Law of Torts
The Economic Torts: Inducing Breach of Contract, Causing Loss by Unlawful Means, Conspiracy and Intimidation
Competition is lawful, and a trader who ruins a rival by underselling him commits no wrong at all, however deliberately he sets out to do it. The economic torts identify the narrow cases in which the deliberate infliction of economic harm becomes actionable, and they have long been the untidiest part of the law of torts. The organising principle since OBG Ltd. v. Allan is the distinction between accessory liability, where the defendant answers for procuring another's breach, and primary liability, where he answers for his own independently unlawful act aimed at the plaintiff.
Inducing breach as accessory liability, causing loss by unlawful means as primary liability, conspiracy and intimidation
1. Inducing Breach of Contract
📖 Lumley v. Gye (1853) 2 E and B 216 Facts Johanna Wagner, an opera singer, had contracted with the plaintiff to sing exclusively at Her Majesty's Theatre for a season, and not to sing elsewhere without his written consent. The defendant, who managed a rival theatre and knew of the contract, maliciously induced her to refuse to perform and to break it. Held An action lay against the defendant, though he was a stranger to the contract. Ratio A person who knowingly and without justification induces another to break a contract with a third party, thereby causing that third party loss, commits a tort. The wrong is committed against the contracting party whose contractual rights have been violated, and the defendant is liable notwithstanding that he was not a party to the contract and owed no contractual duty himself. |
The ingredient | What must be shown |
A valid contract | Between the plaintiff and a third party |
An actual breach | The third party must actually have broken the contract. Without a breach there is nothing for the defendant to be an accessory to |
Inducement or procurement | The defendant's conduct must have procured the breach: persuasion, pressure, or the provision of the means to break it. Merely providing an opportunity is not enough |
Knowledge | The defendant must have known of the term breached, or have deliberately turned a blind eye to it. Honest ignorance of the contract is a complete answer |
Intention | He must have realised that his conduct would cause the breach. It is not enough that a breach was a foreseeable consequence |
Damage | Loss resulting to the plaintiff |
- Justification is a defence, though a narrow and ill defined one. It has succeeded where the defendant acted to protect an equal or superior right, or in discharge of a moral duty.
- The liability is accessory. The defendant answers as a participant in the contracting party's wrong, which is why an actual breach is indispensable.
2. Causing Loss by Unlawful Means
The ingredient | What must be shown |
Intention to cause loss | The loss to the plaintiff must be an end in itself, or a means to an end, and not merely a foreseeable by product of the defendant pursuing his own interests |
Unlawful means | Acts against a third party which are independently unlawful, and which the third party could himself have sued upon had he suffered loss |
Interference with the third party's freedom to deal | The unlawful means must have affected the third party's freedom to deal with the plaintiff |
Damage | Resulting loss to the plaintiff |
- No breach of contract by anybody is required, and no contract need exist at all. The tort protects a trader's business expectations and not merely his contracts.
- The liability is primary. The defendant has himself done something unlawful, aimed at the plaintiff, and answers for his own wrong.
- The narrow definition of unlawful means is deliberate. Confining it to acts actionable by the third party prevents the tort from becoming a general remedy for commercial unfairness.
3. Why OBG v. Allan Matters
- Before OBG the courts had built a loose unified theory of interference with contractual and business relations, in which the requirements of knowledge and intention shifted according to which authority was cited.
- Lord Hoffmann separated the two torts. In inducing breach the defendant's liability is derivative: there must be an actual breach by the contracting party and the defendant answers as an accessory to it. In causing loss by unlawful means his liability is primary: he has done something independently unlawful, aimed at the plaintiff, and no breach need have occurred at all.
- The requirements are therefore different and should not be run together. Inducing breach requires knowledge of the contract; causing loss by unlawful means does not, but requires unlawful means, which inducing breach does not.
- Indian courts have applied Lumley v. Gye for well over a century, and the OBG analysis is best used here as a means of keeping the pleadings straight rather than as a change in the law.
4. Conspiracy
Lawful means conspiracy | Unlawful means conspiracy | |
The combination | Two or more persons acting in concert | The same |
The means used | Lawful in themselves | Unlawful: a crime, a tort, or a breach of contract |
The purpose required | The predominant purpose must be to injure the plaintiff, rather than to advance the defendants' own legitimate interests | Injury must be intended, but it need not be the predominant purpose |
Why it is anomalous | What one person may lawfully do, several acting together may not. The tort rests on the added weight of numbers | Not anomalous. The defendants have used unlawful means |
How it usually fails | By the defendants showing that they acted to protect or advance their own legitimate interests, however much the plaintiff suffered | It is much the easier of the two to establish, and is the one usually pleaded |
Damage | Essential | Essential |
5. Intimidation
- A threat by the defendant to do something unlawful, whether made to the plaintiff himself or to a third party.
- Submission to the threat by the person threatened. Without compliance nothing follows, since the tort lies in the coerced conduct and its consequences.
- An intention to injure the plaintiff.
- Damage resulting.
- The threat must be of something unlawful. A threat to do what one is entitled to do is not intimidation, so a threat to stop trading with a person, to withdraw custom, or to dismiss an employee lawfully is outside the tort however damaging.
- A threat to break a contract will do, which is the point that gave the tort its modern importance, since it means that a threat of unlawful industrial action may found a claim.
6. The Statutory Immunity in a Trade Dispute
Section 18, Trade Unions Act, 1926 No suit or other legal proceeding shall be maintainable in any civil court against any registered Trade Union or any office bearer or member thereof in respect of any act done in contemplation or furtherance of a trade dispute to which a member of the Trade Union is a party, on the ground only that such act induces some other person to break a contract of employment, or that it is in interference with the trade, business or employment of some other person or with the right of some other person to dispose of his capital or of his labour as he wills. A registered Trade Union shall not be liable in any suit or other legal proceeding in any civil court in respect of any tortious act done in contemplation or furtherance of a trade dispute by an agent of the Trade Union, if it is proved that such person acted without the knowledge of, or contrary to express instructions given by, the executive of the Trade Union. |
- The immunity covers the ordinary economic torts committed in the course of a trade dispute, and is the reason these torts are of less practical importance in industrial relations in India than they might otherwise be.
- It does not extend to violence, to independently unlawful acts, or to acts outside the contemplation or furtherance of a trade dispute.
- And it protects a registered trade union, its office bearers and members, and not an unregistered combination.
⚠ Why the law permits ruinous competition and forbids these particular acts The economic torts are best understood by noticing what they leave alone. A trader may deliberately set out to destroy a rival, may undercut him at a loss until he closes, may poach his customers and his staff, and may take every advantage of superior resources, and the law says nothing. That is competition, and the harm it causes is the mechanism by which the market is supposed to work. The torts intervene only where the defendant has done something the law independently condemns: he has procured the breach of a contract, which is a legal wrong committed by the party who breaks it; he has used unlawful means, which are actionable in themselves; he has combined with others for the sole purpose of injuring, which the law treats as an abuse of the added power of numbers; or he has threatened something unlawful and been obeyed. The unifying idea is not that deliberate economic harm is wrongful, but that the machinery of the market is not to be operated by means that are themselves unlawful. |
7. The Position Stated Shortly
1. Competition is lawful, and deliberate economic harm is actionable only where the means used are independently condemned by the law.
2. Lumley v. Gye established that a person who knowingly and without justification induces a breach of contract is liable to the party injured.
3. The ingredients are a valid contract, an actual breach, inducement, knowledge of the term breached or blind eye knowledge, intention, and damage.
4. Causing loss by unlawful means requires an intention to cause loss as an end or a means, unlawful means used against a third party, and resulting damage.
5. The unlawful means must be acts the third party could himself have sued upon, which keeps the tort narrow.
6. OBG Ltd. v. Allan separated the two: inducing breach is accessory liability and requires a breach; causing loss by unlawful means is primary liability and does not.
7. Lawful means conspiracy requires that the predominant purpose be to injure, and fails wherever the defendants acted to advance their own legitimate interests.
8. Unlawful means conspiracy requires only that injury be intended, and is much the easier of the two to establish.
9. Intimidation requires a threat of something unlawful, submission to it, an intention to injure, and damage; a threat to do what one may lawfully do is not enough.
10. Section 18 of the Trade Unions Act, 1926 gives a registered trade union and its members immunity from these torts when committed in contemplation or furtherance of a trade dispute.