A recent Canadian decision by the New Brunswick Court of Appeal in SAR Petroleum et al v Peace Hills Trust Company 2010 NBCA 22 held that the tort of inducing breach of contract (or interfering with contractual relations) only arises if the breach was the desired end or means to an end. The fact that a breach is merely a foreseeable consequence of the defendant’s actions was insufficient to establish the tort.

In doing so, the Canadian court adopted the position taken by the English House of Lords in OBG Ltd v Allan [2008] 1 AC 1, reflecting wider recognition that mere foreseeability does not amount to an intention to cause a breach.

Australian courts have not yet adopted this position, but it is expected that Australian defendants will begin to argue this in the near future.

Background

In the Canadian case, the Court of Appeal rejected that the respondent, Peace Hills Trust Company (Peace Hills), had committed the tort of inducing breach of contract by enforcing its loan rights against Eel River Bar First Nation of New Brunswick (Eel River).

The appellant, SAR Petroleum Inc. (SAR Petroleum), had a contract with Eel River to erect a gas-bar and convenience store for $4.9 million. Importantly, the contract prohibited Eel River from “holding back” any of the SAR Petroleum’s fees.

To finance the project, Eel River obtained a loan from Peace Hills. Peace Hills was aware of the terms under which Eel River had contracted with SAR Petroleum, but Peace Hills and SAR Petroleum did not otherwise have any direct contractual relationship.At first, Eel River paid SAR Petroleum’s invoices from its own money and, when Eel River had no more money, it alerted Peace Hills that it was unable to pay SAR Petroleum the remaining $1.4 million owed. Peace Hills agreed to pay SAR Petroleum the remaining money, but it “held back” 15% and cited clauses 10 and 11 of the loan agreement as authority for doing so.  

Soon afterwards, SAR Petroleum went into receivership and, with the approval of its receiver, it commenced action against Peace Hills and Mr McBrearty (Peace Hills’ lawyer) on the grounds that, by “holding back”, Peace Hills wrongfully induced Eel River to breach its contract with SAR Petroleum.

Judgment

In deciding the case in favour of the respondent, the Court of Appeal held that the tort of inducing a breach required the defendant to have an intention to induce the breach, which was not present in this case. The Court of Appeal explained that, in holding back 15% of the invoiced amount, Eel River’s breach of its contract with SAR Petroleum was a foreseeable consequence of Peace Hills’ actions, but it was not Peace Hills’ intended consequence. That is, the breach was not the desired end or the means to any such end.

Importantly, the Court of Appeal also held that, even if clauses 10 and 11 of the loan agreement did not allow Peace Hills to withhold the money (as was argued by SAR Petroleum), Peace Hills would still not have committed the tort because the “intent” to induce breach was still not present.

Australia

In Australia, the tort of inducing breach of contract also requires that the defendant demonstrate an intention to cause a third party to breach a contract with the plaintiff. To date, the courts have not explored the requisite level of intent in the same way as the Canadian or English courts. Instead, Australian courts have tended to rely on whether a justification (such as a superior right) is available (see Zhu v Treasurer of New South Wales (2004) 218 CLR 530). However, this situation does not bar application of the Canadian and English principles in Australia, and Australian cases will likely begin testing these principles, at least in relation to determining the requisite level of intent, in the near future.