#10447 - 3. Economic Torts - Aspects Of Obligations

Economic Torts

Procuring Breach of Contract and Causing Loss by Unlawful Means

1. The Two Main Economic Torts

(i) Knowingly/intentionally inducing or procuring another to breach a contract with C

• Key Authority – Lumley v Gye 1853

  • Opera singer had a contract to sing at the claimant’s theatre, the claimant’s rival (the defendant) lured the opera singer to sing at his theatre instead therefore inducing her to breach her contract with the claimant. The defendant’s actions of persuasion constituted ordinary business for him, but the fact that he did so knowing that the singer had a contract with the claimant and the intention for her to breach the contract renders it unlawful.

  • Note that at trial, the claimant failed to establish that the defendant had actually done such things on the facts.

• Some discomfort is felt at the fact that this arguably provides the claimant with two causes of action – both breach of contract and a tort against the inducer by treating the party in breach as an instrument of the inducer.

(ii) Intentionally causing loss by unlawful means

• Key Authority – Tartleton v M’Gawley 1790

  • Using a cannon to drive potential customers from rival ship was classed as intimidation, which constituted unlawful means

• Key Authority – Allen v Flood 1898 –

  • Iron workers objected to the employment of certain ship rights so the union officials instructed that they stop working on a job if ship rights were ever employed again. There was no liability under Lumley v Gye as it was a day by day contract thus not breached, but the ship rights sued the iron workers. There appeared to be no tortious liability but the focus was on the unlawful means – conspiracy and intimidation etc.

2. Historical Confusion

• 20^th Century

  • Courts attempted to unify the two torts thereby muddling up the requirements and expanding their remit

  • They treated Lumley v Gye as an example of unlawful means, relying on circular reasoning what the defendant did wasn’t unlawful in itself but was only unlawful because the law said that intentionally procuring a breach of contract was unlawful.

  • The result was expansion into situations not covered by either tort

    • Covered ‘interference’ with contract by lawful means that fell short of inducing or procuring a breach

    • Expanded liability beyond intentional cases to include mere foreseeability.

• Case Law

  • Middlebrook Mushrooms v TGWU 1993 –

    • Middlebrook Mushrooms dismissed its employees who were represented by the Trade Union, which decided to protest by distributing leaflets outside supermarkets urging people not to buy mushrooms from Middlebrook. This in itself was not urging the public to breach a contract, but merely not to enter into a contract. They were not doing anything unlawful, therefore the Court of Appeal reversed the first instance decision, finding there was no unlawful means.

  • Millar v Bassey 1994 – shows the watering down of “intention”

    • Shirley Bassey pulled out of recording contract, in breach meaning that in turn the producer’s and backing musicians’ contracts were breached which was not intended but reasonably foreseeable. Producer and musicians sued Bassey claiming she had interfered with their contractual rights. Court of Appeal allowed it to proceed to trial treating foreseeability as equivalent to intention.

  • Note that in English law, bad faith does not turn a right into a wrong, compare US law.

3. Clarification and Decoupling by the House of Lords (2007)

• Three Key Cases

  • (1) OBG Ltd v Allan and related appeals 2007

    • Defendants were receivers purportedly appointed under a floating charge which was admitted to have been invalid. Acting in good faith, they took control of the claimant company's assets and undertaking. Claimant argued that this was trespass to its land, conversion of its chattels and also amounted to the unlawful means tort. It claimed that the defendants were liable for the value of the assets and undertaking, including the value of contractual claims, as at the date of their appointment. Alternatively, the defendants were alleged to be liable for the same damages in conversion.

    • This shows why we need to uncouple the unlawful means tort –

      • Lumley v Gye is secondary liability (i.e. parasitic on a breach of contract)

      • Unlawful means tort is primary liability (i.e. there is no need for any separate wrongdoing)

    • On the facts –

      • There was no breach of contract, therefore no Lumley v Gye liability.

      • There were no unlawful means, but good faith coupled with lack of intention to cause harm to the claimant.

  • (2) Mainstream Properties v Young

    • Two employees of a property company, in breach of their employment contracts, diverted a development opportunity to another company which they were in control of. The defendant (Mr De Winter) financed this transaction in the knowledge of the employees’ contractual duties, but believed their assurances that the transaction would not amount to a breach. Their employer argued that he was liable for the tort of intentionally inducing breach of contract, the employees had made profits for themselves when they should have benefitted the claimant.

    • House of Lords held:

      • That the defendant was not liable under Lumley v Gye.

        • The defendant did not intend to procure breach of contract, as he was in the honest belief that what they were doing would not amount to breach. No procurement could be established as they had come to him.

      • That the defendant was not liable under unlawful means tort.

        • Nothing unlawful had been done as he only lent money

        • No intention to cause harm to the claimant

    • Millar v Bassey 1994 formally overruled.

  • (3) Douglas v Hello! Ltd (No.3)

    • The magazine OK! contracted for exclusive right to publish photos of a celebrity wedding at which all other photography would be forbidden. The rival magazine Hello! published photographs which it knew to have been secretly taken by an unauthorised photographer under cover at the wedding. OK! Lost money and sued Hello! For breach of contract

    • House of Lords held:

      • OK! were successful on the breach of confidence ground but the majority gave little attention to the unlawful means tort although they thought it should fail. Though OK! made Hello!’s rights less valuable, it did not induce breach of contract.

4. Current Law

• What does “intention” mean?

  • Intention includes recklessness in this context

    • Authority – Lord Denning MR in Emerald Construction Co Ltd v Lowthian 1966 – “Even if they did not know of the actual terms of the contract, but had the means of knowledge – which they deliberately disregarded – that would be enough. Like the man who turns a blind eye… it is unlawful for a third person to procure a breach of contract knowingly, or recklessly indifferent whether it is a breach or not.”

    • Authority – (expressly approved) OBG v Allan in relation to Lumley v Gye therefore you do not have to intend harm in the strict sense but may be reckless.

  • Not clear whether this applies to unlawful means tort too but evidence suggests it does not

    • Authority – Lord Hoffmann in OBG suggested that the same does not apply; Lord Nicholls agreed.

5. Remaining Controversies

• Is the measure of liability under Lumley v Gye restricted to the quantum of damages for breach of contract?

  • Inherent controversy about giving the claimant a second opportunity to sue

  • Does not appear to be so restricted

    • Authority – Crompton J in Lumley v Gye said that the action on the contract might be a very different matter and that the contractual measure for damages might be very restrictive on the facts.

  • Surely even if a contracting party goes bust, it doesn’t mean the law should give another chance to sue under an alternative head of claim, insolvency is an inherent risk that you take in contracting and may be reflected in the agreement.

  • If the quantum of damages is not restricted to the contractual measure, what does this say about the nature of liability as secondary? Perhaps mirroring how an accessory may be more responsible than the principal in the criminal law.

• What are the limits of “inducement” in the context of Lumley v Gye?

  • Before OBG - It was clear that the defendant did not need to lure, but facilitation of a breach by active steps was sufficient.

    • Authority – Jenkins LJ in DC Thomson & Co v Deakin 1952 –

      • The contract breaker himself might be a willing party without third party persuasion, but even if the third party has knowledge of his willingness, he is still...