LONRHO LTD v SHELL PETROLEUM CO LTD NO.2

The tort of conspiracy, while certainly relevant to the world of commerce, is one that overlaps with criminal activity, due to the clandestine nature of the offence.

On this occasion, the unlawful collusion between corporate entities brought about a claim for damages by a party to a previous agreement, that had since been abandoned due to legislative sanctions by the United Kingdom.

In 1962, a number of petroleum companies came together to draft what was known as ‘the shippers agreement’; a contract allowing for the supply of unrefined oil to Mozambique (or Rhodesia as it was also known).

The appellants were a Portuguese organisation, while the respondents were both British petroleum companies; all of which, had constructed a refinery that while under Rhodesian ownership, was subject to shareholdings by the appellants, respondents and a number of other investors.

The appellants owned the pipeline itself, while the respondents used their shipping vessels to import the crude oil, before passing it through the pipeline to the refinery in Mozambique.

Less than a year after the operation became live, the Government of Southern Rhodesia declared unilateral independence, which prompted Parliament to draft and enact the Southern Rhodesia Act 1965; from which, the Southern Rhodesia (Petroleum) Order 1965 imposed prohibitive sanctions against the supply of oil or petroleum to Southern Rhodesia by British suppliers.

Section 2(2) of the 1965 Act expressed the powers to prevent supply, while section 1(1) of the 1965 Order restricted the supply of petroleum to Southern Rhodesia.

Section 1(2) also provided that any UK registered corporate body breaching the the restriction set down would be guilty of a criminal offence, and subject to fines or imprisonment or both, as explained in section 4(2) of the 1965 Order.

On this occasion, the respondents had acted together to circumvent the powers expressed by the Southern Rhodesia Act 1965, in order to continue supplying the Mozambique Government their own petroleum by other means.

This rendered the appellants pipeline useless, and after two years of neglect, the appellants sued for damages in excesses of £100m under the tort of conspiracy.

The definition of conspiracy was outlined in Crofter Hand Woven Harris Tweed Co Ltd v Veitch, when Viscount Simon LC expressed how the tort consists of:

“[T]he agreement of two or more persons to effect any unlawful purpose, whether as their ultimate aim, or only as a means to it, and the crime is complete if there is such agreement, even though nothing is done in pursuance of it.”

Crofter Hand Woven Harris Tweed Co Ltd v Veitch

While under the established facts of Cutler v Wandsworth Stadium Ltd, it was agreed that the failure to act, or to act in contravention of prohibitive statute, renders a party liable both to criminal charges and accountability under tort, where a third party has been proven to suffer.

The condition to this principle is that it must be shown that the defendant(s) acted in deliberate pursuance of that suffering, as opposed to one borne from self-interest.

In the first instance, the claim for damages were dismissed, and the Court of Appeal followed suit, before being given final consideration in the House of Lords.

It was then with deliberate evaluation of the statutory powers conferred, and the exacting nature of tort conspiracies, that the House wasted little time in holding that despite the obvious and unavoidable consequences felt by the appellants, there was no evidence to suggest that the breach of the Southern Rhodesia Act 1965 was anything more than a selfish pursuit by the respondents.

And so, without unnecessary expansion on the scope of tortious conspiracy, the court dismissed the appeal, while reminding the parties that:

“[I]njury to the plaintiff and not the self-interest of the defendants must be the predominant purpose of the agreement in execution of which the damage-causing acts were done.”