Are Intentional Interference In Contractual Relations and Intentional Interference In Economic Relations the Same Thing?

The Interference Torts, Being Interference In Contractual Relations or Interference In Economic Relations Are Very Similar. Interference In Contractual Relations Involves Intent to Cause a Party to Breach a Specific Contract. Interference in Economic Relations Involves Intent to Disturb General Business Activity.

Understanding the Intentional Interference Torts Including the Differences Between Each

Lawsuit Document Intentional interference in contractual relations and intentional interference in economic relations are closely related and both fall within the scope of law known referred to as the business torts.  While each are separate torts, there are cases where both forms of interference appear together; however, it may be found that one, or the other, becomes redundant.  Additionally, whereas both interference torts require the involvement of a third person, albeit a person who may also be a party, the tort of conspiracy to injure may also appear within these cases.  As below, a brief study of the differences and the elemental variations between the two forms of tortious interference indicates close relations, sometimes overlap, while also showing that each can occur independently.

Intentional Interference in Contractual Relations

The tort of intentional interference in contractual relations dates back to 1853 and the English case of Lumley v. Gye, [1853] EWHC QB J73; 188 E.R. 749 which involved a singer, Ms. Wagner, who was under a contract to provide singing performances in a theatre owned by Lumley.  Gye, who owned a competing theatre, convinced Ms. Wagner to breach the agreement with Lumley and to instead perform at the theatre owned by Gye.  Lumley brought legal action against Ms. Wagner and Gye; however, whereas Gye was without any contractual obligations in favour of Lumley, Lumley alleged that the intentional interference by encouraging or persuading Ms. Wagner to breach a contract that was known to Gye was a tortious wrong inflicted upon Lumley.  The court of the Queen's Bench agreed and the tort of intentional interference in contractual relations was born.

Required Elements

To prove an intentional inference in contractual relations case, four elements must be satisfied as described by the Court of Appeal in Drouillard v. Cogeco Cable Inc., 2007 ONCA 322, which also involved breach of an employment contract, and wherein it was stated:

[26] I will turn now to the tort of inducing breach of contract.  To succeed on this basis, Drouillard must prove the four elements of the tort which are as follows:

(1) Drouillard had a valid and enforceable contract with Mastec;

(2) Cogeco was aware of the existence of this contract;

(3) Cogeco intended to and did procure the breach of the contract; and

(4) As a result of the breach, Drouillard suffered damages.

If the four elements of the tort have been made out, I need then to consider whether the defence of justification is available to Cogeco.  See Posluns v. Toronto Stock Exchange and Gardiner, 1964 CanLII 199 (ON SC), [1964] 2 O.R.  547, [1964] O.J.  No.  792 (H.C.J.), affd 1965 CanLII 32 (ON CA), [1966] 1 O.R.  285, [1965] O.J.  No.  1091 (C.A.), affd 1968 CanLII 6 (SCC), [1968] S.C.R.  330, [1968] S.C.J.  No.  19.  See also Waxman v. Waxman, 2004 CanLII 39040 (ON CA), [2004] O.J.  No.  1765, 186 O.A.C.  201 (C.A.), leave to appeal to S.C.C.  refused [2006] S.C.C.A.  No.  486.

Of notable interest, it appears that the law is of the view that a desire that a contract be breached is unnecessary to make out the intentional interference in contractual relations tort; and accordingly, it would seem that some texts refering to the tort as wrongful inducement of breach of contract may be a misnomer.  This view that a desire for breach of contract appears in Drouillard which suggests that tortious conduct will be proven where a known contract is sufficiently inteferred with that a breach results.  Specifically, it was stated that:

[33] Although there is no direct evidence that Cogeco wanted Mastec to terminate Drouillard's employment without reasonable notice, it is clear from the trial judge's findings that he was satisfied that Cogeco was not concerned about the terms of Drouillard's termination and that Cogeco acted intending to cause a breach of Drouillard's employment contract, or with substantial certainty that its conduct would result in a breach.  In my view, that finding was open to the trial judge and, therefore, the requirement of intent has been met.  See Fasson Canada Inc.  v. Mediacoat Inc.  (Trustee of), [1993] O.J.  No.  2228, 42 A.C.W.S.  (3d) 989 (Gen.  Div.), affd [1996] O.J.  No.  3532 (C.A.).

[34] From the jurisprudence, it is not clear whether in order to succeed the plaintiff must show an unequivocal breach of the contract or whether something short of this will suffice.  Some authorities suggest that the requirement can be met if the interference results in the contract being terminated in accordance with its terms or if the contract is made more difficult though not impossible to perform.  [See Note 2 below] Beyond acknowledging these strands in [page442] the case law, I do not find it necessary to further address or resolve these issues in the present case.

[35] Although the requirement that the contract be breached is not directly addressed by the trial judge in his reasons, it is apparent when reading his reasons as a whole that he was satisfied that Mastec breached its contract with Drouillard.  This logically follows from his specific reference to Drouillard being entitled in tort for damages against Cogeco for the wrongful act of "procuring its breach" and from the fact that throughout his exposition on damages, he refers to the damages as being awarded for the tort of "inducing breach of contract".

[36] The record contains little detail concerning the terms of Drouillard's employment agreement with Mastec or of the severance that Drouillard was entitled to receive.  It would have been preferable if the trial judge had made findings as to the terms of the agreement and identified which terms were breached and explained the basis for his findings.  His failure to do so is, however, understandable given that the claim against Mastec for breach of contract had been settled.  There was, therefore, no claim for breach of contract.  Although a finding that the contract was breached is a necessary element to the tort claim against Cogeco, this finding is clearly implied.

Per Drouillard at paragraph 26, it is notable that justification is an available defence.  As to what the extent of justifiable circumstances may be is beyond the extent and intent of this article; however, it would obvious that common and routine practices within the world of commerce would be justified including, and despite that the Lumley case and the Drouillard case, arose from the breach of employment contracts, the advertising for and interviewing of prospective employees would, when done in a bona fide manner, and where any subsequent employer is without conduct involving inducement of behaviour that may breach an existing contract, such as encouraging resignation without proper notice to an existing employer, such interference would be justified.

Extra Special Notes

In addition to status as a tortious cause of action for which a claim may be based, the tort of intentional interference in contractual relations has a very interesting position in business law whereas absence of the tort may be argued far more than the presence of the tort.  This quirk or oddity arises due to the significant relationship that intentional interference in contract relations carries in respect of the law relating to corporate veil principles involving persons who, while acting on behalf of a corporation, make decisions or act in such a way as to cause a corporation to breach a contract.  The rule in Said v. Butt, [1920] All ER 232, which is articulated within ADGA Systems International Ltd.  v. Valcom Ltd., 1999 CanLII 1527 makes the tort of intentional interference in contractual relations arguably one of the most significantly important cases relied upon within matters lacking the tort as a cause of the action itself.

Intentional Interference in Economic Relations

The tort of intentional inteference in economic relations is another business and while similar, and possibly coinciding with intentional interference in contractual relations, holds some key differences.  As per the Court of Appeal in Grand Financial Management Inc. v. Solemio Transportation Inc., 2016 ONCA 175, the elements requiring proof were stated as:

[62]  The trial judge properly identified the three essential elements of the tort as traditionally understood: first, the defendant must have intended to injure the plaintiff’s economic interests; secondly, the interference must have been by illegal or unlawful means; and thirdly, the plaintiff must have suffered economic harm or loss as a result: see Alleslev-Krofchak v. Valcom Ltd., 2010 ONCA 557 (CanLII), 322 D.L.R.  (4th) 193, and cases cited therein, leave to appeal refused, [2010] S.C.C.A.  No.  403.

Of particular interest is the element of unlawful means and to what extent must the underlying conduct be illegal or otherwise unlawful.  As stated by the Court of Appeal in Grand Financial Management Inc., while following recent Supreme Court jurisprudence, if the underlying conduct would be sufficient enough as to arise to a cause of action for the party upon whom the conduct was inflicted, the conduct may be an illegal or unlawful means of economic interference.  Specifically, it was said:

[64]  Grand Financial’s main argument on the cross-appeal is that the trial judge erred in his application of the “unlawful means” criterion for the establishment of the tort.  It points out that the trial judge did not have the benefit of the recent decision of the Supreme Court of Canada in A.I.  Enterprises Ltd.  v. Bram Enterprises Ltd., 2014 SCC 12 (CanLII), [2014] 1 S.C.R.  177 – which was still under reserve at the time of trial – and suggests that the analysis of the tort in that case leads to the conclusion that the trial judge erred in holding Grand Financial liable.

[65]  I disagree.  That A.I.  Enterprises did not change the essential elements of the tort is apparent from the following succinct description of its parameters by Cromwell J.  at para.  23:

The unlawful means tort creates a type of “parasitic” liability in a three-party situation: it allows a plaintiff to sue a defendant for economic loss resulting from the defendant’s unlawful act against a third party.  Liability to the plaintiff is based on (or parasitic upon) the defendant’s unlawful act against the third party.  While the elements of the tort have been described in a number of ways, its core captures the intentional infliction of economic injury on C (the plaintiff) by A (the defendant)’s use of unlawful means against B (the third party).  [Emphasis added.]

[66]  The primary issue resolved by A.I.  Enterprises, had to do with “the scope of liability for [the] tort and, in particular, what the unlawfulness requirement means”: at para. 4.  Although there has been no dispute that the unlawful conduct forming the basis for the tort must be intentional and must cause the plaintiff injury, there has been considerable debate in Canadian and international jurisprudence about the scope of the type of conduct that will constitute “unlawful means”.  Should the courts take a broad approach or a narrow approach to this question?  I need not review that jurisprudence here.  After doing so at length, the Supreme Court of Canada settled firmly on the narrow approach in A.I.  Enterprises.

[67]  Writing for the Court, Cromwell J.  made it clear, at para.  5, that “the tort should be kept within narrow bounds” and, at para.  35, that it should be viewed “as one of narrow scope.” In particular, he confirmed, at para. 5, that for conduct to constitute “unlawful means” in this context, it must be conduct that “would be actionable by the third party or would have been actionable if the third party had suffered loss as a result of it.” In this respect, A.I.  Enterprises is consistent with this Court’s analysis in Alleslev-Krofchak and Correia v. Canac Kitchens (2008), 2008 ONCA 506 (CanLII), 91 O.R.  (3d) 353.

As per the phrase used by Supreme Court in A.I. Enterprises, intentional infliction of economic relations is parasitic in that the cause of action arises for the plaintiff where the defendant directly used unlawful means against a third party as the manner of indirectly inflicting harm upon the plaintiff.

Summary Comment

The torts of intentional interference in contractual relations and intentional interference in economic relations are two important key torts applicable to the business world.  While both involve some form of business disruption delivered upon the Plaintiff and a corresponding loss, only the intentional interference in economic relations requires a mala fide element albeit an illicit intent may exist within an intentional interference with contractual relations.

Furthermore, whereas intentional interference in contractual relations holds a key position in the understanding of, and application of, corporate veil concerns, this tort is often highly relevant to legal arguments involving personal liability of directors and officers, among others, who act on behalf of a corporate principal.

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