Keeping economic torts separate and apart, Ontario Bar Association Newsletter, Vo. 13, No. 1 (January 2011)

04 Jan Keeping economic torts separate and apart, Ontario Bar Association Newsletter, Vo. 13, No. 1 (January 2011)

KEEPING ECONOMIC TORTS SEPARATE AND APART
By Nikolay Y. Chsherbinin

The tort of inducing breach of contract is a perplexing yet fascinating legal phenomenon. It arose from the action for enticement of a servant contained in the Statute of Labourers of 1349. Fundamentally, the inducement tort is about persuading a contractor to defect. Perhaps, the most colourful example of this tort comes from the Book of Genesis, where the Devil, disguised in the shape of a serpent, induced Eve to deliberately breach her promise to God not to eat a fruit.

This metaphor introduces an interesting legal quandary: did the Devil intend to use Eve as a means to harm God, or did the Devil intend to use Eve to procure a breach of her contract with God as an end in itself? By virtue of his contract with Eve, God acquired a right in law and an expectation in fact, that Eve would comply with her contractual promise not to eat the fruit. The contract made certain factual and previously licit conduct (eating the fruit) wrongful. God suffered damage, because Eve ate the fruit and this was due to the deliberate acts of the Devil. But what is God’s complaint in law? Is it that the Devil committed an actionable wrong by deliberately procuring Eve to breach her contractual promise to God, or that the Devil induced Eve to harm God? One might argue this is a distinction without a difference. The former, however, is the instance of the inducement tort, while the latter of the tort of causing loss by unlawful means, where the Devil’s lies are unlawful means. Though both torts have strict requirements of intention, what the defendant intends is different in these two torts. Where the inducement tort is alleged, the defendant must intend to and actually procure a breach of a complainant’s contract, while in the tort of causing loss by unlawful means the defendant need to intend to cause harm. More specifically, these torts demand:

Tort of Inducing Breach
The knowledge of contract
Intention to procure the breach of contract
Actual Breach of Contract
Damage

 

Tort of Causing Loss by Unlawful Means
The defendant’s wrongful interference with the actions of a third party in which the plaintiff has an economic interest
Intention to cause loss to the plaintiff
Use by the defendant of unlawful means
Use by the defendant of unlawful means Loss in any form, for example, frustration of economic expectations

Canadian courts’ confusion with regard to the scope and elements of the inducement tort continues to flourish. For example:

2008

In O’Dwyer, the Ontario Court of Appeal found the trial judge erred in imposing liability under the inducement tort, when there was no valid contract: “…one of the essential elements necessary to make out this tort is that the plaintiff has a valid and enforceable contract with a third party…as found by the trial judge, the Rideau-Carlton Raceway had not yet hired the respondent. The raceway was simply contemplating rehiring the respondent for the coming season. Thus, there was no valid and enforceable contract in existence that could result in the application of this tort.”

In Drouillard, the same court reversed the trial judge’s decision which mistakenly awarded damages under the tort of intentional interference with economic relations as opposed to the inducement tort. In assessing damages, the trial judge relied on the defendant’s “wrongful act of procuring [the employment contract’s] breach”, which is one of the requisite elements underlying liability in the inducement tort.

In addition, the refusal of the Ontario Court of Appeal to decide “whether in order to succeed the plaintiff must show an unequivocal breach of the contract or whether something short of this will suffice”, further exacerbated the atmosphere of judicial confusion in Canada about the legitimate scope of the inducement tort. The answer to this question was supplied by the House of Lords in OBG, where it was determined that the breach of a contract “is of the essence”. This statement of the law has since been adopted in Canada.

2009

In SAR Petroleum Inc., the New Brunswick Court of Queen’s Bench found that the motion judge mistakenly identified “an intention to cause loss” as one of the essential elements of the inducement tort. It is worth emphasizing that a desire to harm is not an essential ingredient of the inducement tort, but the tort of causing loss by unlawful means.

In Tireco Inc., the motion judge held that: “[i]f a defendant engages in contractual relations with a third party that, to its knowledge, are incompatible with the third party’s obligations to the plaintiff, the elements of the intent and inducement are established.”

In support of this proposition, the motion judge mistakenly cited the OBG decision, which caused the New Brunswick Court Appeal in SAR Petroleum Inc. to comment: “[w]ith great respect [OBG] does not support [the motion judge’s] proposition.” In addition, the motion judge misstated the elements of the inducement tort concluding that one of: “[t]he elements necessary to found a claim based on inducing breach of contract [is]…the suffering of damages by the plaintiff”. In support, the motion judge cited the Ontario Court of Appeal decision Correia, which does not stand for such a proposition. Instead, the Correia decision, which adopted the elements of the inducement tort as articulated in OBG, requires that: “…(4) the plaintiff suffered damage as a result of the breach”. “Damage” and “damages” differ of course: the former is a form of an injury or loss, while the latter is a sum of money paid in compensation for it.

2010

In Alleslev-Krofchak, the Ontario Court of Appeal found that the trial judge erred in finding that “frustrating [of]…contract could satisfy the requirement of the inducement tort.” The trial judge’s conclusion reflects earlier uncertainty surrounding this element.

Against this background, one can’t help but ask: what a state our law has gotten into, if you have to go to the Court of Appeal to sort out elements of the inducement tort and the nub of liability for assessment of damages that flow from this tort?

The Drouillard, SAR Petroleum Inc., O’Dwyer, Tireco Inc. and Alleslev-Krofchak decisions demonstrate that:

I note, parenthetically, that the tort of intentional inference with contractual relations – referred to in Canada by various nomenclature e.g. the tort of intentional interference with prospective economic advantage, the tort of intentional interference with a trade or business, the tort of intentional interference with economic relation or the tort of unlawful interference with contractual performance – has been eradicated18 from the list of actionable economic torts in England, but it is still alive and well in Canada.

The Nub of Liability

The nub of liability underlying the inducement tort needs to be reassessed. The inducement tort should be viewed as penalizing the inducer’s conduct, rather than compensating the complainant for the breached contractual rights. This is so, because the very classification “tort” suggests that the inducement tort ought to be concerned with the inducer’s harmful conduct. In other words, but for the inducer’s wrongdoing there could be no viable claim in the inducement tort.

Arguably, if properly analyzed, Canadian jurisprudence seems to support the above proposition. For example, in RBC Dominion Securities Inc., Merrill Lynch’s regional manager induced virtually all of RBC’s investment advisors to join his firm. Likewise, in Drouillard, Cogeco’s manager instructed its co-contractor Mastec not to hire Drouillard, resulting in termination of his employment on the day it was to begin. The nub of liability in these cases is not that a complainant’s contractual right is being interfered with, but rather that a stranger to a contract intentionally procured the co-contractor to breach its valid employment contract with the complainant.

The “conduct-centred theory of liability” clarifies the real nub for liability in the inducement tort. It adopts a fault test for breach – akin to a form of strict liability – as its default rule. By concentrating on the complainant’s contractual rights, the courts ignore the Inducer’s wrongdoing. Fixation on rights, redirects attention from the fact that a civil injury, or legal wrong, in itself, forms the basis for liability. The proposed theory will also facilitate the judicial consistency, because liability in the context of the tort of causing loss by unlawful means does not center on the complainant’s contract rights, but rather on the presence of “unlawful means” used by the defendant to harm the complainant.

Conclusion

This article demonstrates that the courts need to learn to clearly distinguish between the rationales of the economic torts. Unless this is achieved, decisions citing misunderstood dicta will continue to flourish. While conceptual simplicity is not necessary for coherent development of economic tort liability in Canada, conceptual consistency is.

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