In the UK, the general principle is that directors of a company will not be liable for the tort of inducing a breach of contract by a company, if the director is acting bona fide (i.e. in the best interests of the company) within the scope of their authority. This principle has been consistently applied by the UK courts, albeit without detailed analysis of what it means to act bona fide within the scope of the director’s authority. A landmark ruling in the UK High Court in the case of Antuzis v DJ Houghton  EWHC 843 has confirmed that directors of a limited company may be held personally liable for the tort of inducing a breach of contract, where they were deliberately involved in causing the company to commit contractual and statutory breaches.
The claimants in this case worked as chicken catchers for DJ Houghton Catching Services Ltd (“DJ Houghton”). Whilst DJ Houghton issued payslips recording their pay, they contained significant and material irregularities:
- Wages were withheld for alleged transgressions and fees for finding work and/or for accommodation were routinely deducted from employees’ pay;
- The employees were not paid the national minimum wage, nor were they paid holiday pay they were entitled to;
- Deductions for rent were made for premises which the employees were required to reside at. The rent charged was in excess of the maximum amount permitted under UK law; and
- DJ Houghton required a license to employ the individuals on the farms but it did not have such a license.
The employees brought claims for damages and unpaid wages and, because DJ Houghton was experiencing financial difficulties, claims were also brought against its director and company secretary.
The Court’s Decision
The central issue in the case was whether or not DJ Houghton’s sole director, and company secretary, could be personally liable for inducing the company to breach the claimants’ employment contracts. For a director to be personally liable for the tort of inducing a breach of contract, a claimant must show that the director:
- was not acting bona fide; or
- was acting outside the scope their authority; and
- knowingly induced the breach of contract.
In reaching its decision, the court assessed what it means to act bona fide within the scope of the director’s authority and concluded that it is the director’s conduct and intention in relation to his duties towards the company (rather than towards any third party, i.e. the company’s employees) that is the key area of enquiry. Additionally, the nature of the breach of contract between the company and the third party may inform whether or not the director has breached their statutory duties owed to the company under the Companies Act 2006. The court found that, whilst the director and company secretary had been acting within the scope of their authority, they had been running the company in a deliberate manner that amounted to systematic abuse of the company’s employees. The court found that neither the director nor the company secretary believed that they were paying the national minimum wage or that they were entitled to withhold payments from the employees’ wages or that the employees were not entitled to holiday pay. Their conduct and actions had serious adverse consequences for the reputation of the company and was not in the interests of the company’s employees.
In directing the company not to pay the national minimum wage, holiday pay and withholding payments from wages, the director and the company secretary were in breach of the statutory duties under the Companies Act 2006 to promote the success of the company and to use reasonable care, skill and diligence. Additionally, the court’s view was that the director and the company secretary knew that their actions had caused the company to breach its contractual obligations to the claimants and, therefore, they were not acting bona fide. Therefore, they were held personally liable for the breaches of contract that they had induced.
What to Take Away?
What is clear is that directors must exercise caution when leading their company to induce a breach of contract. A director who directs a company to not fulfil its contractual commitments risks breaching their duties and creating potential liabilities for the company. Whilst there may be circumstances in which directors can say that they acted honestly, in good faith and in the company’s wider interests (e.g. by not paying a supplier on time because the company unusually has cash flow difficulties), a director who intentionally acts in breach of statutory and contractual obligations which is detrimental to their company may be personally liable. The court gave an example of a director of a restaurant who decides the company should supply horse meat instead of beef because it is cheaper. In such a scenario, the discovery is likely to cause severe reputational damage to the company and would breach UK food and trading standards rules, actions and conduct for which the director is likely to be held personally liable.
Going forwards, while Antuzis v DJ Houghton  EWHC 843 could be relied on to extend personal liability to directors for the tort of inducing a breach of contract based on other aspects of the employment contract which have a statutory element, on a practical level, it is hard to envisage many cases where the facts would support such a finding.