Restrictive covenants and the tort of inducing a breach of contract
Allen t/a David Allen Chartered Accountants v Dodd & Co  EWCA Civ 258The question
What is the knowledge requirement for the tort of inducing a breach of contract? To what extent is this affected by the legal advice received?
The key takeaway
This case affirms the principle that a defendant must know that they are causing a breach of contract in order for the tort of inducing a breach of contract to be made out. It also shows that a business can rely on its legal advice for the purposes of demonstrating an honestly held belief that there would not be a breach.
Mr Pollock was employed by an accountancy firm called David Allen Chartered Accountants (David Allen). His employment contract contained a restrictive covenant which included non-solicitation and non-dealing clauses, applicable for 12 months after the termination of his contract.
In July 2018 Mr Pollock resigned and started a new role at a Dodd & Co. Ltd (Dodd), a competitor of David Allen. Dodd’s lawyers advised them that the restrictive covenants in Mr Pollock’s contract were unlikely to be enforceable, as the 12 month limit on the non-solicitation and non-dealing clauses would probably be considered excessively lengthy for the purposes of protecting David Allen’s legitimate business interests.
After starting at Dodd, Mr Pollock began to contact clients that he had worked with whilst at his previous employer. David Allen brought a claim against Dodd for inducing a breach of contract.
The Court of Appeal unanimously upheld the decision of the High Court. The Court applied the criteria set out in the House of Lords decision in OBG Ltd v Allan :
- there needs to be a binding underlying contract
- the defendant must know that they are inducing a breach of contract
- if a defendant deliberately turns a blind eye, this will not prevent them from having the requisite knowledge
- if the defendant honestly believes that they will not cause a breach of contract, it does not matter if their reasoning is illogical or mistaken in law.
Why is this important?
This case gives practical guidance as to how a party’s knowledge is assessed when considering a claim for inducing a breach of contract and the relevance of the legal advice obtained at the relevant time.
Any practical tips?
Always bear in mind that, if you are involved in taking steps that may lead to the breach of a contract between two other parties, you may face allegations of procuring or inducing a breach of contract (especially if you are regarded as having the ‘deeper pockets’ for any claim).
If favourable legal advice is obtained (eg that it is likely that there would not be a breach), you can rely on that advice – but note that you may need to disclose such advice (and related instructions) if you wish to rely on it in the future.