the site. In April 2000, the arrangements between Lictor and Alphasteel were formalised in a written contract, which included confirmation that Lictor retained ownership of the strip mill and was entitled to enter the site and remove it. In December 2007, Alphasteel’s administrators agreed to sell the site (including the strip mill) to Mir. Because the sale included the strip mill, this was in breach of Alphasteel’s agreement with Lictor, a situation exacerbated by the fact that the judge also accepted that the strip mill had become annexed to the land. This meant that Lictor could not re-enter the site and remove the mill.
Asplin J had to decide whether Mir had procured that breach of contract by Alphasteel. If it had, Mir would owe Lictor damages. Alphasteel would also be liable to pay Mir damages. However, it is in administration. Although the judgment relates to liability and not quantum, and does not discuss this issue, it seems likely that Mir (which was still solvent) would be more likely to be able to pay any damages than Alphasteel.
The tort
The judge considered, or was referred to, 13 different authorities in relation to procuring a breach of contract. She held that the key one was the decision of the House or Lords in three cases known collectively as OBG v Allan [2008] 1 AC 1, which established that a defendant can be liable only if they deliberately intended to “procure or persuade (‘induce’) the third party to break his contract with the claimant”; a concept Lord Nicholls summarised as “intentional causative participation”.
No tort occurs where the contract breaker acts inadvertently or negligently, although the House of Lords in OBG also approved a finding of Lord Denning MR in Edward Construction Co Ltd v Lowthian [1966] 1 WLR 691 that a third party could also commit the tort if they are “recklessly indifferent” as to whether or not there was a breach of contract.
The decision
Asplin J decided that Mir had induced the breach of contract. At the time of the sale, both the administrators and Mir were aware of Lictor’s interest and were in communication with Lictor’s lawyers. The judge found that there was intentional causative participation by Mir.
This was the case notwithstanding the fact that the sale agreement between the administrators and Mir had expressly acknowledged the existence of Lictor’s claim and the possibility that the strip mill belonged to Lictor and not to Alphasteel.
The problem was that the administrators and Mir were attempting to transfer the land with the benefit of the mill and not without. The fact that there was a risk that they might not be able to do so did not stop Mir from intentionally causing a breach of Alphasteel’s agreement with Lictor.
Further, given that the mill had become annexed to the land, the agreement with Lictor was breached when the sale took place (notwithstanding the acknowledgment of Lictor’s claim). As a matter of law, the mill now belonged to Mir.
Consequences
Buyers of land need to beware as this judgment could place them in something of a quandary. Making too many enquiries about third party contractual rights could fix them with sufficient knowledge to be liable for the intentional causative participation in a breach of contract. Caveat emptor indeed.
Stuart Pemble is a partner at Mills & Reeve LLP
