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8.2 Economic Torts Lecture

Tort law provides a framework for dealing with negligent or intentional acts done against a person’s business or livelihood.

The economic torts can be split into two primary categories: procuring a breach of contract and causing loss by unlawful means. Conspiracy is also discussed below, and whilst this is a separate tort, it can generally be regarded as ancillary to the two primary torts of inducing breach and unlawful interference.

Harsh business practices do not form the basis for a tort. This can be seen in Mogul Steamship Co Ltd v McGregor, Gow & Co [1889] LR 23 QBD 598. The exception to this rule is conspiracy to injure, discussed below, but even this exception is rarely applied.

Inducing a Breach of Contract

Contracts form the backbone of business operations. A given organisation will have multiple contracts with the businesses which provide it with stock or raw materials, and everyone who provides services to it will be contracted to do so. If these contracts are not fulfilled as each side promises they will, this can have severe and unanticipated negative effects for both parties. Tort law can step in to assist here, and in particular can provide a course of action against any third parties for breaching their contract, whereas contract law cannot.

The root of the tort can be found in Lumley v Gye [1853] 2 E & B 216 where the court discussed that under contract, damages might be limited in a way which would mean they failed to properly reflect the claimant’s harm. They thus found it just, under the principle of full compensation, to create an action against the inducer.

The Tort Requires Malice

It should be noted that the tort requires malice on the part of the defendant. Rather than active hostility, this refers to the concurrence of two things – the defendant must know that they are affecting the discharge of another contract, and they must intend to do so. Thus a defendant who unknowingly offers a better contract to a third party than the one they are already in will not be liable.

Regarding intention, a defendant who carelessly causes another to breach their contract will not suffice, as in Cattle v Stockton Waterworks Co [1975] LR 10 QB 453.

Intention does not need to be particularly concerted – it will suffice if a defendant knowingly creates a risk of breach being induced, even if they are indifferent as to whether the breach is actually made or not. The overriding principle and this phenomenon of contract can be seen in Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106 where the court summarised three essential elements of the tort:

  1. There must be interference with the execution of a contract (even if that interference doesn’t result in breach);
  1. The interference must be deliberate; and
  1. The interference must be direct.

Since these three elements existed in the case at hand, the tort had occurred, despite the existence of a force majeure clause.

Regarding knowledge, a defendant’s knowledge that their actions will cause a breach of contract is not enough to demonstrate intent – there must be evidence to show that the defendant’s primary aim was to cause a breach of contract, rather than that being a secondary effect of an action with an altogether different intent. This can be seen in OBG v Allen [2007] UKHL 21 where the defendants’ primary intention was not to cause breach and so the claim failed.Knowledge of the other contract does not need to be particularly detailed, as per JT Stratford & Son Ltd v Lindley [1965] AC 269.

The tort is also one of inducing a third party away from a contract they are already in, rather than putting a better offer on the table when the third party is merely considering what deal they will take. This can be witnessed in Allen v Flood [1898] AC 1.

Damage is Required

It is not enough for a defendant to have merely induced breach of contract – the claimant must show some loss has stemmed from the action. However, this does not necessarily mean that quantifiable loss needs to have arisen from the breach of contract, see Exchange Telegraph Co v Gregory & Co [1896] 1 QB 147.

Defences

A defendant can argue that their actions were justified as a defence to this tort. However, the bar for advancing this defence is understandably high, so as to avoid eroding the utility of the tort, South Wales Miners’ Federation v Glamorgan Coal Co Ltd [1905] AC 239.

A particular form of justification can be employed when the defendant can demonstrate that they are exercising a right which trumps that of the claimant. This is illustrated in Edwin Hills & Partners v First National Finance Cop [1989] 1 WLR 225.

Causing Loss by Unlawful Means

It is also a tort to interfere with the claimant’s trade using unlawful means. The tort includes two primary elements – the defendant must have acted unlawfully in their interference with the claimant’s trade, and they must have done so with the intent to injure the claimant.


Intention to Harm

It is necessary for a claimant to demonstrate that a defendant has the intent to injure their business via their unlawful act. Sometimes it is not clear whether this requirement has been fulfilled – a defendant might take an unlawful act which harms the claimant, but which isn’t inherently aimed at the claimant.

The intention element was subject to significant discussion in Douglas v Hello! Ltd (No. 3) [2005] EWCA Civ 595 where Lord Nicholls described the intent element as follows:

“Intentional harm […] satisfies the mental ingredient of this tort. This is so even if the defendant does not wish to harm the claimant, in the sense that he would prefer that the claimant were not standing in his way”


Unlawful Means

The unlawful act criterion was provided in OBG v Allen [2007] UKHL 21 where Lord Hoffman explained: “Unlawful means consists […] of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful […] and which is intended to cause loss to the claimant. It does not in my opinion include acts which may be unlawful against a third party but which do not affect his freedom to deal with the claimant.”

  • Violence and threats of violence provide a primary example of how the tort operates, as in Tarleton v McGawley [1793] 170 ER 153.
  • In a crossover between the torts of inducing breach and unlawful interference, there is a precedent of breaching contract or threatening breach of contract constituting the required unlawful act. This can be seen in Rookes v Barnard [1964] UKHL 1.

Whilst non-violent crime can form the basis of unlawful interference, the requirement remains that it must be aimed at the claimant. This can be seen in Lonrho Ltd v Shell Petroleum Co Ltd [1982] AC 173 (also discussed as a matter of employers’ statutory duties.)

Defences

Unlike inducing breach, the defence of justification cannot be employed for unlawful interference, as per Rookes v Barnard. In short – if an act is unlawful it cannot be justified. The exception to this rule is where the unlawful act is threatening or causing breach, but the defendant has a pre-existing legal right which equals or overrides the right he is interfering with (for an example of this, see Edwin Hills & Partners v First National Finance Cop above.)

Conspiracy

The law recognises situations in which a group of actors come together with the aim of harming the claimant’s business or trade, via unlawful means or otherwise.

Conspiracy to commit an economic tort is designed to allow a claimant to bring a case against a group of malicious plotters who would otherwise avoid liability, because their individual actions are not in and of themselves tortious, or because only one of them actually took the tortious act.

Conspiracy to Injure

This tort is essentially an agreement between several actors to act together to injure the claimant’s business interests (which results in damage, mere agreement is not enough.)

It is key that the conspirators’ actions are aimed at the claimant, rather than merely being a genuine attempt to further their own business interests. In other words, malice is required. Notably, however, this tort does not necessarily an illegal act (such as breach of contract or unlawful activities).

It should be noted that this tort is rarely applied and highly controversial, since essentially it imports liability on a group of people for taking perfectly legal actions. In both Lonrho v Shell and Lonrho v Fayed, the courts have confirmed that this tort still exists, but have noted that the bar for finding that a legal business practice is illegitimate is extremely high.

This tort is illustrated in Quinn v Leathem [1901] AC 496 where a series of actions was held to be conspiracy to injure.

This can be contrasted with Crofter Hand Woven Harris Tweed Co v Veitch [1942] AC 435. This claim failed – the courts regarded the actions of the defendants to be legitimate, since the object of their actions was to best benefit their members, rather than to harm the claimants.

The bar for finding this tort is extremely high; in other words: the justification defence is very easy to advance.

Conspiracy Using Unlawful Means

Conspiracy using unlawful means is a much simpler affair – since the defence of justification doesn’t exist, there will be no need to distinguish between legitimate acts of economic competition and malicious conduct. Instead, it will be sufficient to show that a group of actors conspired to use unlawful means to inflict economic harm upon the claimant.

The nature of this tort is essentially exactly the same as the tort of unlawful interference discussed above, to the extent that the above mentioned Rookes v Barnes provides the key case.


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