Realisation of a breach

REALISATION OF A BREACH

Although directors of a limited company cannot be held liable for inducing breach of contract if they are acting lawfully, the High Court has held in Antuzis and ors v DJ Houghton Catching Services and ors that they can be held liable if they were aware that their actions would have the effect of breaching their employees’ contract.  

Basic facts

A number of Lithuanian nationals, who were employed to catch chickens at various farms, claimed that their employer was exploiting them.  For instance, they worked extremely long hours; were paid less than the national minimum wage prescribed by the Agricultural Wages Act; and were frequently not paid the sums due to them on their pay slips.

In addition, payments were often withheld as a form of punishment for alleged transgressions. They were not paid holiday or overtime time at the prescribed rates. Nor was they permitted to take absence on account of bereavement.  Unlawful deductions were also made in respect of so-called employment fees and for rent in excess of the maximum permitted under the legislation.

The claimants lodged High Court proceedings against the directors of the company, arguing that their contracts had been breached by virtue of unpaid wages, unlawful deductions and fees, and lack of holiday pay

Relevant law

Under the rule established in the case of Said v Butt, a director of a company is not liable for inducing breach of contract by that company, if the director is acting within the scope of their authority.

However, where a breach of contract involves a statutory element indicating a failure on the part of the director to comply with their duties to the company, they may them become personally liable to a third party (in this case, their employees) for inducing the breach, depending on the circumstances.

Decision of High Court

 Following the decision in OBG Ltd and anor v Allan and ors, the High Court held that to be found liable of inducing breach of contract, the directors had to know that was what they were engaged in doing.  It was not therefore enough that they knew they were procuring an act which was a breach; they actually had to realize that it would have this effect.

The question of what counts as knowledge for the purposes of liability for inducing a breach of contract must include knowledge of the terms of the contract or at least the means to find out what they were, and then deliberately disregarding them. That would include turning a blind eye.

In terms of what counts as an intention to procure a breach of contract, the court held that if someone knowingly caused it, it was irrelevant that they did so for some other reason. Likewise, it was irrelevant if they could have achieved their purpose without causing a breach.

On the other hand, if the breach of contract is neither an end in itself nor a means to an end, but merely a foreseeable consequence, then in the court’s opinion it cannot be said to have been intended for this purpose.  

In this case, the court concluded that both directors "actually realised" that what they were doing involved a breach of their contractual obligations towards the claimants. What they did was the means to an end. There was no credible evidence that they honestly believed that what they were doing would not result in a breach of the claimants’ contracts. On the contrary, they all knew exactly what they were doing. As such, they were jointly and severally liable for inducing the breaches of contract.