OBG Ltd v Allan; Douglas v Hello! Ltd [2007] UKHL 21

Three appeals concerning economic torts. OBG involved receivers invalidly appointed who took control of company assets. Douglas v Hello! concerned publication of surreptitiously taken celebrity wedding photographs. Mainstream involved directors diverting a development opportunity. The House clarified the distinct torts of inducing breach of contract and causing loss by unlawful means.

Facts

Three appeals were heard together due to overlapping legal issues concerning economic torts.

OBG Ltd v Allan

Receivers were purportedly appointed under a floating charge which was later found to be invalid. Acting in good faith, they took control of OBG’s assets and undertaking. OBG claimed damages for wrongful interference with contractual relations and conversion.

Douglas v Hello! Ltd

OK! magazine contracted for exclusive rights to publish photographs of the Douglas-Zeta-Jones wedding. A photographer surreptitiously took photographs which Hello! magazine knowingly published. OK! claimed breach of confidence and interference by unlawful means with its contractual relations.

Mainstream Properties Ltd v Young

Two employees diverted a development opportunity to a joint venture with Mr De Winter, who provided finance. The company claimed Mr De Winter was liable for inducing breach of contract.

Issues

The House considered the essential elements of: (1) the tort of inducing breach of contract; (2) the tort of causing loss by unlawful means; (3) whether conversion applies to contractual choses in action; and (4) the scope of breach of confidence in commercial contexts.

Judgment

Economic Torts

The House unanimously rejected the ‘unified theory’ of economic torts. Lord Hoffmann explained that inducing breach of contract (the Lumley v Gye tort) and causing loss by unlawful means are separate torts with different requirements.

For the Lumley v Gye tort, accessory liability requires: knowledge that one is inducing a breach of contract; an intention to procure such breach; and an actual breach of contract. The defendant must actually realise their conduct will cause a breach.

For the unlawful means tort, the elements are: (a) a wrongful interference with the actions of a third party in which the claimant has an economic interest; and (b) an intention thereby to cause loss to the claimant. Acts against a third party count as unlawful means only if they are actionable by that third party.

OBG Appeal

The majority dismissed the claim for wrongful interference with contractual relations as the receivers neither employed unlawful means nor intended to cause loss. On conversion, the majority (Lord Hoffmann, Lord Walker, Lord Brown) held the tort does not extend to contractual choses in action. Lord Nicholls and Baroness Hale dissented, favouring extension of conversion to contractual rights.

Mainstream Appeal

Unanimously dismissed. Mr De Winter honestly believed assisting the employees would not involve breach of their contracts. An honest belief, even if mistaken in law, is inconsistent with intending to induce breach of contract.

Douglas v Hello! Appeal

The majority (Lord Hoffmann, Baroness Hale, Lord Brown) allowed OK!’s appeal on breach of confidence. The photographic images of the wedding were commercially confidential information. The obligation of confidence was imposed for the benefit of OK! as well as the Douglases, and Hello! was bound by it due to the circumstances in which they acquired the photographs. Lord Nicholls and Lord Walker dissented, finding no breach of confidence as the information in the unauthorised photographs was essentially the same as in the authorised ones.

Implications

This decision significantly clarified the law on economic torts by firmly separating inducing breach of contract from causing loss by unlawful means. The House rejected the extension of the Lumley v Gye tort to cover ‘interference with contractual relations’ without actual breach. The decision also confirmed that conversion remains limited to tangible property, though the minority view favouring extension to contractual rights may influence future development. The breach of confidence holding expanded protection for commercially confidential information in celebrity contexts.

Verdict: OBG appeal dismissed. Mainstream appeal dismissed. Douglas v Hello! appeal allowed by majority on breach of confidence grounds, restoring the trial judge's award of damages to OK!.

Source: OBG Ltd v Allan; Douglas v Hello! Ltd [2007] UKHL 21