Inducing a breach of contract: A Review of Northamber Plc v Genee World Limited & Ors [2024]

In the recent case of Northamber Plc v Genee World Ltd, the Court of Appeal considered what degree of participation is required to establish liability for inducing the breach. In this case, the Court found that a company was liable for inducing a third party’s breach of an exclusivity agreement where it bought products from the third party, with the knowledge that by doing so, it would breach the agreement.

Background

Northamber, an IT equipment supplier, entered into a Reseller Agreement and an Exclusivity Agreement with Genee. These agreements were entered into with the aim for Northamber to become the distributor and exclusive source of Genee World Products in the UK.

Mr Singh was the sole director of Genee and his wife, Mrs Kaur, had previously also been a director of Genee. Mrs Kaur was also the sole director of IES – a business which was involved in selling IT equipment to schools, a large proportion of which were Genee World Products.

Northamber alleged that IES acted jointly with Genee and Mr Singh to induce Genee to breach the Exclusivity Agreement. Consequently, Northamber acquired an injunction against Genee, preventing them from supplying goods within the UK to anyone other than Northamber.

In the first instance, the High Court found that Genee had breached the Exclusivity Agreement, and that Mr Singh had induced those breaches but was liable only from the date of the injunction. The Court also dismissed the claim against IES for inducing breached of contract as there was no evidence that IES had persuaded, encouraged or assisted Genee to breach the contract.

Northamber appealed against the finding that Mr Singh was not liable for the period before the date of the injunction and the finding that the placing of orders by IES with Genee was not sufficient to satisfy all the requirements when establishing the tort of inducing a breach of contract.

Establishing the tort of inducing a breach of contract

A claimant must prove, when alleging inducement to breach a contract, the following:

1. There must be a breach of contract;
2. That the third party induced the contract breaker to breach the contract by persuasion, encouragement, or assistance in the actual breach;
3. That the third party knew of the contract and knew that their conduct would have that effect;
4. That the third party intended to induce the breach of contract either as an end in itself or as the means to achieving some further end; and
5. That the third party had no lawful justification for their conduct.

Decision

In relation to inducing a breach of contract, the Court of Appeal found that the liability, for the tort of inducing a breach of contract, required only a degree of participation by IES which would amount to ‘accessory liability’ for the breach. Only a sufficient casual connection by the third party (IES) where they intended to induce a breach of contract will the third party be found liable.

The Court concluded that IES had the necessary intention and knowledge of the exclusivity agreement through Mrs Kaur and that by placing orders from Genee with this knowledge, IES had induced Genee’s breach of contract. Furthermore, Genee could not have breached the clause without willing purchasers and the judge concluded that IES’s actions were aimed at pursuing its own economic interest

Comments

This serves as a reminder that where a third party has entered into a transaction with the intention and sufficient knowledge that completing the transaction is likely to result in a breach of a separate pre-existing contractual obligation, they can be found liable as an accessory to the breach.