Hot Tip! Parent company liable for subsidiary's breach!
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
