A parent company will be liable to a third party if the parent is
involved in, or directs, its subsidiary to breach its contract with
that third party.
The Court of Appeal has recently held that a parent
company was liable to the claimant for inducing a breach of
contract. The parent company failed to put the subsidiary in funds
to meet payment instalments owed to the claimant putting the
subsidiary in breach. The claimant sued the subsidiary for breach
of contract and the parent for inducing that breach. As the
subsidiary was being wound up, the only real remedy available to
the claimant was against the parent and the parent was held
liable.
Our tips:
1. Parent companies need to be aware of the risks
when taking actions that will cause a subsidiary to be in breach of
the subsidiary's contractual obligations.
2. Claimants frustrated by an impecunious
defendant, being a subsidiary of a group, should consider the
potential for a claim against the parent.
If you require any further advice please contact
Tim Hardy at tim.hardy@cms-cmck.com or on
+44(0)20 7367 2533 or Guy Pendell at guy.pendell@cms-cmck.com on +44(0)20 7367 2404. suzanne.pearson@cms-cmck.com