Crystalens Ltd v White

This is an application by the second defendant, John Charles White, pursuant to CPR 3.4 and 24.2 respectively; to strike out the claim by the Claimant, Crystalens Limited or alternatively, for summary Judgment in relation to the application. The application was issued on 23 May 2006. Under CPR 3.4 the defendant’s case is first and principally that the Particulars of Claim disclosed no reasonable grounds for bringing the claim and secondly that the Statement of Case is likely to obstruct the just disposal of proceedings, in the light of its imprecision in relation to certain allegations made against the defendant.

So far as the case under CPR 24.4 is concerned, the defendant’s case is that the claimant has no real prospect of succeeding on its claim. No proceedings have as yet been served by the claimant on the remaining defendants; thus the second defendant is currently the only actual defendant. The basic claim by the claimant is that it is alleged that the defendant, as director of a company called C.R.L., procured C.R.L. to breach its contract with the claimant company, Crystalens. That contract was a collaboration agreement, dated 18 August 1995.

The application to strike out and for summary Judgment was brought under four main heads. First it is said that the identity of the claimant company is obscure and is not adequately particularised in the Particulars of Claim. Second, it is said that, at all times, the defendant was acting in his capacity as director of the defendant company, C.R. L. and accordingly, can have no liability for the alleged breach of contract between C.R.L. and Crystalens. The defendant’s counsel, Mr Stirling accepted that it would be a matter for trial whether or not C.R.L. was in breach of the collaboration agreement but he submitted that there was no adequately pleaded case that the defendant could be liable for inducing any breach of contract or alternatively, on the evidence, there is no reasonable prospect of the claimant succeeding in establishing such a case.

Thirdly, the defendant contended that there is no adequate pleading of the intention of the defendant, which has to be pleaded as a mental element of an economic tort such as inducing breach of contract. In this context reliance was placed by Mr Stirling upon Douglas v Hello Limited No.3 [2006] QB 125 and Mainstream Properties Limited v Young [2005] IRLR 964. He submitted that in order to establish the necessary intention for the infliction of economic harm, it is necessary to show that the object or purpose of the defendant in inducing a breach of contract, was to inflict harm on the claimant, either as an end in itself or as a means to another end.

The fourth basis for the application was a defence of limitation and it was said under that head that the claimants’ pleaded case is far from explicit as to what the defendant’s specific acts were that constituted the alleged interference with contractual relations, or procurement of breach of contract. In particular, the defendant submitted that, on the face of the Particulars of Claim, the alleged acts of inducement began on 19 July 1999, when C.R.L. made it clear that it was no longer going to perform its obligations under the collaboration agreement, because of the claimant company’s failure to pay outstanding invoices. It is said that, accordingly, since the claim form was issued on 29 November 2005, right at the end of the limitation period, any cause of action arising in tort that arose before 29 November 1999 is statute barred.

During the course of argument it was accepted by Mr Stirling, on behalf of the defendant that grounds 1, 3 and 4 of the application; that is to say the identity of the claimant company, the particularisation of the intention of the defendant in relation to the alleged tort and the limitation point, were matters that were curable by amendment to the Particulars of Claim as currently drafted.

Likewise, it was accepted by Miss Troy-Davis, on behalf of the claimant respondent to the application that, if the matter was going to be allowed to proceed, the Particulars of Claim did indeed require amendment and clarification in the three respects I have mentioned, she accepted that, in circumstances where there was a change of corporate entity, and not just a change of name the transfer was not as seamless as is suggested in the Particulars of Claim as currently drafted.

Likewise she accepted that, if the matter were to proceed, it would be necessary for the Particulars of Claim to plead with greater particularity the alleged intention of the defendant requisite for the tort, and likewise, to identify, with greater clarity, the precise date on which it is alleged that the tort occurred. Whilst of course it is for the defendant to raise a limitation defence, nonetheless, it is incumbent upon a claimant to identify in its pleadings, when it is said that the tort was committed. As Miss Troy-Davis accepted that the Particulars of Claim, as currently drafted, are deficient in that last respect.

It is therefore to the second ground of the application that I can now turn, because the outcome in the event depends on that head alone. Mr Stirling for the defendant submitted that as the managing director of C.R.L. the defendant was an employee and officer of the company and that nowhere in the Particulars of Claim is there any allegation that the defendant was acting in any other capacity.

In reliance upon the case of Said v Butt [1920] 3 KB 497 Mr Stirling submitted that in circumstances where an employee or director is acting bona fide and within his authority, he cannot be liable for procuring a breach of contract made between his company and a third party. He submitted that there is no authority to the contrary effect. He argued that the sentence in the current edition of Clerk and Lindsell, at paragraph 25-44 to the effect that, “If a director has ordered or procured the breach by the company, he may be liable in tort, given that he possesses the requisite knowledge and intention” is a wrong statement of the law, and that the authorities upon which it purports to rely are not in fact in point, and do not support the proposition in the text. It was accepted by Miss Troy-Davis that as presently drafted, the Particulars of Claim do not allege that the second defendant, Dr White, was acting otherwise than within his authority as a director of C.R.L. and bona fide. What Miss Troy-Davis submitted however, was that the proposition in Clerk and Lindsell, to which I have referred, is sufficient authority to allow this claim to proceed.

In my judgment, the law on this is clear and there is nothing in the proposition in Clarke and Lindsell that detracts from the general rule that, in circumstances where a director is acting bona fide and within the ambit of his authority, he has no personal liability for procuring his company to commit a breach of contract.

Likewise, a director or other agent of the company who causes the company to act in breach of its contract incurs no personal liability and is under no duty of care to the counterparties to the contract, to ensure that the company fulfils its contractual obligations. That is a basic proposition of law, which is clearly established by the Judgment of Mr Justice McCardie in Said v Butt [1920] 3 KB 497 as approved by the Court of Appeal in D.C. Thompson v Deakins [1952] 1 Ch 646 at 680 to 681 and also, more recently approved by the Court of Appeal in Welsh Development Agency v Export Finance Co Limited [1992] BCLC 148 in particular pages 169 to 173, where Lord Justice Dillon said that, although he had grave reservations in relation to the reason of Mr Justice McCardie, given that the reasons and conclusions had stood for so long and had been so widely accepted, it was not for the Court of Appeal to interfere with the conclusion reached in that case.

That clearly must be the position of this court. It is also supported by numerous Commonwealth authorities, including Fly Pack Industries Limited v Marsh [1998] 8 New Zealand CLC 261 at 713, Sassat Practice v Goldcrest Properties Proprietary Limited 2000 18 Australian Company Law Case at 277 as well as in the case of Centropac Partnership v The Foreign Currency Consultants Limited [1989] 4NZ CLC 64940.

In my judgment none of the authorities referred to in the footnote to Clerk and Lindsell support any deviation from the well-entrenched principle, and I accept the submissions of Mr Stirling in this respect. The cases cited deal basically with cases involving tort, thus Evans v Spritebrand 1 W.L.R. 317 was a copyright case where the Court of Appeal, given the specific wording of the Statute, decided that the director could be personally liable for a breach of copyright committed by the company. Likewise, the case of Mancetter Developments v Garmanson Limited [1986] 1 Q.B. 1212 was likewise a case where a tort was involved and it was held that a director of a company who authorised the commission of a tort by the company, in that case waste, might be personally liable in damage to the injured party. Meridian Global Funds v Securities Commission [1995] 2 A. C. 500 is a well known Privy Council case dealing with the issue of attribution to a company of the knowledge of its directors. The issue there was whether the knowledge of the particular employee of the company was to be attributed to the company in the particular circumstances there in play.

In my judgment, it would be contrary to the principle of limited liability if, in the circumstances postulated in Said v Butt, namely that an employee director is acting within his authority and bona fide in the interests of his company, could be liable in such circumstances for inducing a breach of contract on the part of the company in circumstances absent, additional features, such as conspiracy or dishonesty.

However, Miss Troy-Davis, on the basis of a witness statement put in in answer to the application by Professor Gross, who is the chairman of the claimant company, submits that the facts, as set out in that witness statement, support an alternative way of putting the case. She submitted that here, the second defendant, Dr White, was not acting bona fide and within the scope of his authority but on the contrary, as Professor Gross alleges, was acting in his own interests and that of C.R.L.’s holding company, Scipher, in procuring C.R.L. to commit a breach of its contract with the claimant company.

What is said by Professor Gross in his witness statement is that Dr White, the second defendant, was a substantial shareholder in Scipher; that is the holding company of C.R.L. and was acting as its temporary managing director and was its deputy chairman. He goes on to allege that the claimant company’s fate at C.R.L. during the second half of 1999, in the run up to the floatation of Scipher was, “obviously determined by Dr White’s concerns and expectations as a major management figure and a huge shareholder in Scipher. The decision not to make the prototypes required by Crystalens was undoubtedly prompted by the determination not to allow any work to proceed that might delay the work that Dr White believed would enhance Scipher’s attractiveness to the investing public. Crystalens’ work was a research and development project and with contract work for C.R.L. an unwanted step-child inherited from C.R.L.’s past that did not fit into the new business plan that Scipher had adopted … Any diversion of resources of carrying out Scipher’s plans was unwelcome.”

In other words, Claimant alleges that in procuring C.R.L. to commit a breach of the collaboration agreement and not allowing C.R.L. to complete the technological work that was required for the production of the prototype Dr White was not acting bona fide but was rather acting in the interests of the holding company Scipher and his own personal interests, to the detriment of C.R.L.

What Professor Gross alleges is that under the terms of the collaboration agreement, C.R.L. stood to benefit financially from doing the work for Crystalens: that Dr White, using his authority as managing director of C.R.L. to effect the breach and to interfere with contractual relations, was acting in the interests of Scipher and in his own personal interests when preventing the performance of the work to which the claimant company says it is entitled.

It was accepted by Mr Stirling in the course of argument that in circumstances where an employee or director acts outside the scope of his or her authority or ceases to act bona fide, in circumstances where he procures or induces his company to commit a breach of contract, then liability may follow. That is consistent with authority and in particular with the Canadian case of McFadden v 481782 Ontario Limited [1994] 47 OR 2B 134. In that case directors were exceptionally held liable for the tort of procuring a breach of contract by their company, because they were acting in bad faith and in breach of duty. To similar effect is the decision of the High Court of New Zealand Cooks Grey Sky Ferry Limited v Genus Thompson International Limited, reported at [1993] 2NZ LR at 72. There the New Zealand High Court distinguished the earlier case of Centropack Partnership v Foreign Currency Consultants Limited to which I have already referred, because in that latter case, the directors had acted bona fide and within the scope of their authority.

However, although he accepted that in such cases it may be that personal liability for the director would follow, Mr Stirling submits, on the facts as disclosed in the Particulars of Claim and the witness statements, that there is no reasonable prospect of success so far as the claimant is concerned, in establishing such a case at trial.

As I said already, it is accepted by Miss Troy-Davis, as is presently pleaded, the Particulars of Claim does not contain any allegation that the defendant was not acting bona fide or outside the scope of his authority. Nonetheless, Mr Stirling realistically accepts that if there was evidence to support such a plea, then it would be appropriate for the claimant to be given an opportunity to amend. However, what he says is that Professor Gross’s assertion that the defendant’s actions were furthering his own interests or the interests of the holding company Scipher, at the expense of C.R.L. is an allegation which has emerged extremely late in the day; that is not supported by evidence and is at best to be characterised as tendentious. He points to the fact that nowhere in the correspondence prior to trial, was there any suggestion that Dr White was acting in such a way. He submits that if this was indeed the case, it is surprising, in relation to a claim brought right at the end of the limitation period, that such a serious allegation of bad faith and want of authority, has not emerged before.

He also points to the tension between the allegation on the one hand in Professor Gross’s evidence that C.R.L.’s work with the claimant was an unwanted step-child that apparently Dr White wished to jettison, in order to improve the floatation prospects of Scipher, its parent company, and on the other hand, the assertion that Dr White was deliberately acting against C.R.L.’s best financial interests in thwarting this financially lucrative collaboration.

I have, over the adjournment, read in considerable detail, not only the witness statements but also the exhibits to the witness statements, to see whether there can be said to be any support for the claimant’s case for the purposes of the application under CPR 24.4 for summary Judgment.

The evidence of Dr White, supported by the correspondence, is clear. He says in his second witness statement, in summary, that the situation that had developed by July 1999 between C.R.L. and Crystalens was due entirely to Crystalens’ repeated non-payment of invoices and he refers to not only the correspondence but also the internal management memoranda, which show that there was concern at C.R.L. about the non-payment.

He says the fact that Crystalens had refused to pay or failed to pay for the work that C.R.L. was undertaking on its behalf was something that had been under review by the management of C.R.L. and not just by Dr White, for some time. He says that to suggest that the collaboration with Crystalens did not fit into the new business plan that Scipher had adopted was absolute nonsense. Dr White stated “Crystalens was just one small contract amongst many. Professor Gross suggests, by the claimant’s claim for damages; that commercial exploitation of the process would have generated huge business revenue; if such was the case this would have only enhanced the floatation value, not deflected from it. However, this is immaterial because as stated in my letter of 19th of July 1999, C.R.L. had halted work on the collaboration due to long term and repeated failure to pay over a period of 18 months, as evidenced by the managing director’s monthly report to the Scipher board and C.R.L.’s finance department reports. By failing to pay invoices within 30 days, as per the terms of the conditions of the collaboration agreement, Crystalens was in breach of the collaboration agreement and could not reasonably expect the continuation of the development process.”

Dr White refers to various internal documents, which I have read, which show quite clearly that he was acting as part of the company management team in dealing with the Crystalens situation. Of course I cannot decide and do not have to decide, on this application, whether or not Crystalens was in breach of the collaboration agreement by failing to pay the invoices, or whether C.R.L. was in breach, in the absence of such payment, in refusing to carry out the work that it had agreed to do. That would have been a matter for trial.

But in my judgment, having read the file and the exhibits, there is no basis for the allegation in Professor Gross’s witness statement that in some way Dr White was acting in bad faith or outside his authority in procuring, in so far as he did so, C.R.L. not to proceed with its contractual obligations to Crystalens, insofar as they still existed in the absence of non payment by Crystalens. In my judgment, there is nothing in the evidence that I have seen, which credibly supports a case that Dr White was acting either outside his authority in being part of the corporate decision making team at C.R.L. that they would not continue with the further development of the product.

In my judgment the claimant company has no realistic prospect of success in pursuing such a claim. Accordingly, even if theoretically such a claim could be formulated by way of an amendment to the existing Particulars of Claim, I conclude, applying the test laid down in CPR 24, that Judgment should be given for the defendants. In coming to this conclusion I also take into account the fact that there has been considerable delay in bringing these proceedings, when the relevant events occurred back in 1999 and in circumstances where claims were originally brought, both against C.R.L. which is now in administration and against Scipher, which is also in administration, in 2004. At that stage the claimant company, Crystalens, did not seek to bring any action against Dr White. It is a matter for comment that, if indeed the view had been taken that Dr White was personally responsible and potentially liable in tort for inducing breach of contract, because he had acted in bad faith and outside his capacity as a director of C.R.L., it is remarkable that no claims were brought against him at that time. It seems to me that the fact that it was only decided, after the claimant company was informed that C.R.L. and Scipher had been put in Administration, to take steps to sue Dr White, on the basis of these allegations of bad faith, undermines the credibility of this very late claim.

Accordingly, I strike out the Particulars of Claim in their entirety as they stand at present. I also conclude that even had an application been made to amend to plead the case against Dr White, on the basis of the allegation that he was acting in bad faith and outside his authority as a director of C.R.L., I would have given summary Judgment against the claimants, on the basis that the evidence that purports to support such an alternative claim does not do so to the requisite standard of reasonable prospect of success. Accordingly, the applicants succeed on their application.