Damages for Inducing Breach of Contract

In commercial settings, a company vying for market share industries may be tempted to increase its market share by trying to steal away suppliers or customers from a competitor. Doing so by open and fair methods is of course entirely legitimate.

However, such conduct is not without considerable risk, if in doing so, they commit the tort of inducing a breach of contract.

Further, a company director may be found personally liable for such conduct.

KEY ELEMENTS

To prove a case on inducing a breach of contract,3 factors must be shown:

1. That the defendant intended to induce the breach of contract
2. That their conduct did in fact cause the breach of contract, and
3. That the plaintiff suffered loss as a consequence.

EXCLUSIVE SUPPLY CONTRACTS

In a commercially competitive environment, contracts for sole or exclusive supply, especially if they are for lengthy periods of time are usually highly valuable and sought after. For a competitor trying to secure new business, breaking up such contractual relationships can be seen as an opportunity to seize market share and increase their own profits and be tempting.

The same will apply to a new business owner seeking better margin or terms, if in doing so, they attempt to induce a breach of an existing contract.

CASENOTE

In the decision of Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd and Rogers, the Plaintiff claimed damages against the defendant and its director personally for inducing the breach of an exclusive supply contract, where that contract was highly lucrative and for a defined term, and therefore commercially valuable to it.

The case for damages was framed follows:

(a) Lost profit from sales during the balance period of the contract,

(b) Loss of the chance to make profits from selling its product to its customer in the period subsequent to the termination date of the contract.

(c) Cost of additional working capital to compensate for the loss of income from that customer.

(d) Loss of the chance to make further sales of its product to new customers.

(e) Loss flowing from the delayed development of a new product.

(f) Exemplary damages.

DAMAGES

Upon a review of the evidence before it as to the conduct of the defendant company and its director, the court found that the defendant company and its director did in fact deliberately and with knowledge of the exclusive contract, engage is a series of strategically planned steps commit the tort of inducing breach of contract and were ordered to pay not only damages as against the first defendant of $2,559,237.00 and as against the second defendant (the director) of $2,159,237  but also exemplary damages of $400,000.00.

CONDUCT OF THE DIRECTOR – PERSONAL LIABILITY

In finding the director of the first defendant personally liable, Chesterman J reviewed the conduct and found that he was:

“…..the driving force behind the activities of the first defendant and that he intended it to bring about a breach of the plaintiff’s contract. I am also satisfied, as I have earlier indicated, that the second defendant knew at all relevant times of the existence of the plaintiff’s contract.”

His conduct as the “author of the strategy to damage the Plaintiff by converting one of its largest customers “and “developing the tactics to implement the strategy ” by which he “directed and commanded the first defendant’s tortious conduct “ established his own personal liability.

EXEMPLARY DAMAGES

In awarding exemplary damages, Chesterman J said:

“In my opinion this case does call for an award of exemplary damages. I think it an apt description to say that the defendants treated the plaintiff’s contractual rights with both contempt and disdain, i.e., contumeliously. Both parties were participants in an industry where competition was intense and the profits to be expected from the conversion of a truss fabricator were lucrative. The plaintiff was a fierce contender for available business and had been identified by the defendants as a likely impediment to their own plans for expansion. They coolly drew up a plan to disrupt and damage their competitor’s business. They implemented the plan knowing that if successful they would deprive the plaintiff of profits from its contract. That was their stated objective. Their plan was executed in the full realisation that Campbells was the plaintiff’s largest customer and that the loss of its business would have a very substantial detrimental impact on the plaintiff’s profitability and, perhaps its viability.”

SUMMARY

A key takeaway from this decision is that open and fair competition, and strategic approaches to winning new business from competitors however robust must still be fair and lawful.

Conduct which is intended to interfere with, damage or break existing contractual arrangements is fraught with danger and carries the risk of significant damages. The additional risk of personal and individual liability and exemplary damages also looms large.

If you own a business and you think a competitor is engaging in unlawful conduct in inducing a breach of contract with your suppliers or customers, we can assist you.

Contact Michael Sing and the Rostron Carlyle Lawyers team for advice and assistance.

The blog published by Rostron Carlyle is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult Rostron Carlyle on any legal queries concerning a specific situation.