October 17, 2018 Articles

Interference with Economic Relations: A Comparative Analysis of American and Anglo-Canadian Approaches

By Marco Falco

Nothing leads to more confusion in common law than the scope of the tort of intentional interference with economic relations.

In the United States, Canada, and the United Kingdom, courts have struggled with when and how to hold a defendant liable for deliberately engaging in conduct that causes harm to the plaintiff’s economic interests. At the core of the debate, as with most economic torts, is the courts’ reluctance to use tortious liability as a way to stifle legitimate competition and overall commercial activity.

Despite this common concern, the United States, on the one hand, and Canada and the United Kingdom, on the other hand, have adopted different approaches to when the tort will be applied.

In the United States, most courts have imposed liability where the defendant employs “improper means” to interfere with the plaintiff’s contractual or prospective economic relationship. By contrast, the United Kingdom and Canada have narrowed the scope of the tort considerably, basing liability on the defendant’s “unlawful act” against a third party; in these jurisdictions, the “unlawful means” tort is narrowly circumscribed and subject to exceptions.

This article provides a brief summary of how the tort of intentional interference operates generally in the United States, Canada, and the United Kingdom. The author concludes that while the breadth of the American approach has been criticized as leading to commercial uncertainty, the Anglo-Canadian jurisprudence has unnecessarily narrowed the tort so as to render it virtually inapplicable to most commercial dealings.

The Tort of Intentional Interference

Like many other economic torts, the tort of intentional interference with economic relations at common law is “in a mess.” H. Carty, “Intentional Violation of Economic Interests: The Limits of Common Law Liability,” 104 Law Q. Rev. 250, 278 (1998) (cited in A.I. Enters. Ltd. v. Bram Enters. Ltd. [2014] 1 S.C.R. 177, para. 28 (Can.)).

At Canadian common law, for example, even the name of the tort was at one time debatable, with varying monikers such as “unlawful interference with economic relations,” “interference with a trade or business by unlawful means,” and “intentional interference with economic relations” being employed. Ultimately, the Supreme Court of Canada resolved this issue by naming it the “unlawful means” tort. A.I. Enterprises [2014] 1 S.C.R. 177, para. 2.

In the United States, the tort may differ depending on the level of the defendant’s intention in causing economic harm and whether the defendant sought to affect a contractual or prospective economic relationship. See Gary C. Crapster & Jessica C. Smith, “Interference with Contractual and Economic Relationships,” in Business Torts Litigation 55 (Am. Bar Ass’n, 2d ed. 2005), for a discussion of the distinction in most states between interference with contractual relationships and interference with prospective economic relationships.

These nuances aside, however, the basis of the tort remains the intention to cause economic harm by way of unlawful or improper means. That is, the victim of the unlawful or improper act has the right to sue the defendant for the defendant’s deliberate interference with the victim’s economic relations.

Despite the relative clarity surrounding the elements of the tort across most common-law jurisdictions, the scope of the tort varies significantly from one country to the next.

On the one hand, jurisdictions like Canada and the United Kingdom have interpreted the tort narrowly, respecting the policy that courts have a limited role to play in regulating economic activity by way of tortious liability.

On the other hand, the approach in many states of the United States is to interpret liability under the tort more broadly. While the American approach has drawn criticism for creating commercial uncertainty, a broader approach to the tort respects the courts’ discretion to sanction inappropriate commercial behavior based on the individual facts of a case. See H.S. Perlman, “Interference with Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine,” 49 U. Chi. L. Rev. 61 (1982) (cited in A.I. Enterprises [2014] 1 S.C.R. 177, para. 56).

The Breadth of the American Approach

In most states, the tort of intentional interference with prospective economic advantage imposes liability “for improper methods of disrupting or diverting the business relationship of another which falls outside the boundaries of fair competition.” Ketab Corp. v. Mesriani & Assocs., 2015 U.S. Dist. LEXIS 114093, at *5 (C.D. Cal. 2015).

The tort is typically based on two grounds: (1) intentional interference with a prospective economic relationship or (2) intentional interference with an existing contractual relationship.

To prove interference with a contractual relationship, the plaintiff must show that

a.         the plaintiff had a valid contract;

b.         the defendant knew or should have known of the contract;

c.         the defendant intentionally acted to induce the breach of contract;

d.         the defendant acted improperly;

e.         the defendant’s conduct caused the breach of contract; and

f.          the conduct caused the plaintiff’s damages.

See Crapster & Smith, supra, at 55.

To prove interference with a prospective economic relationship, the plaintiff must show

a.         the existence of a prospective business relationship advantageous to the plaintiff (merely referring to customers in general is not sufficient to show a specific prospective business relationship);

b.         the defendant’s knowledge of the existence of that relationship;

c.         intentional acts by the defendant designed to disrupt the relationship;

d.         actual causation; and

e.         resulting damages.

Ketab Corp., 2015 U.S. Dist. LEXIS 114093, at *5.

In both cases, the defendant’s conduct needs to be improper. What constitutes improper conduct, however, remains within the court’s discretion.

Some states have defined the improper conduct as requiring that the defendant’s interference with the prospective economic advantage be “wrongful by some measure beyond the fact of the interference itself.” Id. at *6.

In New York, the improper conduct or wrongful means has been interpreted as “conduct amounting to a ‘crime or an independent tort.’” Ray v. Stockton, 2018 N.Y. App. Div. LEXIS 4859, at *3 (N.Y. App. Div. 4th Dep’t 2018). This standard represents a refinement of the court’s previous interpretation, which required “more culpable conduct on the part of the defendant” for the interference.

The defendant’s “wrongful means” may include physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degree of economic pressure. It would not include, however, “persuasion alone although it is directed at interference with the contract.” Id. at *3 (citing Carvel Corp. v. Noonan,  3 N.Y.3d 189, 190 (N.Y. 2004); Guard-Life Corp. v. Parker Hardware Mfg. Corp., 50 N.Y.2d 183 (N.Y. 1980)). In other words, the defendant’s mere self-interest or other economic considerations do not amount to “wrongful means” for the purposes of the tort. Deadco Petroleum v. Trafigura AG, 2016 N.Y. Misc. LEXIS 3169, at 6* (N.Y. App. Div. N.Y. Cty. 2016). The issue of whether the defendant’s acts rise to the level of wrongful means is a “factual determination best left to the jury [or trier of fact]” in most cases. Ray,2018 N.Y. App. Div. LEXIS 4859, at *4.

While the American approach to the “wrongful means” element of intentional interference has been criticized as being so ambiguous as to lead to commercial uncertainty (see A.I. Enterprises [2014] 1 S.C.R. 177, para. 56), it does have merit in offering a limitation that permits a judge or jury to assess when court intervention is necessary.

It is worth noting that the American interpretation of “wrongful means” does not impose liability on a defendant for ordinary and commercially sound conduct. The courts are careful to restrict the tort to criminal and tortious activity where the defendant’s intention to cause economic harm is clear.

The fact that the issue of “wrongful means” is a factual question within the trier of fact’s jurisdiction grants the courts the necessary discretion to adapt the legal test to the context at hand.

Rather than creating commercial uncertainty, this approach allows the court to assess the defendant’s alleged misconduct on the equities of the case. The court is granted the necessary flexibility to determine whether the defendant’s misconduct has gone beyond normal competitive practice.

The United Kingdom’s Approach—The Requirement of a Third Party

The United Kingdom bases the tort of causing loss by unlawful means on two elements: (1) a wrongful interference with the actions of a third party in which the claimant has an economic interest and (2) an intention thereby to cause loss to the claimant. OBG Ltd. v. Allan [2007] UKHL 21, [47] (per Lord Hoffman); see also Total Network SL v. Revenue and Customs [2008] UKHL 19 (where the House of Lords distinguishes the torts of intentional interference and conspiracy).

The distinction in the United Kingdom, as in Canada, is the requirement that the wrongful interference by the defendant implicate the actions of a third party in which the claimant has an economic interest. That is, the tort is of narrow application in that the defendant’s acts against a third party count as unlawful means only if they are or would be actionable by that third party. OBG Ltd. [2007] UKHL 21, [49].

The House of Lords articulated the test for unlawful means in its leading 2007 decision, OBG Ltd. v. Allen, as follows:

Unlawful means therefore consists of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant. It does not in my opinion include acts which may be unlawful against a third party but which do not affect his freedom to deal with the claimant.

OBG Ltd. [2007] UKHL 21, [51] (emphasis added).

This tripartite structure of requiring the defendant’s interference with the actions of a third party in relation to the plaintiff has a major impact on the application of the tort of unlawful means in the United Kingdom. It narrows the tort considerably. Unlike the American iteration, unlawful means in the United Kingdom cannot be applied unless the defendant’s conduct implicates a third party.

The Narrow Construction of Unlawful Means in Canada

The competing approaches to the unlawful means tort in the United States and the United Kingdom came to the fore in a 2014 decision of the Supreme Court of Canada, A.I. Enterprises Ltd. v. Bram Enterprises Ltd. [2014] 1 S.C.R. 177 (per Cromwell, J.).

In A.I. Enterprises, the Supreme Court of Canada rejected the American approach, describing it as a marked departure from that of other Commonwealth jurisdictions. The Court expressed concern that in many states, liability under the tort of unlawful means is simply imposed where the defendant’s conduct is “improper.” According to the Supreme Court of Canada, the lack of an “unlawful means” requirement in most U.S. states has the effect of creating commercial uncertainty, rendering the tort ambiguous in its application. A.I. Enterprises [2014] 1 S.C.R. 177, para. 56.

The Court in A.I. Enterprises expressed concern that a vague definition of “improper conduct” on the part of the defendant would result in the courts regulating commercial activity in unintended ways:

The common law in the Anglo-Canadian tradition has generally promoted legal certainty for commercial affairs. That certainty is easily put in jeopardy by adopting vague legal standards based on “commercial morality” or by imposing liability for malicious conduct alone. . . . Regulating commercial activity should not, it has been said, depend on the “idiosyncrasies of individual judges.”

Id. at para. 33.

On this basis, the Supreme Court of Canada adopted the tripartite structure to the tort of unlawful means based on the United Kingdom model. That is, because economic torts should promote commercial certainty, the tort of unlawful means should be “kept within narrow bounds.” Id. at para. 5. It will be available only in three-party situations, where the defendant commits an unlawful act against a third party and that act intentionally causes economic harm to the plaintiff. Id.

The Court narrowed the definition of what constitutes an “unlawful act” to conduct by the defendant that would be actionable by the third party or would have been actionable if the third party had suffered a loss. There are no principled exceptions to this definition of unlawful conduct. Id. The defendant’s unlawful conduct may also exclude statutory breaches or criminal behavior by the defendant:

Thus, criminal offences and breaches of statute would not be per se actionable under the unlawful means tort, but the tort would be available if, under common law principles, those acts also give rise to a civil action by the third party and interfered with the plaintiff’s economic activity. For example, crimes such as assault and theft would be actionable by a third party in the torts of trespass to the person and conversion. But other breaches of criminal or regulatory law will not give rise to a civil action and there will be therefore no potential liability under the unlawful means tort. This approach avoids “tortifying” the criminal and regulatory law by imposing civil liability where there would not otherwise be any. . . .

Id. at para. 45 (emphasis added).

Is the Anglo-Canadian Model the Best Approach?

Both United Kingdom and Canadian courts have deliberately adopted a narrow construction of liability under the unlawful means tort. The requirements of a tripartite structure between the plaintiff, the defendant, and a third party, in addition to the limited definition of “unlawful means” to the exclusion of criminal conduct or statutory breaches, have restricted the tort of unlawful means to very particular circumstances. The policy underlying this approach is to promote commercial certainty and ensure that the courts are not interfering with fair competition.

Despite these lofty goals, the effect of the Anglo-Canadian approach is to render the tort of unlawful means toothless in most cases. The chief benefit to the American model is to allow the court the necessary flexibility to impose tortious liability for the defendant’s “improper conduct”—whether or not such conduct was aimed at or implicates a third party.

In certain ways, then, while the American approach to unlawful means results in a degree of commercial uncertainty and increased litigation, it also gives the courts the necessary discretion to consider the equities of a case without the rigid formalism inherent in the United Kingdom or Canadian models. The American model imposes tortious liability on the defendant based on context, rather than legal doctrine. In this way, the courts retain the flexibility to decide when the defendant’s conduct goes beyond ordinary commercial activity.

Marco P. Falco is a partner at Torkin Manes LLP in Toronto, Canada.