6.12 The tort of interference with contractual relations

Rule 23 outlines the law regulating the tort of interference with contractual relations. Such a tort can be committed in several different manners, which means that Rule 23 is somewhat repetitive. In an attempt to highlight the type of interference with contractual relations that each Article of the Rule addresses, certain key words within each Article have been written in italic.

Rule 23 makes clear that there are three categories of conduct that may constitute the tort of interference with contractual relations (i.e., factors relating to the defendant), and that there are two types of situations in which a plaintiff may successfully argue such a tort (i.e. factors relating to the plaintiff). The three types of conduct that may constitute the tort of interference with contractual relations are:

1. where the defendant uses pressure, persuasion, procurement or inducement towards the contract-breaking party;
2. where the defendant applies unlawful means directly towards the contract-breaking party; and
3. where the defendant applies unlawful means indirectly towards the contract-breaking party.

In relation to the first category mentioned above, it may be difficult to determine whether the defendant’s conduct amounts to “pressure, persuasion, procurement or inducement”, or merely constitutes advice. If the plaintiff cannot show that the defendant’s conduct goes beyond merely providing advice, her/his action will fail. This is only logical as otherwise anybody providing advice in relation to another person’s contractual arrangements may be accused of committing the tort of interference with contractual relations.

Further, in the first of these categories, there is no need for the defendant’s conduct to be unlawful. However, in actions based on either the second or the third category of conduct, it is necessary that the defendant has applied unlawful means, in the sense of acts that constitute a crime and/or a tort, that amount to a breach of statute, or that would constitute a breach of contract.

It is not always immediately clear whether the defendant has applied unlawful means directly towards the contract-breaking party, or has done so indirectly. However, it is clear that in the latter case the plaintiff must show that the breach was a necessary consequence of the defendant’s interference.

For the plaintiff to successfully argue the tort of interference with contractual relations, it must have been in one of the following two situations:

1. the third party affected by the defendant had an existing contractual obligation to the plaintiff; or
2. the third party affected by the defendant was in an ongoing relation of regular dealings with the plaintiff.

The tort of interference with contractual relations originates in Lumley v Gye.^[1]  This case involved the plaintiff (a theatre operator) who had entered into an exclusive contract with Miss Wagner (a singer). The defendant persuaded Miss Wagner to break her contract with the plaintiff and instead perform at the defendant’s theatre. The Court held that this constituted an interference with a contractual relation, and ruled in the plaintiff’s favour.

Over the years, the details of the tort have been clarified. For example, while the Court in Lumley v Gye^[2] focused on the defendant’s malicious intention, it is now clear that the courts should be focusing on whether the defendant had knowledge of the contract so as to act deliberately in bringing about its breach. While it has been suggested that the defendant must have acted knowingly and intentionally, Lindgren J has stated that:

Linguistic confusion can arise in respect of the alleged tortfeasor’s state of mind with respect to breach of the contract.  Both “intention” and “knowledge” have been used in this context.  But a person’s “knowledge” that what he is inducing will constitute a breach of contract and his “intention” to induce a breach of contract by what he is doing refer to one and the same thing.  After all, ex hypothesi, the alleged tortfeasor’s acts are intentional, a breach of contract occurs, and the acts induce the breach. Against that background, “knowledge” and “intention” that the breach will result from the acts do not signify any relevant distinction.^[3]

Indeed, the courts have gone even further, and it seems that actual knowledge is not required. Rather, it is suggested that reckless indifference as to whether a relevant contract exists,^[4] or constructive knowledge of the existence of such a contract,^[5] is sufficient.

Furthermore, it appears that an action in the tort of interference with contractual relations can succeed even where the contract-breaking party was more than willing to break the contract.^[6]

As hinted at above, decided cases have helped clarify the details of the tort. However, there is still uncertainty in some respects. For example, whether or not justification is a defence in relation to situations where the defendant has acted unlawfully in interfering with a contractual relation is a matter associated with considerable uncertainty. It is submitted that the preferable approach is to allow justification as a defence in situations where the defendant has acted unlawfully. However, it may very well be appropriate to apply a stricter test as to the required level of justification necessary to justify the defendant’s acts where those acts were unlawful. In addition, the contract-breaking party may obviously still have a right to take an action against the defendant (for example under duress, ACL s. 50, or two-party intimidation). Even in the case where the plaintiff would be unsuccessful in relation to the tort of interference with contractual relations due to the defendant’s defence of justification.

More generally, it seems there are five grounds upon which the tort of interference with contractual relations may be justified:

1. the defendant’s statutory authority to interfere with the contract;^[7]
2. the defendant’s moral obligations towards the contract-breaking party;^[8]
3. the public interest of such interference;^[9]
4. the defendant acted reasonably to protect her/his own rights that are equal or superior to those of the plaintiff;^[10] or
5. the defendant acted to protect her/his contractual rights, where the contract interfered with is inconsistent with those rights.^[11]

While it has been stated that no general rule can be laid down as a general guide in relation to what may constitute justification,^[12] it would seem reasonably certain that justification may be based on any of the five grounds outlined above, in the appropriate circumstances.

If the tort of interference with contractual relations is established, the plaintiff can be awarded damages. Once the court has established that the plaintiff has suffered some actual financial loss, such damages may cover loss of income or profits, costs associated with dealing with the effects of the defendant’s conduct, and possibly account of profits. Furthermore, the court may grant aggravated and/or exemplary damages. Finally, where appropriate, an injunction preventing the defendant from interference with the relevant contractual relations may be granted.