Allstate Life Insurance Co. & Ors v Australia & New Zealand Banking Group & Ors [1995] FCA 481

CATCHWORDS

TORT - interfering with contractual rights - procuring or inducing breach of contract - elements of tort - whether "knowledge" or "intention" that the conduct induced will constitute a breach of contract is essential - whether any lesser state of mind with respect to the matter of breach will suffice - whether "wilful blindness", "reckless indifference", or "indifference" as to the matter of breach will suffice - relationship between sufficiency of knowledge of the contract and the provision breached and "intention" with respect to the matter of breach.

Federal Court Rules Order 13 r 2 and Order 11 r 16.

Short v The City Bank of Sydney (1912) 12 SR (NSW) 186.

Short v The City Bank of Sydney (1912) 15 CLR 148.

Independent Oil Industries Ltd v The Shell Co of Australia Ltd (1937) 37 SR (NSW) 394.

D C Thomson & Co Ltd v Deakin [1952] 1 Ch 646.

Emerald Construction Co v Lowthian [1966] 1 WLR 691.

Northern Territory v Mengel (1995) 129 ALR 1.

ALLSTATE LIFE INSURANCE CO & ORS v AUSTRALIA & NEW ZEALAND BANKING GROUP & ORS

No NG 381 of 1994

Lockhart, Lindgren and Tamberlin JJ

Sydney

11 July 1995

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No NG 381 of 1994

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ALLSTATE LIFE INSURANCE CO & ORS

Appellants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS

Respondents

CORAM: Lockhart, Lindgren, Tamberlin JJ

PLACE: Sydney

DATE: 11 July 1995

MINUTE OF ORDERS

THE COURT ORDERS:

1. THAT the appeals be dismissed.

2. THAT the appellants pay the costs of the appeals of the respective respondents to the appeals.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No NG 381 of 1994

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ALLSTATE LIFE INSURANCE CO & ORS

Appellants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS

Respondents

11 July 1995

REASONS FOR JUDGMENT

LOCKHART J.

I agree with the reasons for judgment of Lindgren J. and the orders which he proposes.

I certify that this is a true

copy of the reasons for judgment

herein of the Honourable Justice

Lockhart.

Associate

Dated: 11 July 1995

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No NG 381 of 1994

GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

ALLSTATE LIFE INSURANCE CO & ORS

Appellants

AND:

AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS

Respondents

CORAM: Lockhart, Lindgren, Tamberlin JJ

PLACE: Sydney

DATE: 11 July 1995

REASONS FOR JUDGMENT

LINDGREN J

NATURE OF PROCEEDINGS ON THE APPEAL

There are before the Court appeals by leave from two interlocutory orders made by Beaumont J in these proceedings, one on 10 February 1995 and the other on 21 March 1995. In each case, his Honour refused the applicants leave to amend their second further amended statement of claim by pleading a cause of action for tortious inducement of a breach of contract. In each case leave to amend was refused on the basis that the amendment did not even arguably disclose a reasonable cause of action known to the law. His Honour so held because the amendments did not plead what he held to be
an essential element of tortious inducement of a breach of contract. In his Honour's earlier judgment he said that the first proposed amendment was defective for a failure to allege that the inducement was "something done with the intention and in the knowledge that it would cause a breach of contract". In the later judgment, his Honour said that "there are two essential ingredients involved in the tort: first, it must be shown that there was an intention to induce a breach of contract; secondly, it must be shown that the conduct was carried out with knowledge of its consequences."

NATURE OF SUBSTANTIVE PROCEEDINGS

It is necessary to give a brief outline of the substantive proceedings in so far as their nature is relevant to the present appeals. The following account is derived from the second further amended statement of claim and from what was said, without objection, from the Bar table on the hearing of the appeals.

The applicants are the holders of debentures issued by Linter Textiles Corporation Ltd (in liq) ("Linter Textiles") (for simplicity I will refer to all the applicants as "Allstate"). Linter Textiles issued the debentures pursuant to an Indenture dated 1 October 1988 entered into between Linter Textiles and a trustee for the debentureholders ("the Indenture"). The proceedings involve allegations against the promoters in
relation to statements that were made in a prospectus dated 6 October 1988 ("the Prospectus") which invited subscriptions for the debentures.

Linter Textiles was a wholly owned subsidiary of Linter Group Ltd (in liq) ("Linter Group"). Linter Textiles also had subsidiaries. Prior to the debenture issue, Linter Textiles and its subsidiaries had given guarantees to certain banks (the "Initial Participant Banks") in respect of financial accommodation provided by them to Linter Group.

By an amended registration statement incorporating the Prospectus, Linter Textiles offered to issue $US200,000,000 "senior subordinated debentures" ("the debentures") due 1 October 2000 to be delivered and paid for on or about 13 October 1988 in New York. Their effect would be that in the event of the insolvency of Linter Textiles, the debenture holders would be paid only after all other creditors had been paid in full. The interest rate was 13.75% per annum. Such debentures are sometimes called "junk bonds" because of their subordination aspect and the relatively high rate of interest which they carry on that account. Clearly, the nature and extent of any guarantees given by Linter Textiles and its subsidiaries would have been of interest to prospective subscribers.

Allstate complains that the Prospectus misrepresented that there would, in effect, be only limited indebtedness "senior
to" the debentures. Allstate complains that although the Initial Participant Banks released their guarantees shortly prior to the issue of the debentures, this was on the basis of undertakings by Linter Textiles that when the funds raised by the issue of the debentures were received by it, they would be paid immediately to Linter Group and guarantees would then be given by Linter Textiles and its subsidiaries in place of those released. It is put that the promoters of the scheme had in mind that they could say to the world that there was no senior indebtedness (save for some limited amount) at the time when the debentures were issued, yet not disclose that an arrangement was in place for the giving of new guarantees immediately after the issue which would, in effect, "reinstate" the senior indebtedness which had existed until a short time earlier.

Allstate says that the giving of the new guarantees to the Initial Participant Banks (they were given in October and November 1988) was a breach by Linter Textiles of the terms of the Indenture. The application to amend arises in this way. Allstate wishes to say that the Initial Participant Banks tortiously procured that breach by inducing Linter Textiles to give the new guarantees and to permit its subsidiaries to do likewise. It is that proposed amendment that is the subject of the later judgment (dated 21 March 1995) of Beaumont J (his Honour's Reasons for Judgment in respect of the Initial Participant Banks are headed "Reasons for Judgment (No 7)").

After the events referred to, other banks ("the Subsequent Banks") also took guarantees from Linter Textiles and its subsidiaries. These guarantees were given at the end of 1988 and early in 1989. However, they related to new indebtedness, that is to say, to financial accommodation newly provided at the time. Allstate complains that by giving these further guarantees Linter Textiles again breached the Indenture, and that in taking them the Subsequent Banks tortiously induced that breach. The earlier judgment of Beaumont J (dated 10 February 1995) relates to the amendment sought to be pleaded against the Subsequent Banks to raise that cause of action against them (his Honour's Reasons for Judgment in respect of the Subsequent Banks are headed "Reasons for Judgment (No 5)").

THE PLEADINGS AND THE PROPOSED AMENDMENTS

Paragraph 141 of the second further amended statement of claim pleads that pursuant to the Indenture, Linter Textiles became indebted to the trustee for the debenture holders in a sum of approximately US$200,000,000 together with interest. Paragraph 142 pleads that by the Indenture, Linter Textiles covenanted, inter alia,

"(b)pursuant to s 4.12 [of the Indenture] not to permit the subsidiaries directly or indirectly to issue guarantees on behalf of Linter Group or otherwise become liable with respect to Indebtedness of Linter Group; ..."

and

"(d)pursuant to s 4.10 not to and not to permit any subsidiary to directly or indirectly enter into any agreement or other transaction with an affiliate unless such transaction is on terms no less favourable than could reasonably be expected to be obtained if the transaction were entered into with a non-affiliate."

Sub-paragraph 143 (b) pleads that Linter Textiles breached the Indenture (no doubt s 4.12) by issuing the guarantees in respect of the indebtedness of Linter Group and by allowing its subsidiaries to guarantee Linter Textiles' performance of its own obligations as such guarantor, thereby permitting the subsidiaries directly to guarantee or otherwise to become liable with respect to the indebtedness of Linter Group.

Sub-paragraph 143 (d) pleads that Linter Textiles breached the Indenture (no doubt s 4.10) by itself issuing the guarantees in respect of the indebtedness of Linter Group.

It is convenient now to set out the term of the amendments sought. They are proposed to be pleaded separately against each of the Banks (the expression, "the Banks", refers to both the Initial Participant Banks and the Subsequent Banks). The amendment sought to be pleaded against one of the Subsequent Banks, the State Bank of NSW ("SBNSW"), in proposed para 159F of the second further amended statement of claim may be considered as representative of the pleading proposed against all Subsequent Banks. Omitting particulars, the proposed pleading is as follows (for completeness paras 160 and 161 are also set out):

"159F(1) Prior to 17 March 1989 SBNSW well knew that Linter Textiles was a party to the Indenture and that the Indenture contained a prohibition against Linter Textiles giving or permitting its subsidiaries to give a guarantee in respect of indebtedness of Linter Group and restrictions on Linter Textiles issuing or permitting its subsidiaries to issue guarantees.

PARTICULARS

..........................................

(2) Between 2 December 1988 and 29 March 1989 SBNSW induced Linter Textiles to breach its contractual obligation as alleged in paragraph 142(b) by entering into a negative pledge and guarantee agreement dated 17 March 1989 and by permitting its subsidiaries to enter into a deed of guarantee dated 28 March 1989 in the manner alleged in paragraph 143(b)(ii).

PARTICULARS

..........................................

(3) Between 2 December 1988 and 29 March 1989 SBNSW induced Linter Textiles to breach its contractual obligation as alleged in paragraph 142(d) by entering into negative pledge and guarantee agreement dated 17 March 1989 and by permitting its subsidiaries to enter into deed of guarantee dated 28 March 1989 in the manner alleged in paragraph 143(d)(i) to (iii).

PARTICULARS

..........................................

(4) ..........................................

(5) ..........................................

(6) ..........................................

(7) SBNSW so induced Linter textiles to engage in the said conduct with the intention and/or knowledge that it would result in injury to the Applicants or alternatively with indifference as to whether such conduct would result in injury to the Applicants.

PARTICULARS

..........................................

160. By the Law of New York the said conduct on the part of Linter Group, the Linter officers, the subsidiaries and the banks and each of them constituted the commission by them of the tort of intentional interference with contractual relations and by the law of New South Wales that tort was committed in the State of New York by reason whereof, according to the law of New South Wales, the governing law of the tort is the law of New York.

161. In the alternative, the governing law of the tort is the law of New South Wales (or alternatively, another State of Australia), notwithstanding that the tort, according to the law of New South Wales, was committed in New York." (emphasis supplied)

On the hearing before us, Allstate indicated that sub-para 159F (7) was not pressed. Accordingly, the pleading is to be treated as consisting, relevantly, of only sub-paras 159F (1), (2) and (3).

In relation to the Initial Participant Banks, the form of amendment sought to made can be found in proposed para 155C relating to Sumitomo International Finance Australia Ltd ("Sumitomo"). Proposed para 155C may be considered as representative of the pleading proposed against all Initial Participant Banks. Omitting particulars, para 155C is relevantly as follows:

"155C(1) As at 31 October 1988 Sumitomo well knew that Linter Textiles was a party to the Indenture and that the Indenture contained a prohibition against Linter Textiles giving or permitting its subsidiaries to give a guarantee in respect of indebtedness of Linter Group and restrictions on Linter Textiles issuing or permitting its subsidiaries to issue guarantees.

Particulars

..........................................

(2) in or about 1988 Sumitomo induced Linter Textiles to breach its contractual obligation as alleged in paragraph 142(d) by entering into a deed of Guarantee dated 31 October 1988 (document SIF0063) and a Negative Pledge and Guarantee dated 23 November 1988 and by permitting its subsidiaries to enter into an undated deed of guarantee (document SIF0076) and a deed of guarantee dated 23 November 1988 in the manner alleged in paragraph 143(d).

Particulars

..........................................

(3) Sumitomo so induced Linter Textiles to engage in the said conduct with the knowledge referred to in (1), reckless indifference or wilful blindness or alternatively with indifference as to whether it would result in a breach of the contractual obligations as alleged in paragraph 142(d).

[The word 'the' where underlined by me above and the words 'referred to in (1)' also underlined by me above were inserted on the hearing of the appeal].

Particulars

..........................................

(4) Between 1988 and 1989 Sumitomo induced Linter Textiles to breach its contractual obligation as alleged in paragraph 142(b) by entering into a deed of guarantee dated 31 October 1988 (document SIF0063) and a Negative Pledge and Guarantee dated 23 November 1988 and by permitting its subsidiaries to enter into an undated deed of guarantee (document SIF0076) and a deed of guarantee dated 23 November 1988 in the manner alleged in paragraph 143(b)."

Proposed paras 160 and 161 were noted earlier.

It is convenient to note now significant aspects of proposed paras 159F and 155C. First, I take the words "Prior to 17 March 1989" at the beginning of sub-para 159F (1) to mean, in effect, "As at 17 March 1989 when Linter Textiles entered into the negative pledge and guarantee agreement of that date and as at 28 March 1989 when Linter Textiles permitted its subsidiaries to enter into the deed of guarantee of that date, SBNSW well knew ...". I note that in the proposed sub-para 155C (1), the formulation used is "As at 31 October 1988 Sumitomo well knew ...". I understand the words "Prior to" in sub-para 159F (1) to be of the same import as the words "As at" in sub-para 155C (1), and so to mean that SBNSW knew the things referred to as at the respective times when it took the guarantees, the giving of which was inconsistent with Linter Textiles' obligations under the Indenture (for convenience I will sometimes refer to these as "the inconsistent agreements" or as "the inconsistent guarantees").

Secondly, the words "well knew" are used in relation to both the contract and the particular provision breached. "Knowledge" is the word commonly used in the authorities in this context. Pleading that as at the time of the alleged inducement, a Bank "knew" that Linter Textiles was a party to the Indenture and "knew" that the Indenture contained the prohibition breached clearly satisfies the law's requirement. Indeed, as will be noted later, it is not required that there be knowledge of the specific provision breached.

Yet the word "knowledge", although unexceptionable, may refer to different factual situations. On the one hand it may refer to a Bank's conscious awareness of the prohibition at the time of the inducement without any relevant misunderstanding as to its effect. On the other hand it may refer to situations falling short of this. For example, it may refer to the mere fact that the prohibition was contained in a copy of the Indenture which was in a Bank's possession, to a situation in which a Bank had once been consciously aware of the prohibition but had forgotten it by the time of the inducement, and to a situation in which a Bank was at the time of the inducement consciously aware of the prohibition but had a relevant misunderstanding as to its effect. As will be seen later, the "sufficient knowledge of the contract" and "intention to interfere with contractual rights" referred to in discussions of the tort are closely interrelated. Knowledge in the first sense referred to above would provide a basis for a subjective intention to interfere with contractual rights, but knowledge in the other senses would or might not. As will appear later, in my opinion the words "well knew" in the pleading bear the meaning first referred to above.

Thirdly, there is a difference between sub-paras 159F (2) and (3) sought to be pleaded against the Subsequent Banks on the one hand, and sub-paras 155C (2) and (3) sought to be pleaded against the Initial Participant Banks on the other hand. The former pleads as SBNSW's "inducement" of Linter Textiles, nothing more than its acts of taking the negative pledge and guarantee agreement from Linter Textiles and the deed of guarantee from its subsidiaries. It is not pleaded that SBNSW had any intention or other state of mind whatever with respect to the matter of breach by Linter Textiles. The pleading is simply one of intentional acts (the taking of the negative pledge and guarantee agreement and the deed of guarantee), the inevitable and immediate effect of which is to cause infringement of another's contractual rights.

But sub-para 155C (3) goes further. The terms of sub-para 155C (2) are relevantly identical to those of sub-paras 159F (2) and (3), but sub-para 155C (3) pleads that Sumitomo "so induced Linter Textiles", that is to say, took the inconsistent guarantees,

(A) with the knowledge that Linter Textiles was a party to the Indenture and that the Indenture contained the prohibition; or

(B) with

(i) reckless indifference; or

(ii) wilful blindness; or

(iii) indifference

as to whether the giving of them would result in a breach of the Indenture.

(The analysis into paras (A) and (B) and sub-paras (i), (ii) and (iii) is mine.) Paragraph (A) above is no different from what is proposed to be pleaded against the Subsequent Banks such as SBNSW: it is para (B) that goes further.

Fourthly, although the tort with which we are concerned is now commonly referred to as "intentional interference with contractual relations" rather than the narrower "inducement of breach of contract", in this case Allstate relies on nothing other than a breach of contract. Accordingly, in various contexts, both expressions are used in these reasons.

JUDGMENTS OF THE TRIAL JUDGE

Beaumont J's descriptions of the necessary but omitted elements of the tort were noted earlier. With reference to para 159F relating to SBNSW in particular and the Subsequent Banks in general, his Honour said that in his opinion the law in Australia as to the ingredients of the tort of inducing a breach of contract was settled and was stated authoritatively for present purposes by Isaacs J in Short v The City Bank of Sydney (1912) 15 CLR 148 at 160, as follows:

"But to constitute that cause of action, the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach. If this were not so, no man would be safe in the ordinary transactions of life, because he might find contrary to his knowledge or belief and expectation that some contract or enterprise he entered into was inconsistent with the contractual or other obligation of the party with whom he was agreeing or dealing. No doubt every man must be understood to intend the natural consequences of his acts; but that means having regard to the circumstances with which he is or is assumed to be acquainted. And the terms of an agreement and its true construction, for it may be very complicated, and the acts of the parties in relation to it are circumstances without knowledge of which reasonably brought home to the mind no man can be said to intend consequences regarding the breach of the agreement."

Beaumont J's judgment contained the following critical passages:

"In my opinion, Short's case establishes that the interference must be not only intentional but also with knowledge.

... there is a basic requirement that for the conduct of the defendant to be regarded as an actionable interference, the plaintiff must show that the defendant knowingly induced or procured a breach of the contract; and that in order that the defendant may be said to have acted knowingly it must be shown by the plaintiff that the defendant had knowledge of the existence of the contract and had also an intention to interfere with its performance."

His Honour held that the same position applied in the case of the cause of action pleaded under New York law.

In his Reasons for Judgment (No 7) (relating to para 155C and to Sumitomo in particular and the Initial Participant Banks in general), his Honour held that the amendment sought to be pleaded was similarly defective. In the critical passage, his Honour said this:

"In my previous reasons, I endeavoured to make it clear that under the law of New South Wales there are two essential ingredients involved in the tort: first, it must be shown that there was an intention to induce a breach of contract; secondly, it must be shown that the conduct was carried out with knowledge of its consequences. It is true, as I mentioned in my earlier reasons, that how intention and knowledge are established are necessarily adjectival or evidentiary issues which must depend upon the particular circumstances of the case. In particular, it may be appropriate for a court to infer the requisite intention or the requisite knowledge, or both, from the surrounding circumstances which are established.

But, however those ingredients are established, as a matter of the pleading of the cause of action they must, if the applicants are to succeed at the trial, be made out. In my opinion sub-para. (3) and (4) of para 155C are defective by reason of their failure to allege those two ingredients of intention and knowledge. For those reasons, those sub-paragraphs should not be permitted to be pleaded."

PARTIES' SUBMISSIONS

Allstate's Submissions

Allstate accepts that tortious interference with contractual relations comprises "intertwined" elements of "knowledge" and "intention". It points out that although knowledge of the contract is essential, knowledge of the particular provision breached is not. According to its submission, it follows that "actual" intention to cause a breach of the contract is not an essential element.

Allstate puts a primary submission and a secondary alternative submission. The primary submission is that all that is necessary is awareness of the contract, acts done intentionally, and the factual causing of a breach of the contract by those acts. According to this submission, the alleged tortfeasor need not have given the subject of breach of contract a passing thought. Allstate's secondary submission is that the mental state with respect to breach which is an essential element is something less than the "knowledge" or "intention" that what is being induced will constitute a breach of contract. It submits that it suffices that the act which in fact procures the breach is done with "reckless indifference", "wilful blindness" or "indifference" as to whether what will result will be a breach of contract.

Allstate elaborates upon these possibilities as follows (references to authorities are not repeated):

"Wilful blindness

If the respondent knows that the relevant contract exists and knows that the relevant contract may contain terms which would be breached by the respondent's actions and the respondent chooses to ignore the terms of the relevant contract then the respondent will be presumed to have the required 'intent' for the tort.

Reckless indifference

If the respondent knows that the relevant contract exists and ought to have known that the relevant contract may contain terms which would be breached by the respondent's actions and the respondent chooses to ignore the terms of the relevant contract then the respondent will be presumed to have the required 'intent' for the tort.

Indifference

If the respondent knows that the relevant contract exists and the respondent chooses to ignore the terms of the relevant contract not considering whether his actions may result in a breach of the relevant contract then the respondent will be presumed to have the required 'intent' for the tort."

Allstate's primary submission relates to the proposed pleading against SBNSW and to para (A) referred to earlier in respect of the proposed pleading against Sumitomo. Allstate's secondary submission relates to para (B) referred to earlier in respect of the proposed pleading against Sumitomo.

Submissions of Subsequent Participant Banks represented by SBNSW:

It will be recalled that proposed para 159F does not plead "reckless indifference", "wilful blindness" or "indifference" against SBNSW. Accordingly, it was not necessary for SBNSW to address Allstate's secondary submission (but see paras 6 and 7 below). The submissions of SBNSW as representing the Subsequent Banks (omitting authorities) are as follows:

"1. It is the settled law of Australia that, in order for the tort of intentional interference with contractual relations to be made out, the plaintiff must establish that the defendant:

(a) induced or procured a breach of the contract;

(b) had sufficient knowledge of the relevant contract said to have been breached; and

(c) had an intention to bring about a breach of the contract, or to interfere with the performance of that contract.

2. The tort of interference with contractual relations is a tort founded on intention: a negligent interference with contractual relations does not satisfy the element of intention.

3. Similarly, foresight by A that his conduct may result in a breach of contract between two or more other parties does not constitute an intention to bring about such breach. A must know that his conduct will necessarily and inevitably bring about such breach.

Alternatively, A must be aware that it is 'substantially certain' that it will do so.

4. The appellants' pleading contained in paragraph 159F(1) was correctly held to be defective by Beaumont J in his Reasons for Judgment No 5 because it did not allege that the inducement said to have been made by the State Bank of New South Wales ('SBNSW') was made with the intention to procure or induce a breach of contract. The words 'induce' and 'procure' convey the idea of persuading or prevailing upon another.

A thing is procured when someone sets out to see that it happens, and takes the appropriate steps to produce that happening.

Mere acceptance of a proffered bounty given in breach of a contract does not constitute the inducing or procuring of a breach of contract.

The words 'induce' and 'procure' import effort, care, management or contrivance towards the obtaining of the desired end.

5. It follows from paragraph 4 above that the acceptance of a guarantee by SBNSW, in the circumstances pleaded, offered by Linter Textiles in return for SBNSW agreeing to lend to Linter Group for working capital purposes does not constitute an inducement of procurement by SBNSW.

6. It is submitted that a distinction should be drawn between the manner in which the ingredient of knowledge is said to operate in cases involving highly complex contracts, and
cases involving relatively straightforward and commonplace contracts. A Court will more readily infer knowledge of the existence and terms of a contract of the latter type than it will of contracts such as the Indenture which is central to the alleged tort in these proceedings. Concepts of wilful blindness, constructive knowledge and imputed understanding have been recognised as being appropriate in many trade union dispute cases involving relatively simple contracts. It is altogether a different matter to suggest that such concepts operate in the same way in fixing bank officers with an appreciation of the finer intricacies of clauses in an Indenture such as clause 4.10. This is borne out by the reference in the cases to having 'sufficient knowledge' of the contract.

7. The cases relied upon by the appellants, in so far as they deal with concepts such as wilful blindness, are concerned with the element of knowledge. These cases do not support the proposition that 'constructive intention' is sufficient to ground the tort."

Submissions of Initial Participant Banks represented by Sumitomo

Sumitomo, as representative of the Initial Participant Banks, makes independent submissions in support of his Honour's refusal of leave to amend in respect of para 155C. Since para 155C refers to "reckless indifference", "wilful blindness" and "indifference", it was necessary for Sumitomo to address Allstate's secondary submission (in relation to Allstate's primary submission it adopted SBNSW's submissions).

Sumitomo submits that the expression "wilful blindness" does not signify a mental state recognised by the law (citing Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 (FCA/Burchett J) at 693); that only actual knowledge that a breach of contract will result suffices as an element of the tort; and that if the words "wilful blindness" (no doubt this part of the submission extends to the words "reckless indifference" as well) signify circumstances said to warrant the drawing of an inference of actual knowledge, they are surplusage.

REASONING ON THE APPEAL

Principles governing the application for leave to amend

Order 13 sub-r 2 (1) of the Federal Court Rules gives the Court power at any stage of any proceeding to order that any party have leave to amend any document in the proceeding as the Court think fits. This judicial discretion must be read in the light of sub-r 2 (2) which provides as follows:

"2(2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings."

A ground on which leave to amend is properly refused is that a proposed amendment is "obviously futile" or "plainly demurrable": Dennis v Brownlee (1963) 80 WN (NSW) 1239 (NSW/FC); Abela v Giew (1964) 81 WN (Pt 1) (NSW) 344 (NSW/Taylor J). This is the ground on which the respondents rely.

Sub-rule 16 (a) of Order 11 of the Rules provides as follows:

"16 Where a pleading--

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b) ..........................................

(c) ..........................................

the Court may at any stage of the proceeding order that whole or any part of the pleading be struck out".

Clearly, the terms of sub-r 16 (a) are related to the "obvious futility" ground on which leave to amend may be refused: it would be futile to allow an amendment which "discloses no reasonable cause of action". The amendments sought to be made should be allowed unless they are obviously futile in the sense that they disclose no reasonable cause of action.

The substantive question raised by the proposed amendments - the elements of tortious inducement of breach of contract.

Preliminary

It is important to note two preliminary matters. The first is one of terminology. References to "knowledge" and "intention"
in the present area of discourse have been a source of confusion. It is undisputed that the alleged tortfeasor must have "knowledge of the contract". All the authorities seem to speak of "knowledge" in this context. Conformably to this, Allstate pleads that the Banks "well knew" of the Indenture and, as well, of its relevant provision. Accordingly, as a matter of choice of words and of pleading, no difficulty arises in this respect. However, as the authorities also make plain, questions of the "sufficiency" of the alleged wrongdoer's knowledge can arise (see later). Moreover, as noted earlier, "knowledge" may refer to different things. The proposed pleadings should be understood to refer to conscious awareness of the provision breached without any relevant misunderstanding as to its effect (see later). Again, as a matter of choice of words and of pleading, no difficulty arises in this respect.

Linguistic confusion can arise in respect of the alleged tortfeasor's state of mind with respect to breach of the contract. Both "intention" and "knowledge" have been used in this context. But a person's "knowledge" that what he is inducing will constitute a breach of contract and his "intention" to induce a breach of contract by what he is doing refer to one and the same thing. After all, ex hypothesi, the alleged tortfeasor's acts are intentional, a breach of contract occurs, and the acts induce the breach. Against that background, "knowledge" and "intention" that the breach will result from the acts do not signify any relevant distinction.

Allstate's primary submission is that the only requisite intention of the alleged tortfeasor is that he intends to act as he in fact acts (as distinct from so acting unintentionally). In the context of the pleaded facts, the primary submission is that the only requisite intention of the Banks is that they should have entered into the negative pledge and guarantee agreement and the deed of guarantee intentionally.

The second preliminary matter is that there is an important distinction, noted by the trial judge, between the essential elements of a cause of action and the evidence by which these elements may be proved. Although "reckless indifference" and "wilful blindness" are not synonymous with "intention" or "knowledge" (cf Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 (FCA/Burchett J) at 693-694), they may, in the matrix of facts of a particular case, contribute to give rise to a finding of intention or knowledge (see later). But this does not signify that such terminology may be substituted for that of "intention" if "intention" is a necessary element of the tort. The precise question before us is whether it is.

Two Australian appellate decisions

We were taken to many authorities in which the elements of tortious inducement of breach of contract have been referred to. Most were single judge and foreign appellate decisions. Short v City Bank of Sydney, supra, relied on by Beaumont J and Independent Oil Industries Ltd v The Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 (NSW/FC) are appellate decisions of Australian courts. They were addressed in detail in oral submissions and merit close attention.

In Short v City Bank of Sydney, Short sued the Bank for damages for conversion of 7,205 bags of wheat stored by the Farmers' and Settlers' Cooperative Society Ltd ("the Society") (third count) and for damages for knowingly and wrongfully inducing the Society "to refuse to deliver the wheat stored by the Society on the plaintiff's behalf, and to break and refuse to fulfil their contract with him" (fourth count - the first and second counts (for detinue) were not pressed). Short consigned wheat to the Society for storage at Darling Island. The Society made advances to consignors such as Short. For that purpose it obtained accommodation from the Bank, drew cheques on the Bank in favour of consignors, and provided to the Bank certain "warrants" as security. These certified that a certain number of bags of wheat were held to the order of the Society and bore an endorsement by the Society directing that delivery be made to the order of the Bank.

In circumstances which do not matter but which were related to financial difficulties of the Society, the Bank notified the storeman at Darling Island that it claimed "the wheat". Short wrote to the Bank referring to 7,100 bags of wheat which he held on storage with the Society and to an advance of about 14 shillings per bag which he had received against it from the Society. His letter advised that he had effected a sale and requested the Bank to confirm that it would deliver wheat to or on account of the buyer. He also wrote to the Society requesting it also to confirm that it would deliver wheat in accordance with his directions.

The Bank replied that it had negotiated the warrants without knowledge of claims by third parties. The Society replied that it could do nothing pending a forthcoming meeting of shareholders. Before that meeting occurred, the Society was ordered to be wound up. Subsequently Short made a further demand on the Bank for its consent to delivery to a buyer but the consent was not given.

Pring J non-suited Short. His application to set aside the non-suit and for a new trial was dismissed by the Full Court of the Supreme Court of New South Wales. His appeal to the High Court was also dismissed, without the Bank's being called upon.

We are concerned only with the fourth count, that is to say, that of inducement of breach of contract. In the High Court, Barton J (with whom O'Connor J agreed) dismissed the appeal for the reasons given in the Supreme Court. It will be necessary to go to those reasons in due course. His Honour also noted a new point raised by Short on the appeal. This was that under Short's agreement with the Society, during the currency of that agreement he had retained the right to immediate and unconditional possession of the wheat, or in the alternative, that he had acquired that right upon the Society's liquidation. Barton J opined that it was not necessary to decide these questions in view of his Honour's agreement with the Supreme Court's conclusion that there had not been "any inducing of the [Society] to break its contract with [Short] as could have supported the" fourth count. Literally, these words are ambiguous: they may refer to an inducing of acts which in fact constitute a breach of contract or to an inducing of such acts with knowledge that they will constitute a breach of contract. Their significance is better known only after the judgments in the Full Court are examined (see below).

The third member of the Court, Isaacs J, held that on the assumption that the contract between Short and the Society was still on foot at the relevant time, (a) the Society had not breached it because it had been entitled to refuse delivery; and (b) even if the Society had breached it, the Bank had not "knowingly induced or procured" that breach. Apparently that is how the fourth count was pleaded by Short. The words at least suggest "knowledge that a breach will result". On this view of the pleading the precise question of the requisite nature of the alleged tortfeasor's state of mind was not in issue. However, Isaacs J discussed that question at some length (at 159-160):

"The word 'knowingly' is essential. In Fosset v Breer [(1673) 3 Keble, 59] the word is 'sciens'. In Blake v Lanyon [6 T.R., 221], it is laid down it must be 'after notice.' So also in Lumley v Gye [2E. & B., 216]. In Bowen v Hall [6Q.B.D., 333, at p. 337] Brett L.J., speaking for himself and Selborne L.C. says 'with knowledge of the contract.' In Mogul Steamship Co. v McGregor, Gow & Co. [23 Q.B.D. 598, at p.614], Bowen L.J. says:- 'Intentional procurement of a violation of individual rights, contractual or other.' In Quinn v Leathem [[1901] A.C., 495, at p. 510] Lord Macnaghten had previously spoken of 'a violation of legal right committed knowingly.'

In Glamorgan Coal Co. v South Wales Miner's [sic] Federation [[1903] 2 K.B., 545, at p. 573], Romer L.J. says:- 'Knowingly procured another to break his contract'; and in the same case Stirling L.J., says [[1903] 2 K.B., 545, at p. 576]:- 'The federation wilfully and with notice of the contracts procured some men to break their contracts' and calls that an 'interference with contractual relations.' In the same case in the House of Lords: South Wales Miners' Federation v Glamorgan Coal Co. [[1905] A.C. 239, at p. 244], Lord Halsbury L.C., speaks of 'An intentional breach of contractual rights.' Lord Macnaghten says [[1905] A.C., 239, at p. 245], that the federation 'induced and procured a vast body of workmen, ... to break their contracts of service, and thus ... knowingly and intentionally inflicted pecuniary loss on the plaintiffs.' Lord James says [[1905] A.C., 239, at p. 252]:- The defendants purposely procured an unlawful act to be committed." Lord Lindley says [[1905] A.C., 239, at p.253]:- 'The federation by its officials are clearly proved in this case to have been engaged in intentionally assisting in this concerted breach of a number of contracts' and [[1905] A.C., 239, at p.255] he speaks of the 'intention to commit an unlawful act.' In Read v Friendly Society of Operative Stonemasons of England, Ireland and Wales [[1902] 2 K.B., 732, at p.738], Collins M.R. says:- 'The defendants did knowingly and for their own ends induce the commission of an actionable wrong.'"

There follows the passage commencing with the unequivocal sentence, "But to constitute that cause of action, the defendant must have induced or procured the doing of what he knew would be a breach of contract" relied on by Beaumont J
and quoted earlier in these reasons. Isaacs J continued by noting that all that the Bank had done was to insist upon what it believed to be its rights as between itself and the Society, and that it had in no way "counselled" or "induced" or "procured" the Society to break its contract with Short.

Isaacs J thus gave as one of two grounds for dismissing the appeal that the evidence did not support the pleading that the Bank had "knowingly induced or procured" breach, adding, by way of obiter dicta, that the law requires that the alleged tortfeasor know that what he is procuring is an interference with another's contractual rights. Strictly, the question whether any lesser state of mind in relation to breach might suffice did not, on the pleadings, arise for decision, but Isaacs J's judgment is strongly against that possibility, and so against the present applications for leave to amend.

In order to understand the judgments of Barton and O'Connor JJ it is necessary to refer to the reasons in the Full Court (reported at (1912) 12 SR (NSW) 186) of which they approved. Simpson J said that Short "must show" that the Bank's action was "actuated by a desire to induce the Society to break its contract with the plaintiff" (at 192, citing Griffiths CJ in Brisbane Shipwrights' Provident Union v Heggie (1906) 3 CLR 686 at 699) and that there was no evidence to establish this. His Honour added that there was no prima facie proof that the alleged breach of contract by the Society or its liquidator was induced or procured by the Bank's action. In saying this, his Honour referred to the fact that there were good reasons for the Society's or its liquidator's refusal to hand over bags of wheat until all persons' rights had been determined in a winding up or by agreement. On this basis, Simpson J said that Short had shown no more than that the Bank's action "may possibly have been one of the inducing causes of the Society's action" (at 192 - emphasis supplied).

The statement of what the Bank "must show" seems to be a statement of what must be shown in accordance with general law requirements and not merely a statement of what it had to show in order to support the particular pleading in this case.

Street J paraphrased the pleading of the fourth count as alleging that the Bank "knowingly, and wrongfully, and without lawful justification or excuse induced and procured the Society to refuse to deliver the wheat stored on his behalf to the plaintiff, and to break its contract with him, whereby he suffered damage" (at 201 - emphasis supplied). His Honour continued by referring to the elements of tortious inducement of breach of contract as he understood them have to have been laid down in the authorities, and then said this:

"To make out a cause of action of this kind, it is incumbent upon the plaintiff to establish three things. He must establish in the first place that the defendant in fact induced and procured the breach complained of; in the second place that the breach was procured with the deliberate intention of injuring the plaintiff, or in such circumstances that it must have been obvious to the defendant that the reasonable consequence of what he did would be
to injure the plaintiff; and in the third place that what was done did in fact injure him.

In the present case the plaintiff has, in my opinion, altogether failed to adduce any evidence showing that the bank did anything for the purpose of inducing or procuring the Society to break its contract. The words 'induce' and 'procure' in their ordinary significance, I think, convey the idea of persuasion or contrivance, and I think that a person complaining of a breach of contractual relations brought about by these means must show that the person whose actions are complained of did something in the nature of effectually persuading or prevailing upon the other party to the contract to violate his obligations under it. The persuasion may take the form of advice or friendly solicitation, or it may take the form of intimidation or molestation, but in every case I think that it must be shown that the defendant deliberately intervened between the contracting parties, either with the express design of depriving the plaintiff of the benefit of his contract, or under such circumstances that he must have known that the effect of his intervention would be to deprive the plaintiff of that benefit.

In the present case it is abundantly clear that though the claim made by the bank was an excessive claim, all that it did was done in pursuance of what it believed to be its contractual rights, and that it was not animated by any desire to deprive the plaintiff of any benefit to which he might be entitled under his agreement with the Society. Most assuredly nothing that it did was done with the express intention of procuring a breach of the contractual relations between the plaintiff and the Society, and I am quite unable to find any foundation for suggesting that such a breach ought to have been apparent to it as a reasonable or probable consequence of its action. In point of fact as I have already pointed out, the Society's reason for refusal to deliver was not the bank's action, but the impending liquidation, while the liquidator's refusal to deliver was based upon the very obvious ground that there was not sufficient wheat to satisfy all claimants, and that he could not safely part with any of it, until the rights of all parties had been ascertained".

(at 202-203 - emphasis supplied)

Street J clearly insists that nothing will suffice less than
knowledge or intention that a breach of contract will result.

The third member of the Full Court, Sly J, merely observed that Short must fail because the evidence did not establish that the Bank had procured the Society's act of refusing to deliver the wheat.

In sum, although the precise issue before us did not call for decision on the pleadings, in clear obiter dicta Simpson and Street JJ described the relevant element of the tort in terms which are not satisfied by either of Allstate's proposed amendments, and their reasons have the approval by Barton and O'Connor JJ in the High Court. This is also strongly against the granting of leave to amend.

The other Australian appellate case to which I referred is Independent Oil Industries Ltd v The Shell Company of Australia Ltd, supra. The parties were wholesale sellers of petrol. Conditions were attached to their sales to retailers. Independent Oil Industries Ltd ("Independent") attached a condition that dealers must resell its petrol at the retail selling price fixed from time to time by it. The Shell Company of Australia Ltd ("Shell") and Vacuum Oil Company Pty Ltd ("Vacuum") imposed conditions that they would sell at a certain discount only if the dealer sold all corresponding grades of other petrol (such as that of Independent) at the same prices as those at which they sold Shell's and Vacuum's petrol ("the equalisation clause").

Shell and Vacuum increased their prices. The retail selling price of Independent's petrol was lower. Shell and Vacuum refused to supply, at a discount, to dealers who sold Independent's petrol at the lower price. In order to make a profit it was necessary for dealers to continue to receive Shell's and Vacuum's petrol at the discount price. Therefore they increased the price at which they were selling Independent's petrol in order to satisfy the condition laid down in the equalisation clause. But this was a breach of their contracts with Independent to sell petrol supplied by it at the retail selling price fixed by it.

Nicholas J granted Independent an interlocutory injunction restraining Shell and Vacuum from inducing or procuring or attempting to induce or procure retail dealers to commit breaches of their contracts with Independent. Shell and Vacuum appealed.

In the Full Court Jordan CJ (with whom Long Innes CJ in Eq and Davidson J agreed) said this of the tortious procurement of the violation of contractual rights:

"To establish this tort it is not sufficient to prove that a third party has in fact done something which had the effect of inducing a party to a contract to break it. It must be proved that the breach was knowingly and intentionally procured: Allen v Flood [[1898] A.C. 1 at 106, 107]; White v Riley [[1921] 1 Ch. 1 at 16.]; Ware and De Freville Ltd v Motor Trade Association [[1921] 3 K.B. 40 at 91.]. It is necessary to establish that the third party knew of the contract, knew that the doing of a particular act by one of the parties to it would be a breach of it, and with that knowledge procured the party to do the act. It has been said that this is all that need be established, see an article by H. Lauterpacht 52 L.Q.R. 494 at 503; but it has also been pointed out that if this is so an almost unlimited field is opened up for manoeuvring for industrial or trading advantage by the machinery of anticipatory contracts: see article by F. B. Sayre, 36 Harvard Law Review, 663 at 689, 690. It may be that no tort is committed unless it is established that the doing of the act was procured either with intention to procure by its means the breach of the particular contract, or at least with knowledge that the doing of the act would necessarily and inevitably involve a breach of contract: cf. G.W.K. Ltd v Dunlop Rubber Co. [42 T.L.R. 376], where the act of the third party caused an involuntary breach of contract by one of the contracting parties." (at 414-415 -- emphasis supplied)

At page 419 of the report, Jordan CJ, in dealing with the evidence, said this:

"But I am of opinion that it is not proper to draw the inference from the statements made subsequently to retailers about the sale of the plaintiff's spirit that the defendants were in effect saying: 'We request you to sell the plaintiff company's spirit at a price which will in fact involve a breach of your contract with it, and we will sell you or withhold from you our goods on profitable terms according as you comply or do not comply with our request.'"

The Chief Justice also said:

"They were simply refusing to sell their own spirit, except at retail rates, to retailers who sold Purr Pull [Independent's] spirit at rates which the plaintiff company prescribed. No doubt this afforded a temptation to retailers to break their contracts with the plaintiff company in order to be able to make profits on the defendants' goods. But I do not think that the defendants were endeavouring to procure such breaches." (at 420)

These passages are clear authority for the proposition that the alleged tortfeasor must intend that what he is inducing will be a breach of contract.

General

From the modern progenitor of the tort, Lumley v Gye (1853) 2 El & Bl 216 (118 ER 749) to date, the alleged tortfeasor's state of mind with respect to breach has been central to this particular form of tortious liability. In early cases what was required was referred to as "malice" (Lumley v Gye, supra, at 228 (ER 754) (Crompton J), 233 (ER 756) (Erle J), 238 (ER 757) (Wightman J); Bowen v Hall (1881) 6 QBD 333 (CA) at 338 (Brett LJ)). This has yielded to references, in numerous cases, to "intention" or "knowledge" that a breach of contract or at least an interference with another's contractual rights will result. The cases include Allen v Flood [1898] AC 1 (HL) at 107 (Lord Watson - here the actual word used was "wilfully"); Quinn v Leathem [1901] AC 495 (HL) at 510 (Lord Macnaghten); Read v The Friendly Society of Operative Stonemasons of England, Ireland and Wales [1902] 2 KB 732 (CA) at 738 (Collins MR); South Wales Miners' Federation v Glamorgan Coal Co Ltd [1905] AC 239 (HL) (passim); White v Riley [1921] 1 Ch 1 (CA) at 26 (Warrington LJ); Ware and De Freville Ltd v Motor Trade Association [1921] 3 KB 40 (CA) at 91 (Atkin LJ - "To induce a person to break his contract is
not unlawful unless done knowingly and intentionally"); D C Thomson & Co Ltd v Deakin [1952] 1 Ch 646 (CA) at 694 (Jenkins LJ); Greig v Insole [1978] 1 WLR 302 (Slade J) at 332F, 336G-338H, 343G-344G; Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 (FCA/Pincus J) at 293-294; Hawkins v Clayton (1988) 164 CLR 539 at 594 (Gaudron J); Northern Territory v Mengel (1995) 129 ALR 1 at 14-15 (Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ).

In my opinion, the authorities establish conclusively that the gravamen of the tort is intention. Although the requirement of knowledge of the contract is sometimes discussed as if it was a separate ingredient of the tort, it is in fact an aspect of intention. The requirement that the alleged tortfeasor have "sufficient knowledge of the contract" is a requirement he have sufficient knowledge to ground an intention to interfere with contractual rights.

Both this intention to interfere with contractual rights and the necessary supporting knowledge of the contract refer to the "actual" or "subjective" state of mind of the alleged tortfeasor. I take the words "well knew" in proposed sub-paras 159F (1) and 155C (1) to refer to a conscious awareness of the prohibition in the Indenture without any relevant misunderstanding of its effect. I do so because, to my mind, that is what the expression, without words of qualification, naturally signifies.

Although an alleged tortfeasor must have "a fairly good idea" that the contract benefits another in the relevant respect, knowledge of the contract may be sufficient for the purpose of grounding the necessary intention to interfere with contractual rights although the precise term breached is not known: D C Thomson & Co Ltd v Deakin, supra, at 687 (Lord Evershed MR); Emerald Construction Co v Lowthian [1966] 1 WLR 691 (CA) at 700-701 (Lord Denning MR), 704 (Diplock LJ); Daily Mirror Newspapers Ltd v Gardner [1968] 2 QB 762 (CA) at 780-781 (Lord Denning MR), 784 (Davies LJ); Woolley v Dunford (1972) 3 SASR 243 (SA/Wells J) at 282; Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581 (NSW/Young J) at 625-626.

Cases of the kind just mentioned differ from those, like the present one, in which, according to the pleading, the alleged wrongdoer "well knew" of the term breached. In cases of the former kind, there may be sensed to be difficulty or awkwardness in speaking of an "intention" or of "knowledge" that a breach of contract will result, the term which is in fact breached not being known to exist.

This problem is illustrated by the different approaches taken by Lord Denning MR and Diplock LJ to such a case in Emerald Construction Co v Lowthian, supra. In that case union officers learned of a labour only sub-contract. The union objected in principle to such sub-contracts. The union officers threatened the head contractor with adverse consequences if it did not terminate the sub-contract. The sub-contractor sought an interlocutory injunction pending final hearing.

The union officers were not aware of the precise terms of the sub-contract. Therefore they did not "know" that it was not possible for the head contractor to terminate the sub-contract without breaching it. It was put that in these circumstances there could not be an intention to procure a breach. Of this submission, Lord Denning MR said:

"Even if they did not know of the actual terms of the contract, but had the means of knowledge -- which they deliberately disregarded -- that would be enough. Like the man who turns a blind eye. So here, if the officers deliberately sought to get this contract terminated, heedless of its terms, regardless whether it was terminated by breach or not, they would do wrong. For it is unlawful for a third person to procure a breach of contract knowingly, or recklessly, indifferent whether it is a breach or not." (at 700H-701A -- emphasis supplied)

Lord Denning continued by referring to the evidence that the officers' object was to procure termination of the sub-contract, not caring how, and that this was shown by the terms of an unequivocal demand which they had made on the head contractor.

Diplock LJ said:

"There are three essential elements in the tort of unlawful procurement of a breach of contract: the act, the intent and the resulting damage. In a quia timet action such as this, it is sufficient to prove the act and the intent and the likelihood of damage resulting if the act is successful in procuring a breach of contract. The only issue on this part of the case is one of fact as to the defendants' intent. At all relevant times they knew of the existence of a 'labour only' subcontract for brickwork between the main contractors and the plaintiffs, but until it was disclosed to them on the interlocutory application to the judge in chambers for an injunction, they did not know its precise terms. They say in somewhat equivocal language that they assumed that it could be lawfully terminated by the main contractors on short notice and that such lawful termination was all that they insisted on. But ignorance of the precise terms of the contract is not enough to show absence of intent to procure its breach. The element of intent needed to constitute the tort of unlawful procurement of a breach of contract is, in my view, sufficiently established if it be proved that the defendants intended the party procured to bring the contract to an end by breach of it if there were no way of bringing it to an end lawfully. A defendant who acts with such intent runs the risk that if the contract is broken as a result of the party acting in the manner in which he is procured to act by the defendant, the defendant will be liable in damages to the other party to the contract." (at 703G-704C - emphasis supplied)

Lord Denning accommodated the law's general requirement that there be an intention to procure a breach to lack of knowledge of the precise contractual provision breached, by abandoning the terminology of "intention" with respect to breach in favour of that of "recklessness" and "indifference" (cf Falconer v ASLEF [1986] IRLR 331 at 334, para 35). Lord Diplock retained the word "intention", holding that intention might be proved by evidence of what may be appropriately referred to as "reckless indifference".

But where, as in the present case, the particular contractual
provision breached is "known" (in the sense to which I have earlier referred) to the alleged tortfeasor, this kind of question does not arise. There is no reason why the requirement of intention should not be applied with full force in the light of the pleading that the Banks "well knew" of the prohibition in the Indenture. The words of Jenkins LJ in D C Thomson & Co Ltd v Deakin, supra, are apposite:

" ... there seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another, has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference." (at 694 - emphasis supplied)

In my opinion, if an alleged tortfeasor knows of the particular provision which is in fact breached but does not "know" or "intend" (signifying the same thing) that the contract into which he enters with the contract breaker constitutes a breach of that provision, no tort is committed.

Insistence on a pleading of intention in this case is consistent with the statement in the joint judgment of Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ in Northern Territory v Mengel, supra, that

" ... the recent trend of legal development, here and in other common law countries, has been to the effect that liability in tort depends on either the intentional or the negligent infliction of harm." (at 14)

Illustrating this "description of the general trend" by reference to the class of tortious conduct with which we are presently concerned, their Honours concluded,

" ... it is still accurate to describe the tort as one that depends on an intention to harm for that is necessarily involved if a person knowingly interferes with the enjoyment by another of a positive legal right, whether such knowledge [of the terms of the contract] is actual or constructive." (at 15 - emphasis supplied)

This is further authority for permitting Allstate to plead nothing less than that the Banks knew that the giving of the inconsistent guarantees involved a breach by Linter Textiles of the terms of the Indenture.

Paragraphs 159F and 155C fail to plead this, and so, in my view, fail to disclose a reasonable cause of action.

CONCLUSION ON THE APPEALS

For the foregoing reasons, both appeals should be dismissed with costs.

I certify that this and the preceding 39 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated: 11 July 1995

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No. NG 381 of 1994 GENERAL DIVISION )

ON APPEAL FROM A JUDGE OF THE

FEDERAL COURT OF AUSTRALIA

BETWEEN: ALLSTATE LIFE INSURANCE CO

& ORS

Appellants

AND: AUSTRALIA & NEW ZEALAND

BANKING GROUP & ORS

Respondents

CORAM: LOCKHART, LINDGREN, AND TAMBERLIN JJ

PLACE: SYDNEY

DATED: 11 July 1995

REASONS FOR JUDGMENT

TAMBERLIN J:

In this matter I agree with the reasons for judgment given and the orders proposed by his Honour Lindgren J.

I certify that this page

is a true copy of the

Reasons for Judgment herein of

his Honour Justice Tamberlin.

Associate:

Date:11 July 1995

Heard: 19 April 1995

Place: Sydney

Decision: 11 July 1995

Appearances: Mr A R Emmett QC with Mr W G Muddle and Mr D R Stack of counsel instructed by Sly & Weigall appeared for the appellants.

Mr M S Weinberg QC with Mr P Hayes QC and Mr I Stewart of counsel instructed by Dunhill Madden Butler as agents for Arthur Robinson & Hedderwicks appeared for the 12th, 19th to 21st, 23rd to 25th and 27th to 28th respondents.

Mr J W J Stevenson of counsel, instructed by Middletons Moore & Bevins appeared for the 10th respondent.

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