OBG Limited v Allan [2007] UKHL 21

This case was one of three heard together by the House of Lords which all principally concerned claims in tort for economic loss. The judgments were handed down in May 2007.

OBG Limited v Allan (OBG) involved a claim by the company acting by its liquidators against the administrative receivers. There had been a purported appointment of administrative receivers in respect of the company under a floating charge. It was subsequently claimed by the liquidators, and admitted, that the appointment was invalid: the floating charge being contained in a debenture that was assigned to creditors but which at the time of the assignment had no debt outstanding or secured by the charge. The creditors had attempted to attach an existing unsecured debt owed to them by the company to the empty debenture. The creditors had not in fact been entitled to appoint administrative receivers. However, until this point was raised and conceded, the administrative receivers believed the appointment to be valid and were found at all times to have acted in good faith. In the course of their appointment the administrative receivers took control of all the company’s assets and undertaking and negotiated the settlement of various contractual claims. The claims against the administrative receivers were that they were strictly liable for trespass and conversion in respect of the land and chattels of the company and liable for wrongful interference with contractual relations in respect of the contractual claims or alternatively it was claimed that there had also been conversion of the contractual claims by the administrative receivers.

The House of Lords took the opportunity in this collection of cases to discuss at some length the economic torts argued before them, which they observed to be a difficult and unsatisfactory area of law in need of ‘tidying up’. The effect of the judgments is to narrow the application of the economic torts.

It was held that claims for interference with contractual relations could only be founded in one of two, separate causes of action, either: 

  • procuring a breach of contract - where the liability of the defendant is “accessory liability” depending on the contracting party committing an actionable wrong; or 
  • causing loss by unlawful means – where the liability of the defendant is “primary liability”, the defendant has intentionally caused the claimant loss by unlawfully interfering with the interests of others.

The House of Lords found that the administrative receivers in OBG were not liable under either cause of action. There had been no breach or non-performance of the contracts that were the subject of the settlement negotiations and therefore no wrong had been committed to which accessory liability of the administrative receivers could be attached. Nor was it found that the administrative receivers had either employed unlawful means or intended to cause any loss to the company in the conduct of their appointment, notwithstanding its invalidity. The House of Lords did not consider that there was a separate, general tort of unlawful interference with contracts.

The views of the House of Lords were strongly divided on the question of whether the tort of conversion could be applied to debts and contractual claims. The dissenting minority argued strongly the case for an extension of the tort to include economic loss, but the majority decision was that this was “too radical and fundamental a change” [per Brown LJ] and the tort of conversion should remain restricted to chattels. Accordingly the administrative receivers were only liable in respect of trespass to the land and conversion of the chattels.