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  • Opera stars and chorus girls - the vexing tort of inducing breach of contract

    Contracts should be kept rather than broken. Lord Justice Rix in Stocznia Gdanska SA v Latvian Shipping Co (No 3).

    An economic tort is a curious beast. The field is infrequently litigated, partly because these common law actions have had their utility curtailed by legislation, and beset by jurisprudential uncertainty. The situation is not improved by the patchwork quilt of distinct claims within this category, ongoing disagreement about unifying threads and the divergent approaches taken by courts in Australia, New Zealand and the United Kingdom.

    While a practitioner might therefore approach this topic with hesitancy, it is imperative that lawyers – particularly those in employment and commercial practices – have a firm grasp of the topic.

    At their essence, the torts permit a loss-suffering party to seek damages from the true wrongdoer, even where a third party stands in the middle and is seemingly responsible for the loss. Since the tort of inducing breach of contract was first promulgated in Britain in 1853, the action and its siblings have arisen in a diverse range of contexts. Opera impresarios, milkmen and the organisation behind World Series Cricket have all sought to take advantage of these torts, with mixed success. Their utility ranges from a helpful adjunct alongside other claims to a useful measure of last resort, and the spectre of these actions can also help ensure contractual relations are respected.

    It has been suggested that these separate torts  among them inducement to breach contract, unlawful interference with trade, intimidation and conspiracy may flow from a common source. The prospect of a general tort of causing economic loss by unlawful means has been mooted; Lord Denning MR suggested that if one person, without just cause or excuse, deliberately interferes with the trade or business of another, and does so by unlawful means – then he is acting unlawfully.

    The High Court of Australia has similarly proposed that independently of trespass, negligence or nuisance, but by an action for damages upon the case, a person who suffers harm or loss as the inevitable consequence of the unlawful, intentional and positive acts of another, is entitled to recover damages from that other.

    This article will focus on the tort of inducing breach of contract, given its foremost relevancy in the employment law context. David Howarth has estimated that 40 per cent of British cases involving the tort concern industrial relations (predominantly strikes), 20 per cent arising in other employment disputes and the remainder in commercial settings. The article will begin with a discussion of the seminal case of Lumley v Gye, before outlining each element of the tort’s modern incarnation and the relevant remedies. The article will conclude with a brief discussion of the reformoriented criticisms levelled against the action.

    A German opera singer’s lasting legal legacy

    165 years after it escalated into the British courts, a competition between two rival London theatres for the services of a star German opera singer has enduring relevance for private law across the common law world.

    A much sought-after singer in the early 1850s, Johanna Wagner, was lured to London by Benjamin Lumley of Her Majesty’s Theatre in Haymarket on an exclusive singing contract. Before she arrived in Britain, Wagner’s services were poached by Frederick Gye of the Royal Italian Opera in Covent Garden. The day before her much anticipated debut for Gye, Lumley secured an ex-parte
    injunction to prevent her performance.

    The ensuing litigation had two strands; the first, Lumley v Wagner, remains the starting point today for equitable injunctions enforcing negative covenants – Wagner was prevented from performing for a short period in London other than for Lumley’s company. The second, Lumley v Gye, gave birth to the tort of inducing breach of contract.

    In the end, Wagner sang for neither theatre and Lumley’s victory against Gye was pyrrhic – he won the legal claim on demurrer but lost an action for damages. As one legal historian observes, in the end Lumley, Gye, Wagner and the opera-going public – everyone in fact except the lawyers were all losers.

    To understand the outcome in Lumley v Gye and its ramifications, it is necessary to briefly backtrack to an earlier opera-related case.

    In 1847, another famous singer of the era broke her contract with Drury Lane Theatre to sing for Lumley at Her Majesty’s Theatre. The resulting litigation between Drury Lane and the singer, Jenny Lind, ultimately settled for $2,000. Despite indemnifying Ms Lind and paying her handsomely, Lumley was still able to recoup a considerable profit from his new singer. SM Waddams thus suggests that Lind’s case, which demonstrated that the ordinary remedy – was ineffective – and that the real dispute was between the rival employers, must almost certainly have been in the minds of the judges when they came to deal with Lumley’s cases against Wagner and Gye.

    And so, with the shoe on the other foot, Lumley brought proceedings against Gye for $30,000. In a creatively-framed claim, Lumley argued that his rival had wrongfully and maliciously enticed and procured Lumley’s breach of contract. Standing against Lumley was the contractual principle of privity – counsel for Gye responded that the breach of contract is a wrong between the plaintiff and Johanna Wagner alone, and against her he may maintain an action on the contract, but not of tort.

    By a 3:1 majority, the Court of Queen’s Bench held for Lumley and thereby established a new tort that endures today. The comments of Crompton J are particularly illuminating. [T]he servant or
    contractor, he wrote, may be utterly unable to pay anything like the amount of the damages sustained entirely from the wrongful act of the defendant: and it would seem unjust, and contrary to the general principles of law, if such wrongdoer were not’responsible for the damage caused by his wrongful and malicious acts.

    Lumley v Gye was not entirely novel. Since the 1500s, it had been accepted that an action arose where a master’s servant was enticed or harboured by another. But this tort was grounded on a master’s proprietary right to the servant (a concept which seems unthinkable today), and was distinguished by Coleridge J in dissent. His Honour chastised: I should be glad to know how any treatise on the law of contract could be complete without a chapter on this [tort], or how it happens that we have no decisions upon it.  Yet while Lumley v Gye would go untouched for almost three
    decades, the tort it created has since become firmly established across the common law world.

    The tort of inducing breach of contract

    Despite one commentator suggesting that the tort today is almost unrecognisable as a descendant of its ancestor, Lumley v Gye still provides the essential foundation for the modern action. A helpful statement of the tort was offered in Crofter Hand-Woven Harris Tweed v Veitch:

    [I]f A has an existing contract with B and C and is aware of it, and if C persuades or induces A to break the contract with resulting damage to B, this is generally speaking, a tortious act for which C will be liable to B for the injury he has done him. In some cases, C may be able to justify his procuring of the breach of contract.

    The elements of 1) a contract between A and B; 2) C’s knowledge thereof; 3) C’s persuasion or inducement for A to breach the contract with B; 4) resulting damage; and 5) the defence of justification will be considered in turn.

    Contract between A and B

    There must be a contract on foot; inducing someone not to enter into a contract is not actionable. The contract must be valid, enforceable and not voidable or otherwise defective – cases involving mistake, a lack of capacity and contracts invalid for being contrary to public policy did not give rise to the tort.

    Continue Reading…

    First published in Ethos. Written by John Wilson, Managing Legal Director, and Kieran Pender.

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  • Mental health - a clients capacity to provide lawful proper and competent instructions

    Mental Health - a client's capacity to provide lawful, proper and competent instructions

    Rule 8 of the Legal Profession (Solicitors) Conduct Rules 2015 (ACT) provides that a solicitor must follow a client’s lawful, proper and competent instructions. Implicit in this is the requirement that a solicitor be confident that their client has the capacity to give those instructions.

    Some areas of the profession are likely more attuned to these requirements. Certainly, practitioners acting in wills and estates will very familiar with the requirements surrounding capacity and issues that may arise in respect of same. However, it is incumbent upon every solicitor to ensure that, when taking instructions, they can be reasonably satisfied that their client has the requisite mental capacity to give and understand the instructions that they are intending to convey. If not so satisfied, the solicitor must not act for or represent the client. As has been found recently, a failure to be alert to issues of incapacity has the potential to generate liability in negligence on the part of solicitors.[1]

    Presumption of mental capacity

    As a starting point, it is a presumption at common law that every adult person is competent to make their own decisions and, accordingly, has the capacity to provide proper instructions. This is the basis on which the majority of solicitors act for their clients, as questions regarding mental capacity and fitness to give instructions will not ordinarily arise (aside from in particular areas such as practitioners working in with persons under the age of eighteen or suffering from obvious or know mental health diseases).

    However, importantly this presumption can be displaced. Characteristics such as old age, incapacity, mental infirmity, suspicion of undue influence or fraud or the inability to communicate are stated as those which can displace the presumption.[2] In the first instance, it is for the solicitor to determine whether there is some question regarding the client’s capacity to give proper instructions. If they consider that there is, an obligation arises for the solicitor to carry out further investigation before they may act for the client.

    Understandably, in the rush of receiving client instructions and ensuring that the work gets done, it can often be difficult to take the proper time to consider whether a client has capacity to give instructions. Solicitors also are not, or at least not by virtue of that legal ramification, medical practitioners, which can be an understandable point of unease for (particularly junior) solicitors in purporting to evaluate their client’s mental capacity. In relation to these issues, the ACT Solicitors Conduct Rules refer to a guide drafted by the Law Society of NSW When a Client’s Mental Capacity is in Doubt: A Practical Guide for Solicitors, which contains practical advice for solicitors to refer to when their client’s capacity is in doubt. It also includes a list of red flags, which if present ought to at least raise further investigation on the part of the solicitor before commencing to act.

    Some red flags include:

    • difficulty with recall or memory loss
    • lack of mental flexibility
    • the client is in hospital or aged care
    • deterioration in personal presentation, mood or social withdrawal
    • difficulty with communications
    • disorientation
    • a limited ability to interact, including if others interact on the client’s behalf

    Standard of capacity

    The standard of capacity has been stipulated in Gibbons v Wright.[3] This case emphasises that there is no fixed standard of capacity that will be applicable in all interactions. Rather, the determination of capacity is whether a party can understand the nature of the legal consequence of their actions and decisions.

    The English authority of Masterman-Lister v Brutton and Co, Jewell and Home Counties Dairies,[4] which has been widely followed in Australia, puts forward two propositions: the mental capacity required is capacity in relation to the transaction to be effected, and what is required is the capacity to understand the nature of that transaction.

    The position is quite clear: the client must understand the nature of any instructions they give in relation to the transaction, including an understanding of the legal consequences of those instructions. Capacity is directly referable to the particular transaction concerned. What is important to note is that the ultimate decision reached, even if it is a poor one (in the opinion of the practitioner), is almost irrelevant. What is important is that the client fully understands the decision-making process and, accordingly, the decision and its consequences.

    Steps you should take

    Where a client’s mental capacity is in any doubt whatsoever, it is crucial that the solicitor take thorough and contemporaneous file notes of any interactions with the client. This becomes especially important in circumstances where proceedings may be commenced at a later date when the question of mental capacity may be raised. One example of this is where the validity of a will is later challenged. A contemporaneous record of events can help to resolve this argument.

    While solicitors may be in some position to determine whether a client can adequately give instructions, they are generally not experts when it comes to determining the mental health or otherwise of a person. As stated above, the concern is with the client’s capacity to understand and make the legal decisions which will affect them, and consequently receiving the opinions of qualified medical and psychiatric experts can be of great assistance in reinforcing, or alternatively changing, a solicitor’s preliminary view regarding capacity.

    Raising this matter with the client can be a delicate affair, and questions regarding proper capacity have the potential to lead to distress. However, framing it in terms of a legal need to ensure that the client can give proper instructions so that the decisions they make will stand up under future scrutiny can make this an easier process.

    No matter how necessary a solicitor may consider an expert assessment, it should only occur where the client has given fully informed consent. In order to give informed consent, the client must understand the benefits and risks, likely outcomes, and the potential impacts on the client’s control over other aspects of their lives (financial and business affairs) of undertaking the expert assessment. Where a client does not give their consent but their solicitor remains in doubt as to their capacity to give instructions, the solicitor must be cautious in how to proceed. In the event the solicitor is not confident the client has the capacity to provide instructions, the assessment should be recommended again. Without this, the solicitor may not be able to continue acting.

    In the realities of a busy practice, there will undoubtedly be occasions where it does not seem as if a solicitor has time to properly consider questions regarding a client’s capacity, for instance in litigationwhere the hearing of a matter is unfolding before the court in real time. However, and in spite of the protections offered by the advocate’s immunity (touched on below), where an issue regarding capacity is raised about a party to court proceedings, the proper course is for the proceedings to be adjourned so that the question of that party’s capacity can be determined by the court, one way or the other.

    While this may seem an inconvenience and contrary to the intention of a swift resolution of court proceedings, it is critically important to resolve any issue regarding capacity before proceedings can be continued. Where a person is found to not possess capacity, it would be an abuse of process, and likely negligence by the solicitor acting, for proceedings to continue. Indeed, were the issue to be raised by the solicitors for the other party, and it was found that the first party lacked proper mental capacity, proceedings would likely be stayed on that basis. Questions of costs may also arise (including against solicitors personally) if an opposing side later objects to the incurring of costs where a client without mental capacity is unable to meet a costs order but, in all likelihood, never understood the consequences of being involved in litigation.

    Protection offered by advocate’s immunity – a case study

    A case which examines the legal principles surrounding mental capacity and also the consequences for what Bell J termed ‘capacity negligence’ is Goddard Elliott (a firm) v Fritsch [2012] VSC 87. The case goes into great detail regarding the standard of capacity required, and the consequences where a solicitor acts on the instructions of a client which are invalid.

    In this case, Mr Fritsch was sued by his solicitors, Goddard Elliott, for outstanding legal fees owed for work done in settling a Family Court matter regarding the property settlement resulting from his divorce. He counter-claimed against the firm, his argument being that he would never have settled his case had he been in proper mental health and that Goddard Elliott were negligent in acting on his instructions when he did not have the capacity to give them, a fact of which they ought to have been aware.

    Bell J went to great lengths to discuss the principles surrounding the area of a client’s capacity to give instructions, including the responsibilities of a solicitor and how proceedings in those circumstances should be managed. Many of those principles are those discussed above. His Honour found that Goddard Elliott had been negligent in acting on Mr Fritsch’s instructions to settle the case in circumstances where they should have been aware that he did not have the mental capacity to give those instructions.

    Despite Bell J’s findings regarding the negligence of Goddard Elliott, His Honour ultimately held that Goddard Elliott was not liable to Mr Fritsch, despite the finding of negligence, due to the advocate’s immunity. The firm was not held liable to Mr Fritsch because the instructions to settle was work which was intimately connected with the conduct of a case in court and thereby protected by the advocate’s immunity.

    His Honour found this conclusion ‘deeply troubling’, yet felt forced to it by authority. While in this instance the advocate’s immunity did protect the negligent solicitors, there is clearly a risk that the concerns raised by His Honour will ultimately lead to a situation in which solicitors cannot rely on the advocate’s immunity where they take instructions from clients who do not have the capacity to give them. Furthermore, solicitors taking instructions in non-litigious matters will not be afforded the protection of advocate’s immunity.

    It is thus fundamentally important that practitioners in all areas are aware of their requirements and duties regarding a client’s capacity and take all appropriate steps that are required to ascertain whether a client can competently give instructions. Not only does this serve the client’s best interests, but where it is subsequently found that a client lacks capacity and their solicitor continued acting regardless (and Goddard Elliott v Fritsch makes clear that this is a matter for determination by a court), the solicitor may well be exposed to personal liability.


    The consequences for breach of these principles can be severe, even where there has been no impropriety. From a financial standpoint, the solicitor may be liable to have indemnity costs awarded against them (if in the conduct of proceedings), and may also be liable for any damages caused by the negligence. Depending on the damage caused, this could be significant, with the solicitors in Goddard Elliott v Fritsch facing a claimed sum of near $1,000,000.

    From a professional standpoint, negligence such as this could well lead to findings of unsatisfactory professional conduct or professional misconduct. In the most serious of situations, it is easy to see an occasion where a solicitor could be struck off the roll for their negligence. The warning is clear: the matter of a client’s capacity is not something to be taken lightly.

    Because the question of a client’s mental health is undoubtedly a serious topic, it is a topic with which all practitioners should be very familiar. Where you hold concerns in a particular situation, remember that there are a wide range of resources you may turn to, including our Law Society, the NSW Law Society guide mentioned above, as well as fellow and more senior practitioners and/or medical experts.

    With today’s advances in mental health awareness, practitioners should ensure that their clients are capable of providing instructions at all times. With ever-present obligations and an often stressful work life, solicitors should also be encouraged to take steps maintain their own personal mental health as well. The support systems identified above are available for you personally as well, should you require. By protecting your own mental health, you assist not only yourself but your clients and the wider community.

    [1] Goddard Elliott (a firm) v Fritsch [2012] VSC 87

    [2] Kantor v Vosahlo [2004] VSCA 235.

    [3] (1954) 91 CLR 423.

    [4] [2003] 1 WLR 1511.

    First published in Ethos. Written by Laura Scotton.

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  • HR Breakfast Club Christmas

    Christmas: HR Breakfast Club - December Summary

    This month, we discussed 6 scenarios that have happened during the Christmas period, and the lessons that can be learnt from them.

    This month at HR Breakfast Club, we had a Christmas themed discussion around some of the notable Employment Law cases that have occurred recently at this time of year.

    One of the most notable was that of Keenan v Leighton Boral Amey NSW Pty Ltd [2015] FWC 3156.

    A work Christmas function took place in a hotel where employees had unlimited access to alcohol.

    The employee consumed 10 beers at the function. During the function, he told a member of the board to f*#! off and asked a female colleague who the f*#! are you? The employee also tried to obtain a female colleague’s phone number.

    After the function ended at 10pm, a group of employees moved to a public bar where they purchased their own drinks. At this stage of the evening, the employees touched a female colleague’s chin, said to another I used to think you were a stuck up b*+#! , kissed a third on the mouth without warning and told her I’m going to go home and dream about you tonight.

    This behaviour continued while en route to another venue with colleagues, where he told a fourth female colleague that it was his mission that night to find out the colour of her undergarments.

    Subsequent to the employee’s behaviour that night, a number of complaints were made, there was an investigation and the employee was dismissed. He then commenced a claim for unfair dismissal.

    Lessons for employers:

    • Make it clear when the Christmas function has finished. The fact the Commission held that the employee’s behaviour after the work function has ended was not connected to his employment means this distinction must be clear. Consider, for example, clearing the employees out of a particular function room, ensuring they all know that after a particular time the work function has ended and they are on their own time.
    • Make specific, not general, allegations of misconduct. In this decision the employer did not articulate specific allegation of misconduct; only general allegations were made. This was to the employer’s detriment – the Commission found this constituted a lack of procedural fairness.
    • Consider having a type of alcohol manager at the function who has the power to cut off intoxicated employees. Vice President Hatcher made an important observation in considering the role of alcohol at the function. He considered the employee’s ability to continue drinking notwithstanding his visible intoxication was ultimately a result of the fact that [the employer] did not place anyone with managerial authority in charge of the conduct of the function, but essentially let it run itself. Consequently, Vice President Hatcher held that the role of alcohol at the function weighed at least in a limited way, in favour of a conclusion that the dismissal was harsh. The take-home message here is that it is advantageous for an employer to have a managerial authority present at the function whose role includes monitoring for intoxication and having the power to cut intoxicated employees’ supply to alcohol.


    Q: Who still gets annual leave loading? Why does it still exist?
    Today, annual leave loading still applies to a number of modern awards and workplace agreements. Employees across a wide range of industries benefit from the standard 17.5% prescription, although this percentage can vary (e.g. Clerks (17.5%), banking sector (17.5%), fast food industry (17.5%), hair and beauty industry (17.5%), architects (17.5%), aged care (17.5%), building/construction (17.5%), teachers (17.5%), ACT public sector (17.5%) Australian Government Industry Award (no annual leave loading, paid at the employee’s ordinary hourly rate).)

    The key arguments in favour of annual leave loading are firstly that a holiday bonus is necessary in order to allow the employee to meet the additional expenses involved in travelling to a holiday location and enjoying a break from ordinary lifestyle.” Secondly, it is argued that a loading would compensate for the lack of earnings above the award rate which many employees would regularly receive, such as overtime payments, shift allowances and other disability payments and other opportunities to earn additional income. Logically, the annual leave loading attempts to address the problem of people trying to fund a (potentially family) holiday on wages substantially lower than usual or at a minimum wage level.

    This answer is, of course, general commentary only. It is not legal advice. Readers must contact us and receive our specific advice on the particular situation that concerns them before acting or refraining from acting.

    If you have a question about behaviour at your office Christmas party, or would like to attend HR Breakfast Club, please contact us.

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  • Public Servants: Fair Work Commission gives government a helping hand while shackling its staff

    Fair Work Commission gives government a helping hand while shackling its staff

    “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.” So wrote Charles Dickens in 1859 in his novel A Tale of Two Cities.These words might equally have been uttered by a perplexed employment lawyer today, with the Fair Work Commission perpetuating an inconsistent approach to legal representation in disputes. The upshot for public servants is that the government gains an unfair advantage, while other participants before the commission are forced to make do without legal help.

    I first wrote about this issue earlier this year, in a column titled “Government hypocrisy on display again in the Fair Work Commission“. In response, Public Service Commissioner John Lloyd emailed me to say my article was “potentially misleading” and that the commission’s decision I had discussed was “correct”. Lloyd invited me to approach his commission “before publishing future articles about matters within the remit of this agency”. Respectfully, I have no intention of doing so – although I [and the Informant‘s editor] invite him to publish a response if he wishes.

    To recap: the Fair Work Act, which governs almost all employment arrangements in this country, prevents lawyers from appearing for parties in disputes unless they receive permission from the Fair Work Commission. The policy intent was, according to the act’s explanatory memorandum, because the commission is “intended to operate efficiently and informally and, where appropriate, in a non-adversarial manner”.

    This rationale has strength and, while experienced lawyers are more often than not invaluable in resolving workplace disputes efficiently, I can nonetheless accept that, in certain cases, there can be merit to keeping lawyers at a distance.

    This year, the commission issued several decisions concerning when permission will be granted and the scope of exceptions to the act’s limitation. The jurisprudence has diverged considerably, to the benefit of the federal government and to the disadvantage of everyone else.

    Until recently, it was common practice for AGS lawyers to seek permission to appear. However, earlier this yea