Court of Appeal holds fraudsters' intervention broke chain of causation

The Court of Appeal has held that the intervention of third-party fraudsters broke the chain of causation between a seller's assumed breach of a contractual confidentiality clause and a buyer's loss: Logix Aero Ireland Ltd v Siam Aero Repair Company Ltd [2026] EWCA Civ 510.

The decision illustrates that, ordinarily, a third party's fraudulent acts will break the chain of causation between a defendant's breach and a claimant's loss. The exception is where the defendant owes a duty to protect the claimant against the very type of fraud committed – meaning that the loss was effectively caused by the breach, fell within the scope of the duty assumed by the defendant, and was a foreseeable consequence of the defendant's breach. In those circumstances, the fraudulent acts will not break the chain.

This decision is particularly relevant given the growing prevalence of business email compromise fraud, where fraudsters intercept commercial email correspondence to divert payments or obtain sensitive data. Parties who suffer loss from such fraud and seek to recover from their commercial counterparty face a significant causation hurdle: unless the contract or relationship imposes a specific duty to protect against the very fraud that occurred, the fraudsters' intervention will normally break the chain of causation. The Court of Appeal's decision shows that a commercial confidentiality clause will not typically impose such a duty.

Background

Logix agreed to purchase two aircraft engines from Siam Aero under a letter of understanding (LOI). Although the LOI was subject to contract and predominantly non-binding, it included a binding confidentiality clause requiring each party to keep any information or documentation provided strictly confidential and prohibiting disclosure to third parties.

During negotiation of the purchase agreements, fraudsters gained access by unknown means to an email sent by Siam Aero and inserted themselves into the correspondence between the parties. They sent an email to Logix purporting to be from Siam Aero chasing for a response and, when Logix replied, the fraudsters forwarded the response to Siam Aero. The fraudsters used fake email domains subtly different from the genuine Logix and Siam Aero ones, allowing the interception to go unnoticed.

From that point, the parties unknowingly communicated through the fraudsters, who altered the contents of genuine emails before passing them on. Critically, the fraudsters replaced Siam Aero's bank account details with their own in draft and final versions of the purchase agreements sent to Logix and then reinstated the correct details when sending the agreements back to Siam Aero.

Shortly after the purchase agreements were signed, Logix paid the balance of the purchase price to the fraudsters' bank account, believing it was paying Siam Aero. Logix did not independently verify the bank details before making payment. By the time the fraud was discovered, the funds had already left the fraudsters' account.

Logix sought to recover its loss from Siam Aero on several bases, including alleged complicity in the fraud, a tort claim for alleged failure to secure its IT system, and breach of the confidentiality clause in the LOI. 

The High Court struck out the case. On the claim for breach of the confidentiality clause, the court accepted that it was arguable that Siam Aero had (unwittingly) breached the clause by sending emails to the fraudsters attaching the draft and final purchase agreements. However, the court concluded that it was unsustainable and wholly artificial to claim those emails caused Logix's loss – plainly, the loss was caused by the fraudsters.

Logix appealed solely on the issue of causation, arguing that the chain of causation between Siam Aero's arguably wrongful provision of information and Logix's loss had not been broken by the fraudsters' intervention.

Decision

The Court of Appeal dismissed the appeal. Phillips LJ gave the lead judgment, with which Cockerill LJ and Peter Jackson LJ agreed.

It was common ground that Siam Aero's assumed breach of the confidentiality clause satisfied the "but for" test of factual causation, in that Logix's loss would not have occurred had Siam Aero not sent documents and information to the fraudsters. The central legal issue was whether Siam Aero could, in principle, be held liable notwithstanding the third-party fraudsters' intervention between its assumed breach of contract and the loss.

The Court of Appeal noted that the starting point is that a third party's voluntary intervening act will normally break the chain of causation. The legal basis for this principle is, however, far from clear. Some view it as an issue of causation, whereas others treat it as an aspect of the law of remoteness. As a matter of causation, the third party's intervention may mean that the breach is not the "effective" or "dominant" cause of the loss, but merely the opportunity or occasion for it (see Galoo v Bright Grahame Murray [1994] 1 WLR 1360). As a matter of scope of duty, the resulting loss may not be regarded as the type or kind of loss in respect of which the contract breaker had assumed responsibility. As a matter of remoteness, the loss might not be regarded as arising "in the usual course of things" as a result of the breach (the first limb of Hadley v Baxendale (1854) 9 Ex. 341).

The Court of Appeal confirmed that there may be more than one effective cause of loss, so that a breach of contract may remain an effective cause even if a subsequent intervention is also an effective cause. The breach of contract doesn't even need to be the cause with greatest effect, so long as it is an effective cause. The chain of causation is broken only if the intervening event "obliterates the wrongdoing of the defendant".

Logix argued that Siam Aero's assumed breach of the confidentiality clause was an essential continuing element of the fraud during its operation, such that the fraud could not have been perpetrated without it. The assumed breach was therefore an effective cause of Logix's loss, even if the fraudsters' intervention was also an effective cause, or even a much greater cause. The fraudsters' actions did not obliterate Siam Aero's breach of contract.

The Court of Appeal disagreed. It noted that the fraudsters' intervention occurred before any assumed breach of contract by Siam Aero: the fraudsters had already impersonated Logix and caused Siam Aero to communicate with them before Siam Aero sent drafts of the purchase agreements. The fraud was therefore the cause of Siam Aero's assumed breach, as well as an intervening and independent cause of Logix's loss after that breach. Siam Aero's assumed breach was one of a number of necessary stages in the fraud, and the final stage – Logix's mistaken payment – occurred without the involvement of Siam Aero. In the Court of Appeal's view, this was a clear case of the breach being part (and only part) of the opportunity for the fraud rather than the actual cause of the fraud.

Logix also relied heavily on London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777, submitting that it established that the interposition of an act of forgery does not prevent the loss being attributable to the party that provided the fraudsters with the opportunity to undertake the fraud. The Court of Appeal disagreed. In Macmillan, a partner in a firm signed a cheque in a manner which allowed a clerk to alter it fraudulently and cash it for a larger sum. The House of Lords rejected the firm's claim against the bank. It found that the firm was in breach of its duty to the bank to take care in drawing the cheque, and the alteration of the cheque and subsequent loss were the direct result of that breach. 

In the present case, the Court of Appeal said that Macmillan was firmly based on the existence of a specific contractual duty to prevent the very fraud which was in fact perpetrated (and the very loss that ensued), such that the loss was effectively caused by the breach, fell within the scope of duty, and was not unlikely to occur. The case did not establish a general principle that a fraudsters' intervention will not break the chain of causation, leaving the contract breaker liable subject only to remoteness.

The Court of Appeal found that the High Court had been plainly right to distinguish the present case from Macmillan. The confidentiality clause in the LOI was primarily concerned with protecting the parties from commercial damage caused by their documents and information falling into competitors' hands. It did not impose a special duty to protect the other party from being deceived by fraudsters who gained sight of anodyne or otherwise publicly available information and manipulated it.