Economic Torts: Another Way To Pursue The Person Behind The Corporate Veil

You provide goods or services to a company, but the company is unable to pay. You know that the person behind the company, who received the benefit of the contract, has the money to pay - and that he is responsible for the company being insolvent. What can you do? The company has a separate legal personality from its directors and shareholders, its owner was not a party to your contract, and if you get a judgment against the company you cannot enforce it against his assets. Your obstacle is the "corporate veil". Liquidators to the company could pursue directors who have caused loss to the company, and seek to recover funds to the company to pay creditors - but that is not always possible, or effective. What you want is a direct claim against the person who received the benefit of the contract, and who has the money to pay for it. The English High Court has, in its recent decision in Palmer Birch v Lloyd [2018] EWHC 2316 (TCC), identified an approach that could be very effective on the right facts: it allowed a claim against the individuals who owned and ran a company, based not on the company's breach of contract or on any breach of insolvency law, but instead on the direct tortious liability of the individuals to the company's creditor. The "economic torts" considered in the case are recognised in Jersey and defined in the same way as in England1. They are: inducement to breach a contract, unlawful interference and unlawful means conspiracy. The facts

Palmer Birch ("PB"), a construction business, refurbished a manor house in Devon which was the home of Michael Lloyd, the first defendant, and was beneficially owned by him. The contract was not with Michael but with a company, HHL, which held a 21 year lease over the manor house and its extensive grounds. HHL's shareholder and director was Mr Lloyd's brother Christopher, the other defendant; but HHL was funded by Michael, and the court found that in reality Michael controlled HHL: he "called the shots". There were no personal guarantees from the Lloyds. As the judge noted: "This claim reveals the perils of contracting with an undercapitalised limited liability company, with no guarantees from the individuals associated with it, as HHL was plainly one such company." The contract price was around £5 million. Some of it was paid by HHL, funded by loans deriving from Michael, as the contract progressed. However HHL had insufficient assets of its own to repay those loans, or to fund the...