Breach of Undertaking: “A serious and highly reprehensible act”
In 2011 Pinnacle Telecom Group Plc (PTG) and MacLellan IT Ltd (MIT) entered into a Business and Asset Purchase Agreement. Under this agreement PTG acquired the business and assets of MIT (including business premises in Kelty, Fife) in exchange for shares in PTG. The present case is a dispute between the wholly owned subsidiary of PTG (Pinnacle Cloud Solutions Ltd) and the successor of MIT (MacLellan Property Ltd).
Following the transfer of MIT’s business to PTG, the sole director and secretary of MIT became concerned that the business was not being operated in accordance with certain commitments which he regarded as having been made to him at the time of the purchase. Accordingly, he took it upon himself to terminate PTG’s licence to occupy the premises in Kelty from which MIT’s business was operated.
The Pursuer sought interim orders against the Defender regarding the delivery of property owned by it which was in the Defender’s possession at the premises in Kelty. At the interim orders hearing the Defender gave a formal undertaking to the court to allow the Pursuer access to the property in Kelty in order to recover various items of property.
However, the Pursuer argued that, on attending the premises to uplift its property, several items were not handed over in breach of the Defender’s undertaking to the court.
Lord Tyre in the Outer House of the Court of Session decided that there had been a breach of undertaking by the Defender. A breach of undertaking requires proof “beyond reasonable doubt” (as opposed to the civil standard of proof “on the balance of probabilities”). This high standard of proof was satisfied in relation to ten PC hard drives and three external hard drives which were not delivered to the Pursuer. Moreover, based on the available evidence, the judge found that the failure to deliver these items was deliberate, which meant that the Defender was in contempt of court.
The case is a strong reminder of the seriousness of breach of undertaking. Lord Tyre described this as a “serious and highly reprehensible act.”
As there was no evidence in this case that the items in question were of material intrinsic value or contained valuable data, the interests of justice did not require criminal prosecution. Nevertheless, a finding of contempt of court against it will be highly significant to the Defender. Parties to court actions should therefore be acutely aware that, when giving an undertaking to the court in order to avoid an interim order, the repercussions of failing to comply with this undertaking are potentially severe.