Documentation:Torts/Inducing breach of contract

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Inducing breach of contract
The tort of inducing breach of contract arises when a defendant wrongfully causes a third party who has contracted with the plaintiff to breach their agreement, thereby resulting in loss to the plaintiff.[1] It is an intentional tort which should be differentiated from similar negligence actions, such as causing relational economic loss.[2] Given the overlap of this tort with an action for breach of contract, it is only available to claimants in specific circumstances.[3]

The development of the tort of inducing breach of contract

An opera singer woman in a red dress on a wooden stage with a man standing behind her to the left.
The seminal case of Lumley v. Gye involved a theatre owner poaching an opera singer from a competing theatre owner by offering to pay her more and thereby inducing her to breach her contract with the other owner.[4]

This tort has its origins as a cause of action that allowed masters to recover for losses suffered due to loss of a servant against the party who inflicted violence against the servant.[5]

The seminal 1853 English case Lumley v. Gye recognized liability of a defendant who deliberately interfered with the contractual performance between the plaintiff and a third party.[6]

In Canada, the New Brunswick Court of Appeal recognized the underlying policy reasons for this tort in SAR Petroleum et al. v. Peace Hills Trust.[7] Robertson JA explained that this tort provides an adequate remedy to claimants when an action for breach of contract would not allow the injured party to recover the full quantum of damages suffered.[7] The Court recognized that jurisprudence on this tort has specified "anywhere from three to seven essential elements" of the tort and ultimately decided on the following eight elements:[8]

Elements of inducing breach of contract[2]
1. [T]here must have been a valid and subsisting contract between the plaintiff and a third party;
2. [T]he third party must have breached its contract with the plaintiff;
3. [T]he defendant's acts must have caused that breach;
4. [T]he defendant must have been aware of the contract;
5. [T]he defendant must have known it was inducing a breach of contract;
6. [T]he defendant must have intended to procure a breach of contract in the sense that the breach was a desired end in itself or a means to an end;
7. [T]he plaintiff must establish it suffered damage as a result of the breach;
8. If these elements are satisfied, the defendant is entitled to raise the defence of justification.

Unintended consequences and justification

A white delivery truck with an open backdoor and a crate of spilled milk on the pavement beside the truck.
The SCC decision of Fleck et al. v Jones clarified that liability for inducing breach of contract may arise when the breach is classified as a means to an end.[9] The plaintiff contracted with farmers to deliver milk to the defendant's dairy.[10] However, to save money, the defendants made arrangements to transport the milk directly from the farmers and thereby caused the plaintiff to breach their contract.[10]
The breach must be a desired end in itself or a means to an end

In SAR Petroleum, the New Brunswick Court of Appeal clarified that intentionally procuring a breach either as an end in itself or as a means to an end (i.e. to profit from the breach) will be actionable.[11] However, defendants who pursue legitimate economic interests in good faith and thereby procure a breach of contract between the plaintiff and a third party will not be held liable, as their conduct will not be considered intentional.[11]

Justification

The defence of justification in the context of inducing breach of contract remains unclear.[12] In Stocznia v. Latco, the Court of Appeal of England and Wales stated that there may be extant moral or economic factors that justify conduct that would otherwise be actionable under this tort.[12] In other words, a defendant may interfere with another party's contractual relations to protect an equal or superior right of their own.[13] In Edwin Hill v. First National Finance Corp the defendant bankers agreed to provide financing on a real estate development on the condition that the developer replaced the current architects with new ones.[14] While the defendant's conduct undoubtedly amounted to inducing a breach of contract between the developer and the architects, they were not held liable since they were protecting their equal legal rights under the charge they held against the developed property.[14]

There is significant overlap between the defendant's intention behind procuring a breach of contract and the availability of the justification defence.[15] A defendant who acts with the justification of protecting their legitimate rights cannot be said to have acted with an unacceptable or opportunistic intention.[15] For these reasons, a defendant will not be held liable under this tort when mistakenly relying on legal rights they believe they have under a contract, but do not.[16]

Relation to unlawful interference with economic relations

While the tort of inducing breach of contract and the tort of unlawful interference with economic interests are closely related, they are distinct.[17] In OBG Ltd. v. Allan, the House of Lords clarified the difference between these two economic torts, with Lord Nicholls explaining that the the unlawful means tort imposes primary liability for unlawfully interfering with a plaintiff's economic relations, whereas inducing breach of contract imposes secondary liability for inducing a third party to commit an actionable wrong (breaching contract with the plaintiff).[17]

Limited availability of an action for inducing breach of contract

As explained by the New Brunswick Court of Appeal in SAR Petroleum, this tort has served as a back-up that allows claimants to recover the full sum of damages when it would be unavailable or impractical to recover through an action for breach of contract.[18] Given the tort of inducing breach of contract is one of secondary or "accessory" liability, Canadian courts have limited the availability of the tort to claimants to two principled exceptions that relate to the underlying policy reasons for the tort's existence in the common law.[18] The first exception is when the contracting party in breach is unable to compensate the plaintiff for the damage suffered due to their breach.[3] The second exception is when the quantum of damages differs between tort and contract.[3] The New Brunswick Court of Appeal clarified in Potash Corporation of Saskatchewan that this tort is not available when the contracting party in breach is being pursued to recover the same amount of damages.[3]

Discussion questions

  • Why does the tort of inducing breach of contract require proof of a defendant's intentionality? What is problematic about recognizing a standard whereby the breach of contract was reasonably foreseeable?
  • Are the policy reasons underscoring this tort's existence consistent with the rationales underlying the doctrines of joint and several liability or concurrency of actions in tort and contract against a primary defendant?
  • Is the recognition of justification as an element of this tort principled?


  1. ↑ Potash Corporation of Saskatchewan Inc. v. HB Contruction Company Ltd., [2022] NBCA 39 (§10.3.1) at para 204.
  2. ↑ 2.0 2.1 SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 40.
  3. ↑ 3.0 3.1 3.2 3.3 Potash Corporation of Saskatchewan Inc. v. HB Contruction Company Ltd., [2022] NBCA 39 (§10.3.1) at para 205.
  4. ↑ Lumley v. Gye, [1853] EWHC QB J73 (BAILII) at para 1.
  5. ↑ SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 31.
  6. ↑ Lumley v. Gye, [1853] EWHC QB J73 (BAILII) at para 12.
  7. ↑ 7.0 7.1 SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 33.
  8. ↑ SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at paras 39–40.
  9. ↑ SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 54.
  10. ↑ 10.0 10.1 Fleck et al. v. Jones, 1972 CanLII 127 (SCC) at 44–46.
  11. ↑ 11.0 11.1 SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 53.
  12. ↑ 12.0 12.1 OBG Ltd. v. Allan, [2005] EWCA Civ 106 at para 42, citing Stocznia v Latco, [2002] EWCA Civ 889.
  13. ↑ OBG Ltd. v. Allan, [2005] EWCA Civ 106 at para 193.
  14. ↑ 14.0 14.1 SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 54, citing Edwin Hill v. First National Finance Corp., [1989] 1 WLR 225 (EWCA).
  15. ↑ 15.0 15.1 SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 73.
  16. ↑ SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at paras 75–78.
  17. ↑ 17.0 17.1 OBG Ltd. v. Allan, [2007] UKHL 21 at para 194.
  18. ↑ 18.0 18.1 Potash Corporation of Saskatchewan Inc. v. HB Contruction Company Ltd., [2022] NBCA 39 (§10.3.1) at para 204, citing SAR Petroleum et al. v. Peace Hills Trust Company, [2010] NBCA 22 at para 33.
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