CA considers knowledge test for inducing breach – What is a sufficient state of mind to make an employer liable in tort for inducing a breach of contract when it employs a person subject to post-termination restrictions arising from his previous employment?

February 28th, 2020

That was the question with which the CA were confronted this month in David Allen v Dodd & Co Limited [2020] EWCA Civ. 258.

The contract of Pollock an employee of Allen contained restrictive covenants. Dodd took legal advice on their enforceability before employing Pollock. Based on the advice received Dodd took the view that while the matter was not entirely without risk, it was more likely than not that the restrictive covenants were unenforceable against Pollock. In fact, it turned out, after a contested hearing, that the covenants were enforceable; and that Pollock was in breach.

The question for the court was whether Dodd had sufficient knowledge that it was inducing Pollock’s breach to be liable to Allen for the tort.

At first instance, HHJ Halliwell had found Dodd did not have sufficient knowledge because the fact that it took legal advice on which it honestly relied, showed that it had not turned a blind eye nor been indifferent. The fact that the legal advice was wrong was not enough.

Allen appealed on the grounds that the legal advice that Dodd received was not firm advice. Dodd was aware that there was a risk that the covenants would prove to be enforceable. Allen argued that if you are aware that there is a chance that the acts you are inducing would amount to a breach of an enforceable contract, that is or should be enough to found liability in tort for inducing a breach of contract.

In a Judgment delivered yesterday, the CA unanimously dismissed Allen’s appeal, finding that the receipt of equivocal legal advice was not sufficient to found knowledge.

Lewison L.J. held that, properly interpreted, the test formulated by the HL in OBG v Allen was that in order to be liable for the tort of inducing a breach of contract, you must know that you are inducing a breach of contract and not might be. You must actually realize that the act you are procuring will have the effect of breaching the contract in question. Knowledge of a legal outcome is often hard to predict. To insist on definitive advice that no breach will be committed would have a chilling effect on legitimate commercial activity.

The judgment deliberately left open the question of whether it would be enough to escape liability if the legal advice went no further than to say that it was arguable that no breach will be committed.

But if the advice is that it is more probable than not that no breach will be committed, that is good enough.

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