OBG v Allan [2008] 1 AC 1

Key Point

  • Choses in action, such as contracts, are not susceptible to the tort of conversion

Facts

  • The claimant company, OBG (C) was insolvent
  • D3, a creditor of the company, on advice of solicitors D4 appointed D1 and D2 as receivers of C
  • It was admitted that the advice of negligent and the receivers were not entitled to be appointed
  • D1 and D2 receivers terminated the contracts of the majority of C’s subcontractors and settled claims under the contracts C had made, shortly after C went into liquidation
  • C brought proceedings against Ds for the following claims:
    1. committing the tort of inducing breach of contract
    2. committing conversion of their contracts
  • The Court of Appeal refused both claims
  • As the receivers had acted in good faith, they would not have the requisite mental element for the tort of inducing breach of contract, as such the only viable route would be proving the strict liability tort of conversion

Issue

  • Here we are only concerned with whether conversion can be applicable to choses in action

Held (House of Lords)

  • Appeal dismissed; no action of conversion can lie against a contract

Lord Hoffmann (Leading Majority Judgment)

  • “By contrast with the approving attitude of Cleasby J to the protection of rights of property in chattels, it is a commonplace that the law has always been very wary of imposing any kind of liability for purely economic loss. The economic torts which I have discussed at length are highly restricted in their application by the requirement of an intention to procure a breach of contract or to cause loss by unlawful means. Even liability for causing economic loss by negligence is very limited. Against this background, I suggest to your Lordships that it would be an extraordinary step suddenly to extend the old tort of conversion to impose strict liability for pure economic loss on receivers who were appointed and acted in good faith. Furthermore, the effects of such a change in the law would of course not stop there. Hunter v Canary Wharf Ltd [1997] AC 655, 694 contains a warning from Lord Goff of Chieveley (and other of their Lordships) against making fundamental changes to the law of tort in order to provide remedies which, if they are to exist at all, are properly the function of other parts of the law.” [99]

Lord Nicholls (Dissenting)

  • “With the expansion of commerce and the increase in dealings with intangible property this rule, described by Professor Prosser as a ‘hoary limitation’, had to be relaxed. The law provided, in respect of the misappropriation of intangibles, no remedy equivalent to that provided by conversion for the misappropriation of tangibles. So the courts resorted to another legal fiction. They held that in appropriate cases a document embodying or recording a debt or obligation should be treated as having the same value as the debt or obligation.” [225]
  • The time has surely come to recognise this and, additionally, to recognise that the tort of conversion applies to contractual rights irrespective of whether they are embodied or recorded in writing. I would so hold. This would be a modest but principled extension of the scope of the tort of conversion. It would rid the law of an artificial limitation derived from the limited scope of an enabling legal fiction.” [233]

Baroness Hale (Dissenting)

  • ‘In a logical world, there would be such a proprietary remedy for the usurpation of all forms of property. The relevant question should be, not “is there a proprietary remedy?”, but “is what has been usurped property?” … The essential feature of property is that it has an existence independent of a particular person: it can be bought and sold, given and received, bequeathed and inherited, pledged or seized to secure debts, acquired (in the olden days) by a husband on marrying its owner.‘ [309]
  • Once the law recognises something as property, the law should extend a proprietary remedy to protect it. Our law is prepared, according to Clerk & Lindsell, to apply the remedy of conversion to “any document which is specially prepared in the ordinary course of business as evidence of a debt or obligation”: see Clerk & Lindsell on Torts, 19th ed, (2006), para 17-35. The reliance on a document or some other tangible token of the existence of the obligation may be understandable as a relic of the history, but it is not principled. It is at once too wide and too narrow. There may be a document evidencing an obligation of a purely personal kind, which ought not to attract a proprietary remedy. On the other hand, there are many debts and some other obligations which can now be readily assigned, attached, form part of an insolvent estate, and enjoy all the other characteristics of property, but which are not represented by a specific document.’ [310]