Northamber PLC v Genee World Ltd & Ors

Factual and Procedural Background

The Plaintiff is a trade-only distributor of information technology equipment, including audio/visual ("AV") screen systems for educational institutions, distributing various brands to approximately 2,500 resellers. The First Defendant was primarily an importer of AV displays manufactured by a Chinese company. The Second Defendant was the sole director of the First Defendant from November 2015 until its creditors' voluntary liquidation in November 2018; the liquidation was completed and the company was dissolved in April 2024. The Third Defendant supplies technology and IT equipment to educational establishments and has had the same sole director since 2008.

The Plaintiff and the First Defendant entered into a distribution agreement in March 2016 and an exclusivity agreement in July 2017, under which the Plaintiff was appointed the sole source of the First Defendant's products in the UK, except for four named resellers ("Excluded Accounts"). The exclusivity agreement prohibited the First Defendant from selling to any other reseller or party in the UK and required all enquiries to be passed to the Plaintiff. It also included provisions regarding stock purchase and auditing rights.

In late 2017 or early 2018, the Plaintiff became aware that the First Defendant was breaching the exclusivity agreement by supplying products directly to resellers. Attempts to enforce the exclusivity provisions were met with threats by the Second Defendant to wind up the First Defendant and resume trading via a phoenix company. The First Defendant purported to terminate the exclusivity agreement in July 2018, which the Plaintiff did not accept and insisted on its contractual rights, including audit rights.

The Plaintiff commenced proceedings in August 2018, bringing claims against the First Defendant for breach of the exclusivity agreement and against the Second and Third Defendants for inducing breach of contract and unlawful means conspiracy. The Plaintiff obtained injunctions restraining the First Defendant from supplying goods to parties other than the Plaintiff (except the Excluded Accounts), requiring audited accounts and access for audit. The First Defendant failed to comply, leading to contempt of court proceedings against the Second Defendant, who was fined £25,000 but not imprisoned.

Judgments on admissions were granted against the First Defendant for breaches of the exclusivity agreement, with interim payments ordered. The First Defendant's liquidators accepted the Plaintiff's proof of debt for the total sum of the interim payments.

The trial took place over nine days in October 2022. The judge found that the First Defendant breached the exclusivity agreement by making significant sales to parties other than the Plaintiff and the Excluded Accounts, including sales to the Third Defendant. However, sales to a particular company ("Capital") were found not to contravene the exclusivity agreement. Judgment was entered against the First Defendant for breach of contract. The judge held the Second Defendant liable for inducing breaches during the period after the injunction until the winding-up date but dismissed claims against the Third Defendant for inducing breach and against both the Second and Third Defendants for unlawful means conspiracy. Costs orders were made accordingly.

The Second Defendant applied under the slip rule to amend the judgment sum against the First Defendant, resulting in a reduced figure, which was not agreed by either party. The Plaintiff appeals on multiple grounds, including errors in law and costs orders, while the Third Defendant and the Second Defendant have filed respondent's notices and appeals on various grounds.

Legal Issues Presented

1. Whether the judge erred in law in dismissing the Plaintiff's claim against the Third Defendant for inducing breach of contract.
2. Whether the judge erred in law in dismissing the Plaintiff's claims against the Second and Third Defendants for unlawful means conspiracy.
3. Whether the judge was wrong to hold that the Second Defendant acted bona fide within the scope of his authority as director of the First Defendant during certain periods.
4. Whether the judge misinterpreted clause 1.1 of the Exclusivity Agreement concerning sales to Capital.
5. Challenges to the judge's costs orders.

Arguments of the Parties

Plaintiff's Arguments

• The Third Defendant knowingly induced the First Defendant to breach the exclusivity agreement by placing orders which the First Defendant accepted and fulfilled.
• The judge's reasoning that mere placing of orders does not amount to inducement was legally erroneous.
• The unlawful means conspiracy claim should succeed as it is predicated on the same facts as the inducing breach claim.
• The judge erred in holding the Second Defendant acted bona fide within the scope of authority during the relevant period.
• The judge misinterpreted clause 1.1 of the exclusivity agreement, which should cover sales to Capital.
• The costs orders failed to adequately sanction the Second and Third Defendants for their unreasonable refusal or silence regarding mediation.

Third Defendant's Arguments

• The Third Defendant did not induce breach of contract as placing orders alone is insufficient to constitute inducement.
• The Third Defendant had a genuine belief that its orders were lawful and had a defence of justification.
• The Third Defendant acted independently and was not part of any relevant combination or conspiracy.
• The Third Defendant's orders did not cause the Plaintiff's loss in relation to other breaches by the First Defendant.
• The authority of certain cases relied upon by the Plaintiff, such as British Motor Trade Association v Salvadori, is no longer good law.

Second Defendant's Arguments

• The judge's findings against the Second Defendant for the period after the injunction were unjust due to procedural irregularity as no case was pleaded that he acted other than bona fide within his authority.
• Issue estoppel precludes findings against the Second Defendant based on prior judgments.
• The Second Defendant acted bona fide within the scope of his authority and should not be personally liable absent dishonesty or conspiracy.
• The judge misapplied the rule in Said v Butt and related authorities concerning director liability.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed examination of the tort of inducing breach of contract, emphasizing that inducement requires active participation that operates on the will of the contracting party to breach the contract. Mere facilitation or passivity is insufficient. The court reviewed authorities including Lumley v Gye, OBG Ltd v Allan, British Motor Trade Association v Salvadori, and subsequent cases to clarify that inducement involves persuasion, encouragement, or assistance with knowledge and intention, and without lawful justification.

The court found that the Third Defendant's placing of orders was not mere facilitation because breach of the exclusivity clause required a willing purchaser; thus, the Third Defendant's orders induced the First Defendant's breaches. The judge's contrary conclusion was held to be erroneous.

Regarding the Second Defendant, the court applied the rule in Said v Butt, which exempts directors acting bona fide within their authority from personal liability for inducing their company's breach. The court found no procedural unfairness in the judge's consideration of whether the Second Defendant acted bona fide, given that the issue was raised and agreed by counsel at trial despite lack of pleading. The court upheld the judge's finding that the Second Defendant acted outside the scope of his authority during the period after the injunction, constituting a serious breach of duty under section 172 of the Companies Act 2006, thus losing protection under Said v Butt.

The court rejected the submission that the judge misapplied the rule in Said v Butt by requiring dishonesty or conspiracy for director liability, noting that breach of fiduciary duties and bad faith suffice.

The court upheld the judge's interpretation of clause 1.1 of the exclusivity agreement, finding it ambiguous but resolving it by reference to contractual context and parties' intentions, concluding that exclusivity related to goods delivered within the UK rather than customers based in the UK, thus dismissing the Plaintiff's ground on sales to Capital.

On costs, the court found the judge erred in failing to impose any sanction for the Second and Third Defendants' silence and refusal to mediate despite clear court orders and offers. The court held that such conduct was unreasonable and should attract a costs penalty, although the appropriate sanction for the Second Defendant was a modest increase in costs recovery rather than full indemnity.

The court declined to grant the Plaintiff permission to appeal the amended judgment sum against the First Defendant as it was academic given the company's dissolution and the liquidators' acceptance of the debt.

Holding and Implications

The court's final decision was as follows:

• Allowed the Plaintiff's appeal on the ground that the Third Defendant induced breaches of the exclusivity agreement by placing orders with the First Defendant that resulted in supply.
• Dismissed the Plaintiff's appeal on grounds concerning the Second Defendant's bona fide conduct and the interpretation of clause 1.1 regarding sales to Capital.
• Allowed the Plaintiff's appeal on costs to the extent of increasing the costs recovery against the Second Defendant from 70% to 75% due to unreasonable refusal to mediate.
• Dismissed the Second Defendant's appeal.
• Refused permission to appeal the amended judgment sum against the First Defendant as academic.

The implications are that the Third Defendant is liable as an accessory for inducing breaches of contract, clarifying that placing orders with knowledge and intention can constitute inducement. The ruling reinforces the application of the Said v Butt rule protecting directors acting bona fide within authority, but confirms that serious breaches of duties, such as causing breach of an injunction, remove such protection. The decision also underscores the importance of compliance with court orders regarding mediation and the potential for costs sanctions for unreasonable conduct. No new precedent was set beyond the application and clarification of existing principles.