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The current state of the law of economic torts.

Introduction

The three appeals considered by the House of Lords under the lead name OBG Ltd. v Allan [1]were concerned with claims in tort for third party economic loss caused by intentional acts, and were heard consecutively because the legal issues overlapped. [2]

The current state of the law of economic torts [3] has been described as “ramshackle”.

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[4] Some commentators have suggested this is because this area of the law lacks the kind of general principle applied by Lord Atkin in Donoghue v Stevenson [5]which successfully unified the law of negligence. [6] Others believe that such generalisation is neither possible nor desirable [7], and that there is no ‘genus’ tort that provides a base for all the economic torts. [8]

The grounds for action presented in these three cases were: [9] (1) interference by unlawful means with contractual relations; [10] (2) interference by unlawful means with contractual or business relations; [11] (3) wrongfully inducing breach of contract. [12], [13]

The issue which the Lords took this opportunity to address was whether three such separate heads of tort exist or whether they might be rationalised within a ‘unified theory’. Most publicity surrounding thecase centred on the celebrity wedding and much of the expectation in the legal journals was focussed on right to privacy issues. [14]

In the event the House effectively erased all of twentieth century caselaw from the three party economic torts.

The key dicta were: (1) inducing breach of contract should continue to be considered a distinct category of tort and not be subsumed within the general category of unlawful interference with business, [15] and; (2) unlawful interference with contractual relations should not be a separate head of tort but should be considered under the conditions of liability for unlawful interference with business.[16] To understand the significance of this decision we must review the history of the economic torts to discover how we got into “our present pickle?” [17]

Economic losses are a difficult area of law in a free market since one business may suffer losses, or even be put out of business, by the lawful competition of a rival. The courts have no role to play in this normally, and economic orthodoxy considers there are consequent gains for consumers, producers and workers.[18] Historically in English common law unlawful interference in trade was actionable. Lord Hoffman [19] citesGarret v Taylor [20]where a business was harmed because the defendant “imposed so many and so great threats upon … all comers … threatening to mayhem”, and Tarleton v M’Gawley [21], where the tort lay in “firing a cannon at negroes and thereby preventing them from trading with the plaintiff.” [22] Thankfully, by the turn of the century, in Carrington v Taylor, [23] it was only ducks that were being shot at in a dispute over wildfowling rights:

where a violent…act is done to a man’s … livelihood ; there an action lies in all cases. [24]

Such cases are straightforward because, the defendant’s liability is primary. The respective acts of threatening mayhem and discharging ordnance at potential customers are clearly in themselves unlawful. But the law of torts has inevitably grown and been modified over the centuries, in response to changing conditions within society, [25] and as the ingenuity of the industrialists and entrepreneurs of Victoria’s Empire developed more subtle ways of influencing the customers.

The courts’ attitude to the nineteenth century free-market was crystallised in Mogul Steamship Co Ltd v McGregor, Gow & Co [26], which established the boundaries of lawful competition as whatever is “neither forcible nor fraudulent.” [27] A number of ship owners had entered into a league and had applied “sharp practices and power plays” [28] in seeking to control the tea trade from certain Chinese ports, but nothing that was actually unlawful:

To say that a man is to trade freely, but that he is to stop short at any act which is calculated to harm other tradesmen…would be a strange and impossible council of perfection. [29]

The authority for all inducing breach of contract cases is Lumley v Gye. [30] Two rival theatre owners were vying for the services of the opera diva Johanna Wagner, neice of the famous composer. Lumley had contracted Wagner to sing twice a week at Her Majesty’s Theatre for a payment of ?100 per week.[31] Wagner subsequently agreed with Gye that she would sing at Covent Garden for a “larger sum.” [32] Lumley raised an action against Gye for “maliciously procuring” a breach of contract. [33]

The case which completed the triangular foundation on which twentieth century economic tort law was to be constructed was Allen v Flood. [34] In essence this case simply extended the principle of Mogul Steamship Co. to labour disputes. In the same way that rival businesses are free to cause harm to one another in lawful pursuit of their own interests, so too is an employee free to cause economic harm to a rival employee (by getting him laid off) as long as no unlawful means are employed.[35] Such an analysis seems perfectly reasonable with a century of hindsight but the social mood of the time was perhaps less comfortable with it. [36] The Lords specifically rejected the proposition that liability might arise whenever one person did damage to another wilfully and intentionally without just cause and excuse. [37]

Since Allen liability has turned on intentional procurement of an actionable wrong or the deliberate use, or threatened use, of illegal means directed against the claimant. [38] In respect of the House of Lord’s judgement in OBG, the law could have stopped here, but over the next century several false trails were followed.

The seeds of confusion, [39] were sown by Quinn v Leathem. [40] This case involved “boycotting by trade unions in one of its most objectionable forms,” [41] but as ever it wasn’t the details of fact that caused confusion but the details in the dicta. Two key passages were identified by Lord Hoffman, purporting to re-state the basis of Lumley v Gye: (1) “it is a violation of legal right to interfere with contractual relations recognised by law” [42] and; (2) “The principle which underlies the decision reaches all wrongful acts done intentionally to damage a particular individual.” [43] The problem with these respective passages is: (1) Lumley wasn’t founded on merely interfering with a contract but on inducing an actual breach of a contract and; (2) inducing a breach of contract isn’t of itself a wrongful act but only attracts secondary liability once there’s been a breach.

In Sorrell v Smith [44]Lord Dunedin was prompted to invoke the prayer of Ajax in an attempt to clear the “fog of battle” from this area of law, but a ‘penumbra of doubt’ [45] nonetheless continued to hang over cases where there was interference with contractual performance but no actual breach of contractual obligations. “The muddle set in” [46], when DC Thomson & Co Ltd v Deakin [47]consolidated the unified theory that considered inducing breach of contract to be a species of the more general tort of unlawful interference with contractual rights. [48]

Throughout the twentieth century as the law worked to connect the various islands of the “archipelago” that was the common law of economic torts [49] with stepping stones of caselaw, it was invariably in the trade union disputes that the lords ran the greatest risk of getting their feet wet. In Torquay Hotel Co Ltd v Cousins [50] L.Denning declared:

The time has come when the principle should be further extended to cover deliberate and direct interference with the execution of a contract without that causing any breach. [51]

The creation of this tort of interference with contract has been much criticised and has not been supported by later authority. [52] Rather judges have stressed “the limits which as a matter of policy the court must place on the principle of Lumley v Gye”. [53] For Lord Hoffman all this confusion has arisen from attempts to apply the unified theory [54] and he thinks “it is time for the unnatural union between the Lumley v Gye tort and the tort of causing loss by unlawful means to be dissolved.” [55]

He believes commentators like Tony Weir seek to confer too broad an ambit on the tort of causing loss by unlawful means, [56] and sides with those who are critical of Weir’s “Herculean” ambition to unify the economic torts, believing that “clarity is not in itself sufficient reason for accepting a particular factor as a determinant of tort liability.” [57] Weir himself sees the “illegitimate tort of interference with contract” [58] as the problem, and the confusion as arising from interpretations of Lumley that focus on the plaintiff’s rights rather than the defendant’s wrong. [59] This has got the law into the position where we see “honest demonstrators enjoined from putting their views to the supermarketing public”, [60] and “a singer sued for not singing by those for whom she never agreed to sing.” [61], [62] Some commentators have even suggested a possible analysis of Lumley in terms of “ownership or possession” and “rights in rem.”[63]Certainly some early Scottish cases based on the delict of harbouring of employees have more of a feel of invasion of res corporales [64] than anything to do with contract. [65] However almost everyone had long identified a pressing need for an authoritative definition of the tort of unlawful interference with trade. [66]

The House of Lords therefore took this belated opportunityto answer Ajax’s prayer and we can now say that following their decision in OBG the law is as follows:

To be liable for inducing breach of contract:

(1)you must know you are inducing a breach and that the act you are procuring will have this effect, it is not sufficient that the breach was merely a foreseeable consequence of your action.

(2)you must have knowledge not just of the existence of the contract but of the essential terms relevant to the breach.

(3)the claimant must have been intentionally targeted, whether the breach was an end in itself or the means to some further end.

(4)there must have been an actual breach: “no secondary liability without primary liability.”

Liability for causing loss by unlawful means requires:

(1)wrongful interference with the actions of a third party in which the Claimant has an economic interest.

(2)intention thereby to cause loss to the Claimant whether or not the loss was an end in itself or the means to an end.

(3)wrongful interference would be any act actionable by that third party or which would have been actionable had he sufferd loss by it, and would exclude acts which may be unlawful against a third party but which do not affect his freedom to deal with the Claimant.

Many of the journal articles about this decision focus on the confidence and privacy issues, [70] but reaction to this clarification of the economic torts seem mainly positive, with expectation that there should be fewer cases where claimants cherry-pick the most favourable features of each tort and ignore the requisite limiting features. [71]

BIBLIOGRAPHY

Bagshaw, R. Can the Economic Torts be Unified (1998) 18 OJLS 729

Caddick, A. The Wedding Crashers – Take 6 157 NLJ 8

Carty, H. Intentional Violation of Economic Interests: The Limits of Common Law (1998) (104)LQR

Dugdale, A.M. & Jones, M.A. (editors) Clerk & Lindsell On Torts, 19th edition, London, Sweet & Maxwell, 2006

Financial Times (2nd August 1982)

Harvie, C. Revolution and the Rule of Law in Morgan, K.O. ed. The Oxford Illustrated History of Britian, Oxford University Press, 1988

Heuston, R. Juridicial Prosopography (1986) 102 LQR 90

House of Commons Research Library, HCRL 99/20

Kolbert, C.F. (translator), Justinian The Digest of Roman Law: Theft, Rapine, Damage and Insult, Penguin, 1979

Lynch, M. Scotland A New History, Pimlico, 2006

McIntyre, E. & Wisely, I. Public and Confidential 2007 52(6) JLSS 18

McLaren, J. Nuisance Law and the Industrial Revolution (1983) 3 OJLS 155

Michalos, C. Douglas v Hello! – The Final Frontier 2007 18(7) Ent LR 241

Mitchell, G. Economic Tort (2007) 157 NLJ 919

Muirhead, J.S. An Outline of Roman Law, William Hodge & Co. Ltd., 1937

O’Dair, R. Justifying An Interference With Contractual Rights (1991)11 OJLS 246

Oliphant, K. 62 MLR 320 at 322 (review of Weir, T. Economic Torts)

Reid, K. & Zimmermann, R. A History of Private Law in Scotland Vol. II Obligations, Oxford University Press, 2000

Stewart, W.J. Reparation: Liability for Delict Thomson/W.Green 2003 to date (loose-leaf)

Stilitz, D. & Sales, P. Intentional Infliction of Harm By Unlawful Means LQR 1999 411

Thomson, J. Delictual Liability, LexisNexis UK, 3rd edition, 2004

Walker, D.M. The Law of Delict in Scotland Vol II, W.Green, 1966 [Note 2nd revised edition 1981]

Watts, P. Self-Appointed Agents – Liability in Tort (2007) 123 (Oct) LQR 519

Wedderburn, L. Rocking the Torts (1983) 46 MLR 224

Weir, T. A Casebook on Tort, 6th edition, London, Sweet & Maxwell, 1988

Weir, T. Economic Torts, London, Clarendon Press, 1997

Zimmermann, R. The Law of Obligations, Oxford University Press, 1996

CASES

Allen v Flood [1898] AC 1

Carrington v Taylor (1809) 11 East 571 [HeinOnline]

Couper v Macfarlane 1879 6 R 683

D C Thomson & Co Ltd v Deakin [1952] Ch 646

Dickson v Taylor 1816 1 Mur 141

Donoghue v Stevenson [1932] AC 562

Douglas v Hello! Ltd [2003] EWHC 786 (Ch)

Garret v Taylor (1620) Cro Jac 567, 2 Roll Rep 162 [HeinOnline]

Lumley v Gye (1853) 2 E&B 216

Lumley v Wagner 1 De GM&G 604

Mainstream Properties Ltd v Young [2005] EWCA Civ 861

Middlebrook Mushrooms v TGWU [1993] IRLR 232 (CA)

Millar v Bassey [1994] EMLR 44

Mogul Steamship Co Ltd v McGregor, Gow & Co (1889) 23 QBD 598

Mogul Steamship Co Ltd v McGregor, Gow & Co [1892] AC 25

OBG Ltd v Allan [2007] UKHL 21

Quinn v Leathem [1901] AC 495

Rose Street Foundry & Engineering Co Ltd v John Lewis & Sons Ltd 1917 SC 341

Sorrell v Smith [1925] AC 700

Tarleton v M’Gawley (1790) 1 Peake NPC 270 [HeinOnline]

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

on have not been pleaded.”

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