The tort of intentionally inducing a breach of contract makes the wrongdoer responsible for any breach of contract that it has intentionally procured and provides the injured party with an additional cause of action. The party that breaches its contract will be liable under the law of contract, and the party that persuades it to break its contract will be liable in tort.
The tort was first used to deal with economic losses that resulted from breaches of contracts for services, where a servant was enticed away to work for someone else. The law has since developed to enable landlords to bring claims against third parties that have induced breaches of contracts not to assign or underlet leasehold properties without consent. A recent House of Lords case provides another example of how the law may be applied to transactions involving properties.
In Mainstream Properties Ltd v Young [2007] UKHL 21; [2007] 19 EG 165 (CS) two employees of a property company, in breach of their contracts of employment, diverted a development opportunity to a joint venture in which they were interested. They could not have acquired the property without the financial assistance of a third party, who had asked them whether there were any conflicts of interest. They had assured him that the company was not interested in the site. This was untrue, but their joint venture partner genuinely believed what he had been told.
The Lords dismissed the company’s claim that the third party had induced its employees to breach their contracts of employment. They ruled that, to be liable for inducing a breach of contract, the party must realise what it is doing. An honest belief that the outcome sought will not involve a breach of contract is inconsistent with an intention to induce a breach. Consequently, a defendant will not be responsible for a third party’s breach of contract in such cases. It does not matter that the defendant’s belief is mistaken in law. Nor does it matter that its belief is muddle-headed or illogical.
It is not necessary for the defendant to have intended to cause damage to the claimant in order for liability to accrue. However, an intentional interference with a contract may be excused if the defendant has interfered to protect an equal or superior right of its own: see Edwin Hill & Partners v First National Finance Corporation plc [1988] 3 EGLR 30; [1988] 48 EG 83, where a lender agreed to provide additional finance for a development on condition that the borrower appointed the lender’s preferred architects.
The Lords also commented on the position of a stranger to a contract that, quite unknowingly and unintentionally, procures a breach of contract by offering an inconsistent deal to a contracting party that persuades that party to default on its contractual obligations. The stranger will not be liable in such circumstances. However, a conscious decision not to enquire about a potential breach of contract of which the stranger is aware, to avoid discovering a disagreeable truth, may be sufficient to render the stranger liable in tort.
Allyson Colby is a property law consultant
