- Vaishnavi G Nair, a student at the National University of Advanced Legal Studies
Abstract
Economic torts or business torts incorporate within its ambit, primarily legal wrongs stemming from business transactions, that may or may not result in economic loss. This article examines the evolution and structure of economic torts through a series of case laws that are testimony to the crucial role of judicial innovation in the ever-increasing scope of this field of law. The article also delves into the doctrinal complexity and the resultant legal uncertainty, in this area of law.
Introduction
Economic torts, often called business torts, include a bunch of torts that mainly arise from business transactions and are likely to cause pure economic loss. The term is used to describe the tort of procuring a breach of contract, unlawful interference, intimidation and conspiracy. It is also applied to other torts like malicious falsehood, passing off, slander of title, wrongs in respect of patents, trademarks or breach of copyright.
The scope of economic torts has expanded widely in the last couple of years. The great expansion of the scope of this field resulted in major changes in not just the technical rules, but also in the alteration of some of the underlying principles on which these rules are based. These torts have, for a long period of time, resisted attempts at synthesis. Surprisingly, the economic literature on the economic torts is also scarce, when compared to that of the physical ones. A great deal of academic discussions on economic torts can be traced back to the period following the landmark judgement of Rookes v Barnard. In response to this judgement, Tony Weir argued that these torts faced a choice between ‘chaos’ and ‘cosmos’. Apart from Weir, the development of economic torts has also been influenced by the work of scholars like Hazel Carty, Peter Cane.
Stream & Structure of Economic Torts
In order to understand the modern structure of economic torts, it is important to go back in time, to the first stage in the evolution of these torts. This was the period in which the great cases of Mogul Steamship v McGregor, Gow and Co and Allen v Flood were decided.
In the first case, the plaintiff was put out of business by its competitors. Liability was denied in this case as the court observed that the law recognised the right to trade freely.
The second case involved an inter-union dispute. The defendant was an official of one union and the two plaintiffs, were workers of a different union. The defendant convinced the employer of the plaintiffs to dismiss them. At the time, all workers were employed on what were called minute contracts. These contracts could be terminated on a minimal notice and therefore, triggered no threat of strike. Due to the nature of these contracts, the termination of the plaintiff’s contract did not amount to a breach or threatened breach of contract, nor was there inducement to breach of contract. This case was, however, same as that of the previous one as this case was that of competition in labour, which was analogous to competition in trade, as seen in Mogul Steamship v McGregor, Gow. Thus, the same principles applied to both. This situation resulted in a lot of uncertainty
In Quinn v Leathem, shortly after Allen v Flood, the House of Lords decided that a conspiracy aimed at causing harm to the plaintiff in his trade or business was actionable, if the same was motivated by malice against him. About 40 years later, in the Crofter case, ‘malice’ was interpreted as absence of economic justification. In other words, it was held that the critical issue to be considered was whether the conspiracy or combination could be justified by the group’s economic self interest.
Rookes v Barnard explicitly held what had been implied in Allen v Flood. It held the defendant liable in tort if he had intentionally injured the plaintiff and if the means that he used to do so were unlawful in the sense that it involved an act or threatened act that he was not at liberty to commit, under the civil or criminal law. Rookes and Allen were more or less the same, the only difference being the fact that the workers involved in the former case were employed under contracts that had long notice periods. In Rookes v Barnard, it was also held that in cases where the use of unlawful means were involved in the combination or conspiracy to harm the plaintiff, it was not necessary to show malice. In other words, this meant that collective economic self interest was no more a defence. Thus. malice had to be shown only in cases where purely lawful means were used. This articulated the nature of the conspiracy to injure’ tort, laid down in Crofter and Quinn v. Leathem
The structure of tort liability that arose from these decisions was not a well-defined or profound
one. But it was, by no means illogical or indefensible. The economic tort could be grouped into 3
on the basis of types of liability.
The first group involves those torts that directly interfered with the pre-existing legal rights of
the plaintiff. Inducing breach of a fiduciary or statutory duty owed to the plaintiff, inducing
breach of contract (the tort established by Lumley v Gye), are some of the major examples of torts falling in this category. In this group, intentionally depriving the plaintiff of his legal rights arising under a contract, was the main wrong.
The second category of liability within the areas of economic torts, was derived from Rookes v Barnard. This involved cases wherein the defendant, using unlawful means, intentionally interfered with the trade, livelihood or business of the plaintiff. The plaintiff did not have to show that he had been intentionally denied the benefit of performance of contract, but, on the other hand, it was necessary for the plaintiff to show that the action of the defendant had been targeted or aimed at him, in addition to it being unlawful. This requirement, through its specification that the defendant’s action must be ‘targeted’ at the plaintiff, ensures that the incidental or unintended victims have no cause of action under this tort, no matter how unlawful the means used or how foreseeable their loss was.An extension of the tort clarified in Rookes was that of unlawful means conspiracy. This tort required unlawfulness and intention as well as combination. A lack of malice was not a defence to evade liability.
The final category was that of lawful means conspiracy. This category was slightly different from the other two, as tort was made out even if there was no interference with a pre-existing right of the plaintiff or the use of unlawful means.Unjustified combination leading to economic harm was the essence of this tort. Therefore, malice was required.
Judicial Innovations & the Resultant Chaos
Decisions such as Crofter and Rookes v Barnard opened up new avenues of liability and proved to be the catalyst for a series of judicial innovations throughout the mid-1960s to the mid-1980s. These innovations, however, resulted in further uncertainty and threw economic torts into chaos, all over again.
In this period, some of the most controversial cases that were decided arose at the point of division between the torts of interference with trade or business and that of inducing breach of contract. The circumvention of the requirement that in the tort of interference, the defendant should have been targeting the plaintiff, enabled the third parties who were affected by industrial action, without being principal targets, to bring claims for injunctions or damages against the organisers of that action. This was gradually done through the expansion of the tort of inducing breach of contract. Intention to injure was not a requirement for the tort of inducing breach of contract, which meant that the intention of the defendant to interfere with the pre-existing contractual rights of the plaintiff would suffice.
In the Torquay Hotel case, liability beyond inducement of a breach to interference with contractual performance falling short of breach was extended. In this case, liability was imposed on a trade union official who issued a call for industrial action. He did so with the aim of disrupting oil supply to the plaintiff’s business. The plaintiff had no cause of action against his supplier because of a force majeure clause. This clause specifically exempted the supplier in the case of a supply interruption caused by an industrial action. The Court of Appeal made out a tort where a third party hinders one party or prevents him from the performance of his contract, even though it is not a breach. Moreover, it was not necessary for the defendant to have precisely known the contents of the contract. It was merely enough for him to have been aware of the existence of the contract and despite having the knowledge of the existence of the contract, acted in disregard for the consequences of his action, with respect to relevant interference.
These principles were affirmed by the House of Lords in Merkur Island Shipping Corp v Laughton. In this case, action was brought against a union official (defendant) by a shipowner (plaintiff). The latter’s vessel was blocked by a boycott organised against it by the former. Once against, no action could be brought against the suppliers of the plaintiff because of a force majeure. Nevertheless, an injunction was gained against the defendant. Thus, the supposed tort of ‘wrongful interference with contractual relations’ emerged.
Now that bare interference with contractual relations, falling short of breach was considered tortious, both the parties to the contract could bring a claim. On one hand, the promisee could bring a claim because he had been denied his expectations under the contract and on the other hand, the promisor could bring a claim by showing that the defendant’s action had caused or threatened to cause him loss. This is what had happened in the Dimbleby case. In this case, the plaintiff claimed for an injunction to prevent interference with commercial contracts to which he was a party. The effect of such interference being the increased difficulty or expense trhat he had to face during the performance of those contracts. The plaintiff was successful in his claim.
Falconer v Aslef made a further step towards the expansion of liability in economic torts. This County Court case was a testimony to the fact that merely foreseeable or incidental victims of an industrial action had a good prospect of bringing a claim for damages or an injunction against the organisers of that action. The former is what had happened in Falconer. For this purpose, these incidental victims merely had to show that they were parties to a commercial contract, the performance of which was hindered by the relevant industrial action. In this case, it was a rail strike that stranded the plaintiff in London overnight
The OBG Decision & Changing Legal Positions
The entire line of decisions beginning with that of the Torquay Hotel was cast in doubt with the decision in OBG Ltd v Allan. The OBG decision reverted to the classical position that an actual breach of contract is sine qua non for liability, for the tort that was established by the decision in Lumley v Gye (inducing a breach of contract)
In OBG, an engineering company was the principal claimant. This company had been the subject of an invalid receivership. The receivers had terminated commercial contracts between the claimant and various third parties, acting under the belief that their appointment was valid. They had settled many outstanding claims at what could be considered a considerable undervalue, based on the findings of a trial judge. Then, the claimant had gone into liquidation. A major foundation on which the case was argued was that the receivers had committed the tort of wrongful interference with contractual relations. Even though the judge ruled in favour of the claimant, the Court of Appeal reversed the decision, by a majority, on the grounds that there was no intentional interference by the defendants, with the contracts in question. The House of Lords rejected an appeal on the grounds. According to Lord Hoffman, there wasn’t any breach or non-performance of any contract. This judgement significantly limited the scope of the tort of interference with trade or business.
A contrary legal position was presented by the dissenting judgement of Mance LJ in this case. According to him, the receivers should have been held liable for their interference with the contract. He held that the tort covered the situation where there was an alteration in the pre-existing legal position even though there was no breach or non performance of any obligation to a third party, involved. He believed that a central question was whether the tort was capable of covering a situation wherein an unauthorised agent takes over the handling of a contract with an intention of performance by settlement of rights and obligations but ends up causing a loss to the principal, which he otherwise would not have suffered.
This brief account of the evolution of economic torts is a clear indication of its great doctrinal complexity. Judicial innovation and the resultant variations in legal positions on the requirements for various economic torts, from time to time, resulted in utter chaos in the field, which was nothing short of a doctrinal turbulence.
Conclusion
A look into the evolution and changing nature of economic torts is sufficient to give us a detailed account of the doctrinal complexity of this area of law. The scope of economic torts has expanded widely in the last couple of years. The great expansion of the scope of this field resulted in major changes in not just the technical rules, but also in the alteration of some of the underlying principles on which these rules are based.
The role that has been traditionally attached to these torts is that of policing competitive conflict. But, these torts have often been used to overcome the shortcomings of existing civil wrongs. This phenomenon can be seen in the OBG litigation. Two main concerns that guided Lord Hoffmann to arrive at the OBG decision were – judicial reluctance to assess fairness in competition and the need for certainty in the legality of commercial activity This can be seen as an attempt to use economic torts to protect third parties economically harmed by a breach of confidence and to improve on the tort of conversion. In cases like Barber v Vrozos, Diver v Loktronic Industries Ltd, Hardie Finance Corp Pty Ltd v Ahern and Agribrands Purina Canada Ltd v Kasamekas, the limits of contractual protection were tested using economic torts.
The economic torts are always evolving. Even though economic torts have come a long way since its inception, there is still a long way to go. As far as minimising uncertainties is concerned, the boundaries of this vast area of law are yet to be marked.
