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:
Latest Comments
  • Gwen
    Re: The Law & Verbal Agreements
    I was renting an adjacent paddock to mine from a neighbour and had to replace dangerous fencing between my field, garden and…
    13 June 2019
  • Flower
    Re: Legally Binding Contracts
    My buissnes partner made me sighn a 50 50 joint ownership when I was majority shareholder how do I stand?
    12 June 2019
  • dibzy
    Re: The Law & Verbal Agreements
    after a verbal agreement with my cusion that my mother could be buried with her sister in law (she died 31 years ago ) my…
    10 June 2019
  • MTri
    Re: Gym Contracts Explained
    I'm a member at my local gym, where they require 2 months notice before leaving it. I recently cancelled my direct debit because I'd…
    8 June 2019
  • rachelgreen
    Re: The Law & Verbal Agreements
    Wonderful article on business which are one of the most common & convenient short-term business that are during financial…
    3 June 2019
  • Rana
    Re: Unfairness in Contracts
    on 9/3/2019 I phone sky to find out price for sports package for a small bar. I was told it would be about £1017 per month. I said that…
    12 May 2019
  • Rana
    Re: Unfairness in Contracts
    on 9/3/2019 I phone sky to find out price for sports package for a small bar. I was told it would be about £1017 per month. I said that…
    12 May 2019
  • S'DUMO
    Re: Title Deeds: Who Keeps Them?
    I HAVE PAID MY HOUSE IN FULL THAT WAS 2012,WHEN I WAS RETRENCHED FROM MY PREVIOUS JOB.I WASN'T TOLD WHEN I PAID THE HOUSE IN FULL…
    9 May 2019
  • trish
    Re: What Are T.U.P.E Claims?
    we were tuped just over 2 years ago and have heard that the new employer is now selling the business. staff have been told nothing by…
    8 May 2019
  • Djs210664
    Re: Contracts and Self Employment
    I have worked as a self employed operations manager for 2 years 5 months 5 days a week 40 hours a week and I have just been told…
    5 May 2019