Receivers invalidly appointed under a floating charge took control of OBG’s business. The House of Lords distinguished the tort of inducing a breach of contract from causing loss by unlawful means and rejected OBG’s claims in respect of its contractual rights.
Facts
OBG was in financial difficulty. A creditor appointed administrative receivers under a floating charge that did not secure any debt owed to it. The receivers believed in good faith that their appointment was valid. They took possession of OBG’s assets and negotiated a settlement with its main customer, North West Water, which had terminated its contracts. OBG’s liquidator later joined in the settlement.
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The receivers admitted liability for trespass to land and conversion of goods. OBG sought further damages for interference with its contractual rights or, alternatively, for conversion of those rights. The trial judge upheld the interference claim, but the Court of Appeal rejected it and refused to extend conversion to contractual rights.
Decision
The House of Lords dismissed OBG’s appeal. It distinguished two torts. Inducing breach of contract is accessory liability. The defendant must knowingly and intentionally procure an actual breach by a contracting party. The receivers had neither procured a breach nor intended to do so.
Causing loss by unlawful means requires an intention to cause loss to the claimant by interfering unlawfully with a third party’s freedom to deal with the claimant. The receivers acted in the belief that they were entitled to act for OBG. They did not intend to injure it.
The majority also held that contractual rights could not be the subject of conversion. Lord Nicholls and Baroness Hale disagreed on that point. The admitted liability for trespass and conversion of physical assets was unaffected.
The House of Lords heard this appeal alongside Douglas v Hello! Ltd and Mainstream Properties Ltd v Young, which are reported under the same neutral citation.
Reported citations: [2008] 1 AC 1; [2008] AC 1; [2007] 2 WLR 920; [2007] 4 All ER 545; [2007] Bus LR 1600.
Source: OBG Ltd and others v Allan and others [2007] UKHL 21
