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NEITHER CONTRACT NOR TORT: SALOMON TRIUMPHANT?

Lloyd's Maritime and Commercial Law Quarterly

NEITHER CONTRACT NOR TORT: SALOMON TRIUMPHANT?

Lau Kwan Ho*

Palmer Birch v Lloyd
Gruber v AIG Management France
Bumi Armada Offshore Holdings v Tozzi
The circumstances in which a company director may be tortiously liable for inducing the company’s breach of contract have troubled many thinkers. Comparatively less attention has been devoted to the position of a parent or holding company that has allegedly induced its subsidiary company to break a contract. In Stocznia Gdanska SA v Latvian Shipping Co,1 the Court of Appeal did not disagree with counsel’s concession that a parent would not be liable if it had merely decided, without more, that its own interests did not recommend the commitment of its resources to the subsidiary company’s contracts, or if it had taken a formal decision as shareholder that the subsidiary company should not perform its contracts.2 This ascendancy of company law offering protection in favour of a parent was unaffected by the streamlining of the economic torts in OBG Ltd v Allan,3 for Males J (as he then was) stated in Moran Yacht & Ship Inc v Pisarev 4 that the principle of limited liability ought to preclude finding a beneficial owner of a company liable for inducing the latter’s breach of contract even where the owner had known of the specific contractual obligations in question to be performed by the company, which would have acted according to the owner’s instructions.5
Fuller exposition of the principles in three recent cases has disclosed questions of practical and academic interest. Does the inducement tort permit of what is effectively a broad exemption where company shareholders are concerned? If so, what are the circumstances in which a controlling shareholder could exceptionally be liable for inducing the company’s breaches? It will be convenient to refer to these respectively as the first and second questions, the answers to which may not be as easy as believed in some of the authorities.
The thoughtful decision of Andrew Baker J in Gruber v AIG Management France SA 6 introduces some of the competing analyses. After referring to Males J’s dictum in Moran, his Lordship opined that, if the law governing the piercing of corporate veils did not say that the parent had assumed responsibility for the breach, then the imposition of liability on the parent by tort law required careful justification, which surely meant something more than that the subsidiary company’s breach was the parent’s intended and procured outcome.7 Regarding the first question, therefore, the primacy given to company law principles resulted essentially in the alteration of some of the usual rules governing tortious inducement where controlling shareholders were implicated.

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