Claims based on the tort of unlawful means or unlawful interference with economic relations are common in commercial litigation and certain types of class actions, notably those related to competition law. Plaintiffs have seized upon the legal vagueness of the test for unlawful interference to seek redress for a complaint that does not fall easily into the established claims in tort, contract law and equity. Many class actions are grounded on a breach of a statute or regulation (the alleged “unlawful” act), which is then alleged to cause economic damage to the class.
The Supreme Court of Canada’s (SCC) decision in A.I. Enterprises Ltd. v. Bram Enterprises Ltd. on January 31, 2014 has clarified the nature, rationale and scope of the tort, holding that it must be kept within “narrow bounds.” It will only be available in three-party situations where the defendant commits an unlawful act against that third party and the act intentionally causes economic harm to the plaintiff. Acts are “unlawful” only if they are actionable by the third party or if they would have been actionable had they caused the third party a loss.
This case arises from a commercial dispute between family members. Joyce Avenue Apartments Ltd. (Joyce) owned an apartment building. Joyce was indirectly owned by Lillian Schelew and her four sons through various corporate entities. Bram Enterprises Ltd. (Bram) and Jamb Enterprises Ltd. (Jamb) together owned a majority of Joyce. All four brothers were shareholders and directors of Bram and Jamb. One brother, Alan, held a minority interest in Joyce through his corporate entity, A.I. Enterprises Ltd. (A.I.). Joyce, Bram, Jamb and A.I. were parties to a syndicate agreement ( Agreement), which contained a sale mechanism whereby the majority of investors would have the right to sell the building, subject to a right of refusal from any dissenting investor. Bram and Jamb wanted to sell; Alan and A.I did not. Bram and Jamb gave notice to A.I. under the Agreement that they wished to sell, but A.I. did not exercise its right of first refusal. After the property was listed, A.I. and Alan began a campaign to undermine the sale of the apartment; he invoked an arbitration clause in the Agreement, filed a certificate of pending litigation, and prevented prospective buyers from viewing the property. Third-party purchasers failed to buy the property and A.I. ultimately purchased it.
Bram and Jamb sued Alan and A.I. alleging that, as a result of Alan and A.I.’s conduct, the sale was delayed and obtained far less than what could have been obtained from a third party. The trial judge agreed, concluding that A.I. and Alan’s conduct had the effect of complicating, delaying, and obstructing Bram and Jamb’s efforts to sell the property. This, he held, amounted to interference by unlawful means.
The Court of Appeal of New Brunswick dismissed A.I. and Alan’s appeal, though it took a different view of the unlawful means tort. It adopted a narrower approach: unlawful conduct must be actionable by a third party in order to give rise to liability. In the instant case, the conduct of Alan and A.I. did not rise to the level of an actionable legal wrong, such as a tort or breach of contract, against any third party. The Court of Appeal held, however, that there was an exception to the actionable wrong rule: parties may be liable under the unlawful means tort if they intentionally abuse self-help legal mechanisms without any justification and the plaintiff suffers harm as a result. On this basis, the Court found A.I. and Alan liable.
THE DECISION OF THE SCC
Noting that the unlawful means tort suffered from a lack of clarity, the SCC set about clarifying the boundaries of the tort.
The SCC held that the tort had to be kept within narrow, principled limits. In order for conduct to amount to “unlawful means,” the conduct must give rise to a civil cause of action by the third party or must be actionable if the third party had suffered a loss as a result.
The SCC offered a number of justifications for the narrow scope of the tort. First, the common law traditionally accords less protection to pure economic interests, as opposed to physical. Second, the law is reluctant to police competition in the marketplace through tortious liability. Third, a broad definition of “unlawful means” would jeopardize the policy of the law to promote legal certainty in commercial affairs. Finally, referring to economic torts advanced by the judiciary in the early part of the 20th century, the SCC noted that a narrowly construed unlawful means tort would be less likely to undermine fundamental rights, particularly in the labour context.
The SCC found that the rationale for the tort buttressed its conclusion as to the tort’s narrow scope. In its view, a “liability stretching” rationale was preferred over other theories, which focused on intention. The “liability stretching” rationale focused on extending an existing right to sue from the third party (the victim of the unlawful act) to another party, whom the defendant really intended to target all along. Under this approach, no new actionable wrongs are created. Rather, the approach seeks to expand the class of persons who may sue for harm intentionally caused by existing actionable wrongs to a third party. Accordingly, because criminal offences and breaches of statute do not give rise to civil liability, there is no potential liability under the unlawful means tort for such wrongs. The tort may be available, however, in circumstances where such wrongs also give rise to a concurrent civil cause of action.
Interestingly, the SCC noted that there was no need to ensure that the definition of “unlawful means” was uniform across all economic torts. While expressly not opining on the elements of other torts, the SCC distinguished previous case law where a breach of statute had given rise to liability based on economic torts such as conspiracy and intimidation.
The SCC rejected the proposition that the “unlawfulness” requirement of an actionable tort was subject to “principled” exceptions, holding that the availability of such exceptions would confer an unstructured judicial discretion to exceed the narrow ambit of the tort.
The SCC also imposed a high threshold in terms of the intention requirement for the tort; mere foreseeability of economic harm or harm as an incidental consequence to plaintiffs is insufficient. Instead, the defendant must have an intention to cause harm to the plaintiff specifically as an end in and of itself or have an intention to cause harm to the plaintiff as a means to achieving some ulterior motive. The SCC opined that the tort is justified by the intentional economic targeting of the plaintiff by the defendant.
The narrow confines of the unlawful means tort were, however, moderated by the SCC’s finding that the tort is not limited to circumstances where the plaintiff has no other cause of action available, such as one under a federal or provincial statute, against the defendant in relation to the alleged conduct.
The position under the Canadian common law is now fundamentally different than the broader approaches seen under U.S. state law and the Civil Code of Québec. The law in many U.S. states has developed a very broad definition of the tortious interference with economic relations. Liability in many states may be based on conduct which is simply “improper” without any requirement that it constitute any kind of actionable wrong. Similarly, the analogous Quebec Civil Code analysis does not require an actionable wrong. Under the Quebec Civil Code, doctrine of “abuse of rights” liability may be imposed for conduct which, although otherwise lawful, is undertaken with the intention of causing economic harm to the plaintiff.
In the case before it, the SCC agreed with the Court of Appeal that there was no wrong that would be actionable by a third party (the prospective purchasers) against A.I. and Alan. As such, A.I. and Alan could not be liable under the tort of causing loss by unlawful means. The SCC instead dismissed the appeal on other grounds.
The SCC’s approach to the unlawful means tort is quite narrow. Clearly the SCC was alive to the doctrinal uncertainty of the tort and sought to reign in the unsettled and scattered state of the law. The approach adopted by the SCC does provide certainty and clarity, while subjecting the tort to a very limited availability.