- Collateral Damage: The Supreme Court Clarifies Claims for “Unlawful Interference with Economic Relations”
- February 17, 2014
- Law Firm: Borden Ladner Gervais LLP - Toronto Office
When the actions of a person directed at your customer, client, supplier, or other person connected to your business, indirectly harms your business, can you recover your losses from that initial person? The answer depends upon Canadian courts’ inconsistent (and often confusing) applications of the tort of “unlawful interference with economic relations”.
The potential application of this tort to the world of business is broad. Consider the following situations:
- ABC Courier provides its services to many clients in a large office tower. The owner of the building strikes an exclusivity deal with a competing courier, and denies ABC access to the building going forward. All of ABC’s clients in that building migrate over to the competing courier. Can ABC recover its economic loss from the building owner?
- D, E, and F are the only shareholders in a company that owns an apartment building. D and E, who collectively own 80% of the company’s shares, want to sell the property. F does not want to sell it. The property is listed and it receives an offer, but F blocks the potential purchaser from accessing the building and thwarts the sale. The property eventually sells for considerably less, causing a direct loss to the company, and an indirect loss to D and E. Can D and E recover their loss from F?
- XYZ Steel has a contract to provide pre- fabricated steel products for use in an oil pipeline project. However, a group of protesters block access to the project site, preventing XYZ (and other suppliers) from making deliveries, and harming it financially. Can XYZ recover its loss against the protesters?
In its very recent decision in A.I. Enterprises v. Bram Enterprises Ltd., 2014 SCC 12, the Supreme Court of Canada has greatly clarified the law governing such scenarios. Our highest court greatly narrowed the application of this tort claim, but confirmed that a claim may succeed where the initial wrongdoer acted not out of fair motivations, but rather in order to target and harm your business.
The “unlawful means tort” arises where the defendant commits an unlawful act against a third party with the intent of causing economic loss to the plaintiff. If these elements are established, then the plaintiff can recover its loss from the defendant even though the unlawful act was directed at the third party.
Certain earlier cases suggested that the “unlawful” requirement was broad and elastic. But, in A.I.Enterprises, the Court clarified that only a narrow class of acts qualify as “unlawful” under this tort: in order for the plaintiff to succeed, the defendant’s act must be sufficiently unlawful that the third- party customer, supplier, etc. itself suffered harm, and could itself sue the wrongdoer for that harm. Consequently, criminal or statutory offences are not “unlawful” in themselves for the purposes of this tort unless the act in question directly harmed the third party and would allow that party to bring a civil lawsuit.
The Canadian approach stands in contrast to the broader American approach, which generally allows the claimant to recover for any act that is “improper,” provided that it can prove other factors, such as whether lawsuit accomplished public policy goals.
Following A.I. Enterprises, an aggrieved business owner will only be able to recover its economic losses under the unlawful means tort in limited circumstances, as illustrated by the examples above.
In the first scenario, ABC cannot recover its economic loss from the building owner since the owner did not commit an unlawful act by entering into an exclusive contract with a competitor.
The second scenario is a simplified version of the facts giving rise to the appeal in A.I. Enterprises. Although F thwarted the initial sale for the purpose of economically injuring the other two shareholders, he did not do so through unlawful means. Despite the malicious (but otherwise legal) nature of F’s actions, since the potential purchaser could not sue F for his actions, D and E were unable to recover under the narrow unlawful means tort.
In the third scenario, the owner of the pipeline project has a civil cause of action against the protesters for trespass. So long as XYZ establishes that the protesters were blocking access to the site with intent to economically harm the project’s suppliers (including XYZ), then XYZ can succeed in the unlawful means tort against the protesters.
Despite its narrow scope, business owners should be aware of the application of the unlawful means tort in certain three-party business dynamics. For potential plaintiffs, this tort provides a viable avenue to obtain recovery from a wrongdoer, especially if no other cause of action is available. Likewise, potential defendants must be cautious to navigate the tightrope of market competition without risking exposure to liability under the newly clarified and popularized unlawful means tort.