Canada: Yes, It Must Be Unlawful And Actionable—Supreme Court Of Canada Considers The Tort Of Unlawful Interference With Economic Relations

On January 31, 2014, the Supreme Court of Canada released its decision in 34863 A.I. Enterprises Ltd. et al. v Bram Enterprises Ltd. et al.1  and in doing so sought to clarify the scope of the tort of interference with economic relations by unlawful means by requiring that the "unlawful means" be an act upon which the third party could bring a civil cause of action.

History of the tort

The tort itself was explained by the Supreme Court using the following classic example: The defendant, the master of a trading ship, fired his cannons at a canoe that was attempting to trade with his competitor, the plaintiff's trading ship, in order to prevent it from doing so.  

The defendant was held liable using the tort of unlawful interference with economic relations and the plaintiff was found to be able to recover damages for the economic injury resulting from the defendant's wrongful conduct toward third parties (the canoe occupants), which had been intended to injure the plaintiff's economic interests.  

As the tort developed, the question of the nature of an unlawful act became uncertain, with some courts accepting that the unlawful act component of the tort could be established whenever the defendant engaged in any act it was not at liberty to commit, including, for example, a statutory breach. The Supreme Court rejected the broader view of this requirement, settling the law so as to constrain the scope of the tort by confirming that the "unlawful means" element only captures conduct that gives rise to an actionable civil claim by a third party or would have given rise to an actionable claim if the third party had suffered a loss.  

Case facts

A.I. Enterprises involved the sale of an investment property. A syndication agreement provided that if the majority of the investors decided to sell the building, the minority investor would have a right of first refusal to purchase the property for its appraised value before the building could be marketed to the public. The majority decided to sell the property as contemplated by the syndication agreement, and the minority investor opposed the sale.

The minority investor declined to purchase the building and resisted the majority's efforts to sell the property by misusing arbitration proceedings under the syndication agreement to stall the sale, registering documents encumbering the building's title, and denying prospective purchasers access to inspect the building. This obstruction prevented various sales transactions from closing.  

The majority group ultimately sold the property for its appraised value and subsequently sought damages equal to the difference between the amount paid and the amount the majority would have received had the property been sold in the aborted sales transactions.  

Scope of the tort

On appeal from the New Brunswick Court of Appeal, the Supreme Court of Canada was tasked with determining what conduct is "unlawful" in the context of the tort of interference with economic relations by unlawful means and whether the "unlawfulness" requirement was subject to any exceptions.

As a starting point for its analysis, the Supreme Court framed the rationale for the tort as a means of closing a "liability gap" that may exist where a defendant's actions against a third party are intended to harm a plaintiff.2  From this starting point, it is apparent a narrow definition of "unlawful means" was appropriate.  

Accordingly, the Supreme Court determined that conduct is only "unlawful" for the purposes of the tort if the conduct "would be actionable by the third party or would have been actionable if the third party had suffered loss as a result of it."3  Any broader definition would have the unwanted effect of allowing plaintiffs to expand the types of conduct for which a defendant may be liable.4

For similar reasons, the Supreme Court rejected the New Brunswick Court of Appeal's view that the "unlawfulness" requirement can be subject to exceptions. Allowing recovery where the requirement is not satisfied simply because a court felt the circumstances nonetheless warrant redress would introduce significant uncertainty to the law and may invite courts to create ad hoc exceptions in pursuit of "commercial morality." In the Supreme Court's view, this is precisely what the "unlawful means" requirement is intended to preclude.5

The Supreme Court also clarified that the tort of interference with economic relations by unlawful means requires the defendant to have intended the plaintiff's loss. Mere foreseeability of the loss is insufficient.6  The Supreme Court further explained that the tort's application is not limited to circumstances in which no other cause of action against the defendant is available to the plaintiff.7   

Decision and implications

Applying these principles, the Supreme Court found that the minority investor's acts were not "unlawful" as they did not give rise to any actionable wrong against the prospective purchasers. As a result, the appellant cannot be liable on the basis of the tort of interference with economic relations by unlawful means.8   

However, the Supreme Court agreed with the trial judge's determination that the minority investor had breached his fiduciary duties as a director of the plaintiff corporations by obstructing the property's sale and affirmed the judgment against him on this basis.9

This decision seeks to more clearly define the scope of liability for the tort of interference with economic relations by unlawful means, and in that respect provides greater certainty to parties engaged in commercial dealings. This tort is also often used in class action claims as a basis for tort recovery for alleged breaches of statutes or other acts that the plaintiff alleges the defendants were not at liberty to commit, and as a result should also assist the courts in deciding whether a cause of action is disclosed in these claims.   

Footnotes

1. 2014 SCC 12.

2. Ibid. at para. 43.

3. Ibid. at paras. 5 and 43-45.

4. Ibid. at para. 74.

5. Ibid. at paras. 83-85.

6. Ibid. at paras. 96-97.

7. Ibid. at paras. 77-82.

8. Ibid. at paras. 88-89.

9. Ibid. at paras. 101-105.

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