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The Tort of Intentional Interference With Contractual Relations and Economic Interests

September 13, 2021

Alberta

,

Canada

Issue

What distinguishes tortious interference with contractual relations from the tort of inducement of breach of contract?

Conclusion

In order to find that a defendant intentionally induced a breach of contract, seven elements must be established:

i) the existence of a contract;

ii) knowledge or awareness by the defendant of the contract;

iii) a breach of the contract by a contracting party;

iv) the defendant induced the breach;

v) the defendant, by his conduct, intended to cause the breach;

vi) the defendant acted without justification; and

vii) the plaintiff suffered damages. (369413 Alberta Ltd. v. Pocklington; Luan v. ADP Canada Co)

The tort of intentional interference with contractual relations and economic interests requires the plaintiff to prove:

(1) an intention to injure the plaintiff;

(2) interference with another's method of gaining his or her living or business by illegal or unlawful means;

(3) economic loss caused thereby. (Canada Steamship Lines Inc. v. Elliott)

The primary difference between the two torts is that the tort of intentional intereference with contractual relations or economic interests is not limited to situations where the defendant has induced or brought about a breach of contract. (Canada Steamship Lines Inc. v. Elliott)

The Supreme Court of Canada has narrowed the definition of "illegal" or "unlawful means" in the test for intentional interference with contractual relations or economic interests. "Unlawful means" is restricted to acts that would give rise to civil liability to the third party if the third party suffered loss from them. The narrow definition of "unlawful means" does not come into play in the test for inducing a breach of contract. (A.I. Enterprises Ltd. v. Bram Enterprises Ltd., [2014] 1 SCR 177)

The two core components of the unlawful means tort are therefore that the defendant must use unlawful means, in the narrow sense, and that the defendant must intend to harm the plaintiff through the use of the unlawful means. (A.I. Enterprises Ltd. v. Bram Enterprises Ltd., [2014] 1 SCR 177)

Law

In 369413 Alberta Ltd. v. Pocklington, 2000 ABCA 307 (CanLII), the Alberta Court of Appeal set out the test for inducing breach of contract. It focused its analysis on the requirement that the defendant intended to cause the breach and on the defence of justification. The defendant, the sole director and a beneficial shareholder of a meatpacking company, transferred a valuable asset of the company to his own company, causing the meatpacking company to be in breach of a loan agreement with a third party:

[13] In order to find that a defendant intentionally induced a breach of contract, seven elements must be established:

i) the existence of a contract;

ii) knowledge or awareness by the defendant of the contract;

iii) a breach of the contract by a contracting party;

iv) the defendant induced the breach;

v) the defendant, by his conduct, intended to cause the breach;

vi) the defendant acted without justification; and

vii) the plaintiff suffered damages.

See Ed Miller Sales & Rentals Ltd. v. Caterpillar Tractor Co. (1996), 41 Alta. L.R. (3d) 217 (Alta. C.A.); and Jackson v. Trimac Industries Ltd. (1992), 6 Alta. L.R. (3d) 225 (Alta. Q.B.), varied on other grounds(1994), 20 Alta. L.R. (3d) 117 (Alta. C.A.).

[...]

[38] In order to find liability, a plaintiff must demonstrate that the defendant had an "intent" to induce the breach of contract. The intent component of the tort is the most difficult to understand. Malicious motive, unlawful conduct, hatred or intention to harm are not required elements of intent: Allen v. Flood (1897), [1898] A.C. 1 (U.K. H.L.); Parks West Mall Ltd. v. Jennett (1995), 36 Alta. L.R. (3d) 44 (Alta. C.A.), at 49; and Atcheson v. College of Physicians & Surgeons (Alberta), [1994] 6 W.W.R. 239 (Alta. Q.B.) at 246. However, what is required is less clear. The requisite intent has been described with "loose, vague and conflicting statements" that sometime appear to be irreconcilable: Ed Miller Sales, supra, at 230.

[39] Originally, the tort required the breach to be the result of wilful, deliberate and direct conduct which the defendant knew or hoped would result in a violation of the plaintiff's contractual rights. See for example, Lumley v. Gye (1853), 118 E.R. 749, 2 El. & Bl. 216 (Eng. Q.B.); and Quinn v. Leathem, [1901] A.C. 495 (U.K. H.L.).

[40] However, courts soon recognized that intent can also be inferred when the consequences of the conduct were a necessary or reasonably foreseeable result, because "people are presumed to intend the reasonable consequences of their acts": Glamorgan Coal Co. v. South Wales Miners' Federation, [1905] A.C. 239 (U.K. H.L.), at 244. In Posluns v. Toronto Stock Exchange (1964), 46 D.L.R. (2d) 210 (Ont. H.C.) at 267; affirmed(1965), 53 D.L.R. (2d) 193 (Ont. C.A.); affirmed [1968] 1 S.C.R. 330 (S.C.C.), the court held that liability would attach if the defendant's conduct resulted in the breach of a contract "of which it was or ought to have been aware". The intention to bring about a breach of contract need not be the primary object; it is sufficient if the interference is necessarily incidental to attaining the defendant's primary objective: Fraser v. Central United Church (1982), 38 O.R. (2d) 97 (Ont. H.C.), at 103; and Bank of Nova Scotia v. Gaudreau (1984), 48 O.R. (2d) 478 (Ont. H.C.).

[41] Intention can also be established when the defendant was reckless or wilfully blind to a breach. The defendant need not have actually known the precise terms of the contract or that his object only could be accomplished through breach of the contract. "If - turning a blind eye - he went about it regardless of whether it would involve a breach, he will be treated just as if he had knowingly procured it": J.G. Fleming, The Law of Torts, 8th ed. (Sydney: Law Book Co., 1992) at 694.

[42] Turning a blind eye may include situations in which the defendant failed tom seek advice or employ the means available to obtain the necessary knowledge. For example, in Royal Bank v. Wilton (1995), 165 A.R. 261 (Alta. C.A.), the defendant was uncertain about the enforceability of a contract, had the "means of knowledge" to determine if a legitimate contract existed, but made no efforts to seek advice. This court found the defendant liable because he deliberately chose not to acquire the information, but proceeded on the basis that the contract was unenforceable. Similarly, when there are competing legal interpretations and the defendant adopts an interpretation which will interfere with the plaintiff's rights, the defendant "must at least show that he was advised and honestly believed that he was legally entitled to take that course": Swiss Bank Corp. v. Lloyd's Bank Ltd. (1978), [1979] Ch. 548 (Eng. Ch. Div.), at 580; reversed on other grounds [1980] 2 All E.R. 419 (Eng. C.A.); affirmed(1981), [1982] A.C. 584 (U.K. H.L.) at 604.

[43] If the defendant acted under a bona fide belief that contractual rights would not be infringed, liability will not be found even though the belief turned out to be mistaken. But for a mistaken belief to be bona fide, rather than the result of recklessness or wilful blindness, some basis for the belief must exist, and some reasonable effort must have been made by the defendant to learn the truth. In British Industrial Plastics Ltd. v. Ferguson, [1940] 1 All E.R. 479 (U.K. H.L.), defendants who had made the effort to seek advice were not found liable even though their belief was described as "illogical". In Z Mark International Inc. v. Leng Novak Blais Inc. (1996), 12 O.T.C. 33 (Ont. Gen. Div.), appeal dismissed (1999), 122 O.A.C. 341 (Ont. C.A.), a defendant made enquiries and obtained assurances and a warranty. The court found that the defendant had no reason to doubt the assurance or the warranty and therefore the defendant was not knowingly or recklessly indifferent to a breach of contract.

[44] In some cases a distinction is drawn between direct interference, for which the breach must be a foreseeable or reasonable consequence of the conduct, and indirect interference, for which the breach must be a necessary or substantially certain consequence. See, for example, L.N. Klar, Tort Law, 2nd ed. (Scarborough: Carswell, 1996) at 498 and 507; Fleming, supra, at 694; D.C. Thomson & Co. v. Deakin, [1952] Ch. 646 (Eng. C.A.); Bank of Nova Scotia, supra; Garry v. Sherritt Gordon Mines Ltd. (1987), [1988] 1 W.W.R. 289 (Sask. C.A.); and Atcheson, supra.

In Luan v. ADP Canada Co, 2020 ABQB 387 (CanLII), the Alberta Court of Queen's Bench found the defendant liable for inducing ADP LLC (an American company) to breach its employment contract with the plaintiff. In this case, the plaintiff worked for the defendant Canadian company and was celebrated for her performance. The American company offered her employment in the United States, which was considered a promotion, and she accepted. After two months, the CFO of the defendant Canadian company investigated certain sales practices and reported to the American company that the plaintiff had engaged in unethical activities while employed with the defendant. The Court concluded that the investigation had been done poorly and the results relating to the plaintiff were incorrect. While this case dealt with an employment contract, the court provides an in-depth analysis for each part of the test for inducing breach of a contract:

[162] The elements required to show that ADP Canada intentionally induced a breach of contract are as follows:

i) the existence of a contract;

ii) knowledge or awareness by the defendant of the contract;

iii) a breach of the contract by a contracting party;

iv) the defendant induced the breach;

v) the defendant, by his conduct, intended to cause the breach;

vi) the defendant acted without justification; and

vii) the plaintiff suffered damages.

369413 Alberta Ltd. v. Pocklington, 2000 ABCA 307 (Alta. C.A.), at para 13.

[163] The first and second elements are clearly present here, as Ms. Luan entered into a contract with ADP LLC to be employed in their Denver office, and ADP Canada was aware of and supported her transfer to the Denver office. There is no written contract of employment. The only document Ms. Luan received was a congratulatory letter from ADP Global Talent Acquisition which set out her pay and bonus conditions. However, no one is disputing that a contract of employment was entered into.

Breach of Contract by a Contracting Party

[164] Regarding the third element, Ms. Luan argues that she understood that her employment in Denver was to last a number of years, and points to the documentation in support of her visa petition that states the "dates of intended employment" to be from February 23, 2015 to February 23, 2018. On the basis of ADP's oral representations and this documentation, Ms. Luan argues that her contract was breached by ADP LLC when she was terminated on April 24, 2015. She argues that ADP Canada has the burden of proving that her contract was at-will, and has failed to do so in this case. ADP Canada argued in turn that the burden of proving the terms of the contract are on Ms. Luan.

[...]

[178] Based on this evidence, I find that ADP LLC represented to Ms. Luan that she would have secure employment in Colorado for a three-year term and this became a term of the employment contract. ADP LLC breached this term when they terminated her contract less than two-months after she commenced her employment in Colorado.

Inducement

[179] The next element requires the court to find that ADP Canada induced the breach of contract by ADP LLC. Inducing means that the defendant directly persuaded or provided an incentive to the contracting party to breach a contract. I find that the former occurred in this case, as I find that Mr. Wong, on behalf of ADP Canada, persuaded ADP LLC to terminate its contract with Ms. Luan.

[180] I find that it was Mr. Wong who directed the scope of the investigation and was its primary mover. Ms. Loprete was unaware of key details in Canadian operations such as approval mechanisms for splits, and the specific roles and procedures for managers and VPs and the implementation department. Mr. Wong was closest to the Canadian operations and made key decisions on who was interviewed and who was not, and how far the investigation progressed. It was Mr. Wong who decided "not to bother" interviewing the implementation department. It was Mr. Wong who "didn't think" to interview Mr. Yatabe. It was his assumption that Ms. Luan's husband had been the one to approve TNS extensions, and had done so in consort with Ms. Luan, based on conjecture. Finally, it was Mr. Wong who wrote the report and recommended termination based on his premature findings, though I acknowledge that Ms. Loprete stated she agreed with them.

[181] I find that ADP Canada, through Mr. Wong, was the driving force in persuading ADP LLC that Ms. Luan should be terminated.

Intention

[182] ADP Canada argues that it did not act with the intention for ADP LLC to breach Ms. Luan's contract, but merely recommended that the employment relationship be terminated.

[183] However, intention is not so simply defined in the case law. As Fruman J.A. stated in Pocklington, intent does not require proof of malicious motive, unlawful conduct, hatred or intention to harm, at para 38. Intent can be inferred where "the consequences of the conduct were a necessary or reasonably foreseeable result" Pocklington at para 40. Intention can also be established if the defendant was reckless or wilfully blind to a breach. In a case where there are competing legal interpretations, such as in this case regarding the nature of Ms. Luan's contract, the law requires the defendant to show he "was advised and honestly believed that he was legally entitled to take that course" Pocklington at para 42, citing Swiss Bank Corp. v. Lloyds Bank (1978), [1979] Ch. 548 (Eng. Ch. Div.), rv'd on other grounds, [1980] 2 All E.R. 419 (Eng. C.A.), aff'd (1981), [1982] A.C. 584 (U.K. H.L.).

[184] Intent is satisfied on this ground based on the fact that the consequence to finding Ms. Luan unethical and recommending termination is that her contract would be terminated. I find that ADP Canada, through Mr. Wong, was reckless or willfully blind to the mechanism of her termination and the consequences that she would suffer in response. There is no evidence that Mr. Wong considered or sought advice on the terms of Ms. Luan's contract. Nor is there evidence that he considered the legality of terminating Ms. Luan's contract with ADP LLC, or whether there were sufficient legal grounds to do so based on the investigation.

Justification

[185] This final element is amorphous and often depends on the circumstances of the case. Relevant factors may include the position of the parties to the contract, the nature of the contract broken, the grounds for the breach, the means employed to procure the breach, the relationship of the person procuring the breach to the person who breaks the contract, and the object of the person procuring the breach: Lewis N. Klar and Cameron S.G. Jeffries, Tort Law, 6th ed, (Toronto: Thomson Reuters, 2017) at 827-828, citing Glamorgan Coal Co. v. South Wales Miners' Federation, [1903] 2 K.B. 545 (Eng. C.A.), aff'd [1905] A.C. 239 (U.K. H.L.).

[186] An act will be justified if the defendant caused the breach while acting under a duty imposed by law: Pocklington at para 57. It has been recognized that if the interests of a company are best served by breaking its contractual commitments, a director who authorized the breach should not be personally liable through this tort: Pocklington at para 59. Similar considerations can apply to absolve an employee who is carrying out conduct that is bona fide within their scope of employment that results in inducing a breach of contract, Klar & Jeffries, at 822.

[187] In this case, I find that the investigation into sales practices in the Western region was undertaken for legitimate reasons. ADP LLC and ADP Canada had the right to investigate their employees after hearing a complaint about problematic sales practices in their region. Mr. Wong initially followed a logical pattern of investigation that involved reviewing two negative deals of concern, one of which was AgeCare, and which led to a review of Ms. Luan's sales activities and accounts.

[188] However, as discussed, once the investigation was underway Mr. Wong was quick to target Ms. Luan and make improper assumptions relating to her conduct. I find that she was targeted due to negative association with her husband, who ADP Canada had decided was unethical and was no longer with the company. I find that a decision was made early on that Ms. Luan needed to be terminated, and therefore this was not a truth-seeking investigation in relation to Ms. Luan. Along with the serious flaws in the investigation already discussed, it is also noteworthy that Mr. Wong provided Ms. Luan with no opportunity to prepare for her interview or access to her files during the interview.

[189] I have concluded that ADP Canada, through Mr. Wong, improperly concluded that Ms. Luan engaged in unethical behaviour that warranted her termination. I have also concluded that Mr. Wong acted recklessly in not determining whether Ms. Luan's contract could be legally terminated. These actions bring his conduct outside of the confines of an employee bona fide carrying out of an investigation and recommendation of termination to the employer.

While the plaintiff also argued intentional interference with economic interests, the Court did not find that the facts of the case met the narrow definition of "unlawful means" from A.I. Enterprises Ltd. v. Bram Enterprises Ltd., [2014] 1 SCR 177, 2014 SCC 12 (CanLII):

[201] In terms of the unlawful means requirement of the tort, the Court held that it should be defined narrowly. Because the rationale for the tort is to extend the right to sue to another party, the tort is not meant to create a new actionable wrong. If there is an existing actionable wrong against the third party, the tort allows others to also sue if they were intentionally harmed by that unlawful act, at para 45:

This rationale of the tort supports a narrow definition of "unlawful means": the tort does not seek to create new actionable wrongs but simply to expand the range of persons who may sue for harm intentionally caused by existing actionable wrongs to a third party. Thus, criminal offences and breaches of statute would not be per se actionable under the unlawful means tort, but the tort would be available if, under common law principles, those acts also give rise to a civil action by the third party and interfered with the plaintiff's economic activity. For example, crimes such as assault and theft would be actionable by a third party in the torts of trespass to the person and conversion. . . .

[202] Thus, the tort does not expand the types of conduct that a defendant may be held liable for, but merely adds another plaintiff who can recover, at para 74.

[203] The Court concluded there are two core components to what it termed the "unlawful means tort". First, the defendant must use unlawful means in the narrow sense of conduct that gives rise to a civil cause of action by the third party, at paras 45 and 76. Second, the defendant must have intended to harm the plaintiff through the use of the unlawful means at para 45.

[204] In terms of the meaning of "intention", the Court clarified that there is a high level of intention required to satisfy this component of the tort. The defendant must be "aiming at" or "targeting" the plaintiff. The Court also noted that harming the plaintiff is usually either an end in itself, or used to enrich the defendant, as a part of market competition.

[205] The Court then applied the clarified law to the facts in Bram. The appeal court had found the dissenting family member committed no wrong that would be actionable by the third party, the prospective purchasers. The Court held there was therefore no liability on the basis of unlawful means.

[206] As noted, in her submissions, although counsel for Ms. Luan acknowledged the Bram case, she relied on the College of Dental Surgeons of Saskatchewan case to ground her submissions. That case pre-dated Bram and relied on legal factors and tests that are no longer applicable.

[207] Applying Bram to the facts in the present case Ms. Luan would need to allege that her economic loss was due to ADP Canada committing an actionable wrong against ADP LLC (the third party) with the intention of harming her. Ms. Luan has not alleged that ADP LLC committed an independent actionable wrong against ADP LLC, nor do I see that on the facts before me. She is not attempting impose parasitic liability on a claim where ADP LLC is the immediate victim of ADP Canada's actions.

In Canada Steamship Lines Inc. v. Elliott, 2006 FC 609 (CanLII), the Federal Court examined the difference between the torts of inducement to breach of contract and intentional interference with contractual relations and economic interests in the context of an application to strike a counterclaim for disclosing no reasonable cause of action. The Court found that while the plaintiff by counterclaim had not pleaded all the necessary elements to prove the tort of inducement, it had pleaded all the necessary elements to prove intentional interference with economic interests:

[26] Firstly, in Daishowa Inc. v. Friends of the Lubicon, 1996 CarswellOnt 1620 (Ont. Div. Ct.), the Court expressed itself as follows:

The Economic Interference Torts

50 It is useful to describe each of the economic interference torts briefly.

51 The tort of intentional interference with contractual relations and economic interests requires the plaintiff to prove:

(1) an intention to injure the plaintiff;

(2) interference with another's method of gaining his or her living or business by illegal means; (See I.B.T., Local 213 v. Therrien, [1960] S.C.R. 265 at 280.) and (emphasis in the original text)

(3) economic loss caused thereby.</

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