Risky business: the perils of taking over someone else's contract
The High Court has held that the tort of inducing breach of contract requires more than merely "facilitating" a breach. Flexidig Ltd v A Coupland (Surfacing) Ltd(1) also reminds third parties of the perils of becoming embroiled in others' disputes.
M&M Contractors hired Flexidig as a sub-contractor to carry out certain civil engineering works. The contract provided that:
The sub-contractor shall maintain and protect the sub-contract Works and shall make good at the sub-contractor's own expense and at such times to be decided by the Contractor, any defects in or damage to the sub-contract Works… Where the sub-contractor does not make good any sub-contract Works to the satisfaction of the Contractor and Client, the Contractor may engage another contractor.
Within six weeks of Flexidig starting work, M&M Contractors became aware of problems with the standard of work and issued a stop notice. Flexidig assured M&M Contractors that it would satisfactorily remedy the defects and was given a second chance. However, it quickly became clear that Flexidig's work was still unacceptable and M&M Contractors issued a further stop notice.
M&M Contractors engaged Coupland to complete the works as a sub-contractor in Flexidig's place. Flexidig subsequently issued proceedings against Coupland. Flexidig alleged (among other things) that M&M Contractors had been required under their contract to give Flexidig the chance to perform any remedial works and that Coupland, by carrying out the works in Flexidig's place after having been notified of that requirement, had caused M&M Contractors to be in breach, thereby committing the tort of inducing breach of contract.
Elements of inducing breach of contract
The tort requires the following(2):
- Inducing breach – the tortfeasor must act in such a way that it induces a contract party (the so-called 'influenced party') to breach its pre-existing contract with a third party.
- Knowledge – the tortfeasor must know that (or be recklessly indifferent as to whether) the act it is inducing the influenced party to do constitutes a breach of the contract between the influenced party and the third party.
- Intent – the tortfeasor must intend to induce the influenced party to breach its contract with the third party. Such intent need not be malicious; simply intending to persuade the other party to breach its contract, or intending the consequences of that breach, is enough.
"Intentional causative participation" in a breach of contract is key.
Was Coupland liable?
The court held that the contract did not require M&M Contractors to give Flexidig the opportunity to complete the works, so there was no breach of contract and consequently no inducing breach of contract.
As to knowledge and intent, at the time of informing M&M Contractors of its rates and entering into the contract, Coupland had been unaware of the pre-existing contract between M&M Contractors and Flexidig. However, by the time that Coupland started work, Flexidig had told Coupland that M&M Contractors was contractually required to engage Flexidig to make good on the defects. M&M Contractors had assured Coupland that it was not. In these particular circumstances, the court held that Coupland had not acted with "reckless indifference" as to whether M&M Contractors would be in breach. Coupland had not been required to ascertain which contention was correct and therefore had no knowledge or intent to induce M&M Contractors to breach its contract.
Is facilitating alone enough to constitute inducing?
The court separately considered whether Coupland had actually done anything which could have constituted inducement to M&M Contractors to breach its contract with Flexidig.
All Coupland had done to participate in a theoretical breach was to comply with M&M Contractors' instructions to carry out the works. Any other competent sub-contractor could have completed the work instead of Flexidig or Coupland. Coupland had not encouraged, induced or persuaded M&M Contractors to commit a breach; as such, there was no causative participation. At worst, Coupland might have facilitated a breach by M&M Contractors through completing the works and thereby depriving Flexidig of the opportunity. However, the court emphasised that facilitating alone, where there is no knowledge, intent or actual inducement to breach the contract, cannot constitute inducing.
This decision clarifies that merely contracting with another party and thereby giving it the opportunity or means to breach another pre-existing contract is not itself sufficient to constitute inducing. For inducing breach of contract, the party in breach must have actually been induced, influenced or encouraged to commit the breach; facilitating alone is not enough.
More practically, the case is also a reminder of the perils of becoming involved as a third party in others' disputes. Although it is unclear from the judgment who was paying Coupland's costs, it can be assumed that Coupland did not contract with M&M Contractors expecting that it would ever be sued by Flexidig. Service providers taking over from other service providers that have failed to deliver would be well-advised to make provision for reimbursement by the employer if they become embroiled in any disputes between the employer and the original service provider.
(1)  EWHC 2578 (TCC)
(2) OBG v Allan  1 AC 1