Fair Competition Is One Thing, Procuring Breaches of Contract is Another

Fair competition is one thing, but procuring a rival’s clients to breach their contracts is quite another. The High Court made that point in ordering a software company to withdraw from its trading relationship with a clothing retailer.

retailThe company had a similar business model to a competitor, both of them providing, amongst other things, software to retailers which enabled them to verify the bona fides of students who sought discounts on the sale of goods. The clothing retailer had signed exclusive contracts with the competitor before shifting its allegiance and entering into a conflicting agreement with the company.

The competitor launched proceedings against the company, alleging that the latter had procured or induced the clothing retailer to breach its contractual obligations. The clothing retailer was not a party to the proceedings, and neither accepted nor denied that it had breached the contracts. The company and the competitor, however, agreed for the purposes of the action that it had done so.

Ruling on the matter, the Court found that the clothing retailer had taken the initiative in contacting the company, and had entered into the conflicting agreement with its eyes open and of its own motion. The company was, at that stage, unaware that the agreement was at odds with the competitors’ contractual rights. It had not procured the clothing retailer’s breaches, either deliberately or recklessly.

However, the Court found that the position changed after the conflicting agreement was signed and the company was made aware of the competitor’s rights. In persisting in its dealings with the clothing retailer thereafter, the company had procured the continuing breach of the contracts.

The Court was satisfied that, if prevented from trading with the company, the clothing retailer would probably return to the competitor’s fold. The breach of the contracts having caused the competitor loss, the Court issued an injunction against the company in terms that were agreed between the parties.