UK: Directors Held Liable For Inducing Breach Of Contract And Unlawful Means Conspiracy Where They Placed Company Into Liquidation To Avoid Outstanding Debt

Last Updated: 17 October 2018
Article by Gary Milner-Moore and Catherine Emanuel

The Technology and Construction Court has upheld economic tort claims against two directors of a limited liability company who placed the company into liquidation in order to avoid the company having to pay its outstanding debts to a building contractor. The building contractor succeeded in establishing that one of the directors had induced the company to repudiate the building contract, and also that they had conspired to injure the building contractor using unlawful means: Palmer Birch (a partnership) v Lloyd [2018] EWHC 2316 (TCC).

The case highlights the risks for individuals who operate through the medium of an undercapitalised limited liability company, in particular that they may not be able to rely on the protection of the company's distinct legal personality in circumstances where their conduct gives rise to claims under one of the economic torts.

Economic tort claims are not straightforward to establish, in light of the high evidential hurdles that must be met. However, this decision illustrates the potential for bringing an economic tort claim in a relatively novel context, in particular where there is an attempt to abuse the doctrine of separate corporate personality. It seems significant in this case that funds which could have been made available to the company to meet its obligations to the claimant were, instead, diverted to a separate company which was used to complete the works through a different contractor.

Gary Milner-Moore and Catherine Emanuel consider the decision further below.


In 2012 the claimant, a building contractor, entered into a contract with Hillerson House Limited ("HHL") to carry out renovation works on a substantial property in Devon. The two defendants, D1 and D2, who were brothers, were the decision-makers behind HHL (D1 was an appointed director and sole shareholder whereas D2 was a de facto or shadow director). D2 had funded loans to HHL to fund the works, and the property was to be used as D2's English home.

In December 2014, it became clear that D2 was experiencing cash flow issues. HHL failed to pay the claimant sums due under its December 2014 invoice and, by the end of January 2015, HHL owed the Claimant around £444,000.

In March 2015, D2 secured funding from another of his investments and would therefore have been able to pay the sums outstanding. However D2 did not use those funds to pay the claimant. He instead diverted them to a different company owned by D2, which was ultimately used to complete the works through a different contractor.

In April 2015, HHL gave notice to terminate the contract with immediate effect stating that there was no third party funding available and, in the event of a liquidation, no distribution would be made to the claimant. In June 2015, HHL was placed into voluntary liquidation. By that point, the claimant estimated that it was owed £1,082,000 by HHL.

The claimant brought proceedings against the defendants alleging that they had induced HHL to breach the contract and also that they had engaged in a conspiracy to injure the claimant by unlawful means.

There was no claim brought by the liquidator of HHL, for the benefit of creditors generally, in respect of the conduct of the defendants prior to the liquidation, nor was there any attempt to bring a claim against them for misfeasance.


Inducing breach of contract

The High Court (HHJ Russen QC) held that D2 was liable for inducing HHL to breach the building contract. In doing so, he placed emphasis on the distinction between acts of "inducement" properly so-called and those which constitute "mere prevention" of a party's performance of the contract. As the judge noted, the distinction can be a delicate one.

On the judge's findings, D2 could not be found liable for inducement simply on the basis of a failure to fund HHL; as he put it, the authorities are clear in establishing that the inducement tort is not committed simply through a "failure on the part of the defendant to feed the coffers of a limited liability company, to enable it to meet its contractual obligations, when in fact there is no legal obligation to do so".

However, D2's actions in diverting funds away from HHL, leading to HHL's liquidation, amounted to procuring a repudiatory breach of the contract. In the judge's view, the active decision on the part of D2 to put the company into liquidation, while taking the benefit of the works and completing the project through a different company, crossed the line from prevention to inducement. The judge commented:

"Whereas a simple finding that [D2] could have made the funds available to HHL, but simply chose not to, might arguably leave [the claimant] on the wrong side of [the fine line between prevention and inducement], my further conclusion that he should in the circumstances have done so sustains their claim ...."

Unlawful means conspiracy

The judge also held that D1 and D2 were liable for the tort of conspiring to injure by unlawful means because they had colluded to bring about the repudiatory breach. Based on the evidence, and as a result of inferences drawn from the defendants' actions, he found that a tacit agreement existed between D1 and D2 to bring about the liquidation of HHL so it could escape its obligations under the contract, secure the value of the existing works, and avoid meeting the claimant's existing and anticipated claims. Correspondence from the defendants' solicitors clearly established that the defendants had the necessary intention to injure the claimant.

D1, the de jure director, argued that he could not be personally liable in conspiracy as he was at all times acting as a director and agent of HHL. However, the judge would not allow D1 to rely on the protection of the corporate veil as a defence to personal liability because the corporate veil "... had become largely shredded by a combination of his own actions and abnegation of his own director's role during the life of the Contract". In these circumstances, D1 could not properly be described as having acted within the scope of his constitutional role as director of HHL. By contrast, he had acted independently of the company's interests and with the impermissible objective of furthering the interests of D2.

The defendants also sought to rely on a defence of justification, praying in aid JSC BTA Bank v Ablyazov (No.14) [2018] UKSC 19 (considered here) where the Supreme Court held that the "real test" for what constitutes unlawful means is "whether there is a just cause or excuse for combining to use unlawful means". Judge Russen QC rejected that argument. He did not consider that the Supreme Court had recognised the existence of a discrete defence of "justification" but rather that the presence or absence of a "just cause or excuse" was part of the analysis of whether the conspiracy involved unlawful means. In this case, in view of the court's findings, plainly it did.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions