01 – OverviewEconomic torts in English law
“Economic torts” is a convenient shorthand for what may be more technically called claims in tort for economic loss caused by unlawful means. They differ from the traditional torts in the sense that they do not involve any demonstrable damage to person or property: there is no personal injury, no physical building or piece of machinery is destroyed or damaged. The loss is purely economic: what is lost is a bargain, or revenue, or profit.
English law has three torts of this kind:
- Wrongfully inducing a breach of contract;
- Causing loss by unlawful means; and
- Conspiracy to injure by unlawful means.
The torts were developed organically, in fits and stops, as the common law is wont to do. They are not neat and self-contained chapters in a code, and historical cases demonstrate considerable effort by courts and advocates in working out the principles which underlie each tort and identifying their constituent elements which must be pleaded and proved by evidence for relief to be obtained.
The torts can overlap, one and the same set of facts may involve more than one tort, and it is imperative that the facts are strictly analysed to avoid lumping together elements of different torts. Alternative causes of action may be pursued but elements of each tort must be strictly proven.
02 – InducementWrongfully inducing breach of contract
This tort was established by the famous case of Lumley v Gye (1853) 2 E & B 216. The claimant, lessee and manager of the Queen’s Theatre, engaged an opera singer, Johanna Wagner, to sing at the theatre for a certain period on an exclusive basis. The defendant induced her to breach her contract, to refuse to perform for the claimant, and instead to perform at Her Majesty’s Theatre. The court found a wrong, extending the entitlement to relief from uncontroversial cases of procuring a tort in the form of damage to property or person.
The procurement of the violation of a right is a cause of action in all instances where the violation is an actionable wrong … he who procures the wrong is a joint wrong-doer, and may be sued, either alone or jointly with the agent, in the appropriate action for the wrong complained of.
– Lumley v Gye (1853)So, the contracting party is liable for her own breach of contract, but no such action lies against the procurer, because only a party to the contract could be sued for breach of contract. The procurer may be sued in tort as accessory to the liability of the contracting party. The contracting party’s liability may be limited to the terms of the contract, but the tortfeasor’s liability will not be:
He who maliciously procures a damage to another by violation of his right ought to be made to indemnify; and that, whether he procures an actionable wrong or a breach of contract … In such cases, he who procures the damage maliciously might justly be made responsible beyond the liability of the contractor.
– Lumley v Gye (1853)Subsequent case law developed and refined the tort, and in its modern form it has three elements.
The three elements
1) Actual breach of contract. This is the starting point. There is no liability for actually preventing or hindering performance of the contract if there is no breach of the contract in the strict technical sense. There is no liability for interference with contractual relations where the contracting party committed no breach. Mere interference without breach of contract needs to be considered under the tort of causing loss by unlawful means.
2) Knowledge. The defendant must know he is inducing a breach of contract. It is not enough that he procures an act which, as a matter of law or construction of the contract, happens to be a breach. He must actually realize that the act will be a breach of a contract between other parties. It is not enough that he ought reasonably to have realized it. A stranger to a contract may quite unknowingly and unintentionally procure a breach of the contract by offering an inconsistent deal to a contracting party which persuades her to default on her contract. The stranger is not liable if he acts unknowingly or carelessly. He owes no duty of care to the victim of the breach of contract. Negligent interference is not actionable.
In British Industrial Plastics Ltd v Ferguson [1940] 1 All ER 479, the plaintiff’s former employee offered the defendant secret information about an industrial process. The defendant knew that the employee undertook by contract not to reveal trade secrets, but he held the opinion that because he was the inventor, the process belonged to the employee. That opinion gave him a defence: he “vindicated [his] honesty…at the expense of his intelligence”. An honest though foolish and erroneous opinion absolves from liability.
Wilful ignorance or refusal to use available means of knowledge will not relieve from liability. A conscious decision not to inquire into the existence of a fact is in many cases treated as equivalent to knowledge of that fact. As put in Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 69:
Even if they did not know 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.
– Emerald Construction Co Ltd v Lowthian [1966]Negligence, however, is different. If the defendant asks themselves the wrong question or settles on the wrong answer not by design but by negligence, they will not be liable.
3) Intention to induce a breach of contract. It is necessary to distinguish between ends, means and consequences. If someone knowingly causes a breach of contract, it does not normally matter that this is just the means by which he intends to achieve some further end, or even that he would rather have been able to achieve that end without causing a breach. On the other hand, if the breach of contract is neither an end in itself nor a means to an end, but merely a foreseeable consequence, then it cannot for this purpose be said to have been intended. The claimant must have been “targeted” or “aimed at”.
Intention to induce a breach is sufficient. That the defendant did not intend to cause damage, or even thought that the breach of contract would make the claimant better off, is irrelevant. In South Wales Miners’ Federation v Glamorgan Coal Co Ltd [1905] AC 239 the miners’ union called a strike (and induced miners to break their contracts of employment). They said the intention was to restrict production of coal and thereby raise its price, so the mine owners would be better off. The House of Lords said that this made no difference. It was sufficient that the union intended the employment contracts to be broken.
So, there will be no liability where:
- there is simply no legal contract in place, or there is a contract but it was not breached;
- the defendant does not know that there is a contract;
- the defendant knows that there is a contract but does not know that the act that he induces will be a breach of contract;
- the defendant has an honest doubt about whether a contract as a whole is binding or enforceable; and
- the defendant knows that there is a contract but believes that it is probable that the relevant term of the contract is unenforceable, with the consequence that the act he proposes to procure will not amount to a breach.
03 – Unlawful meansCausing loss by unlawful means
It originated as a tort of interference with business by unlawful means, or simply tortious interference, as early as the 17th century. In Garret v Taylor (1620) Cro Jac 567 a freemason was selling stones to customers from a stone-pit, and the competitor defendant intimidated his workers and customers. The defendant was found liable in tort. On the authority of that case, almost two centuries later was decided Tarleton v M’Gawley (1790) 1 Peake NPC 270, the case usually cited as the origin of the tort. There, two British merchant ships off the coast of Cameroon were seeking to buy palm oil from the natives. The Master of the “Othello” fired his cannons at a canoe approaching from the shore to drive it away from the “Tarleton”. He was held liable and the principle of the tort was formulated:
The injury complained of is, that by the improper conduct of the defendant the natives were prevented from trading with the plaintiffs. Had this been an accidental thing, no action could have been maintained, but it is proved that the defendant had expressed an intention not to permit any to trade, until a debt due from the natives to himself was satisfied.
– Tarleton v M’Gawley (1790)The defendant here is not liable as accessory to another’s wrong. Although the immediate cause of the loss is the decision of the native traders not to sell palm oil, it is not a wrong for them to do so. The defendant’s liability is primary, for intentionally causing the plaintiff loss by unlawfully interfering with the liberty of others.
The essence of the tort is intentionally damaging the claimant’s business by unlawful means. It is comprised of two elements:
- a wrongful interference with the actions of a third party in which the claimant has an economic interest; and
- an intention thereby to cause loss to the claimant.
Both are necessary. In the American case of Tuttle v Buck 119 NW 946 (1909) the court held a rich banker liable for spitefully driving the claimant barber out of business by opening a rival barber’s shop and undercutting him. In England, intentionally causing damage without using unlawful means is not of itself actionable. It is also a tort of intention – not of strict liability or of negligence – so using unlawful means without the necessary intention is not sufficient.
Unlawful means
The tort is parasitic on conduct defined as unlawful otherwise than because it amounts to a wrong to the claimant. Examples are cases of interference with potential customers by threats of unlawful acts, or wrongful threats or actions against employers with the intention of causing loss to an employer or an employee.
Acts against a third party count as unlawful means only if they are actionable by that third party as a civil wrong or are in the nature of a crime prohibited by criminal law. It does not matter if the third party herself suffers no loss.
In Lonrho plc v Fayed [1990] 2 QB 479 the late Mohammed Fayed made fraudulent statements to the directors of Harrods, and to the Secretary of State for Trade and Industry, which induced the directors to accept his bid for Harrods and the Secretary of State not to refer the bid to the Monopolies Commission. The defendant gained control of Harrods to the detriment of the plaintiff, who wanted to buy it instead. This was harm to the plaintiff caused by unlawful means, even though neither the directors nor the Secretary of State had suffered any loss.
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 include acts which may be unlawful against a third party but which do not affect his freedom to deal with the claimant.
Intention
In the Lumley v Gye tort, there must be an intention to procure a breach of contract. In the unlawful means tort, there must be an intention to cause loss. The ends which are intended are different. One may intend to procure a breach of contract without intending to cause loss. One may intend to cause loss without intending to procure a breach of contract. But the concept of intention is in both cases the same. In both cases it is necessary to distinguish between ends, means and consequences. One intends to cause loss even though it is the means by which one achieved the end of enriching oneself. On the other hand, one is not liable for loss which is neither a desired end nor a means of attaining it but merely a foreseeable consequence of one’s actions.
A defendant may intend to harm the claimant as an end in itself where, for instance, he has a grudge against the claimant. More usually a defendant intentionally inflicts harm on a claimant’s business as a means to an end. He inflicts damage as the means whereby to protect or promote his own economic interests. Intentional harm inflicted against a claimant in either of these circumstances satisfies the mental ingredient of this tort. This is so even if the defendant does not wish to harm the claimant, in the sense that he would prefer that the claimant were not standing in his way.
Lesser states of mind do not suffice. A high degree of blameworthiness is called for. The defendant’s conduct in relation to the loss must be deliberate. A defendant’s foresight that his unlawful conduct may or will probably damage the claimant cannot be equated with intention for this purpose. The defendant must intend to injure the claimant. This intent must be a cause of the defendant’s conduct.
In Millar v Bassey [1994] EMLR 44, Shirley Bassey broke her contract to perform for the recording company, and it was a foreseeable consequence that the recording company would have to break its contracts with the accompanying musicians. But those breaches of contract were neither an end desired by Miss Bassey nor a means of achieving that end. The House of Lords (in Douglas) disagreed with the Court of Appeal that this was a tort by her.
04 – ConspiracyConspiracy to injure
There are two types of actionable conspiracy:
- Conspiracy to injure by lawful means (also called simply conspiracy to injure): where the claimant proves that he has suffered loss or damage as a result of action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him, where the predominant purpose of the defendant is to injure the claimant.
- Conspiracy to injure by unlawful means (also called conspiracy to use unlawful means): where the claimant proves that he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so.
Both are conspiracies to injure and their ingredients are the same, with one crucial difference. There must be conspiracy to injure the claimant, but in the first case of lawful means, the predominant purpose of the conspiracy must be to injure the claimant, whereas in the second case, although the defendant must intend to injure the claimant, injury to the claimant need not be his predominant purpose.
There are, as is well known, two sorts of conspiracies, [the] type which employs only lawful means but aims at an unlawful end, and the type which employs unlawful means. In the latter type, the element of conspiracy is usually only of secondary importance since the unlawful means are actionable by themselves.
– Rookes v Barnard [1964] AC 1129Conspiracy requires combination and intent. It is the essence of conspiracy that two or more persons combine with a common intent – in other words, that they deliberately combine, albeit tacitly, to achieve a common end. In order to establish a combination it is sufficient if two or more persons combine with a common intention. There is no need for any explicit agreement. The existence, extent and scope of the combination (if any) is to be inferred from the overt acts. It is rare to be able to establish precisely when any agreement or combination began or when various conspirators were recruited. It is not necessary for all the conspirators to join the conspiracy at the same time, but they must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert when the acts complained of were carried out. It is not necessary that every overt act is done by every conspirator, but the act must be done pursuant to the conspiracy or combination.
Conspiracy requires not merely intent but actions in pursuance of the intent. The claimant must establish the defendants’ intention to injure his commercial interests. Where unlawful means is used, the intent need not be the defendants’ predominant purpose, and the intention will normally be inferred from the primary facts. If the defendants intend to injure the claimant and use unlawful means to do so, it is no defence in itself to show that their primary purpose was to further or protect their own interests. But it is a defence in a lawful means conspiracy – there the intention to injure must be predominant.
Note that, exceptionally (by comparison with inducement to breach of contract and causing loss by unlawful means), the bad motive in the form of intention to injure is a requirement for conspiracy. Unlike criminal conspiracy, where no actual action is required to constitute a crime, in the civil tort a combination is not enough on its own. There must be acts taken in pursuance of it and loss and damage to the claimant.
Conspiracy to injure by unlawful means
The tort of causing loss by unlawful means and conspiracy to injure by unlawful means share the ingredient of the intentional infliction of harm on the claimant. But conspiracy is not the intentional harm tort committed by joint tortfeasors. The gist of the intentional harm tort is striking at the claimant through a third party. The gist of conspiracy is damage intentionally inflicted by persons who combine for that purpose. In the conspiracy tort, conspiracy is the key.
Unlawful means can include, amongst other wrongs, tort, breach of fiduciary duty and breach of contract, and also crimes and breaches of statutory duty. There is no requirement that the unlawful means be actionable at the suit of the claimant (unlike the tort of causing harm by unlawful means; conspiracy is a wider tort).
Where the unlawful means used is a tort in itself, the tort of conspiracy to injure may co-exist with other torts which comprise the unlawful means. There is no “merger” of conspiracy in that tort. The claimant may allege both the conspiracy and the underlying tort, or elect to allege the conspiracy only or the underlying tort. Alternative causes of action are available, so long as there is no recovery of two sets of damages in respect of the same tortious acts, one for the acts themselves, another for the conspiracy to commit them.
So, the unlawful means may be both tortious and criminal, or both tortious and a breach of contract, or all three. Or, A and B may conspire to injure C by a breach of contract by B such that B would be liable for the breach of contract but A would be liable in tort for inducing the breach of contract. And together, they would be liable for conspiracy.
In JSC BTA Bank v Ablyazov [2016] EWHC 230 (Comm) the Bank obtained a worldwide freezing order (the “WFO”) against Mr Ablyazov. The Bank established that Mr Ablyazov breached the terms of the WFO and that his son-in-law Mr Khrapunov assisted him in doing so by breaching the WFO, creating and using false and misleading documents, and taking whatever steps they considered necessary to prevent the Bank from recovering the judgment debts. This was contempt of court, an offence against administration of justice. But the judge decided that the court has no power to order damages for contempt. The Bank then filed a new action in the tort of conspiracy to injure by unlawful means, the unlawful means being serial contempts of court. The defendants argued the action was without merit, but the court held otherwise:
“I have therefore concluded that the Bank has established by its pleading and the evidence adduced in support of that pleading a good arguable case that Mr Khrapunov has committed the tort of conspiracy to injure by unlawful means … as was established in Total Network, means can be unlawful even though those means are not in themselves actionable. Where there is a conspiracy to injure the liability stems from the conspiracy.”
Conspiracy by lawful means
The lawful means conspiracy has been described as a curious and anomalous tort, because it makes two people liable for an agreement to do an act which would be permissible if done by one. It only becomes actionable because the predominant purpose of the agreement between the defendants, and of the acts done in execution of it, caused damage to the plaintiff’s commercial interests. The acts are done in execution of an agreement entered into by two or more persons for the purpose not of protecting their own interests but of injuring the interests of the claimant:
A combination may make oppressive or dangerous that which if it proceeded only from a single person would be otherwise, and the very fact of the combination may shew that the object is simply to do harm, and not to exercise one’s own just rights.
– Mogul Steamship Co Ltd v McGregor, Gow & Co (1888) 21 QBD 544This raises a curious practical problem of mixed motives: what of a trader who wants to damage his competitor’s business because that will make his own business more profitable? The answer depends on intention. If the predominant intention is to ruin another trader, then even a combination to use lawful actions constitutes the tort of conspiracy. If the predominant intention is to develop one’s own business, then there is a conspiracy only if the combination is to use unlawful means. The evidential difficulties that arise can be easily gleaned from observations made by the House of Lords in Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435:
It is enough to say that if there is more than one purpose actuating a combination, liability must depend on ascertaining the predominant purpose. If that predominant purpose is to damage another person and damage results, that is tortious conspiracy. If the predominant purpose is the lawful protection or promotion of any lawful interest of the combiners (no illegal means being employed), it is not a tortious conspiracy, even though it causes damage to another person.
– Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942]In Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435, businesses in the tweed cloth industry in the Hebrides were refusing to unionise their workers. The general secretary of the trade union gave orders to dockers in the port of Stornoway not to handle yarn imported to the islands nor tweed cloth produced by the claimants for export. The instruction was passed on by the local branch secretary. As a result the claimants could not produce or export cloth and suffered economic damage. They sued the secretary and his deputy for conspiracy. The House of Lords held the two were not liable because they were pursuing the interests of union members and not the intent to injure the plaintiffs:
“The predominant object of the Respondents in getting the embargo imposed was to benefit their trade-union members by preventing under-cutting and unregulated competition … A combination with such an object is not unlawful, because the object is the legitimate promotion of the interests of the combiners, and because the damage necessarily inflicted on the Appellants is not inflicted by criminal or tortious means and not the ‘real purpose’ of the combination.”
The law is stated as at the date of publication. The information contained in this document is provided for general informational purposes only, does not constitute legal advice, and does not purport to be an exhaustive analysis of the issues addressed herein. Neither AKTA nor any of its employees accept any responsibility for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this document, and in no event shall they be liable for any losses resulting from reliance on or use of this information. For advice on specific circumstances, please contact AKTA.
