February 19, 2008
In a previous client update ("UK House of Lords confirms the limitations of the economic torts of intentionally causing economic loss"), we discussed the landmark judgment handed down on 2 May 2007 by the UK Judicial Committee of the House of Lords in three separate appeals involving claims for economic torts (OBG v Allan)1 "Economic torts" or "intentional torts" are perpetrated by a party (D) if D causes economic loss to another (P) in situations where D is in neither a contractual nor other legal relationship with P.
In their May 2007 judgment, whilst their Lordships specifically considered, and clarified, the economic torts of (i) procuring or inducing a breach of contract between P and a third party (T); and (ii) unlawful interference with P’s trade or business, they left unaddressed a third economic tort, namely the tort of conspiracy.
On 11 December 2007, the Court of Appeal delivered a judgment2, in which it examined this third tort, as well as providing further clarification of precisely what degree of intention is required for all of the intentional or economic torts (Meretz). The Court of Appeal’s decision is particularly important because commercial parties rarely act purely to harm a third party. But what if, in acting to further their own interests, they will of necessity harm someone else: can they be liable in those circumstances?
The Tort of Conspiracy
There are two types of the tort of conspiracy in English law:
(1) conspiracy to injure by unlawful means; and
(2) conspiracy to injure by lawful means.
Both types of conspiracy require:
(i) an agreement between D and T;
(ii) to do something;
(iii) deliberately with the intention to injure P; and
(iv) which, in fact, causes harm to P.
Where the two types of conspiracy differ are in:
(a) the type of act required: one requires an act which is independently unlawful and the other requires an act which is in and of itself lawful; and
(b) the degree of intention to injure P required of D. In particular, it is clear from the pre-existing caselaw that a greater degree of intention to injure is required for conspiracy to injure by lawful means, than that required for conspiracy to injure by unlawful means: in the case of conspiracy to injure by lawful means, the intention to injure must be the predominant purpose of D’s action, but in the case of conspiracy to injure by unlawful means, the intention does not have to be the predominant purpose of D’s action.
In the case that was the subject of the Court of Appeal’s judgment, the key question for their Lordships and Ladyship was whether the parties had the necessary intention for the purposes of conspiracy to injure by unlawful means (as well as for the tort of inducing a breach of contract). In sum, Lady Justice Arden (with whom her fellows agreed) determined that (i) D did not have any intention to injure P; and (ii) in any event, there were no unlawful means.
The English Court of Appeal’s Judgment
The lead judgment was given by Lady Justice Arden. Her Ladyship applied the test of intention to injure, which the House of Lords had articulated in OBG v Allan in the context of the economic tort of unlawful interference. In the OBG case, the House of Lords had determined that, in order for D to have the requisite intention to be liable for the tort, the intention to harm P must either be the desired end or it must be the means of attaining the desired end. It was not in dispute in the Meretz case that harming P was not the Ds’ main purpose or their desired end: in acting as they did, their aim was only to further their own interests.
The question for the court, therefore, was whether harming P was the necessary means of attaining the desired end so as to satisfy the test of intention to harm P, because the Ds’ actions would necessarily injure P (as Lord Nicholls had succinctly put it in OBG: where the loss to P and gain to D are obverse sides of the coin, and D cannot obtain one without bringing about the other, then if D goes ahead in order to obtain the gain he seeks, his state of mind will satisfy the mental ingredient).
In deciding that there was no intention to injure, her Ladyship was persuaded by the fact that the Ds had sought advice on the legality of their proposed actions and, as a result (irrespective of whether or not the advice was correct), they had genuinely believed that they were entitled to act as they did. She did not believe that Lord Nicholls’ coin analogy applied where the causative act is something that D believes he has a contractual right to do as against P, notwithstanding that the act would coincidentally cause P detriment or loss. As Lord Nicholls had said, the mere fact that D intended to further his own business interests when he injured P does not mean that he did not also intend to injure P. In the same way, Lady Arden said, the mere fact that the Ds intended to do an act, which in fact caused the loss, did not mean that they had the intention to harm P. Ultimately, whether or not D has the intention to injure necessary for the purpose of the economic torts will depend on the facts. In this case, her Ladyship found that all the Ds had intended to do was to produce a result that they believed that they were entitled to produce. The Ds thus lacked the requisite intention to injure.
On the issue of unlawful means, her Ladyship determined that, as the Ds were entitled to act as they did, there were no unlawful means at work. As she put it, where D does something which he is entitled to do because of his contractual right conferred by T, the fact that that action happens to result in a breach of P’s contract with T cannot constitute unlawful means of which P can complain in an action for damages for unlawful means conspiracy.
What is interesting about this decision is that the Court of Appeal spent so much time and effort considering whether or not D had the necessary intention to harm P. Once the Court of Appeal determined its second question, namely that no unlawful means had been used, its decision on intention was largely academic since it was not in dispute that an intention to injure P (if an intention at all) was not the predominant purpose of the Ds’ actions, which is a necessary prerequisite of the tort of conspiracy to injure by lawful means.
Having said that, it is helpful that the Court of Appeal went to the efforts it did as, in doing so, it has given some invaluable guidance to entities and individuals who are concerned that their desired actions to benefit themselves might well or will necessarily adversely harm another.
The moral of the story is as follows: take legal advice and obtain comfort that you are within your legal rights to act as you wish. If the advice proves right, then there can be no unlawful means conspiracy; if the advice proves wrong, you will be, in any event, protected as you will not have the requisite intention. It remains true that ignorance or mistake of the law is no defence in and of itself in English law. But it may well negate an allegation of relevant intention, provided you genuinely believe you are acting within your legal rights.
1. OBG Limited and others (Appellants) v Allan and others (Respondents); Douglas and another and others (Appellants) v Hello! Limited and others (Respondents); Mainstream Properties Limited (Appellants) v Young and others and another (Respondents)  UKHL 21.
2. Meretz Investments N.V. & ASNR v ACP Limited & Ors  EWCA Civ 1303.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work or Rachel Couter (+44 20 7071 4217, firstname.lastname@example.org) or Radhika Saba (+44 20 7071 4259, email@example.com) in the firm’s London office.
Â© 2008 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.