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Torts - Inducing Breach of Contact

. Chaba v. Khan

In Chaba v. Khan (Ont CA, 2020) the Court of Appeal set out the test for inducing breach of contract:
[17] Second, the trial judge made no error in dismissing the claim for inducing breach of contract. He correctly noted that to succeed on this claim, Khan had to establish the four elements identified by this court in Drouillard v. Cogeco Cable Inc., 2007 ONCA 322, 86 O.R. (3d) 431, at para. 26: (1) Khan had a valid and enforceable contract with the Posadas; (2) Chaba was aware of the existence of this contract; (3) Chaba intended to and did procure the breach of the contract; and (4) because of the breach, Khan suffered damages.
. 1670002 Ontario Limited (Canadian Professional Recruiters) v Redtree Contract Carriers Ltd.

In 1670002 Ontario Limited (Canadian Professional Recruiters) v. Redtree Contract Carriers Ltd. (Ont CA, 2014) the Court of Appeal stated the elements of the tort of inducing breach of contract as follows:
To prove Wilson is liable for inducing a breach of contract, CPR had to meet the four-part test in Correia v. Canac Kitchens, 2008 ONCA 506 (CanLII), 2008 ONCA 506, 91 O.R. (3d) 353, at para. 99:
(1) Wilson had knowledge of the contract between CPR and Redtree;

(2) Wilson intended to procure a breach of that contract;

(3) Wilson’s conduct caused Redtree to breach the contract; and

(4) CPR suffered damages due to the breach.
. Correia v. Canac Kitchens

In Correia v. Canac Kitchens (Ont CA, 2008) the Court of Appeal reviewed the tort of 'inducing breach of contract' in contrast with that of 'intentional interference with economic relations':
C. Inducing breach of contract and intentional interference with economic relations against Kohler and Aston

(a) The reasons of the motion judge

[91] The motion judge granted summary judgment dismissing the plaintiffs' claims for inducing breach of contract and intentional interference with economic relations against Kohler and Aston. The basis of the claims was that Mr. Correia was terminated by Canac because the actions of Kohler and Aston in conducting and implementing a negligent investigation caused Canac to wrongly terminate him. The motion judge analyzed the elements of each tort and concluded that neither tort could be proved at trial. [page383]

(b) Analysis

[92] These two torts were the subject of significant judicial consideration in 2007, both in this court in the case of Drouillard v. Cogeco Cable Inc. (2007), 2007 ONCA 322 (CanLII), 86 O.R. (3d) 431, [2007] O.J. No. 1664, 282 D.L.R. (4th) 644 (C.A.), and in the House of Lords in its joint disposition of OBG Ltd. v. Allan; Douglas v. Hello! Ltd.; Mainstream Properties Ltd. v. Young, [2007] U.K.H.L. 21, [2008] A.C. 1 (H.L.) ("OBG"), which was released the day after Drouillard. Both courts sought to reconcile confusing historical case law and to clarify and rationalize the elements of each tort.

[93] In Drouillard, Cogeco used its influence with a contractor in the Windsor area to ensure that Drouillard, a competent cable installer, was not hired for one position and was fired from another one. At trial, Cogeco was found liable for wrongful interference with economic relations. On appeal, it was held that although Cogeco's actions in speaking to the contractor caused Drouillard to lose his employment, those actions did not amount to "unlawful means", as required for the tort of wrongful interference. However, Cogeco was liable for inducing breach of contract, as its actions satisfied four criteria: (1) Drouillard had a valid and enforceable employment contract; (2) Cogeco was aware of the contract; (3) Cogeco intended to and did procure the breach of that contract because Drouillard was terminated without proper notice; (4) Drouillard suffered damage as a result: see paras. 26-38.

[94] In OBG, the House of Lords confirmed that despite some historical confusion of the two causes of action, they are distinct in their genesis, purpose and effect. The action for inducing breach of contract began with the decision in Lumley v. Gye (1853), 2 E. & B. 216, [1843-1860] All E.R. Rep. 208 (Q.B.), where a theatre owner convinced a noted singer to break her exclusive contract with a rival theatre. Lord Hoffman characterized this tort action as based on the concept that someone "who procures another to commit a wrong incurs liability as an accessory": OBG, at para. 3. The third party has committed an actionable breach of contract. The tortfeasor has acted to procure that breach, and on that basis becomes liable as an accessory to the wrongful conduct.

[95] In contrast, the intentional interference action traces its history to cases such as Garret v. Taylor (1620), Cro. Jac. 567 (Eng. K.B.) (defendant liable for driving away customers of a quarry by threatening them with mayhem and vexatious lawsuits) and Tarleton v. M'Gawley (1794), 1 Peake N.P.C. 270 (Eng. K.B.) (master of trade ship liable for using cannons to drive away a canoe that was approaching a rival trade ship with the [page384] intention to sell cargo), in which the defendant's liability was based on the defendant's commission of an independent wrong against a third party. In each of these cases, although the actions of the third party in submitting to the defendant's threats provided the immediate cause of the plaintiff's loss, the third party's actions were in no way wrongful. As such, liability for intentional interference is not accessory liability, but rather primary liability "for intentionally causing the plaintiff loss by unlawfully interfering with the liberty of others": OBG, at para. 6.

[96] Over the years, the elements of the torts had come to be confused. [See Note 2 below] Furthermore, the courts had begun to recognize, as part of the inducing breach of contract action, an action for wrongful interference with economic relations that was applicable to situations where a defendant prevented a third party from fully carrying out its contractual obligations with the plaintiff, even though no actual breach of contract occurred, and the impugned conduct was not independently unlawful.

[97] In OBG, the House of Lords determined to clarify and specifically define the elements of each tort. In doing so, the Lords corrected and, where necessary, overruled formerly precedential cases that, in hindsight, had introduced confusion and error into the definition of the two torts. [See Note 3 below] The result is a clear definition of the two torts and their elements. The Lords were unanimous in all aspects of their definition of the two torts except one -- Lord Nicholls disagreed on the scope of the concept of "unlawful means" in the tort of intentionally causing loss by unlawful interference with economic relations.

[98] In defining the two torts, the Lords emphasized that both are intentional torts that aim to give redress in the context of deliberate commercial wrongdoing: see OBG, at paras. 141-43, 145, 191 (Nicholls L.). Where the impugned conduct is merely negligent, then it must be actionable using negligence principles, [page385] and if it is not, it cannot be made actionable by recharacterizing it as wrongful commercial interference.

[99] The Lords defined the elements of the tort of inducing breach of contract as follows: (1) the defendant had knowledge of the contract between the plaintiff and the third party; (2) the defendant's conduct was intended to cause the third party to breach the contract; (3) the defendant's conduct caused the third party to breach the contract; (4) the plaintiff suffered damage as a result of the breach (see OBG, at paras. 39-44 (Hoffman L.)). The Lords confined the tort to cases where the defendant actually knew that its conduct would cause the third party to breach (it is not enough that the defendant ought reasonably to have known that its conduct would cause the third party to breach); the defendant must have intended the breach (it is not enough that a breach was merely a foreseeable consequence of the defendant's conduct); and there must be an actual breach (it is not enough for the conduct to merely hinder full performance of the contract).

[100] The elements of the tort of causing loss by unlawful means are: (1) wrongful interference by the defendant with the actions of a third party in which the plaintiff has an economic interest; (2) an intention by the defendant to cause loss to the plaintiff: see OBG, at para. 47 (Hoffman L.). Again, the intentionality of the defendant's conduct is critical: it is not enough that the loss was a foreseeable consequence of the defendant's conduct; to be actionable under this tort, the loss must have been the intended result. Furthermore, intentional conduct that causes loss but is not unlawful is not actionable. That is considered permissible competitive commercial behaviour.

[101] We note that the requirement for intentionality may be stricter for these economic torts than for the tort of intentional infliction of mental distress, where, at least when a person is accused of criminal conduct, the foreseeability of the inevitable consequences of reckless conduct can amount to intent. The difference of approach is justified in this case. The two economic torts are strictly limited in their purpose and effect in the commercial world, where much competitive activity is not only legal but is encouraged as part of competitive behaviour that benefits the economy. In contrast, intentional infliction of mental distress is a personal tort that regulates improper activity that causes mental suffering, which is never socially beneficial. What degree of intent is required may depend on the nature of the conduct that causes the mental distress. As held in Rahemtulla, when a person is accused of criminal activity, the potential for mental distress consequences is clearly foreseeable. [page386]

[102] The question of what amounts to "unlawful means" is the one that has caused the most difficulty for judges and scholars. The majority of the Lords agreed with the following definition found at para. 51 of Lord Hoffman's reasons:
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.
[103] Lord Hoffman summarized his definition of unlawful means as acts against a third party that are actionable by that third party, or would have been actionable if the third party had suffered a loss. This excludes criminal conduct that is not directed at the third party and is not otherwise actionable by that party. In contrast, Lord Nicholls of Birkenhead views the breadth of conduct under the rubric of "unlawful means" as encompassing any conduct that is deliberately intended to harm the plaintiff and in breach of a legal or equitable obligation under either civil or criminal law. He views the true rationale of the tort as providing a remedy for intentional economic harm "caused by unacceptable means", which includes all means that would violate an obligation under the law: para. 153.

[104] Lord Nicholls' approach may be viewed as similar to the one espoused by the decision of this court in Reach M.D. Inc. v. Pharmaceutical Manufacturers Assn. of Canada (2003), 2003 CanLII 27828 (ON CA), 65 O.R. (3d) 30, [2003] O.J. No. 2062 (C.A.), which adopted Lord Denning's characterization of unlawful means in Torquay Hotel, supra, note 2, at p. 530 All E.R., as acts which the tortfeasor "is not at liberty to commit". In Reach M.D., the defendant association made a ruling that was beyond its powers against one of its members, which the court found to constitute "unlawful means". However, Rouleau J.A. in Drouillard, supra, at paras. 19-25, distinguished Reach M.D. and limited its scope, when he concluded that Cogeco's conduct in not following its internal corporate policy or acting in bad faith did not amount to unlawful means and that the tort of intentional interference with economic relations was therefore not made out in that case.

[105] With the background of this recent judicial consideration of the two torts, we turn to the application of the relevant principles to this case. Dealing first with the tort of inducing breach of contract, the plaintiffs' claims fail to meet the requirement that the defendants' conduct was intentional in the sense that the defendants intended to procure a breach of contract. Neither Kohler nor Aston intended that Canac breach its contract of [page387] employment with the appellant. To the contrary, their intent was not that his employment would be wrongfully terminated, but that it would be lawfully terminated for cause.

[106] A similar analysis applies to the tort of intentional interference with economic relations. Neither Kohler nor Aston intended to cause harm to the appellant by conducting a negligent investigation. Their conduct was not intentional -- at most it was negligent. To the extent that they were reckless as to the consequences of their negligent conduct, recklessness does not amount to an intention to cause harm sufficient to make out the tort.

[107] We note that it is not necessary to fully define the scope of the "unlawful means" component of the tort of intentional interference with economic relations to resolve this case. The contention of the appellant is that the negligent investigation conducted by Aston and Kohler constituted the unlawful means. As discussed above, although Aston may be held responsible in law for such negligence, Kohler may not. Therefore, on any definition, Aston's conduct could amount to unlawful means if it was intended to cause harm to the appellant. The same conduct by Kohler could not. However, again as discussed above, Aston's alleged negligence is directly actionable by the appellant, based on duty of care and foreseeability principles. There is no need to interpose the tort of intentional interference to obtain redress against Aston. The intentional torts exist to fill a gap where no action could otherwise be brought for intentional conduct that caused harm through the instrumentality of a third party.

[108] In the result, for these reasons, we agree with the conclusion reached by the motion judge that the claims based on these two causes of action must be dismissed. D. Kohler's vicarious liability for the conduct of its deceased employee in default

[109] The appellants contend that the motion judge's decision erroneously relieved Kohler of vicarious liability for the conduct of Phil Sunstrom merely because Mr. Sunstrom has passed away. The appellants' argument, however, mischaracterizes the motion judge's decision. The motion judge held only that Canac and Kohler cannot be bound by the deemed admissions of facts resulting from the failure of Mr. Sunstrom's estate to enter a defence to the appellants' suit. In so holding, the motion judge did not relieve Kohler of possible vicarious liability for Mr. Sunstrom's conduct.

[110] We see no error in the motion judge's decision on this point. The motion judge was correct in reasoning that a deemed [page388] admission of facts resulting from a failure to defend is a legal fiction that does not bind other defendants, and that the admissions of a former employee have no authority to bind the employer: see Bank Leu Ag v. Gaming Lottery Corp., [2001] O.J. No. 4715, 29 B.L.R. (3d) 68 (S.C.J.), at paras. 88-89, affd 2003 CanLII 28360 (ON CA), [2003] O.J. No. 3213, 231 D.L.R. (4th) 251 (C.A.). As such, we would not give effect to this ground of appeal.


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Last modified: 07-02-23
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