Economic Torts Lecture

Just as tort law recognises that one can negatively affect a person or their property through either negligence or intent, tort law also provides a framework for dealing with negligent or intentional acts done against a person’s business or livelihood. Indeed, if these were not in place, a malicious actor could satisfy themselves with destroying an individual financially, whilst leaving their person and property untouched.

The economic torts can be split into two primary categories: procuring a breach of contract (sometimes found under the heading of ‘wrongful interference with a pre-existing right’) 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. In essence, conspiracy just involves an agreement of a group to commit one of the primary torts.

Exam Consideration: Since the economic torts often involve contracts you will need a working knowledge of how contract law operates before you can confidently deal with problem questions. Nonetheless, remember that a tort law essay or exam answer will be marked on the basis of your tort knowledge, so don’t get too hung up on peripheral contract law issues.

Before continuing, it is worth noting an important point - unless a breach of contract is induced, or an unlawful act occurs, no economic tort will have occurred; 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 claimants were driven out of their market, Chinese tea shipping, by the defendants, a group of merchants who offered much more favourable terms to their Chinese contacts. The courts rejected a claim for economic tort - the negative effect on the claimant was a side effect, rather than an end of the defendants’ actions. 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 - from the part-time employee in the post-room, up to the CEO. Each and every one of its customers will create a contract whenever they deal with the organisation (even if these contracts are not in traditional paper form.) If these contracts are not fulfilled as each side promises they will, this can have severe and unanticipated negative effects for both parties. Consider a car manufacturer with an order to fill - if a steel supplier suddenly refuses to meet its contractual obligations to supply the manufacturer, then the manufacturer will suddenly find itself unable to manufacture the promised cars. This will have knock on effects on its stock and all of the employees it has employed - indeed, if a given business forms a significant enough proportion of a given national economy, a singular breach of contract can be disastrous. Contract law has developed its own mechanisms to deal with the steel supplier - but if a third party has been the one to persuade the steel supplier to deny the promised steel (for example by offering it a bribe) they will largely be untouchable in contract, since they were not party to the steel supply contract. This is where tort law steps in: to provide a course of action against the third party for persuading the supplier to breach its contract.

Exam Consideration: Although the induction can come in the form of a better offer, it would be a mistake to regards this as the only form of inducement. Induction can come in the form of a threat, or in the form of simply deliberately creating conditions which stop a contract from being carried out.

The root of the tort can be found in Lumley v Gye.

Case in Focus: Lumley v Gye [1853] 2 E & B 216

The claimant had contracted for the services of an opera singer. The defendant then offered to pay the opera singer a higher fee to sing at his theatre instead. Whilst an action existed against the singer for breach of contract, the court held that an action also existed against the defendant for the tort of inducing a breach of contract. Notably, the court discussed that under contract, the 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. The defendant installed and maintained a water pipe. This pipe sprung a leak, and flooded some land the claimant was attempting to build a tunnel under, preventing them from fulfilling their contractual obligations. Since this was a matter of carelessness on the part of the claimant, rather than malice, no liability arose under the head of inducing breach.

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.

This is important, since there are certain contract exemption terms which allow a party to not follow through with their obligation whilst still not technically breaching the contract, as long as certain circumstances are fulfilled (for example, see force majeure terms). If the law didn’t recognise these situations under tort law, then a wily defendant could potentially find a way to stop a third party contract from effectively being carried out but escape liability because the contract wasn’t technically breached. The overriding principle and this phenomenon of contract can be seen in Torquay Hotel Co Ltd v Cousins.

CaseinFocus: Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106.

The defendants were a union who, in a dispute with the claimant hotel, declared it to be ‘black’ (as in ‘blacklisted’). This had the effect of preventing the hotel’s oil supplier, Esso, from being able to deliver oil, since it employed members of the union as drivers. In effect, this meant that Esso could not fulfil the supply contract it had with the hotel. However, Esso had a force majeure term in its contract, stating that it would not be in breach of contract if it was prevented from carrying out its obligations by, amongst other things, labour disputes. Thus although the defendants had acted with the intention of inducing a breach of contract, and had effectively accomplished their goal by harming the hotel’s oil supply, they technically hadn’t caused any breach of contract.

The court held that this was no obstacle to a claim of inducing breach of contract. The court summarised the three essential elements of the tort: there must be interference with the execution of a contract (even if that interference doesn’t result in breach), that interference must be deliberate, and that interference must be direct. Since these three elements existed in the case at hand, the tort had occurred, despite the existence of the force majeure clause.

Thus the tort of inducing breach of contract finds itself in a relatively odd place - the tort requires harm, but the harm doesn’t necessarily come in the form of the advertised ‘breach of contract’. Whilst odd in theory, as noted above this enables the law to appropriately deal with situations in which a defendant causes the practical effects of breach whilst failing to cause a breach in traditional contact terms. Just as the law recognises that sometimes a failed attempt at robbing a bank can be as dangerous as a successful attempt, tort law takes the same dim view of failed attempts to induce breach.

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.

Case in Focus: OBG v Allen [2007] UKHL 21

The defendants took control of the failing claimant company as receivers. It later emerged that their appointment was invalid, and thus their control of the company was illegitimate. Whilst in control of the company, the defendants managed some pre-existing contracts the company had in a way that involved them being breached. The claimant’s thus argued that the defendants had induced breach of contract.

This claim failed - the receivers had been acting in good faith (having been told by another organisation that they were rightfully appointed as receivers), and had merely managed the contracts as any competent receiver would have. Because their primary intention was not to cause breach, 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 defendants were a union who, in an illegitimate attempt to negotiate with the claimant barge operator, told their members to refuse to work on the claimant’s barges (thus causing them to fail to meet their obligation to their clients.) Whilst it could not be said that the defendant had specific knowledge of the terms of their employees contract that they were seeking to breach, this was not necessary - it was merely enough to know that they were causing some sort of contractual breach.

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. The defendant, a trade union, told an employer that its members would not work alongside non-union workers. All of the workers were employed on a day-by-day basis - so each worker essentially entered into new contract with the employer each day. The employer was thus pressured to get rid of the non-union workers, else it would lose the service of the union workers. The non-union workers then sued the union, on the basis that the union had caused them to become unemployed. This was unsuccessful - no contract had been breached since the non-union workers were re-employed each day. The union had thus only persuaded the employer to not contact with the claimants again. Whilst the claimants might have had an expectation that they would be given work, this was not a legal obligation.

Exam Consideration: As you will have noticed by now, union action features heavily in the case law surrounding this tort. However, it is worth being careful when dealing with recognised unions - they can often take actions that, if done by any other party, would be deeply illegal. In short: be wary of quickly stating that a union has acted illegitimately. Furthermore, don’t assume that the actions taken by the defendant unions in the cases above and below are indicative of what a union can and can’t do nowadays. This is itself its own topic, under the heading of Labour Law.

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. Thus, in Exchange Telegraph Co v Gregory & Co [1896] 1 QB 147 the defendant company induced a third party to give it stock information, in breach of the third party’s copyright agreement with the claimant. The claimant could not be said to have lost anything - they were prohibited in law from providing the information to the defendant (for sale or otherwise.) Regardless, the court found that the infringement of the claimant’s copyright property fulfilled the damage requirement of the tort.

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. Thus in South Wales Miners’ Federation v Glamorgan Coal Co Ltd [1905] AC 239 the defendant union asked their members to only work intermittently at their employer’s coal mine (effectively, a partial strike.) The miners were paid on the basis of the current price of coal. The defendant union argued that in doing so, they were reducing the supply of coal and thus increasing the price, to the benefit of both its members and the mine owners; in essence, a justification for their tortious actions. As pleasingly novel as this argument might be, it failed.

There is one noted example of illegitimate strike action being held as justified, in Brimelow v Casson [1924] 1 Ch 302. The defendant union represented chorus girls working for a theatre manager. In an attempt to have its members paid properly, it persuaded a number of theatres to break its contracts with the manager. Whilst this constituted inducement of breach, the defendants argued that they were justified in doing so - the chorus girls were paid so little that many of them were forced to supplement their wages via prostitution. This argument succeeded and the claim failed.

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. The defendant lent money to a developer to develop some land. This meant it was a secured creditor, and thus had rights over the land. The claimants were a firm of architects who also had a contract with the developer to work on the land. The loan lapsed, thus giving the defendant a right to call in its debt; this would have resulted in the defendant taking over the land, and the claimants would have had their contract terminated. Instead, the defendant arranged for a re-financing detail, part of which involved the developer appointing a new firm of architects and thus dismissing the claimants. The claimants sued for inducing a breach, but failed - the defendant’s actions were justified since it had a right to effectively end the claimants’ contract by calling in the loan. Instead, it had taken the less economically destructive path of ensuring the development went ahead.

Causing Loss by Unlawful Means

It is also a tort to interfere with the claimant’s trade using unlawful means. For example a defendant might threaten a claimant’s client so that they withdraw business from him. Alternatively, a defendant on a picket line might threaten an employee with violence on their way into work, in order to dissuade him from working for the claimant.

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.

Exam Consideration: Despite the lifespan of the economic torts lasting several centuries, there is still much confusion within the judiciary as to what the different categories of economic tort are, and when they should be applied (and as you might notice, even what they are called!) When dealing with problem questions, you might need to take a leaf out of the judiciary’s book, and apply more than one of the torts to the same set of facts. It’s obviously worth trying to work out which is the best fit, but don’t panic too much if it isn’t immediately apparent.

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. This will sometimes be obvious - so a defendant owner of a delivery company who lets all of the air out of the tires of a competitor’s vehicles clearly shows intent.

Sometimes it is less clear than this, however - 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). There are two important things to note about this case. Firstly, the case was actually decided on the basis that a breach of confidence had occurred (rather than unlawful interference.) Secondly, this case was decided in conjunction with the above discussed case of OBG Ltd v Allan, as well as Mainstream Properties Ltd v Young [2005] IRLR 964. These three cases are known as the ‘OBG Trilogy’ - essentially the most recent developments of both this tort and tort of inducement of breach.

Case in Focus: Douglas v Hello! Ltd (No. 3) [2005] EWCA Civ 595

Hello! magazine took covert photographs of the wedding of the claimants - actors Michael Douglas and Catherine Zeta-Jones. They had a deal with Hello! magazine’s competitor, OK! magazine, stating that they would have exclusive rights to photograph the event. Hello! published the photographs and were sued by the claimants (in conjunction with Ok!). In giving his judgement, Lord Hoffman noted (at 134) that he believed the components of unlawful interference were present. Hello! had taken an unlawful act. This wasn’t aimed directly at OK! - the defendant’s main goal was to get profit from distributing the photos, rather than directly harming the exclusivity of OK! magazine’s publication of them. However, ‘stealing’ the exclusivity was the defendant’s only way of publishing the photos, rather than merely a foreseeable consequence. This satisfied the intent criterion.

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. Take a case where a defendant seeks to advance his own business by pursuing a course of conduct which he knows will, in the very nature of things, be injurious to the claimant. In other words, a case where loss to the claimant is the obverse side of the coin from gain to the defendant. […] If the defendant goes ahead in such a case […] his state of mind will satisfy the mental ingredient…"
- Lord Nicholls, at 165.

This can be regarded as building on the case of Lonrho (below), which also involved an unlawful act which wasn’t made directly against the claimant.

Unlawful Means

Until recently, this criteria was quite wide, including just about any act which a defendant was not at liberty to do - including those prohibited by tort or contract. More recently, however, the scope of what fulfilled the unlawful act criteria was narrowed in OBG v Allen [2007] UKHL 21 (facts above.) At 99, Lord Hoffman provided the following definition: “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. The claimant outfitted a ship (The Tarleton) for the purpose of trading with natives living on the coast of Cameroon. The claimant arrived and sent a smaller accompanying vessel (The Bannister) off to find customers. The Bannister was trading with one of the natives when the defendant’s ship (The Othello) shot one of them with a cannon, killing him and driving off the natives who were trading with The Bannister. The claimant brought a case against the defendant for unlawful interference with his trade. This claim was successful. Modern forms of violence will be a little less overt in their nature (although you can always hope for a cannon-based problem question.)

Fraud and misrepresentation are also covered by this tort, as per National Phonograph Co Ltd v Edison Bell Co Ltd [1908] 1 Ch. 335. The defendants purchased products from the claimants for resale. One of the conditions of the supply contract was that the products were to be sold at a set price. The defendants ignored this stipulation, and were placed on a list of suspended clients, blocking them from dealing with the claimants. In order to get around this, the defendants had their employees act as independent retailers, who bought from the claimants and then furnished the goods to their employer. This practice was itself a breach of contract - the employees weren’t allowed to give the stock they had bought to their employer by merit of their suspended status. The claimants found out about the ruse and sued for unlawful interference, on the basis that the defendants had made a fraudulent misrepresentation to impose a loss on the claimants (in the form of undermining their pricing practices.)

A more modern version of fraud can be seen in Lonrho v Fayed [1990] 2 QB 479. Both the claimants and defendants were attempting to place bids for the purchase of London department store Harrods. The claimants had their bid investigated by the Monopolies and Mergers Commission, but due to fraud on the part of the defendants, their bid was not. This effectively held up the claimants’ bid, and the defendants secured the deal. When the fraud became apparent, the claimants sued for unlawful interference and were successful - even though the unlawful act wasn’t ‘aimed’ at the claimants.

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. The claimant was a draughtsman employed by a third party company, BOAC. He had a disagreement with the defendant union (AESD), and left it. BOAC had a deal with the defendant union, whereby they wouldn’t employ anyone who wasn’t a member. The defendant then threatened an illegitimate strike of its members if the claimant wasn’t dismissed (essentially, a threat that its members would breach their contracts - which included a no strike clause.) The claimant was suspended, and eventually dismissed. He then sued the defendant union, on the basis that they had threatened an unlawful act (an unlawful strike) with the intention of interfering with his livelihood. This claim was successful. Reid noted that, like a threat of violence, the threat of an unlawful strike was just as much a coercive weapon.

This suggests that threatening a breach of contract can very much be considered unlawful interference. There exists a notable theoretical oddity here, however - the ‘two party intimidation’ scenario. Because breach or threatened breach of contract can constitute unlawful interference, this means that it is possible for a situation to arise where one party to a contract threatens the other with breach, creating a cause of action to arise in both contract and tort. For example, a steel supplier with a contract with a car manufacturer might threaten to fail to upkeep their half of a deal in order to get a more preferable price for their goods. This would be both a breach of contract, and the tort of unlawful interference (under the precedent set by Rookes). Since contract has certain rules which limit recoverable damages and tort does not, this would mean a claim for breach of contract could effectively be decided in tort terms, thus skirting established contract law principles. Lord Hoffman’s comments in OBG Ltd v Allan (discussed at the top of this section), suggest such a situation would not be recoverable (since he emphasises the need for a third party to be the subject of such interference).

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.) The defendant breached sanctions making it a criminal offence to supply Rhodesia (now Zimbabwe) with oil. The claimants brought a case against them, arguing that this helped the regime in power to survive and therefore causing the sanctions to remain in place for longer, harming the claimant’s business interests in the area. This claim failed - unlawful interference required intention to harm, and whilst the defendant’s actions had certainly harmed the claimants, this could not be said to be an intention of the claimant. This also demonstrates the use of malice as a gatekeeping mechanism for this tort - if intention to harm the claimant was not a prerequisite, then the number of claimants for a given unlawful act could be potentially huge.

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. In a similar rationale to the concept of conspiracy in criminal law, 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. This tort is particularly relevant considering the often complex business structures of modern corporations and financial entities.

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). The tort is essentially one of acting in a legal manner, but in such a way that the aim is clearly economic injury of another, rather than self-profit. 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.

Case in Focus: Quinn v Leathem [1901] AC 496.

The defendants (Quinn et al.) were the head and officers of a butchers’ union. The claimant (Leathem) was a butcher who employed some non-union members. The union put pressure on the claimant to fire the non-union employees. The non-union employees attempted to join the union at one of their meetings, but were prevented from doing so. This was apparently out of spite - the union are quoted as wishing that one of the applicants should be made homeless, along with his nine children. The union then put pressure on the butcher to fire his employees and hire those of the union. This involved pressuring the claimant’s wholesale customers to stop trading with him, putting the claimant on blacklists, and eventually buying out the claimant’s staffs’ contracts so that they quit.

This series of actions was held to be conspiracy to injure - the actions of the union were beyond that which were legitimate for furthering their own interests, and were undertaken with the intention of injuring the claimant’s interests.

This can be contrasted with Crofter Hand Woven Harris Tweed Co v Veitch [1942] AC 435. The claimants were non-union weavers of Harris Tweed, employed by the larger Harris Tweed Association. The defendant union (Veitch, on behalf of the Transport and General Workers Union) had many members who were also employed by the Harris Tweed Association. In the face of decreasing wages, the union wished to bring all of the weavers employed by the Association into its membership, so as to increase its bargaining power. To this end, it introduced an embargo against the non-union weavers. Since the union also controlled the docks through which both raw materials and finished goods travelled, this meant that the non-union weavers were essentially prevented from operating. The claimants thus brought a case against the defendants on the basis of conspiracy to injure. 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.

Thus, as long as nothing unlawful has happened, and no contracts have been breached, and the defendants can show that they were simply seeking a benefit, then no case for conspiracy will arise. This is important - since it allows trade unions to operate without the threat of tortious liability. This also illustrates the primary defence to an accusation of conspiracy - that the action taken is justified (usually as a matter of everyday economic competition.) 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. One of the defendants in the case, a trade union official called Silverstone, wasn’t employed by the claimant company at all, and thus his involvement was merely helping to organise the actual unlawful action of the illegitimate strike. Nonetheless, since he was a co-conspirator with those who were actually going on strike, he was held liable in conspiracy.


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