Edwin Hill and Partners v First National Finance Corporation plc

Facts

Edwin Hill and Partners, a firm of architects, were engaged by a property developer for a development project. First National Finance Corporation had lent money to the developer for the project, secured by a legal charge over the property. When the developer ran into financial difficulty, the finance company, rather than enforcing its security by taking possession and selling, agreed to provide further finance on condition, among others, that the developer replaced the architects with other architects. The developer did so in breach of its contract with Edwin Hill, who sued the finance company for inducing that breach.

Issue

Whether the finance company had a defence of justification to the tort of inducing breach of contract, on the ground that in procuring the breach it was protecting its own rights as chargee.

Held

The claim failed: the finance company was justified in inducing the breach.

Ratio

• A defendant who interferes with a contract between others is justified where he acts to protect a legal right of his own which is equal or superior to the right of the claimant under the contract; a secured lender which could lawfully have enforced its security in a manner that would have put an end to the contract is justified in using the lesser step of requiring, as a condition of continued finance, that the contract be terminated.

The judgments

Key reasoning

• Justification is a recognised but narrow defence to inducing breach of contract, and protection of a legal right equal or superior to the contractual right interfered with is an established basis for it.
• As chargee, the finance company could have taken possession and sold the property, in which case the developer could not have continued the contract with the architects; its proprietary rights therefore took priority over their contractual rights.
• A party with such rights should not be worse placed because it chose a course less damaging to all concerned than enforcing its security; requiring the change of architects was a means of protecting its rights, not an unjustified interference.

Where it fits in the module

On inducing breach of contract, the case is used to examine the scope of the justification defence after OBG Ltd v Allan [2007] UKHL 21, decided later, restated the elements of the tort. It raises the debate whether justification should be confined to protection of superior rights or extended to wider moral or public interest grounds, as hinted at in older cases such as Brimelow v Casson [1924] 1 Ch 302.

Criticisms

• Treating a power of sale that was never exercised as justifying a different interference may allow powerful creditors to dictate the contracts of debtors with third parties with impunity.
• The case does not explain clearly why the right to enforce security is superior to the contractual rights of the architects in respect of the particular interference chosen, as opposed to a sale.
• The equal or superior right category sits awkwardly with the general reluctance of English law to recognise a broad justification defence, leaving the defence uncertain at its edges.