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Torts - Intentional Interference with Economic Relations (aka 'Unlawful Means Tort'). Globe POS Systems v. Visual Information Products Inc.
In Globe POS Systems v. Visual Information Products Inc. (Div Court, 2022) the Divisional Court cited the elements of the 'intentional interference with economic relations' tort, which it characterizes as being known now as the 'unlawful means tort':[7] The Associate Justice notes as follows at para. 12 of the Decision:At the hearing of the motion counsel for Globe confirmed that the counterclaim asserts two causes of action: 1) intentional interference with economic relations (now known as the unlawful means tort); .... [8] The Associate Justice quoted leading authority from the Supreme Court of Canada on the elements of the “unlawful means tort” (paras. 13 and 14 of the Decision). As held by Cromwell J., “for conduct to constitute “unlawful means” for this tort, the conduct must give rise to a civil cause of action by the third party or would do so if the third party had suffered loss as a result of that conduct” (A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12, para. 76, quoted in the Decision, para. 14).
[9] The “third party” in the context of this appeal is Rossi. The alleged “unlawful means” is Visual’s bringing a lawsuit against Rossi. As held by the Associate Justice, “[i]t is beyond clear that this proposed pleading is not legally tenable…. Issuing a civil claim is not an unlawful act, and it cannot give rise to civil liability.” I agree. . Hategan v. Frederiksen
In Hategan v. Frederiksen (Ont CA, 2022) the Court of Appeal briefly considered the tort of unlawful interference with economic relations:[51] The tort of unlawful interference with economic relations is established where a plaintiff suffers economic loss resulting from a defendant’s unlawful act against a third party, intended to target the plaintiff: A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12, [2014] 1 S.C.R. 177, at paras. 23, 43, 45. Here, there was no unlawful act nor a third party identified. . A.I. Enterprises Ltd. v Bram Enterprises Ltd.
In A.I. Enterprises Ltd. v. Bram Enterprises Ltd. (SCC, 2014) the Supreme Court of Canada took the oppourtunity to clarify and expound on the elements of the tort of 'unlawful interference with economic relations'.
At paras 23-87 the court discusses and sets out the elements of the tort of wrongful interference with economic relations, including an extensive review of common law case law on the tort. The case is essential reading for anyone involved in a situation involving such elements.
. Frank v Legate
In Frank v. Legate (Ont CA, 2015) the Court of Appeal stated as follows on the tort of intentional interference with economic relations:[79] In A.I. Enterprises, Cromwell J. extensively reviewed the history and elements of intentional interference with economic relations, which is also referred to as, among other names, the “unlawful means tort”. He traced the development of the tort and considered the state of the law in various common law jurisdictions. Justice Cromwell concluded that this tort should be restricted to three-party situations in which the defendant commits an unlawful act against a third party and intentionally causes economic harm to the plaintiff through that act. Unlawful conduct is limited to conduct that is actionable by the third party or would have been actionable if the third party suffered loss. The defendant must intend to cause injury to the plaintiff as an end in itself or as a means of achieving an ulterior motive (e.g. enriching itself): A.I. Enterprises, at paras. 5 and 95. . Gaur v. Datta
In Gaur v. Datta (Ont CA, 2015) the Court of Appeal considered in context the elements of the tort of intentional interference with economic relations:[25] In A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12 (CanLII), [2014] 1 S.C.R. 177, a recent decision of the Supreme Court of Canada, Cromwell J. clarified the elements of unlawful interference with economic relations, which he indicated is also referred to as intentional interference with economic relations: at para. 2. The tort requires the defendant to have committed an actionable wrong against a third party that intentionally caused the plaintiff economic harm. Conduct is unlawful if it is actionable by the third party, or would be actionable if the third party had suffered a resulting loss: A.I. Enterprises Ltd., at para. 5.
[26] The amended statement of claim asserts the following with respect to the tort of intentional interference with economic relations. It alleges that, by undermining Pradeep Gaur’s professional reputation, the defendants sought to, and did, interfere with the plaintiffs’ ability to maintain existing contracts, secure additional contracts and develop business opportunities (para. 20). The claim also alleges that this interference was unlawful and induced a breach of contract (para. 21). Finally, the claim alleges that the defendants’ conduct aggravated the damages caused to the plaintiffs by, among other things, “sending the plaintiffs’ third party business associates threats to send ‘quasi legal letters’ to potential customers implicating the third party business associates and threatening legal action” (para. 22d), and “attempting to induce potential third-party business associates of the plaintiffs to either break their contracts with the plaintiff or not enter into contracts with the plaintiff” (para. 22e).
[27] This pleading alone does not address each of the essential elements of the tort of intentional interference with economic relations. In particular, there is no allegation that would amount to “unlawful means”. The reference to third parties here is confusing and there is no clear allegation of an actionable wrong against any third party.
[28] However, the appellants urge the court to consider, together with the amended statement of claim, the particulars and what is stated in the July 5, 2012 email.
[29] With respect to the unlawful means element, the particulars assert that the respondents, through Dipti Datta, offered to pay Triton (a third party) a portion of an acknowledged debt owed by M&I Power if Triton would cease doing business with Pradeep Gaur. The appellants contend that, when considered with reference to the July 5, 2012 email, the allegation is that Dipti Datta (on behalf of himself and the respondents) threatened that Triton would not receive payment of a debt owed by M&I Power unless it provided its “full cooperation” in the respondents’ campaign against Pradeep Gaur by ending its business relationship with Gaur. In A.I. Enterprises Inc., at para. 80, Cromwell J. acknowledges that threatening to breach a contract with a third party can satisfy the unlawful means element of the tort of intentional interference with economic relations.
[30] Regarding the intention element, the amended statement of claim only alleges that the respondents, by undermining Pradeep Gaur’s reputation, sought to interfere with the appellants’ ability to maintain existing contracts, secure additional contracts and develop business opportunities (para. 20). This allegation is not explicitly pleaded as the respondents’ reason for inducing third parties to either break or not enter into contracts with the appellants (para. 22e). However, on a generous reading of the pleading together with the particulars and the July 5, 2012 email, it appears that the appellants are alleging that the respondents’ threats to withhold monies from Triton was targeted at inflicting economic harm on the appellants, as the condition for receiving payment was for Triton to cease its business relationship with Gaur.
[31] Regarding the requirement that the unlawful means caused the plaintiffs economic harm, the particulars assert that the appellants have lost $1.5 million as a result of third party business associates – who pursued contracts on their behalf and provided them access to contract opportunities – discontinuing their relationship with the appellants. The particulars also attribute $32 million in losses to the withdrawal of third parties from proposed contracts and joint venture opportunities. Although Triton is not explicitly named in these particulars, given the similarity between the relationship between the appellants and Triton and the intermediary relationship described, on a generous reading this element of the tort is disclosed.
[32] In my view, when the particulars and the July 5 email are considered, intentional interference with economic relations is raised in this action against the respondents. The appellants allege an actionable wrong by the respondents (a threat to continue an ongoing breach of contract) against a third party (Triton Synergies) that was aimed at causing, and did in fact cause, the appellants economic harm: A.I. Enterprises Inc., at paras. 5, 23. These allegations are neither incapable of proof nor patently ridiculous. Taking them as true, and adopting a broad and generous reading of the pleading together with the particulars and the July 5, 2012 email, it is not “plain and obvious” that the pleading discloses no reasonable cause of action for intentional interference with economic relations: Hunt v. T & N plc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, at paras. 33, 36; Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42 (CanLII), [2011] 3 S.C.R. 45, at para. 17. Accordingly, I would set aside the motion judge’s order under rule 21.01(1)(b) striking the appellants’ claim for intentional interference with economic relations, subject to what I say below respecting the need to amend the pleading. . Grand Financial Management Inc. v. Solemio Transportation Inc.
In Grand Financial Management Inc. v. Solemio Transportation Inc. (Ont CA, 2016) this wide-ranging case the Court of Appeal canvassed the elements of the tort of intentional interference with economic relations as follows:[62] The trial judge properly identified the three essential elements of the tort as traditionally understood: first, the defendant must have intended to injure the plaintiff’s economic interests; secondly, the interference must have been by illegal or unlawful means; and thirdly, the plaintiff must have suffered economic harm or loss as a result: see Alleslev-Krofchak v. Valcom Ltd., 2010 ONCA 557 (CanLII), 322 D.L.R. (4th) 193, and cases cited therein, leave to appeal refused, [2010] S.C.C.A. No. 403.
Intentional Injury
[63] The trial judge found that the actions of Grand Financial were directly intended both to harm Solemio in its business interests and to enrich itself. This finding is amply supported by the record. Mr. Rakhnayev threatened Mr. Ullah that he would take steps to shut him down if he did not make certain payments and give Grand Financial business from other clients. He told Arnold Bros. in an angry message that someone was going to pay the money owed to Grand Financial, and he “didn’t care who” – supporting the trial judge’s finding that Mr. Rakhnayev would take any steps within his power, whether lawful or unlawful, to get the money he thought he was owed. Mr. Rakhnayev also threatened to pursue Arnold Bros.’ customers, causing Arnold Bros. to sever its business relationship with Solemio. Finally, the trial judge found, at para. 52, that Mr. Rakhnayev was “well aware of and intended the natural consequences which he knew would flow from his deliberate actions in executing on security pursuant to an agreement which he knew was terminated.”
Unlawful Means
[64] Grand Financial’s main argument on the cross-appeal is that the trial judge erred in his application of the “unlawful means” criterion for the establishment of the tort. It points out that the trial judge did not have the benefit of the recent decision of the Supreme Court of Canada in A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12 (CanLII), [2014] 1 S.C.R. 177 – which was still under reserve at the time of trial – and suggests that the analysis of the tort in that case leads to the conclusion that the trial judge erred in holding Grand Financial liable.
[65] I disagree. That A.I. Enterprises did not change the essential elements of the tort is apparent from the following succinct description of its parameters by Cromwell J. at para. 23:The unlawful means tort creates a type of “parasitic” liability in a three-party situation: it allows a plaintiff to sue a defendant for economic loss resulting from the defendant’s unlawful act against a third party. Liability to the plaintiff is based on (or parasitic upon) the defendant’s unlawful act against the third party. While the elements of the tort have been described in a number of ways, its core captures the intentional infliction of economic injury on C (the plaintiff) by A (the defendant)’s use of unlawful means against B (the third party). [Emphasis added.] [66] The primary issue resolved by A.I. Enterprises, had to do with “the scope of liability for [the] tort and, in particular, what the unlawfulness requirement means”: at para. 4. Although there has been no dispute that the unlawful conduct forming the basis for the tort must be intentional and must cause the plaintiff injury, there has been considerable debate in Canadian and international jurisprudence about the scope of the type of conduct that will constitute “unlawful means”. Should the courts take a broad approach or a narrow approach to this question? I need not review that jurisprudence here. After doing so at length, the Supreme Court of Canada settled firmly on the narrow approach in A.I. Enterprises.
[67] Writing for the Court, Cromwell J. made it clear, at para. 5, that “the tort should be kept within narrow bounds” and, at para. 35, that it should be viewed “as one of narrow scope.” In particular, he confirmed, at para. 5, that for conduct to constitute “unlawful means” in this context, it must be conduct that “would be actionable by the third party or would have been actionable if the third party had suffered loss as a result of it.” In this respect, A.I. Enterprises is consistent with this Court’s analysis in Alleslev-Krofchak and Correia v. Canac Kitchens (2008), 2008 ONCA 506 (CanLII), 91 O.R. (3d) 353. . Correia v. Canac Kitchens
In Correia v. Canac Kitchens (Ont CA, 2008) the Court of Appeal reviewed the tort of 'intentional interference with economic relations' in contrast with that of 'inducing breach of contract': 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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