Economic Torts: Protect Your Business From Unlawful Interference

Last updated: 6 March 2020

Estimated reading time: 5 minutes

Economic torts permit a loss suffering party to seek damages from the wrongdoer, even where a third party stands in the middle and is seemingly responsible for the loss. Although today’s economy drives people to be competitive, the result is that some businesses may cause harm to others, like stealing a valuable employee, providing false information or interfering with a business’ future economic gains. The economic torts seek to offer protection for a person’s trade or business from acts of unacceptable interference.   

In this guide we’ll examine unlawful interference with businesses, including the economic torts of procuring a breach of contract and causing loss by unlawful means.

We'll consider:

  1. What is the economic tort of procuring a breach of contract?
  2. Distinguishing between primary and secondary liability
  3. What are the elements of inducing a breach of contract?
  4. What are the elements of causing loss by unlawful means?
  5. Is there any defence?

If an act of unacceptable interference is committed against you, before submitting a claim it is vital to understand the distinction between the two separate torts of:

  • Procuring a breach of contract
  • Causing loss by unlawful means

What is the economic tort of procuring a breach of contract?

Where someone commits a breach of contract against you, you will have a claim against that person for breach of contract. However, in the event of an incomplete agreement or in the absence of a contract between the parties, you can protect your rights and interests by relying on the economic tort of procuring a breach of contract, also referred to as ‘inducing a breach of contract’.

A claim under this tort arises when the wrongdoer intentionally and knowingly causes loss to another party by interfering with their contractual relations.

For example, A causes third party B to commit a breach of contract against C and A had the intention of causing the breach of contract. In such circumstances, C is not limited to claiming against A, but can also claim against B. 

What is the economic tort of causing loss by unlawful means?

Causing loss by unlawful means exists where the defendant deliberately and wrongfully interferes with the actions of a third party in which you have an economic interest, with the intention to cause loss and as a result, loss occurs. The existence of a contractual relationship is not necessary to establish a claim against the defendant. The intention to cause damage to you in any form, including economic damage, is enough. For example, A does and/or threatens to do something unlawful to B. As a result, B never enters into a contract with C, when B would otherwise have done so. A acts with the intention of causing loss to C.

Distinguishing between primary and secondary liability

Causing loss by unlawful means is a tort of primary liability. Proof of independently unlawful conduct is required.

Inducing or procuring a breach of contract is a tort of secondary or accessory liability. This means that proof of an actual breach of contract is required.

Both economic torts can arise in a wide variety of contracts or business relationships, such as employment, property, banking, finance and construction.  An experienced dispute resolution associate will provide expert advice if you end up in a dispute.

What are the elements of inducing a breach of contract?

This tort has four elements:

  • Knowledge of the contract. The defendant must be aware of the contract you are claiming is being breached. Consequently, there need not be knowledge of the precise terms of the contract, but an appreciation of the broad nature of the contractual relationship is required. You will not be able to defend the claim if you have deliberately turned a blind eye by making a conscious decision not to enquire into whether the relevant act would amount to a breach.   
  • Intention to breach the contract. The defendant must intend to breach the contract or cause its breach and to cause economic harm. It is not enough for the breach to occur from the natural consequences of the defendant’s conduct or because the defendant acted carelessly. Nor will the defendant be liable if unintentionally or unknowingly procuring a breach of contract.
  • Actual breach of contract. A contract must exist for the breach to occur. The contract must be valid and enforceable. For this reason, it is important to get expert advice and carefully analyse if it has been a breach of contract before pursuing a claim.
  • Interference with another’s contract. Establish that the other contractual party was persuaded to breach the contract. The most effective way to prove this point is by establishing that there have been inconsistent dealings between the first contract and the second contract. For example, you had an exclusive relationship with a supplier and that supplier has an exclusive relationship with someone else for similar services. You can infer that the third party’s exclusive relationship with your supply has been involved in procuring the breach of contract.   

What are the elements of causing loss by unlawful means?

This tort has four elements:

  • Interference with trade or business. A trade or business interest is a wide term and is protecting the economic interests of the claimant. There is no need for a breach of contract. Interference with the operation of the business is sufficient to cause loss by unlawful means. The act of interference must have the effect of hindering the normal operation of the business.

Note: A non-exclusive list of examples that qualify as economic interests are things such as: employment of an employee; the ability to freely market or advertise goods or services to potential customers; acquiring essential goods or services; hiring business; ability of a media outlet to publish or broadcast to the public.

  • Use of unlawful means against a third party. The loss suffered by the defendant’s action must be both unlawful in respect to the third party and actionable by the third party. For this reason, criminal conduct is not actionable.
  • Intention to injure the claimant. Unlike the tort ofprocuring a breach of contract, there need not be any intention to cause a breach of contract. Establishing economic expectations is sufficient to found a claim. The loss must be a foreseeable consequence of the defendant’s actions. So, a defendant is not liable for a loss that is neither a desired end nor a means of attaining it.      
  • Occurrence of damages. The claimant must show some loss has stemmed from the action.  

Is there any defence?

The only defence available is – Justification.

For justification to be a valid defence it must show that the defendant’s interference with another party’s contract was to protect an equal or superior right of their own. However, justification must be based on a duty and not merely to protect the defendant’s own interests.

The defence of justification is highly fact-specific. Relevant factors may include the nature of the breach of contract, the position of the parties and the grounds for the breach.

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