Commercial Litigation – Interference with Contractual Relations – Causing Economic Loss

18/09/2018

Watson & Watson received instructions to act on behalf of a catering company (Caterer) who entered into an Agreement to provide catering services for a number of years to enable the operator to conduct a function centre (Company 1).  In the original Agreement:

1.        Company 1 indicated that it had the right to operate the function from the centre and promoted functions through a website.

2.        The Caterer entered into the Agreement with Company 1 in good faith based on an understanding that Company 1 would have a right to make available to the Caterer the function centre to cater for functions at that function centre.

After a short period of time Company 1 unlawfully terminated its Agreement with the Caterer and denied the Caterer any access to provide the catering services for the functions.  This caused considerable financial loss to the Caterer.

The Caterer issued proceedings against Company 1 and claimed significant damages.  After the proceedings had been commenced and evidence had been filed Company 1 and the Caterer engaged in Mediation.  Company 1 did not make any significant offer at the Mediation and the matter was not resolved.

Thereafter the Director of Company 1 appointed a Liquidator to Company 1.

Upon the liquidation of Company 1 it was ascertained that Company 1 did not have any legally binding right to operate from the function centre.

The Director of Company 1 was a Director of a number of companies which together owned the property, managed functions, engaged the Caterer and owned the website.

The difficulty was that the Liquidators appointed to Company 1 had no right to operate functions at the function centre.  The Liquidators could not offer any security to the Caterer which would enable the Caterer to proceed with its obligations under the Catering Agreement.

Following an investigation by Watson & Watson it was ascertained that the Director of Company 1 had control of numerous entities which together operated the function centre.  As the various companies were separate it appeared that the group was protected from claims by any party.

Watson & Watson considered the question of whether a claim could be made by the Caterer against the Director of the various companies personally and the separate companies for damages as a result of interference with contractual relations between the Caterer and Company 1 which caused economic loss to the Caterer.

The Caterer’s claim was the Defendants had together committed a tort of inducing breach of Contract by unlawful means which caused economic loss to the Caterer.

The Full Court of the Federal Court of Australia has summarised that the basic requirements of the tort of inducing breach of contract in Daebo Shipping Co Ltd v The Ship Go Star, 294 ALF 635 [2012}FCAFC 156 a [88], per Keane CJ, Rares and Besanko JJ:

1.        There must be a contract between the plaintiff and a third party;

2.        The Defendant must know that such a contract exists;

3.        The Defendant must know that if the third party, does, or fails to do, a particular act, that conduct of the third party would be a breach of the contract;

4.        The Defendant must intend to induce or procure the third party to breach the contract by doing or failing to do that particular act;

5.        The breach must cause loss or damage to the plaintiff.

In this particular case the possibility was available as the single individual was the Director of each of the companies that together combined to provide the services for the function centre.

The Caterer contented that each of the Defendant Companies knew of the specific terms of the Catering Agreement by reason of the individual sole Director’s knowledge who was instrumental in the creation and execution of the Catering Agreement.

The Caterer’s case was that the individual was personally involved in such wrongful repudiation by Company 1 in that the conduct was outside the bone fide course of the Directors authority and it was just that the Director and the Defendant’s Companies (of which the Director was the sole Director) should be rendered liable for that conduct.  There are other factual matters and conduct which the Caterer claimed amounted to bringing about the unlawful repudiation.

The Defendants made an Application to Strikeout the Caterer’s Claim on the basis that the claim did not disclose a cause of action.  The Caterer disputed that.

As it happened before the Defendant’s Application to Strike out the Plaintiff’s claim the Defendants made an offer to settle the matter.  This offer was a change of heart from the conduct and defence of the proceedings that had been adopted by the original Company 1 and other Defendants up to that stage.

Thereafter there were negotiations and the matter was resolved on a basis which was acceptable to the Plaintiff having regard to the significant costs that would have been incurred in proceeding with the proceedings.

In this particular case it appeared that each of the Carterer and the Defendants had sufficient financial strength that they could have proceeded to finality however common sense prevailed and the matter was resolved whereby there was a settlement which each of the parties could live with and without undue excessive legal fees and other costs including costs of disruption to each of the business if the matter had not been resolved.

If you find yourself in a position where an adverse commercial decision has been made to your detriment without notice to you, you could seek advice as your legal rights in these circumstances, please telephone Richard Watson Senior Commercial Litigation Solicitor or his Personal Assistant Shereen Da Gloria to discuss your matter as to the best solution available in your particular situation.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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