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8.3 Economic Torts Lecture - Hands on Examples

Question:

Jed runs a large whisky distillery called ‘West Tipple Industries’ on the isle of Islay in Scotland.

He receives ingredients for his whisky from three different suppliers. He receives malted barley from Ziegler Malts, fresh spring water from Lyman Springs, and a colouring agent from Seaborn Culinary Products.

One day, a new distillery starts up on the isle – the New Republic Distillery, run by Ainsley. Ainsley realises that West Tipple Industries are her main competitor, and concocts a plan to further her business interests.

Firstly, she knows that Ziegler Malts are the only source of malted barley in the area, and that they have a relatively small capacity. At the moment, Ziegler Malts supply both West Tipple Industries and the New Republic Distillery. After talking with her fellow board members and securing funds from an investor, Ainsley goes to Ziegler Malts and offers them a new deal – at the end of their current contract with West Tipple Industries, they will agree to sell the entirety of their stock to New Republic. Ainsley plans to use what she needs in her own distillery, and then sell the rest of the malted barley to the other distilleries in Scotland. She does not plan to supply West Tipple Industries (who will have to buy their malts from other sources.)

Secondly, she goes to Lyman Springs and makes them an offer. Lyman Springs have a contract to supply West Tipple Industries for the next twenty years. Ainsley makes them an alternative offer – if they break their contract and supply New Republic, she will buy out the entirety of their contract, and pay any of their legal fees they attract for breaching their contract.

Thirdly, she approaches Seaborn Culinary Products. They are a supplier of West Tipple Industries, but they have no standing contract with them. Seaborn pride themselves on their loyalty, and despite a better offer from Ainsley, they remain resolute in their intention to keep supplying West Tipple Industries with their entire output. This means that Ainsley will have to source her colouring agents from outside of Islay – an expensive endeavour. Instead, she pays local thugs to beat up the board members of Seaborn Culinary Products, and deliver the message that worse is to come if they don’t stop supplying West Tipple Industries at the end of their current contract, and make New Republic their new customer.

It isn’t long before Jed notices that things are not well on Islay. He s his suppliers and learns about what has been going on.

Advise Jed on what economic torts have been committed by the New Republic Distillery.

Answer:

There are three different potentially tortious actions which take place between Ainsley and the various suppliers on Islay.

The first is the deal between Ziegler Malts and West Tipple Industries. There is a notable, but slim, chance that her actions will be regarded as conspiracy to injure, as in Quinn v Leathem [1901] AC 496. Ainsley talks with her board and an investor, suggesting that she is not acting alone, so the multiple actors requirement is fulfilled. This is not a matter of unlawful means conspiracy, since no contracts will be breached, Ainsley has simply offered an alternative business proposition to Ziegler Malts once their current contract with West Tipple Industries is complete (as in Allen v Flood [1898] AC 1.)

Her actions will indeed harm West Tipple Industries – she is taking away the source of a vital ingredient, and forcing Jed to source it from further afield, to his detriment. However, Ainsley’s actions can be likened to those of the defendant in Crofter Hand Woven Harris Tweed Co v Veitch [1942] AC 435 – whilst harsh and undiplomatic, they clearly advance her own business interests. She is sourcing an ingredient for her own business, and intends to sell the sur on – itself a legitimate business practices. Thus, although monopolistic, her actions can be considered non-tortious, as in Mogul Steamship Co Ltd v McGregor, Gow & Co [1889] LR 23 QBD 598. This claim will therefore likely fail.

The second deal is with Lyman Springs. This is potentially a case of inducing a breach of contract. This is relatively straight forward case of enticement, as in Lumley v Gye [1853] 2 E & B 216. Ainsley knows of the other contract, and intends for it to be breached, hence her offer of paying Lyman Springs’ legal fees. Even though she might not know the ins and outs of the contract with West Tipple Industries, this will not form an obstacle – it is enough that she has a basic knowledge of it, as per JT Stratford & Son Ltd v Lindley [1965] AC 269. Whilst it will be possible for West Tipple to find an alternative supplier, the court is likely to infer that there has been some damage to West Tipple from the breach. As illustrated by Exchange Telegraph Co v Gregory & Co [1896] 1 QB 147, the extent of the damage stemming from the induced breach need not be egregious. The fact that West Tipple has had a 20 year contract taken out from under them will be of significant inconvenience, thus likely fulfilling this requirement. This claim will therefore likely succeed.

The third ‘deal’ is with Seaborn Culinary Industries. This is likely a case of causing loss by unlawful means. Ainsley’s actions clearly are aimed at West Tipple Industries – she uses violent intimidation to remove one of their business partners. Just as the claimant’s loss was the defendant’s gain in Douglas v Hello! Ltd (No. 3) [2005] EWCA Civ 595, West Tipple Industries’ loss is New Republic’s gain. Although not as dramatic as firing a cannon, Ainsley’s actions are similar to those in in Tarleton v McGawley [1793] 170 ER 153 – except the violence is aimed at a supplier, rather than a customer. Thus, there is an unlawful act, and it is aimed disrupting West Tipple’s business practices. A claim for unlawful interference will likely succeed (along claims for various personal torts and criminal liability.)


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