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English

Liability of Office Holders for the Tort of Causing a Breach of Company Contract

When a company is a party to a contract and a manager acts on its behalf in a manner that constitutes a breach of that contract, can the manager be held personally liable to the other party for causing the company to breach the agreement?

Section 62 of the Torts Ordinance (New Version) stipulates that anyone who knowingly and without sufficient justification causes a person to breach a legally binding contract between them and a third party commits a tort against that third party. This means the third party can sue the individual who caused the breach of their contract. However, the section limits the claim strictly to financial damages incurred as a result of the breach.

It is important to note that not every action causing another to breach a contract constitutes the tort of "causing a breach of contract."

• Knowledge Requirement: The party causing the breach must know both of the contract's existence and that their action (or omission) is likely to cause its breach.

• It is not required that the breaching party know all the details of the contract; awareness of its existence, or even ignoring a suspicion that a contract exists, is sufficient [1].

The law exempts from liability cases where there is "sufficient justification" for causing the breach. This implies that there are instances where a person may legally act to thwart another's contract.

• For example, when the action causing the breach is intended to protect a certain interest. However, courts have ruled that not every act of self-interest preservation or protection of others' interests constitutes sufficient justification, as opposed to defending a public interest or a constitutional right.

• Additionally, sufficient justification exists when a special relationship is present between the person and the party to the contract. For instance, a lawyer advising their client to breach a contract will not be held liable for the tort of causing a breach of contract.

Case Law: The issue of company officers' liability for the company's breach of binding agreements was discussed from a tort perspective in the case of Matityahu v. Shtil [2]. Purchasers of apartments sought to impose personal liability on the managers of a defunct construction company for damages caused by the company's breach of a combination agreement.

The Supreme Court ruled that when a manager acts within their authority and causes the company they manage to breach a contract, the manager will not be liable for the tort of causing a breach of contract, because their action is legally the action of the company. However, liability may arise if the manager acted outside their authority (ultra vires), acted contrary to the company's best interests, or acted from ulterior motives.

Conclusion: The liability of managers and directors in companies is a complex subject regulated by various laws and statutes. The Companies Law also imposes liability for the actions of office holders and managers, and the assessment of this liability is conducted differently. Therefore, it is essential to consult regularly with an attorney specializing in this field to prevent situations where company creditors might bypass the company's limited liability through personal lawsuits against its officers.

• [1] C.A. 628/77 Hassid v. Knopf

• [2] C.A. 4612/95 Itamar Matityahu v. Yehudit Shtil