Procuring a breach of contract: industry experience relevant to knowledge of contract
24 January 2019
This ruling on the tort of inducing a breach of contract illustrates how industry knowledge can help fix a party with the requisite knowledge of the existence and terms of a contract, breach of which it is alleged to have procured.
A company director was personally liable for procuring a breach of an agency agreement by obtaining early release of imported goods from shipping agents in return for prompt payment of their fees. The director’s experience in contracting with freight forwarders meant he must have known such an arrangement was outside the usual contractual structure or he was, at the very least, recklessly indifferent as to whether the agents were in breach of their agency agreement: Michael Fielding Wolff v Trinity Logistics USA Inc  EWCA Civ 2765.
Goods produced by a foreign supplier (the supplier) were shipped to the UK by agents (the agents) of the respondent, Trinity, to the Fielding Group (TFG) of which the appellant, Mr Wolff, was a director. In breach of the agency agreement between the respondent and the agents (the agency agreement), the goods were released by the agents without TFG producing the original bill of lading or air waybill indorsed by TFG’s bank evidencing payment by TFG to the supplier as is standard practice in relation to carriage of goods by sea or air. The agents had offered to TFG to release the shipments early in return for prompt payment of their fees. As the respondent was liable to the supplier, it successfully brought a High Court claim against Mr Wolff (TFG having become insolvent) for procuring the breach of the agency agreement. Mr Wolff appealed.
Elements required for the tort of procuring a breach of contract: a reminder
The tort of procuring a breach of contract is an accessory liability, dependent upon the primary wrong of a third party breaching its contract with the claimant: without primary liability, there can be no accessory liability. The necessary elements are: (i) breach of contract between the claimant and a third party; (ii) an act which amounts to intentional inducement/procurement of the breach; and (iii) proof that the defendant knew it was inducing/procuring an act that was a breach of contract and that it intended to procure that breach. Knowledge includes “reckless indifference”.
Mr Wolff relied on three grounds of appeal: (i) his arrangement with the agents did not amount to an act of inducement; (ii) the High Court’s decision that he “must have known” of the agency agreement and its terms was insufficient to prove the mental element of the tort which had to be actual knowledge or blind-eye recklessness; and (iii) the agency agreement only came into existence after the alleged acts of procurement.
Acts of inducement/procurement
The court decided Mr Wolff’s arrangement with the agents amounted to an act of inducement. The agents were not acting “benevolently” when they agreed to release the goods early; this was a business decision because, as a result, they received continued business from TFG and were paid promptly. The “bounty” offered by Mr Wolff was clearly an important, if not the most important, incentive for the agents’ willingness to breach the agency agreement. That the initial offer came from the agents was also not relevant: Mr Wolff had offered a sufficiently enticing incentive (prompt payment of the fees) and it was that “final step” which had induced the agents to breach the agency agreement.
Degree of knowledge required
The judge at first instance emphasised Mr Wolff’s familiarity with contracts (and their customary terms) with freight forwarders; he was aware of other parties in the supply chain and had many years’ experience of importing goods. The tenor of his emails indicated he “well understood” his arrangement with the respondent’s agents was “outside the contractual structure” and would lead to later claims. These facts, together, meant he "must have known" of the existence of the agency agreement and its terms and that the agents were acting in breach of it. This contrasted with TFG’s shipping manager who did not have training in the business or mechanisms of international trade, and only acted in a “ministerial” capacity; he may have had some awareness of the existence of the agency agreement and that it precluded early release, but did not have the critical extra degree of knowledge to carry him into the “must have known” category.