Home > Case Studies > Do You Have to Know About a Breach to Be Liable?

Do You Have to Know About a Breach to Be Liable?

By: Lorna Elliott LLB (hons), Barrister - Updated: 30 Aug 2012 |
 
Breach Contract Liable Claim Restrictive

In some circumstances, a party is not liable for breach of contract if they honestly didn’t know that what was happening amounted to a breach of a contract. This means that a ‘mistaken belief’ that something was authorised, when in fact it was not, may amount to a defence to a claim for breach of contract. A case that was heard in the House of Lords in 2007 demonstrates this.

The Case

Two directors and some employees of a property development business (Mainstream) set up a company that was in direct competition with it. The two directors secured funding from a third party, and diverted investment opportunities away from Mainstream and into the newly formed company. The investor asked whether this activity was authorised, but was informed that Mainstream had been offered the opportunities first, but had refused to take them. The court had to consider whether the investor could be liable for inducing a breach of contract.

The Appeals

The case went all the way to the House of Lords, where the decision of the lower courts was upheld. The investor could not be liable for breach of contract. This is because in order to prove liability for breach of contract, you need to show:

  • that the contract has been breached
  • that the person knows that what they are doing amounts to inducing a breach of contract. This is important because turning a blind eye can amount to a breach of contract, but the focus is on what you know rather than what you should know.
  • the breach of contract should have been intended, either as a consequence of the action by the person breaching it or as a breach in itself.

What This Case Means

If a person honestly believes that there is no breach of contract being committed they cannot be liable for it, even if that honest belief was foolish or naïve. In practical terms, an employer can take on an employee who breaches a contract with their previous employer or other employer, and as long as they honestly believed that what the employee was doing did not breach any contracts, they will have a defence.

Implications For Employers

This is of considerable importance to employers hiring new staff who are coming to work for them having previously worked for a competitor or someone in the same industry. Often employment contracts include a ‘restrictive covenant’, which prevents an employee from working within a specific geographical area, or soliciting clients or employees from the previous employer, for a certain period of time.

Some restrictive covenants are unenforceable and constitute a restraint of trade, such as a clause that prevented an employee from working as an estate agent in the whole of the UK for a period of two years after the termination of their employment. If an employee has a restrictive covenant with a previous employer, the new employer will be protected if they had the ‘mistaken belief’ that the employee’s former contract was not being breached.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Topics
Latest Comments
  • Bikerboy700
    Re: The Law & Verbal Agreements
    A company called search point called me to renew a contract for google search adds. They kept calling and harassing me to…
    15 March 2024
  • Haris
    Re: Marriage Contracts
    will you marry me in my contact I m sengle my whatssap numbr +92 03110331553
    11 February 2024
  • Haris
    Re: Marriage Contracts
    I want to see marrie in my contact i am single whatssap number +92 03110331553
    11 February 2024
  • Avinchi
    Re: Marriage Contracts
    IGNORE COMMENTS! ((((ALL INDIANS SEE)))) Property Rights Under the law of marriage contracts a spouse has the right to live in the…
    22 October 2023
  • Judge Judy
    Re: Marriage Contracts
    Regarding the comments please ignore them (SCAM) Just marry me im a judge, 07538577290. Male - 28 Single.
    22 October 2023
  • Deb
    Re: Contracts and Self Employment
    I am self employed and have a contract my contract states my name and the word "employee" in every section. It has headings…
    28 September 2023
  • DEEP DHALI
    Re: Marriage Contracts
    Hi my name is DEEP KUMAR DHALI and I am from India my age was 21 years old any body have from uk women how i marry you please contact me in…
    15 August 2023
  • Yasin
    Re: Marriage Contracts
    I'm Pakistani my age 26 i need a gril in UK with contract marriage but I am very poor people My WhatsApp+923052150964
    13 July 2023
  • Chris
    Re: Broken Employment Contracts
    I am self-employed I run a sole trade business I received an order from a client to perform a service work We signed a written…
    4 April 2023
  • Junayed
    Re: Marriage Contracts
    I am Junayed and am From Bangladesh My WhatsApp 88012918210
    29 March 2023