INTENTIONAL ECONOMIC TORTS

There has been for some years a degree of confusion as to the proper identification of the economic torts of inducing breach of contract and unlawful interference causing loss; they have frequently been classed and discussed together, through the use of such concepts as “direct” or “indirect” interference. This confusion has been swept aside by the House of Lords case of OBG Ltd v Allan [2008] 1 A.C. 1 in which the House of Lords comprehensively reviewed these torts, concluding that they were separate causes of action, with separate and distinct requirements: “…it is time for the unnatural union between the Lumley v Gye tort and the tort of causing loss by unlawful means to be dissolved” (OBG above, per Lord Hoffman at para.38).

Knowledge. A party must be shown to have known that they were including a breach of contract. It is not enough that a defendant knows that he is procuring an act which, as a matter of law or construction of the contract, is a breach, nor that he ought reasonably to have known that it is a breach: OBG v Allan per Lord Hoffman at para. 39; British Industrial Plastics Ltd v Ferguson [1940] 1 All E.R. 479.

As in other areas of the law, a deliberate decision not to take up the means of acquiring the relevant knowledge (“turning a blind eye”) will suffice: Emerald v Lowthian [1966] 1 W.L.R. 691 per Lord Denning M.R. at 700-701; OBG v Allan per Lord Hofmann at para. 40.

Intention. The Defendant is liable if he intended to persuade the contracting party to breach the contract. Intentional interference presupposes knowledge of the contract. With that knowledge the defendant proceeded to induce the other contracting party to act in a way the defendant knew was a breach of that party’s obligations under the contract. If the defendant deliberately turned a blind eye and proceeded regardless he may be treated as having intended the consequence he brought about. A desire to injure the claimant is not an essential ingredient of this tort: OBG per Lord Nicholls at para. 192. It is necessary for the claimant to have been “targeted” or “aimed at”. The breach of contract must have been either itself the object of the defendant’s activity, or the means by which the defendant’s actual object was to be accomplished, as opposed to being merely a foreseeable consequence. In OBG (ibid. at para. 43) Lord Hoffman expressed the view that Millar v Bassey [1994] E.M.L.R. 44 was for this reason wrongly decided.

Breach of contract. A breach of an existing contract is a fundamental requirement of this tort. Accordingly authorities which appear to expand the tort of inducing breach to include a liability for preventing or hindering performance (e.g. Torquay Hotel v Cousins [1969] 2 Ch. 106), or for violating rights other than those arising pursuant to contract (e.g. Law Debenture Trust Corp v Ural Caspian Oil Corp [1995] Ch. 152 (inducing a breach of a director’s fiduciary duty) are now better seen as cases of causing loss by unlawful means.

A positive act of inducement or procurement is essential to the wrong. Failing to stop a breach if not enough: see OBG per Lord Nicholls at para. 189. To prevent the performance of a contractual obligation is not the same thing in law as inducing its breach. The former may give rise to the tort of causing loss by unlawful means; the latter requires the defendant’s conduct to have operated on the will of the contracting party: OBG per Lord Nicholls at paras 174-180 and discussion in Meretz Investments NV v ACP Ltd [2008] Ch 244 at paras 129-140, 177.

Damage. The claimant must prove that the actions of the defendant have caused him loss. Thus where it is clear that the contract-breaker would have taken the same steps anyway, the actions of the defendant will not have been the effective cause of the loss (Jones Bros (Hunstanton) Ltd v Stevens [1955] 1 Q.B. 275).

If the breach is such that, in the ordinary course of business, it must cause loss, it is unnecessary to demonstrate and prove particular items of loss. In this sense, damages are “at large”: Exchange Telegraph Co v Gregory [1896] 1 Q.B. 147; British Motor Trade Association v Salvadori [1949] Ch 556. Where damage can be proved, or inferred, the claimant can recover subject to ordinary principles of remoteness: British Motor Trade Association v Salvadori, cited above; Boxfoldia Ltd v NGA [1988] I.R.L.R. 383. It may be possible also to claim for non-pecuniary loss such as injured feelings (this would be consistent with also to claim for non-pecuniary loss such as injured feelings (this would be consistent with Pratt v B.M.A. [1919] 1 K.B., but see Lonrho v Fayed (No. 5) [1993] 1 W.L.R. 1489).

Defences. An honest belief by the defendant that the outcome will not involve a breach of contract is inconsistent with him intending to induce a breach of contract, so a defendant can escape liability by relying on his own mistaken assessment of the legal position Mainstream Properties Ltd v Young [2005] EWCA Civ 861; [2005] I.R.L.R. 964; OBG Ltd v Allan per Lord Nicholls at paras 201-202; Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303; [2008] Ch. 244 at paras 118-119. It is sufficient to avoid liability for inducing breach of contract that a person believes they were entitled to act as they did. A person who intended to produce a result which they believed they were entitled to produce does not have the requisite intention to cause harm for the purposes of the tort of inducing breach of contract: Meretz Investments NV at paras 122-127.

There may be a defence of justification to this tort, however it defies precise definition and will depend upon the circumstances of the particular case (see OBG per Lord Nicholls at para. 193; Meretz Investments NV at para. 142). It has been said that regard must be had to the parties to the contract, the grounds for the breach, the means employed to break it, procuring the breach: per Romer L.J. in Glamorgan Coal Co Ltd v S. Wales Minsers’ Federation [1903] 2 K.B. 545 at 574-5, decision upheld in the House of Lords at [1905] A.C. 239.

B. Causing loss by unlawful means

Following the OBG case referred to above, the essential elements of this tort may be identified as follows:

  • use by the defendant of unlawful means, thereby
  • interfering with the actions of a third party in relation to the claimant;
  • intention to cause loss to the claimant;
  • damage

per Lord Hoffman in the OBG case at paras. 45-47.

Unlawful means. To qualify as “unlawful means” activities against a third party must be actionable by the third party, subject only where they are not actionable because no loss has been suffered: per Lord Hoffman in OBG at para. 49, referring to National Phonographic Co Ltd v Edison-Bell Consolidated Phonographic Co Ltd [1908] 1 Ch. 335 and Lonrho v Fayed [1990] 2 Q.B. 479.

Interference. In OBG, Lord Hoffman emphasised the importance of establishing that the actions of the defendant have interfered with the freedom of the third party to deal with the claimant. It is not enough that the activities can be shown to have been actionable by the third party if they do not impact upon his liberty of action in relation to the claimant: RCA Corporation v Pollard [1983] Ch 135; Isaac Oren v Red Box Toy Factory Ltd [1999] F.S.R. 785.

Intention to cause loss. The concept of intention is as above in relation to an intention to procure breach: it is necessary to show something more than loss as a foreseeable consequence. Loss must either be shown to be the end in itself, or the means to some other desired end, such as the defendant’s own enrichment: OBG para. 62, referring to Tarleton v McGawley (1794) 1 Peake 270. For a case where there was insufficient intention see Barretts & Baird (Wholesale) Ltd v Institution of Professional Civil Servants [1987] I.R.L.R. 3.