If a competitor or other third party has induced an employee to intentionally commit wrongdoing or act detrimentally to your business, then you might have recourse to a legal remedy and potential damages under the tort of inducing breach of contract, or procuring breach of contract in modern parlance.
Procuring breach of contract is an unfamiliar concept for most business people but it falls within an area of law known as economic torts. The purpose of the tort is to discourage prevent third parties from intentionally or knowingly interfering with the activities of a business in a way that results in economic loss - such as interfering with the pre-existing contractual relationships of others. Where loss and damage is caused, the third party may become liable for damages.
This is a general principle of common law, which means it is able to adapt flexibly to new circumstances and types of classes. A common example of where the principle may be applied is where a competitor business has encouraged or pressurised a current employee to behave in a way that is detrimental to their current employer’s business, in breach of the obligations in their employment contract.
The ability to recover from the competitor under inducing breach of contract is attractive in these circumstances, particularly if the loss is significant, as the competitor is likely to have greater means than the employee to satisfy a damages claim.
The case of Lumley v Gye is the landmark case on Inducing Breach of Contract claims. The case centred upon a contract between the then famed theatrical singer Johanna Wagner and an opera manger called Benjamin Lumley.
Johanna Wagner was exclusively contracted with Mr Lumley to sing at Her Majesty’s Theatre over a three month period. Another theatre manager, Frederick Gye, persuaded Ms Wagner to breach her contract and sing instead at the Covent Garden Theatre during that same period. Although Mr Lumley succeeded in getting an injunction to prevent Ms Wagner from singing at the Covent Garden Theatre in breach of her contract, she went on to sing there anyway.
Mr Lumley sought to recover his losses by suing Mr Gye for inducing Ms Wagner to breach her contract. During the case the sitting judge, Crumpton J stated:
it must now be considered clear law that a person who wrongfully and maliciously, or... with notice, interrupts the relation subsisting between master and servant [employer and employee]... commits a wrongful act for which he is responsible at law.”
In 2007 the House of Lords conducted a ‘tidying up’ of the economic torts in OBG Limited v Allan [2007]. The case related to the conduct of the administrative receivers of OBG Limited. In relation to a procuring a breach of contract claim, the House of Lords held that the defendant must have ‘intentionally’ caused the claimant loss by unlawfully interfering with the interests of others, i.e. The Third Party Must Intend to Procure a Breach of Contract.
There are a number of elements required to bring a claim for procuring a breach of contract. These include:
If you believe that your business may have been caused loss by inducement or procurement of breach of contract and you would like advice on making a claim, please contact us on 020 7353 1770.