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

In three conjoined appeals concerning economic torts, the House of Lords clarified and distinguished the tort of inducing breach of contract from causing loss by unlawful means. The latter requires an act unlawful against a third party, thereby narrowing its scope.

Facts

This House of Lords judgment concerned three conjoined appeals, each involving different factual scenarios but raising common questions about the scope of economic torts.

OBG Ltd v Allan

Receivers were appointed over OBG Ltd’s assets by a bank. The appointment was later found to be invalid. Believing their appointment to be valid, the receivers took control of the company’s business and assets, effectively terminating its existing contracts and settling its contractual claims. OBG Ltd sued the receivers, arguing their actions constituted the tort of inducing breach of contract and/or causing loss by unlawful means.

Douglas v Hello! Ltd

Celebrities Michael Douglas and Catherine Zeta-Jones granted exclusive rights to OK! magazine to publish photographs of their wedding. A freelance photographer surreptitiously took unauthorised photos and sold them to Hello! magazine, a rival publication. OK! magazine sued Hello! for causing loss by unlawful means, arguing that Hello! had interfered with their exclusive contract by engaging in an unlawful act (the photographer’s breach of confidence against the Douglases).

Mainstream Properties Ltd v Young

Two employees of Mainstream Properties, a property development company, acquired a development opportunity for themselves in breach of their contractual duty of fidelity to their employer. Mainstream sued the employees, alleging they had caused loss by unlawful means, the unlawful means being the employees’ breach of their own employment contracts.

Issues

The central legal issue across the three appeals was the proper definition, scope, and relationship of the economic torts, specifically:

1. The tort of inducing or procuring a breach of contract.
2. The tort of causing loss by unlawful means.
3. Whether these torts should be unified into a single principle of liability for intentional interference with economic interests or whether they are distinct torts with separate elements.
4. What constitutes ‘unlawful means’ for the purpose of the second tort.
5. The relevance of the defendant’s intention and knowledge.

Judgment

The House of Lords, by a majority (Lords Hoffmann, Hale, Brown, and Walker), delivered a landmark judgment clarifying the law on economic torts. Lord Nicholls provided a powerful dissenting opinion.

Lord Hoffmann’s Majority Opinion

Lord Hoffmann, giving the leading speech, rejected the idea of a unified tort and definitively separated inducing breach of contract from causing loss by unlawful means. He argued for clarity and certainty in commercial law.

The Two Economic Torts

Lord Hoffmann defined the two torts as distinct causes of action:

1. Inducing Breach of Contract: This tort, established in Lumley v Gye, requires the defendant to know they are inducing a breach of a specific contract and to intend to do so. It is a form of secondary liability, parasitic upon a primary breach of contract by a third party. Lord Hoffmann stated:
   

   To be liable for inducing breach of contract, you must know that you are inducing a breach of contract. It is not enough that you know that you are procuring an act which, as a matter of law or construction of the contract, is a breach. You must actually realise that it will have this effect.

2. Causing Loss by Unlawful Means: This tort involves three parties: the claimant, the defendant, and a third party. The defendant intentionally causes loss to the claimant by interfering with the liberty of the third party to deal with the claimant, using means which are unlawful as against that third party. Critically, the ‘unlawful means’ must be actionable by the third party.
   

   Unlawful means consists of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant. It does not include acts which may be unlawful against a third party but which do not affect his freedom to deal with the claimant.

Application to the Appeals

• OBG v Allan: The appeal was allowed. The receivers were not liable for inducing breach of contract because they genuinely believed their appointment was valid and thus did not intend to cause any breach. Their actions did not constitute causing loss by unlawful means as their invalid appointment was not an act ‘unlawful’ towards the contracting third parties in the required sense. Their liability was properly confined to the tort of conversion.
• Douglas v Hello! Ltd: The appeal was dismissed, but on different grounds from the Court of Appeal. The claim for causing loss by unlawful means failed. Hello!’s actions (publishing photos) did not involve unlawful means directed at the third party (the photographer) that interfered with their freedom to deal with OK! The photographer’s breach of his duty of confidence to the Douglases was not the relevant unlawful means against OK!. However, Hello! was held directly liable to the Douglases for breach of their confidence, and OK! could also claim on this basis.
• Mainstream v Young: The appeal was dismissed. The employees were liable for causing loss by unlawful means. Their breaches of their employment contracts (the duty of fidelity) were the unlawful means used to interfere with Mainstream’s business opportunities. As their actions were unlawful against their employer (Mainstream, the claimant), the tripartite structure was satisfied in a two-party situation where the unlawful act was directed at the claimant itself.

Lord Nicholls’ Dissent

Lord Nicholls disagreed with the majority’s narrow definition of ‘unlawful means’. He advocated for a wider interpretation where ‘unlawful means’ would encompass any act a defendant is not at liberty to commit, regardless of whether it is independently actionable by the third party. He stated:

…what constitutes ‘unlawful means’ in this tort? The touchstone is the defendant’s intention to inflict economic injury on the claimant. In a case where this is the defendant’s object, any acts which are unlawful in the ordinary…sense of that word may suffice.

Implications

The decision in OBG v Allan is of fundamental importance to modern commercial law. It provided much-needed clarification on the economic torts by decisively separating them and restricting the scope of the ‘unlawful means’ tort. This restriction provides greater legal certainty for businesses, as it limits liability for intentionally causing economic loss to specific circumstances where the defendant’s conduct is independently unlawful against a third party. The judgment confirmed that there is no general tort of ‘unfair competition’ in English law and that commercial actors are generally free to pursue their self-interest, even if it harms a competitor, provided they do not use independently unlawful means or induce a breach of contract.

Verdict: The appeal in OBG v Allan was allowed. The appeals in Douglas v Hello! Ltd and Mainstream v Young were dismissed.

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