Summary

The court considered the judgment of the House of Lords in OBG Ltd v Allan (2007) UKHL 21, (2007) 2 WLR 920 and concluded that where a defendant not only acted to protect his own interests but did so in the belief that he had a lawful right to act as he did, the fact that loss or detriment to a claimant was an intended consequence of his actions did not mean that he had the requisite intention to cause harm for the purposes of the tort of inducing breach of contract.

Facts

The appellants (M and B) appealed against a decision ([ 2007) EWHC 74) that they had suffered no loss and that the first and second respondents (X and F) were neither liable to them in damages for breach of a leaseback option nor liable to B for conspiracy and procuring breach of contract. The dispute arose out of arrangements between the parties for the construction of penthouses on the roof of an existing block of flats. M and B were sister companies, B owning the freehold of the flats. X was a subsidiary of F, set up for the purpose of entering into agreement with B in relation to the development. For a nominal sum, B granted X a lease to undertake the development, the profits to be shared between B, X and M. F was a mortgagee of the development lease. The agreement laid down a timetable for the development and provided that if X failed to fulfil its obligations, B had the option to require X to grant it a sublease of the undeveloped part of the demised property for a nominal sum. When the development ran into difficulties, F took possession of the lease and sold it to the third respondent (T). That prevented X from fulfilling its obligation under the leaseback option. M and B claimed that X and F were liable in damages for breach of the leaseback option, and that X, F and T were liable in damages for conspiracy and for inducing breach of contract. The judge held that X was in breach of contract for failing to complete the development within the timetable and for failing to grant the development sublease, and that F was liable in damages for X's failures, but that B had suffered no loss. He also held that F's exercise of its power of sale had not been for an improper purpose, but that even if it had, knowledge of any improper purpose on F's part would not have been imputed to T. He found that F's interference with the leaseback option was justified and that it was not, therefore, liable for that interference. The issues were whether (i) X and F were liable for substantial damages for X's failure to perform the leaseback option; (ii) the judge had erred in holding that X, F and T were not liable in damages to B for economic torts.

Held

1) X was liable for non-performance of the leaseback option once performance had been made impossible by virtue of F's exercise of the power of sale. F was therefore liable under its guarantee of X's obligations for the failure of X to execute the development of the sublease. The judge assumed that if X was disabled from performing its obligations under the leaseback option because F had exercised its power of sale, it was liable to M and B in damages. The question of whether there was such liability had been decided in judgments in previous litigation between the parties, and those judgments did not preclude the existence of a liability on the part of X in damages for failure to grant the sublease once the mortgagee had enforced its charge. The arguments that the leaseback option was merely security for payments which had been made in full, that it was a penalty, or that it had been transferred to F under the Law of Property Act 1925 s.114, did not afford X a defence to B's claim in damages. Section 114 did not apply to the charge over the development lease, which was registered land, Paragon Finance Plc (formerly National Home Loans Corp) v Pender (2005) EWCA Civ 760, (2005) 1 WLR 3412 followed. The judge was wrong to say that B and M had to elect between their respective remedies. Finally, B's agreement to F's charge having priority over the leaseback option meant that the only remedy to which it would be entitled as against X if F's charge was enforced was in damages. (2) X, F and T had a firm belief, based on legal advice, that B's rights under the leaseback option would be overreached by the exercise by F of its power of sale. It was a defence to an action for conspiracy to injure by unlawful means if the defendant not only acted to protect his own interests but did so in the belief that he had a lawful right to act as he did. The tort of inducing breach of contract required an intention to induce a breach of contract, and the tort of conspiracy by unlawful means required an intention to cause loss by unlawful means, OBG Ltd v Allan (2007) UKHL 21, (2007) 2 WLR 920 followed. In the instant case, no such intentions existed. F and T did not induce any breach of contract by X: the breach was the pre-agreed consequence of F's exercise of the power of sale. Nor were there any unlawful means; F was entitled to exercise its power of sale and X's breach was an unavoidable consequence of that act. Moreover, the actions of F and T could not amount to inducing a breach of contract or unlawful means for the purposes of the tort of conspiracy.

Appeal allowed in part