Lictor Anstalt (A Company) v MIR Steel UK Ltd & Ors

This judgment concerns two applications in an action relating to the allegedly unlawful sale of steel-making equipment by a company in administration. The claimant Lictor Anstalt (the claimant) supplied the equipment under the terms of an agreement dated 3 April 2000 to Alphasteel Limited (Alphasteel). Following the making of the administration order, the joint administrators of Alphasteel marketed and then negotiated the sale of the equipment together with the bulk of the other assets of the business to a company called Libala Limited (Libala). Alphasteel, acting by its administrators, and Libala agreed that the sale should be effected by means of a hive down of the assets and business to a company formed by the administrators called Mir Steel UK Limited (Mir Steel), followed by a sale of that company to Libala.

In these proceedings the claimant alleges that it retained title to the equipment at the time of the sale and that the sale therefore constituted a conversion of its property. Alternatively, if it no longer retained title to the equipment, it alleges that Alphasteel acted in breach of the agreement dated 3 April 2000 (the April 2000 agreement) by selling the equipment to Mir Steel and that Mir Steel and Libala Limited are liable for the tort of inducing a breach of contract by Alphasteel Limited. It alleges also that the same facts give rise to a claim for an unlawful means conspiracy involving Alphasteel, Mir Steel and Libala.

Joint administrators of Alphasteel were appointed on 20 December 2007. One of the joint administrators was replaced by two others on 6 May 2008, so that from that date the administrators were Christopher Morris, Mark Fry and David Hudson. I will refer to the administrators to cover the joint administrators before and after 6 May 2008, save that it is the latter joint administrators whom Mir Steel seeks to join as Part 20 defendants in one of the applications before the court. Alphasteel went into creditors’ voluntary liquidation on 18 December 2008, with the joint administrators as joint liquidators. Mr Morris and Mr Fry remain as liquidators.

The claimant released any possible claim against Alphasteel and its administrators by a deed of release executed in January 2010. The claims in these proceedings are made against Mir Steel and Libala. The claim form was issued on 26 June 2010 and particulars of claim were served on 30 June 2010. Mir Steel is defending the proceedings. It served a defence in September 2010 and a trial of the action has been fixed for July 2012 with an estimate of eight days. Libala has not defended the proceedings and judgment in default was entered against it on 10 March 2011.

The first of the present applications was issued on 8 July 2011 by Mir Steel and seeks permission to join Alphasteel and the administrators as Part 20 defendants, under CPR 20.7(3)(b). Draft Part 20 particulars of claim are annexed to the application notice. The claims which Mir proposes to make in its Part 20 claim fall under three headings: damages for breach of warranty under the hive down agreement, repayment of sums said to have been paid by mistake of fact and/or law and contribution pursuant to the Civil Liability (Contribution) Act 1978. The application is opposed by Alphasteel and the administrators.

The second application also made by Mir Steel was issued on 3 November 2011 and seeks summary judgment against the claimant dismissing the claims for damages for procuring breach of contract and for the tort of conspiracy. This application appears to have been prepared and issued in something of a rush. It was issued without warning, returnable for the date previously fixed for the hearing of the first application. No evidence was served in support of the application and, contrary to CPR 23.6 and 24PD, no grounds for the application are identified in the application notice or anywhere else and there was no identification of any point of law or provision in any document on which Mir Steel relied. Further, there was no compliance with the important mandatory requirement of CPR 24PD paragraph 2(3)(b) which was only rectified in the course of the hearing.

The grounds on which the application for summary judgment was made became known to the claimant only with the service of the skeleton argument of counsel for Mir Steel on Friday 19 November 2011 for a hearing fixed for Wednesday 23^rd November. Even then, as will become clear, not all the grounds on which in the end Mir Steel relied for its application were contained in the skeleton argument. The lack of a proper opportunity to prepare fully for at least one of the issues relied on, is a factor of some relevance to the final disposal of the present application. As regards those matters canvassed in the skeleton argument of Mir Steel’s counsel, Mr Boyle QC on behalf of the claimant, while drawing attention to the unjustified shortness of notice of the points, was nonetheless content to deal with the application at the hearing.

Alphasteel was a steel manufacturer operating from premises in Newport, South Wales. The equipment to which the present claim relates was a hot strip mill used for the production of hot rolled steel products. It was a very large piece of equipment, approximately 300 metres long and comprising a number of different work stations at which the steel was processed. It was bolted to concrete plinths by means of cast-in holding-down bolts and was connected to the gas, water and electricity supplies.

In about 1991 Alphasteel engaged the claimant to purchase the parts required to assemble the hot strip mill. The claimant sourced these parts from various manufacturers and shipped them to the site at Newport in about 1997. In the following two to three years the equipment was assembled and installed at the site and joined with other plant machinery and equipment. By April 2000 the hot strip mill had been completely installed and commissioned, and was ready to start production.

It is common ground that terms were agreed between Alphasteel and the claimant and set out in a letter dated 3 April 2000, signed on behalf of Alphasteel and countersigned on behalf of the claimant. The terms contained in the letter proceed on the basis that the equipment is movable and had not become a fixture. In the proceedings it is part of Mir Steel’s defence that the equipment was and remained a fixture and that accordingly the April 2000 agreement was void on grounds of mistake or alternatively on grounds of a total failure of consideration. However, for the purposes of the present application only, Mir Steel accepts that the letter constituted a contract between Alphasteel and the claimant which was enforceable between them.

The letter expressly records the parties’ agreement that the equipment was moveable and that it remained and would continue to remain the property of the claimant. It contained an acknowledgement by Alphasteel that it did not own all or any part of the equipment and that it had no rights over or in respect of the equipment, apart from a right to use it. It further expressly provided that, “You [Alphasteel] may at any time, after giving us reasonable notice, enter our premises in Newport with your engineers and workmen for the purpose of dismantling and removing from our premises all or any part of the equipment at your expense” and that, “We [Alphasteel] will not sell or purport to sell, mortgage, hypothecate or charge your interest as owners in the equipment or create or knowingly suffer to exist any lien over all or any of the equipment”.

In its particulars of claim the claimant alleges that if, which it denies, the equipment became a fixture then nonetheless under the terms of the April 2000 agreement the claimant remained entitled to enter upon the site and dismantle and remove the equipment, whereupon title would be vested or re-vested in the claimant. It alleges further that either on a proper construction of the express terms of the April 2000 agreement or alternatively as terms implied into the agreement, the parties agreed as follows. First, Alphasteel would not put it out of its power to allow the claimant to enter the site to remove the equipment. Secondly, Alphasteel would not do anything which extinguished the claimant’s right to enter upon the site to remove the equipment. Thirdly, Alphasteel would not sell or purport to sell the equipment nor sell the site if so doing would involve the sale of the equipment. Fourthly, Alphasteel would not deal with the equipment in a way which had the effect of transferring or extinguishing the claimant’s interest in the equipment. In its defence, these terms are denied by Mir Steel but again for the purposes of these applications only, Mir Steel accepts them.

Between April 2000 and the end of 2007 Alphasteel carried on business as a producer of rolled steel products using the equipment supplied by the claimant. Following the appointment of joint administrators in December 2007, they instructed Edwards Symmons LLP to prepare particulars of sale in relation to the business and assets of Alphasteel and to carry out a marketing exercise. The particulars of sale were circulated amongst possible buyers at the end of January 2008. The covering letter from Edwards Symmons LLP stated that offers were invited for the freehold property, plant and equipment, motor vehicles and other assets and for the goodwill of the business.

The sale particulars treated the equipment comprising the hot strip mill as part of the equipment being offered for sale. They contained no suggestion that the equipment did not belong to Alphasteel. There is no evidence that at this stage the administrators had been alerted by the claimant or anyone else to the possibility of a claim to ownership by the claimant. The conditions contained in the particulars of sale made clear that the information had been provided by Alphasteel’s directors and staff and from company records. It was stated that no warranty or guarantee was provided by Edwards Symmons LLP or the administrators as to the accuracy of the information. Intending purchasers were required to satisfy themselves by inspection or otherwise as to the correctness of the statements contained in the particulars.

The April 2000 agreement and perhaps other documentation were supplied to the administrators in early February 2008. The administrators’ solicitor, Jeremy Scott of Withers LLP, made enquiries and in an email dated 10 April 2008 he was provided with information by Alphasteel’s former accountants. They said that their recollection of the outcome of the transaction was that the claimant retained ownership of the plant, which was not reflected as an asset in the accounts of Alphasteel. In a letter dated 25 April 2008, agents acting for Libala made an offer subject to contract for the purchase of the assets. They stated that they understood that there might still be some doubt about the ownership of the hot strip mill and they made two offers on behalf of Libala. The first was at a price of £50.1 million on the basis that Libala received clean title to all the assets including title to the hot strip mill. The second and alternative offer was to purchase all of the assets at a price of £40.1 million with Libala receiving clean title to all the assets “with the exception of the hot strip mill for which the buyer will take the risk that there may be a dispute about ownership”.

Libala made a revised offer on 12 May 2008, increasing the offer price to £60 million and £50 million respectively, but otherwise on the same terms as the first offer. The revised offer also made provision for due diligence to be carried out by Libala. Shortly afterwards the administrators received formal notification on behalf of the claimant of its claim to ownership of the equipment. The notification was contained in a letter dated 19 May 2008 from Ernst & Young AG of Basel, Switzerland. Ernst & Young were assisting the bankruptcy office of the canton of Geneva in its administration of an entity called Satico Limited of Geneva. The letter stated that Satico owned the claimant. It referred to the sales process being conducted by the administrators and to the fact that the administrators had raised questions as to whether the claimant had title to the equipment. The letter continued that, based on the terms of the April 2000 agreement, Ernst & Young AG were of the opinion that the equipment was the claimant’s property. The letter stated “Therefore and for the sake of good order, we would like to emphasise that you are not entitled to sell nor to dispose of assets belonging to Lictor” without its consent. They requested the administrators’ confirmation that they would comply with the letter. No reply was sent to Ernst & Young AG.

Heads of terms were agreed in principle, subject to contract, between the administrators and Libala and set out in a letter dated 2 June 2008 from Libala to the administrators and countersigned as agreed by the administrators. Paragraph 1.1 of the letter provided as follows:

The purchase price is given as £60 million. In paragraph 1.3 Libala stated that it would not seek warranties, indemnities or covenants in relation to Alphasteel’s business and assets or title thereto, save in respect of the administrators’ conduct of the business since the date of their appointment, and “that there has been no wilful holding of material facts by you”.

Paragraph 1.4 provided, so far as relevant, as follows:

On 11 June 2008 a meeting took place between Mr Scott of Withers and Paul Taylor of Fox Williams, the claimant’s solicitors. At that meeting the claim to ownership of the equipment was discussed. On 24 June 2008 a meeting took place between Mr Taylor and Robert Pilcher of Clyde & Co, Libala’s solicitors. The purpose of the meeting was to discuss the claim to ownership of the equipment.

On 11 July 2008 Mir Steel was incorporated as the company to which the business and assets to be sold to Libala were first to be hived down. Its name was Alpha (Realisations) Limited and its sole shareholder was Alphasteel. It is to be inferred that Libala exercised the option given to it by paragraph 1.1 of the Heads of Terms dated 2 June 2008. On the same day as its incorporation, the hive down agreement was made by Alphasteel, the administrators and Mir Steel. The agreement proceeded on the basis that the equipment was a fixture and formed part of the fixed assets as defined in the agreement. Clause 2.1 of the hive down agreement provided as follows:

There then followed a list of assets including the fixed assets. The consideration as stated in clause 3 of the agreement was £58.02 million of which £14 million was stated to be in respect of the fixed assets. These figures, amongst others, were subsequently amended on 14 July 2008 so that the total consideration was restated as £57.35 million with £42.55 million being apportioned to the fixed assets. Clause 7 provided as follows:

Clause 9 under the heading Third Party Claims contained provisions which are important in the context of the present applications. Omitting clause 9.2, clause 9 provided as follows:

The position of the administrators as parties to the agreement was set out in clause 16 which provided as follows:

Except as expressly agreed including without limitation as agreed in clauses 9.2, 9.4, 11.2, 15, 22.1 and paragraph 11 of schedule 3, the Administrators shall incur no personal liability in any form. In particular, the Administrators shall incur no personal liability whatsoever under this Agreement or under any deed, instrument or document entered into under or in connection with it.

This exclusion of the Administrators’ personal liability shall be in addition to and not in substitution for any right of indemnity or relief or remedy otherwise available to the Administrators and shall continue notwithstanding completion of this Agreement (in whole or in part).

The Administrators are parties to this Agreement in their personal capacities only for the purpose of receiving the benefit of the exclusions, limitations, undertakings, covenants and indemnities in their favour contained in this Agreement and for the limited purposes of providing specified undertakings and warranties.”

Clause 17.1 provided:

The transfer documents required by the agreement were executed on behalf of Alphasteel and delivered to Mir Steel on 11 July 2008 and on the same date Mir Steel acknowledged in writing its indebtedness arising under the agreement. On 14 July 2008 the issued share in Mir Steel was transferred by Alphasteel to Libala for £1 and Libala lent to Mir Steel the funds required to pay the amount due under the agreement as amended. That amount was paid to Alphasteel or the administrators on 14 July 2008 so that completion of the hive down agreement occurred on a combination of 11 and 14 July 2008. The amount of the consideration paid for the assets attributable to the hot strip mill is not discernible from the evidence available on this application. However, the parties agree that it represented a substantial sum and indeed may have represented the majority of such consideration.

The agreement for the sale of the share in Mir Steel contained similar warranties by Alphasteel and the administrators that they had not wilfully withheld materials or details in their possession in relation to the interest of the claimant in the hot strip mill and that they had not wilfully withheld any facts which a reasonable purchaser would consider material in assessing whether or not to purchase the assets, business or the shares.

The claimant asserts three causes of action against Mir Steel: conversion, inducing breach of contract and conspiracy. The claimant’s primary case is that the equipment is a chattel or collection of chattels to which Alphasteel had no title at the time of the hive down agreement. Accordingly, the claimant says that neither the hive down agreement nor the transfer of the freehold property was capable of transferring any right, title or interest in the equipment to Mir Steel and therefore title remained vested in the claimant. It therefore claims damages against Mir Steel and against Libala for conversion. Mir Steel’s defence to this claim is, as I have previously indicated, that the equipment became annexed to the freehold property and was a fixture such that the claimant ceased to have any title to the equipment. It is part of Mir Steel’s case that the equipment had become a fixture before the April 2000 agreement which therefore was made on the basis of a fundamental mistake of fact or law. No application for summary judgment is made in respect of this claim and the parties are agreed that it is a claim which must proceed to trial.

The claims for inducing breach of contract and conspiracy are essentially alternative claims which proceed on the basis that the equipment had become a fixture and that therefore the claimant had ceased to have title to it. In those circumstances, the claimant alleges that the transfer of the equipment to Mir Steel was a breach of the express or alternatively implied terms of the April 2000 agreement. The claimant further alleges that by virtue of the knowledge of the administrators who controlled Mir Steel until its sale to Libala on 14 July 2008, Mir Steel knew the terms of the April 2000 agreement and knew that the sale of the equipment constituted a breach of those terms. It is alleged by the claimant that by entering into the hive down agreement Mir procured a breach of contract by Alphasteel. A claim for inducing breach of contract is made also against Libala. It is also alleged that that in agreeing and proceeding with the sale of the hot strip mill in breach of the April 2000 agreement, Alphasteel, Mir Steel and Libala conspired to cause loss to the claimant by unlawful means.

While the validity of the April 2000 agreement and the proper construction of its terms, and the existence of the implied terms alleged by the claimant, are all matters of substantial dispute, for the purposes of the present application all parties proceed on the basis that the agreement was valid, that the agreement contained expressly or impliedly the terms alleged by the claimant in the agreement and that the sale of the hot strip mill to Mir Steel constituted a breach by Alphasteel of those terms. Further, and importantly, it was accepted by all parties, during the hearing although not before, that for the purposes only of these applications Alphasteel, the administrators, Mir Steel and Libala knew that the sale of the hot strip mill involved or constituted breaches of the April 2000 Agreement.

The parties were agreed that the essential test on both applications is whether the relevant claims against Mir Steel, or as the case may be, Mir Steel’s claims against Alphasteel and the administrators have a real prospect of success. CPR 24.2(a)(i) so states the test on a summary judgment application and, since Alphasteel and the administrators could make such an application if they were joined as Part 20 defendants, it should apply also to Mir Steel’s Part 20 application. In considering whether the court can reach a decision that there is no real prospect of success on a particular issue, it is not enough for a respondent to say that if the case proceeded to trial evidence helpful to its case might turn up. Regard should be had to the desirability of making a final decision where it is appropriate to do so. Both points were made by Moore-Bick LJ in ICI Chemicals & Polymers Ltd v. TTE Training Ltd [2007] EWCA Civ 725, in the context of the continuation of a contract:

Although the application to join Alphasteel and the administrators as Part 20 defendants was made long before the application for summary judgment and although the hearing before me had been fixed for the purpose of dealing only with that application, I heard the application for summary judgment and it is convenient to deal with it first. If it succeeds, it follows that Mir Steel has no interest in and does not seek an order joining the Part 20 defendants. Because Mr Tamlyn, on behalf of Alphasteel and the administrators, had in his skeleton argument in opposition to the application to join his clients raised certain arguments to the effect that Mir Steel had a complete defence to the relevant claims brought by the claimant, I heard argument from Mr Tamlyn on those issues in the course of argument on the summary judgment application although of course his clients are not parties to that application.

The claim for inducing breach of contract set out in paragraph 40 of the Particulars of Claim reads as follows:

Libala knowingly and intentionally induced and caused Alphasteel to commit a breach of the April Agreement:

The grounds on which Mr Downes QC on behalf of Mir Steel contended in his skeleton argument that it is entitled to summary judgment dismissing the claim for inducing a breach of contract were as follows.

First, it was submitted that, assuming the sale was made in breach of the April 2000 agreement, there was no real prospect that the claimant would establish that the administrators and, through them, Mir Steel knew that the sale constituted a breach. Such knowledge on the part of Mir Steel is an essential element of the claim against it for inducing breach of contract: OBG Ltd v. Allen [2008] 1 AC 1. This is an issue of fact which cannot be determined on this application. In the course of the hearing, Mr Downes sensibly accepted that, for the purposes of the present application only, the assumption must be made that Mir Steel did know the sale was made in breach of the agreement.

Secondly, it was submitted that the administrators and hence Mir Steel lacked the necessary intention to induce or procure a breach of contract such as to give rise to liability in tort. Thirdly, it was said that the participation by Mir Steel was not sufficient to constitute the act of inducing or procuring a breach of contract by Alphasteel.

A fourth submission was made at the hearing. It was said that a defence of justification was available in the circumstances of this case, where the hive down of the assets including the equipment to Mir Steel, and the sale of Mir Steel to Libala, was in pursuance of an exercise by the administrators of their statutory powers and functions to realise the assets of Alphasteel to the best advantage of creditors. This submission was advanced and developed by Mr Tamlyn on behalf of Alphasteel and the administrators in his skeleton argument in opposition to Mir Steel’s application to join them as Part 20 defendants. It was submitted that on this basis the claimant had no sustainable claim against Mir Steel, with the result that there was no proper ground for making a contribution claim against Alphasteel and the administrators. Mr Downes adopted this submission for the purposes of the summary judgment application against the claimant.

Mr Downes relied generally in support of his second and third submissions on the fact that the sale of the assets of Alphasteel, including the transfer of the equipment, was conducted as regards both Alphasteel and Mir Steel by the administrators in the course of acting as such. Mir Steel did not come into existence until the date of the hive down agreement. It was created for the purpose of taking part in arrangements which had already been negotiated between the administrators and Libala. It was the repository for the assets and the vehicle by which they were sold to Libala. Mir Steel had no independent existence in substantial, as opposed to legal, terms from the administrators until the completion of its sale to Libala. There is, in these circumstances, Mr Downes submits, an air of unreality in treating Mir Steel as an independent tortfeasor in relation to the sale of the equipment, whether the claim is made for inducing a breach of contract or in conspiracy. He submits, as does Mr Tamlyn, that it amounts to a misuse of language to suggest that Mir Steel in any sense induced or procured the administrators or Alphasteel to breach Alphasteel’s contract with the claimant. On the contrary it was the administrators that procured Mir Steel to enter into the relevant transaction. Moreover it is common ground, or at least became so in the course of submissions, that the administrators could not be sued in tort whether for inducing breach of contract or in conspiracy, in respect of any acts on their part which they undertook in good faith in their capacity as agents of Alphasteel. This is an application of the doctrine described as the rule in Said v. Butt to which I will later refer. Mr Downes submits that if the administrators are not to be held liable then it makes no sense for Mir Steel, whose participation was entirely at the behest of the administrators, to be held liable either.

There are in effect three strands to this overarching argument of Mr Downes. The first is to point to the particular circumstance that the administrators were at all times acting to fulfil the statutory purposes of an administration and in accordance with their duties as such. That is a feature which lies at the heart of the submission that a defence of justification should be available on facts such as these. I will consider that issue in due course.

The second strand is to say that Mir Steel was controlled in all that it did, until completion of the hive down agreement, by the administrators and therefore it neither had any independent intention nor did anything to induce the alleged breach of contract. I will consider the impact of control of Mir Steel when dealing with the issues of Mir Steel’s intention and participation. Curiously, this submission appears to be contradicted by paragraph 38(f) of Mir Steel’s defence which pleads that the defendants are not fixed with the knowledge of the administrators. It should be noted that the precise facts as regards Mir Steel’s decision to enter into the hive down agreement are not yet established, although it is clear that it was incorporated as a subsidiary of Alphasteel for that purpose. In the course of the hearing, Mr Boyle produced, without objection from Mr Downes, a written resolution dated 11 July 2008 signed by the sole director of Mir Steel, who was not one of the administrators. Taken at face value, the resolution indicates that the decision to enter into the hive down agreement was taken not by the administrators but by Mir Steel’s sole director after “due and careful consideration of the terms of the Hive-Down Agreement”.

The third strand is that the administrators, for the reason I have given, do not bear any personal liability in relation to a claim for inducing a breach of contract. In my judgment that consideration cannot provide Mir Steel with a defence, at any rate a defence which would entitle it to summary judgment on the claim. Mir Steel from its incorporation was a separate legal person and if those controlling it caused it to do an act which constituted on normal principles a tort, then it would in accordance with normal principles be liable for that tort. The fact that those who caused it to commit the tort were acting in their capacity as agents and were therefore not personally liable does not provide a defence to the company. In most cases a company is caused to commit the tort of inducing a breach of contract by the actions of its agents, whether they are directors, other officers, employees or, as in this case, administrators.

I turn then to consider the submissions made as regards intention. The essential mental elements of the tort of inducing breach of contract were considered in detail by the House of Lords in the trilogy of cases reported under the name OBG Limited v. Allan [2008] 1 AC 1. The submissions of counsel centred on the speeches of Lord Hoffmann and Lord Nicholls of Birkenhead. It was not suggested for present purposes that there was either any significant difference between their speeches or any dissent from them by other members of the House. At paragraphs 191 to 193 Lord Nicholls of Birkenhead said:

At paragraph 39 Lord Hoffmann identified the knowledge required for the tort to the same effect as Lord Nicholls. He said:

As I have previously stated, for the purposes of the present application the elements of knowledge identified by Lord Nicholls in paragraph 192, that is knowledge of the contract and knowledge that the transfer of the equipment would constitute a breach of the contract, is accepted. Nonetheless, Mr Downes submitted, the necessary element of intention was lacking.

Mr Downes relied in particular on paragraphs 42-43 in Lord Hoffmann’s speech:

Mr Downes submitted on the basis of these paragraphs that the breach of the April 2000 agreement involved in the sale of the equipment was no more than a foreseeable consequence of the hive down agreement. It was not therefore a result which could be said for the purposes of this tort to have been intended by Mir Steel. I am unable to accept this submission. It seems to me to be the case, or at any rate to be reasonably arguable, that the breach of the April 2000 agreement was the means by which the aim of transferring the equipment as part of the hive down agreement was achieved. If the transfer of the equipment constituted a breach of the April 2000 agreement, then a breach of that agreement was necessarily involved in the transfer. In other words, without the breach the transfer could not be achieved. The breach of the April 2000 agreement was not the end in the sense used by Lord Hoffmann. Just as Mr Gye would very likely have preferred to have been able to obtain Miss Wagner’s services without having to break her existing contract, so no doubt Mir Steel would have preferred to have taken a transfer of the equipment without any breach of the April 2000 agreement. But, as Lord Hoffmann observed, that does not matter. The breach of the April 2000 agreement was integral to the transfer and not, as in the case of the breach by the recording company of its contract with backing musicians resulting from Shirley Bassey’s breach of her recording contract, a mere consequence.

Mr Downes further submitted that the participation by Mir Steel in the hive down was not sufficient to constitute an act necessary for liability in tort for inducing or procuring a breach of contract. He submitted that inducing a breach of contract involved actual persuasion, or enticement. Merely entering into a contract which involves a breach of the earlier contract is not, he submitted, necessarily sufficient.

In response, Mr Boyle QC for the claimant submitted, by reference to a number of authorities, that entering into an inconsistent contract is capable of constituting, and indeed will normally constitute, sufficient participation by the defendant to attract liability in tort. He accepted that there could be cases where the contract breaker has independently of the defendant decided to act in breach of the contract and is able to do so without any necessary involvement by the defendant. But in circumstances where the defendant’s involvement or cooperation is necessary to the breach intended by the contract breaker, then the defendant who participates in this way with the relevant knowledge is liable. He submitted that the necessary element of causative participation was satisfied if the defendant does an act which enables the contract breaker to breach his contract and without which no breach would occur. In such circumstances the defendant is sufficiently instrumental in causing the breach to be liable. Active persuasion by the defendant is not required.

Among the authorities to which Mr Boyle referred was a passage from the judgment of Jenkins LJ in DC Thomson & Co Ltd v. Deakin [1952] 1 Ch 646 at 694:

The decision in British Motor Trade Association v. Salvadori [1949] Ch 556 was also referred to with approval in another decision of the Court of Appeal: Rickless v. United Artists Corporation [1988] QB at 58 to 59 per Bingham LJ with whom on this the other members of the court agreed. British Motor Trade Association v. Salvadori involved dealings in cars on what was known as the Warren Street kerb market designed to evade restrictions on the prices at which new cars could be sold within the first year of purchase. The sellers of the cars were willing sellers and required no persuasion or enticement to sell their cars in the Warren Street kerb market. The issue, amongst others, was whether the defendant buyers of such cars were guilty of the tort of inducing a breach of the covenant restricting resale prices. Roxburgh J said at page 563 to 564:

In the course of his judgment at page 565 Roxburgh J, commenting on the use by Lord Macnaghten of the word “interference” in Quinn v. Leathem [1901] AC 495, considered that mere passivity would not be sufficient to give rise to liability. An example of mere passivity is found in the decision of the Court of Appeal in Batts Combe Quarry Limited v. Ford [1943] Ch 51, [1942] 2 All ER 639. In that case a father who had sold his quarry business with a covenant not to be engaged or concerned in the business of a quarry within 75 miles for a period of ten years, provided funds to his sons to purchase and operate a quarry in the immediate neighbourhood of the quarry which he had sold. The funds were provided gratuitously to his sons. He was held liable for breach of contract but the claim for inducing his breach of contract against the sons was dismissed at first instance, a decision which was affirmed by the Court of Appeal. Dealing with this Lord Greene MR said (reported in the All England Reports at p.640 but not in the Chancery Reports):

The terms of the hive down agreement are readily distinguishable from the mere acceptance of proffered bounty. Not only did Mir Steel agree to purchase the equipment as part of the assets of the business for a very substantial price which it paid with funds advanced to it by Libala, it also undertook significant and continuing obligations. These included, for example, the obligation contained in clause 9.5 that it would be responsible for settling any claim made against it by the claimant in respect of the hot strip mill. The agreement by Mir Steel to purchase the equipment and other assets on the terms of the hive down agreement is in my judgment, consistently with the authorities on which Mr Boyle relied, at least arguably sufficient to constitute acts required for liability in tort for inducing a breach of contract.

What of the special fact that Mir Steel was at the time of the hive down agreement a wholly-owned subsidiary of Alphasteel and therefore under the control of the administrators? Leaving aside any defence of justification, I do not see how this can amount to a sufficiently strong defence to entitle Mir Steel to summary judgment. Once it is accepted that persuasion as such is not required and that entry into the hive down agreement was an act of Mir Steel, the fact that the seller and the purchaser were at that time under common control does not deprive the claim against Mir Steel of any real prospect of success. In any event, as I have earlier stated, the precise facts have yet to be established.

I pass then to the fourth ground on which Mr Downes submitted that Mir Steel was entitled to summary judgment. This is the defence of justification, developed principally by Mr Tamlyn, who raised two arguments. First, he relied on the so called rule in Said v. Butt [1920] 3 KB 497 to which I have earlier referred. In that case Macardie J held that a director of a company who caused his company to act in breach of contract was not guilty of the tort of inducing the breach of contract provided that he acted bona fide in the course of his duties as a director. In this context good faith connotes the proper conduct of his duties and functions as a director. Mr Downes relied on the absence of any evidence that the administrators acted otherwise than in good faith in what they considered to be the best interests of Alphasteel’s creditors. In Welsh Development Agency v. Exfinco [1992] BCLC 146, the Court of Appeal by a majority applied the decision in Said v. Butt to a receiver appointed by a debenture holder. While Dillon and Ralph Gibson LJJ were by no means persuaded by the reasoning underlying the decision, they nonetheless considered that it had formed part of the law for too long for the Court of Appeal to disturb it. In my judgment the decision is as much applicable to administrators appointed under schedule B1 to the Insolvency Act 1986 as it is to a receiver appointed by a debenture holder. Under the terms of paragraph 69 of schedule B1 administrators act as agents of the company over which they are appointed. They are therefore in exactly the same position as receivers and indeed as directors. There is no good ground for distinguishing administrators in this respect and none was suggested by Mr Downes in the context of the application to join the administrators as Part 20 defendants. This is of course sufficient for the purposes of Mr Tamlyn representing the administrators but he proceeded to advance the second submission based on justification which he said would also be sufficient to defeat the claim against Mir Steel.

Justification is in appropriate circumstances available as a defence to a claim in tort for inducing a breach of contract. It is referred to by Lord Nicholls in the passage from OBG v. Allan which I have earlier cited. In many of the cases in which the defence has succeeded it has involved what may be described as a higher moral purpose, justifying as a matter of public policy what would otherwise be a tortious interference with contractual relations. But the defence, it is clear, is not restricted to such cases. The authority most in point is the decision of the Court of Appeal in Edwin Hill & Partners v. First National Finance Corporation plc [1989] 1 WLR 225. In that case the defendant bank held a first legal charge on freehold property as security for indebtedness of the developer, which was unable either to repay the loan or to raise finance for the development for which the plaintiffs had been appointed as architects. The defendant bank agreed to provide the necessary finance on condition that the plaintiffs were replaced by other architects. The plaintiffs were therefore dismissed and they claimed damages against the defendant for procuring a breach of their contract with the developer.

The Court of Appeal upheld the decision at first instance dismissing the plaintiff’s claim, on the ground that the interference with the plaintiff’s contract was justified as being in defence and protection of an equal or superior right under the legal charge. The defendant could have exercised its statutory power of sale in which event the plaintiff’s contract with the developer would necessarily have come to an end. Alternatively, it could have appointed a receiver who would have been free to engage a new firm of architects without there being any inducement of a breach of the plaintiff architects’ contract. Stuart-Smith LJ said at pages 232 to 233:

Mr Tamlyn submitted that a defence of justification should be available in cases where administrators in pursuit of their statutory functions and purposes sell assets of the company in administration albeit in breach of contracts made by the company. He pointed out that the process of administration inevitably involved breaches of contract by the company, leaving the innocent parties to a claim in damages against the company. He submitted that similar considerations applied in those cases where the contractual provision, as here, restricted the company’s power of sale. It is important to note that what is here under consideration is a purely personal contractual right. Proprietary rights and restrictions are respected in the administration process, but in such cases there are express provisions in schedule B1 to the Insolvency Act 1986 enabling the administrator to apply to the court for orders which enable him to deal with the assets of the company free from such proprietary rights but on terms which provide protection for the holders of such rights: see paragraphs 71-72 of schedule B1. There are no similar provisions in schedule B1 enabling the administrator to apply to court for an order enabling him to sell assets free of purely contractual restrictions. Given the lesser status of such restrictions as against proprietary interests, it would seem altogether more likely that the legislative assumption was that the administrator had such entitlement without the need for court sanction rather than that such sales free of such restrictions should not be permissible without the consent of the relevant contracting party.

So far as the administrators themselves are concerned, such contractual restrictions are of no personal concern by virtue of their protection in Said v. Butt. However, the position is of great concern to the purchasers of such assets. Where the court makes an order enabling an administrator to sell an asset free of proprietary restrictions, third parties can bid for and purchase the asset from the administrators confident that they are obtaining title to those assets free of the third party rights. If an administrator is unable to sell assets without exposing purchasers to a liability in tort for inducing a breach of contract, it is likely to have a damaging effect on the ability of the administrator to obtain the best price for the assets. If the company were to go into liquidation, the liquidator would be able to disclaim the contract containing the third party restriction, a procedure not available to an administrator, and thereby be in a position to sell the relevant assets without any concern on the part of the purchasers that they may expose themselves to a liability in tort. There is in this some analogy with the reasoning of the Court of Appeal in Edwin Hill v. First National Finance Corporation where the court considered it relevant that a termination of the plaintiff architects’ contract could be achieved through the exercise by the defendant of its rights as a charge holder. The availability of a defence of justification to a party contracting with a company in administration is supported by a leading work in this area, Fletcher, Higham & Trower: Corporate Administrators and Rescue Procedures (2^nd ed. 2004) at paragraphs 5.29 – 5.30.

I consider that, certainly at first blush, there is considerable force in these submissions of Mr Tamlyn precisely for the reasons that he gives. The proper balancing of competing interests involved in administration as an insolvency process may well be achieved by providing a defence of justification to a claim in tort in respect of a sale by an administrator in circumstances where there is a purely contractual restriction on sale. The other contracting party would remain entitled to lodge a claim for damages for breach of contract. The question on this application is, however, whether the defence of justification is so plainly made out that it entitles Mir Steel to summary judgment in its favour. I do not consider that this is the position for a number of reasons.

First, it is an entirely new point on which there is no authority and only, so far as the researches of counsel go, one reference in any text book. A decision on whether the defence of justification is available is a decision which will have wide ramifications for the conduct of administrations. It involves considering, I would suggest in some depth, the scope of administrations and of their statutory purposes. It is in my view one of those issues of law which should not be decided without a proper opportunity for full research and submissions and a careful consideration of the consequences of the decision. Mr Boyle acting for the claimant in this case had virtually no notice of the point being taken against him and it is no criticism of him that he had insufficient time fully to prepare the level and depth of argument that the court would expect on so important a point. Secondly, and in any event, I do not consider it a point, however anxious one may be to grasp the nettle, which is susceptible of the answer that there is no real prospect of the defence failing. Only if I were satisfied of that, would it be proper to grant summary judgment in favour of Mir Steel.

Thirdly, I think Mr Boyle is right to caution that it is not a decision which should be taken for the first time in the absence of any findings of fact. He submitted that even if, as a matter of principle, a defence of justification was available, its application might depend upon the precise facts, and on whether the administrators had acted reasonably in the way they dealt with the claim advanced by the claimant before entering into the hive down agreement and the sale to Libala. In these circumstances, it seems to me that it would not be right to grant summary judgment on this basis. Rather, it is an argument of substance which should go to trial. In this case it was not raised at all by Mir Steel until it was adopted by Mr Downes in the course of his submissions. It has not therefore been pleaded by Mir Steel and there is not therefore a statement of the facts on which Mir Steel would rely for saying that the defence of justification was available. Equally therefore, there has been no reply by the claimant to a pleading of such facts.

In all the circumstances therefore, I have concluded that this is not an appropriate case in which to grant summary judgment in favour of Mir Steel on the claim for inducing a breach of contract.

The claim in conspiracy relies on the same facts as the claim for inducing breach of contract. The only difference between the two is that Alphasteel itself is an alleged tortfeasor. The claim is pleaded in paragraph 41 of the particulars of claim:

Alphasteel, Mir and Libala agreed to proceed with the sale of the equipment and Site in accordance with the terms of the HDA, SSA and Transfer knowing and intending thereby to defeat Lictor’s rights under the April Agreement and knowing and intending that Alphasteel would thereby commit a breach of the April Agreement;

Alphasteel, Mir and Libala conspired together in order to cause injury to Lictor (namely the loss of its rights under the April Agreement) by the use of unlawful means (namely the breach of the April Agreement by Alphasteel).

The sale of the Equipment pursuant to the HDA and Transfer was a deliberate act which caused loss to Lictor, and which was carried out by Alphasteel, Mir and Libala with the intention of causing such loss.”

The sole ground on which counsel for Mir Steel submitted in their skeleton argument that there was no real prospect of this claim succeeding was that it could not be shown that Mir Steel had the necessary intention required for a claim in conspiracy. The intention is to cause loss by the use of the alleged unlawful means, but this need not be the predominant purpose of the defendant. Once it is accepted, as it is for the purposes of this application, that Mir Steel through the administrators knew that the transfer of the equipment constituted a breach of the April 2000 agreement and would deprive the claimant of its ability to use its contractual rights to negotiate a price for a release of those rights, thereby causing it loss, it follows that Mir Steel can be shown to have had the necessary intention. The transfer in breach of contract was not, as Mr Downes submitted, only incidental to the broader purpose of an advantageous sale of Alphasteel’s business and assets. It was integral to the achievement of that purpose.

In the course of his oral submissions Mr Downes developed an argument that by doing no more than entering into the hive down agreement Mir Steel did not become a party to the alleged conspiracy. It did no more than give effect to the agreement or arrangement between Alphasteel, acting by its administrators, and Libala. In my judgment this submission is not well-founded. By agreeing to becoming a party to the unlawful means by which the common purpose was to be effected, Mir Steel itself became a participant in the conspiracy. Agreement with one party to the conspiracy is sufficient for these purposes.

Accordingly, I do not consider that there is a proper ground on which summary judgment can be given in favour of Mir Steel on the claim in conspiracy.

I turn now to Mir Steel’s application to join Alphasteel and the administrators as Part 20 defendants. I have earlier mentioned that this claim is made on three grounds and I will start with the claim for contribution under the Civil Liability (Contribution) Act 1978. This requires Mir Steel to show that the proposed Part 20 defendants are liable to the claimant in respect of the same loss which is claimed against Mir Steel. The claim for contribution is made against both Alphasteel and the administrators.

As regards the claim for contribution against the administrators this in my judgment has no prospect of success. As earlier discussed, the rule in Said v. Butt prevents a claim against the administrators in tort for inducing a breach of contract by Alphasteel. Equally, in my judgment, the same rule will defeat a claim on the same facts but repackaged, as Mr Tamlyn aptly described it, as a claim in unlawful means conspiracy. The essence of the rule is that agents are not to be liable for procuring their principal to act in breach of contract, provided they acted in good faith in the course of their agency, and it should make no difference whether the claim is made for inducing a breach of contract or for an unlawful means conspiracy. The High Court of Australia so held in O’Brien v. Dawson (1942) 66 CLR 18 and, in my judgment, the position is the same in English law.

As regards the claim against Alphasteel, Mr Tamlyn relies on clause 9.5 of the hive down agreement. The risk of claims by the claimant was of course known at the time of the hive down and the subsequent sale of the shares in Mir Steel to Libala. It is clear from the hive down agreement that the parties agreed that the risk of such claims should be borne by Mir Steel and indirectly by Libala. Thus, clause 9.5 provides that Mir Steel “shall be responsible for settling any claim made against it by Lictor Anstalt in respect of the hot strip mill situated at the property”. The claims for inducing breach of contract and in conspiracy made by the claimant are, as it seems to me, clearly claims made by the claimant in respect of the hot strip mill. Mr Downes submitted that clause 9.5 was restricted in its effect to claims to title to the hot strip mill and to claims, such as the claim in conversion, which are dependent on such title. However, clause 9.5 is not drafted in a restrictive manner, but applies in terms to “any claim”. I see no reason for not giving it its obvious meaning.

The second head of claim proposed to be made against Alphasteel and the administrators as Part 20 defendants, is for breach of the warranty contained in clause 9.4 of the hive down agreement. That clause provides:

In the draft Part 20 particulars of claim, Mir Steel alleges that if the claimant succeeds in establishing the facts on which the claims are based, there was a breach of the warranty in clause 9.4. The breach is said to be that Alphasteel and the administrators did not disclose to Libala, first, that they did not believe that they were entitled to sell the equipment and, secondly, that the proposed sale was part of a conspiracy between them and Mir Steel to defeat the claimant’s contractual rights. Specifically, it is alleged that such information comprised “details held by them in relation to the interests of Lictor Anstalt in the hot strip mill”. In my judgment, it is not possible to read those words as including the information alleged to have been withheld, which did not relate to the interests of Lictor in the hot strip mill, but concerned the alleged knowledge and belief of Alphasteel and the administrators. Moreover, under clause 17.5 of the hive down agreement, any claim by Mir Steel under the agreement had to be made in writing and served within twelve months of the agreement, that is to say by 10 July 2009. Long before this date, Mir Steel had been given notice of the claimant’s case against it, in a detailed letter before action dated 12 December 2008.

The third claim is made in the draft Part 20 particulars of claim under the heading “Repayment of the loan in mistake of fact and/or law”. The price payable under the hive down agreement was paid by Mir Steel on 14 July 2008 out of funds borrowed from Libala. The alleged mistakes of fact and/or law are, first that what is called “the representation” was true and, secondly, that the warranty contained in clause 9.4 was true. The “representation” is said to have been a representation by the administrators and Alphasteel that they had a bona fide belief that the equipment belonged to Alphasteel. I have considerable difficulty in understanding how these alleged mistakes give rise to a remedy on the grounds of mistake, rather than for damages for misrepresentation or for breach of the warranty.

There is in any event, as it seems to me, a fundamental objection to this claim. The payment on 14 July 2008 was no more than the fulfilment of an obligation undertaken by Mir Steel under the hive down agreement made on 11 July 2008, albeit that there was a small change to the total sum payable. At the time when the obligation was undertaken on 11 July 2008, Mir Steel was, according to its case, under the complete control of the administrators. It is part of Mir Steel’s proposed Part 20 case that at all times until the sale to Libala on 14 July 2008, Mir Steel’s controlling mind and will was the administrators (see paragraph 9 of the draft Part 20 particulars of claim). As Mr Downes put it in his skeleton argument, “Mir was controlled by Alphasteel at the relevant time and thus it is difficult to see how Mir relied on anything Alphasteel said or did. Alphasteel (and therefore Mir) knew the truth.” If that is right, it follows that the administrators’ knowledge on 11 July 2008 and at all times until the sale on 14 July 2008, is to be attributed to Mir Steel.

Accordingly, if the administrators did not hold a bona fide belief as to the ownership of the equipment, and if they knew that the sale of the equipment was part of a conspiracy, then those facts were known to Mir Steel at the time that it undertook the obligation. The claim for repayment on grounds of mistake is therefore, in my judgment, unsustainable.

For these reasons, it appears to me, that Mir Steel is unable to make out any claims against the administrators and Alphasteel which have any real prospect of success and accordingly I dismiss its claim to join them as Part 20 defendants.