Lonrho Plc (Original Respondents and Cross-Appellants) v Fayed and Others (Original Appellants and Cross-Respondents) (First Appeal); Lonrho Plc (Original Respondents and Cross-Appellants) v Fayed and Others (Original Appellants and Cross-Respondents) (Second Appeal)

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Bridge of Harwich,Lord Brandon of Oakbrook,Lord Templeman,Lord Goff of Chieveley,Lord Jauncey of Tullichettle
Judgment Date15 Oct 1991
Judgment citation (vLex)[1991] UKHL J1015-1

[1991] UKHL J1015-1

House of Lords

Lord Bridge of Harwich

Lord Brandon of Oakbrook

Lord Templeman

Lord Goff of Chieveley

Lord Jauncey of Tullichettle

Lonrho Plc
(Original Respondents and Cross-Appellants)
and
Fayed and Others
(Original Appellants and Cross-Respondents)
(First and Second and Cross Appeals)
(Conjoined Appeals)
Lord Bridge of Harwich

My Lords,

1

The litigation giving rise to this interlocutory appeal and cross-appeal is another instalment of the long-running dispute about the take-over in 1985 of House of Fraser Plc ("HoF"), the company which owns, inter alia, Harrods department store. The plaintiff in this action, Lonrho Plc ("Lonrho") had been anxious to acquire control of HoF since early 1981. Following a reference by the Secretary of State for Trade and Industry to the Monopolies and Mergers Commission ("the MMC") under section 64 of the Fair Trading Act 1973 of the "merger situation" arising from the proposed acquisition and a report of the MMC dated 9 December 1981, Lonrho gave an undertaking to the Secretary of State not to acquire more than 30 per cent. of the equity share capital in HoF. A further reference relating to the proposed acquisition by Lonrho was made to the MMC on 31 May 1984. The MMC's report on this reference was expected to be made not later than 28 February 1985. If this report were favourable to Lonrho, it was to be expected that the Secretary of State would release it from the undertaking and that Lonrho would be free to proceed to bid for control of HoF.

2

The first three defendants in the action are brothers named Fayed ("the Fayeds"). The Fayeds own and control a company now called House of Fraser Holdings Plc ("Holdings"). In November 1984 Holdings acquired most of Lonrho's shares in HoF and were intending to acquire a controlling interest. This gave rise to a new merger situation under section 64 of the Act of 1973. If the Secretary of State had referred this merger situation to the MMC, the Fayeds and Holdings would have been prevented from acquiring control of HoF unless and until the MMC had made a favourable report on the reference. In the event no such reference was made. On 3 March 1985 Holdings made a cash offer of 400p per share for the whole of the issued ordinary share capital of HoF which was recommended to the shareholders by the Board of Directors of HoF and was publicly announced on 4 March. By 11 March Holdings had acquired more than 50 per cent. of the shares. Following a favourable report by the MMC on the May 1984 reference relating to Lonrho's proposed acquisition of HoF the Secretary of State, on 14 March 1985, released Lonrho from the undertaking given in December 1981.

3

Lonrho's pleaded case, in very short summary, is as follows. Lonrho at all material times intended to acquire control of HoF. The Fayeds and Holdings induced the Secretary of State to abstain from referring their proposed acquisition of HoF to the MMC by false and fraudulent representations about themselves, their commercial background and the source of the finance available to them for the acquisition of HoF. If the Secretary of State had known the truth, he would have made a reference either before or after Holdings had acquired control. If the reference had been made before Holdings had acquired control, this would have left Lonrho, when released from its undertaking, in a position to bid for control of HoF without competition from the Fayeds or Holdings. If the reference had been made after Holdings acquired control, this would probably have led to an order under the Act of 1973 requiring Holdings to divest itself of its controlling interest, which again Lonrho would have had the opportunity to acquire.

4

The fifth and sixth defendants to the action are Mr. MacArthur, a director of Kleinwort Benson Ltd., and Kleinwort Benson Ltd. ("Kleinworts"), the merchant bankers who were advising the Fayeds and Holdings in connection with the take-over. Lonrho pleads that some of the relevant false statements which induced the Secretary of State not to refer Holdings' proposed acquisition to the MMC were made by these defendants fraudulently, not in the sense that they knew of the falsity, but in the sense that they acted recklessly not caring whether the statements were true or false.

5

As against all the defendants, Lonrho's statement of claim pleads that their intention was both to benefit the Fayeds and Holdings by furthering their interest in the acquisition of HoF and to injure Lonrho by preventing them from acquiring HoF. Lonrho claims to have lost the opportunity to acquire HoF by bidding for the shares without competition from the Fayeds or Holdings and thereby to have suffered damage. Lonrho asserts that these facts are sufficient to establish a cause of action for the common law tort of interfering with business by unlawful means. But the statement of claim also relies additionally or alternatively on the same allegations of fact as establishing the tort of conspiracy to injure and, as against Mr. MacArthur and Kleinworts, it originally pleaded a distinct cause of action claiming damages for negligence.

6

The defendants applied by summons to strike out the statement of claim under Order 18; rule 19 on the ground that it disclosed no cause of action, was frivolous and vexatious and an abuse of the process of the court. Master Topley dismissed the application, but an appeal against his decision was allowed by Pill J. [1990] 1 Q.B. 490. Lonrho did not appeal against the striking out of the claim in negligence against Mr. MacArthur and Kleinworts, accepting no doubt that these defendants did not owe Lonrho any duty of care, but did appeal against the remainder of Pill J.'s order. It was, however, accepted in the Court of Appeal that the statement of claim had not alleged that the predominant purpose of the alleged conspiracy was to injure Lonrho and that accordingly the Court of Appeal were bound by their own decision in Metall und Rohstoff A.G. v. Donaldson Lufkin and Jenrette Inc. [1990] 1 Q.B. 391 ("the Metall case") to hold that the pleaded cause of action in conspiracy could not succeed. The Court of Appeal (Dillon, Ralph Gibson and Woolf LJJ.) allowed the appeal in relation to the cause of action founded on the tort of interfering with business by unlawful means: [1989] 3 W.L.R. 361. The defendants now appeal and Lonrho cross-appeals in relation to the cause of action in conspiracy by leave of your Lordships' House.

7

It will be convenient to consider first the clear cut issue of law which arises on the cross-appeal. In the Metall case the Court of Appeal interpreted the decision of this House in Lonrho Ltd. v. Shell Petroleum Co. Ltd. (No. 2) [1982] A.C. 173 ( "Lonrho v. Shell") as holding it to be an essential ingredient in the civil tort of conspiracy to establish that the predominant purpose of the conspirators was to injure the plaintiff irrespective of whether the means they used to effect that purpose were lawful or unlawful. In inviting us to overrule the Metall case, Mr. Kentridge submits that the true position in law is that the tort of conspiracy to injure, whilst requiring an intention to injure the plaintiff, may be established either by showing that this intention was the predominant purpose of the conspirators, even though the means used were lawful, or by showing that unlawful means were used. Where the primary or predominant purpose of the conspirators is to further or protect some legitimate interest of their own, but they also have the intention of injuring the plaintiff, it is sufficient to make their action tortious that they used unlawful means. This. Mr. Kentridge, submits, is the law as it was always understood before the decision in Lonrho v. Shell and it is inconceivable that this House should have intended to overturn that understanding in a case where no issue arose with respect to predominant purpose and the point was never argued.

8

In Rookes v. Barnard [1964] A.C. 1129, Lord Devlin said, at p. 1204:

"There are, as is well known, two sorts of conspiracies, the Quinn v. Leathem [1901] A.C. 495 type which employs only lawful means but aims at an unlawful end, and the type which employs unlawful means."

9

Of these two types of tortious conspiracy the Quinn v. Leathem type, where no unlawful means are used, is now regarded as an anomaly for the reasons so clearly explained by Lord Diplock in Lonrho v. Shell [1982] A.C. 173 in the following passage at pp. 188-189:

"Why should an act which causes economic loss to A but is not actionable at his suit if done by B alone become actionable because B did it pursuant to an agreement between B and C? An explanation given at the close of the 19th century by Bowen L.J. in the Mogul case when it was before the Court of Appeal (1889) 23 Q.B.D. 598, 616 was:

'The distinction is based on sound reason, for a combination may make oppressive or dangerous that which if it proceeded only from a single person would be otherwise.'

"But to suggest today that acts done by one street-corner grocer in concert with a second are more oppressive and dangerous to a competitor than the same acts done by a string of supermarkets under a single ownership or that a multinational conglomerate such as Lonrho or oil company such as Shell or B.P. does not exercise greater economic power than any combination of small businesses, is to shut one's eyes to what has been happening in the business and industrial world since the turn of the century and, in particular, since the end of World War II. The civil tort of conspiracy to injure the plaintiff's commercial interests where that is the predominant purpose of the agreement between the defendants and of the acts done in execution of it which caused damage to the plaintiff, must I think be accepted by this House as too well-established to be discarded however anomalous it may seem today. It was...

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