UK: Collude, Get Sued (And You May Even Be Held Personally Liable)

Last Updated: 4 February 2019
Article by Mohammed Husnain Ali

Palmer Birch (A Partnership) v (1) Michael Lloyd (2) Christopher Lloyd [2018] EWHC 2316 (TCC):


The claimant (a construction business specialising in house refurbishment) claimed the unpaid value of work carried out under a contract with a limited company (H). The second defendant (D2) was H's director. The first defendant (D1) was its sole funder.

The claimant and H had entered into a JCT Standard Building Contract with Quantities (2011) for the renovation of a property that was, essentially, D1's English residence. H had a leasehold interest in the property; the freehold was owned by a company (S), which was beneficially owned by D1. D1 arranged for loans by S to H to meet the renovation costs. H did not trade, had no independent financial resources, and had been incorporated largely for tax reasons, enabling D1, who lived abroad, to recoup VAT on the contract costs. H went into liquidation before completion of the works.

Claimant's case:

The claimant claimed under three economic torts:

  • Inducing breach of contract
  • Unlawful interference
  • Unlawful means conspiracy

The claimant essentially argued that the defendants had colluded to bring about H's insolvency and procure repudiatory breach of contract, so as to avoid having to pay the claimant for work done. It asserted that D1 significantly influenced H's finances and used H as a conduit for his funding when it had been clear, from H's incorporation, that it had insufficient means to repay S.

Defendant's case:

The defendants' case was that the claimant had contracted with H, knowing that it was a new company dependent on third party funding, and was seeking to pierce the corporate veil. They maintained that H's legal personality, together with the absence of any obligation on D1 or S to fund the contract to completion, meant that there had been mere non-actionable prevention, not inducement. They relied on a defence of justification and maintained that no loss had been caused to the claimant, because H had lacked the means to pay in any case.

Court Judgment:

  • Inducing breach of contract: This allegation succeeded against D1. There was a fine line between acts of inducement and acts of mere prevention (where a defendant's conduct prevented a third party from performing the contract, but without any inducement or procurement). Here, D1 had incurred no tortious liability in respect of his failure to fund the contract, as he was not legally obliged to feed the coffers of a limited company to enable it to meet its contractual obligations. D1 had, however, crossed the line from prevention to inducement when he procured H's repudiatory breach of contract by deciding to bring about H's liquidation i.e. by diverting his funds elsewhere and in doing so abused H's separate corporate personality.
  • Unlawful interference: This allegation failed and the court identified the components of the tort. This was a tort of intention i.e. an intention to cause loss by the use of unlawful means. As there was nothing 'unlawful' about D1 ceasing to fund H, it could not be said that he had committed the tort.
  • Unlawful means conspiracy: This allegation succeeded against both defendants because of their collusion to bring about the repudiatory breach of contract. The evidence clearly supported an inference that the defendants had reached an agreement to facilitate H's liquidation to escape the contract and avoid the claimant's claims. This amounted to requisite intention to injure. D2 had been prepared to play his part in implementing D1's intention that H be left to flounder without funding and could not hide behind the company in denying personal liability as he had played a huge part in the conspiracy.

The justification defence was not available to the defendants facing allegations of unlawful means conspiracy and the "no loss" defence failed. D1 enjoyed no "equal or superior right" to the claimants and had been motivated purely by commercial self-interest.


This case emphasises that directors who abandon their duties in such a way will generally be personally liable in tort and cannot rely and hide behind the company as a separate legal personality especially if this too has been abused.

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.

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