UK House of Lords Confirms the Limitations of the Economic Torts of Intentionally Causing Economic Loss

May 11, 2007

Claims against a party (D) for intentionally causing economic loss to another (P), in situations where D is neither in a contractual or other legal relationship with P, have been possible under English law for several centuries. These are normally known as "intentional torts" or "economic torts". The situations in which liability can be established have been developed gradually and the extent and scope of such liability has long been a subject of debate. 

On 2 May 2007, the UK Judicial Committee of the House of Lords handed down a landmark judgment in three separate appeals involving claims for economic torts 1. One of the appeals was the long-running dispute between OK! and Hello! magazines, following Hello!‘s publication of photographs of the November 2000 wedding of Michael Douglas and Catherine Zeta-Jones, despite the Douglases’ exclusive deal with OK!

In its single comprehensive judgment, their Lordships took the opportunity to reconsider the caselaw that has developed concerning the economic torts, restate the applicable principles and, in particular, clearly explain the distinction between those torts requiring the use of unlawful means and those where no unlawful means are required. 

The economic torts

Under English law, the "economic" or "intentional" torts are broadly divided into four categories, although there has been significant overlap between them: 

(i) procuring or inducing a breach of contract between P and a third party (T); 

(ii) unlawful interference with P’s trade or business; 

(iii) intimidation of T causing loss to P; and

(iv) conspiracy.

Unlike in the United States (and other jurisdictions), a bad motive, malice or intent to harm P is insufficient in England to found liability for any of the torts (although some form of intention is a necessary component). This is frequently why such claims fail: if D has technically acted within his legal rights, and no contract has been breached or any conspiracy committed, then a claim will not succeed, however damaging D’s behaviour and however heinous D’s intentions behind his actions. 

The UK House of Lords’ judgment

In handing down their judgment, their Lordships helpfully clarified the necessary elements of the first two categories of the tort, namely procuring a breach of contract and unlawful interference.

The tort of procuring a breach of contract

In order to be liable for procuring or inducing a breach of a contract between P and T, the following is required:

(i) T must breach his contract with P. Any suggestion in earlier cases that it is sufficient if D only prevented T from performing P’s contract (for example, if the application of a force majeure or exclusion clause meant there was no breach) was wrong;

(ii) D must cause, procure or induce T to breach P’s contract;

(iii) D must actually know that (or be reckless as to whether) he is inducing a breach of P’s contract: it is not enough that D knows that T will act in a certain way (which act in fact breaches the contract) or that D ought reasonably to have known that the contract will be breached. An honest belief that there will not be a breach will, therefore, defeat the claim; and

(iv) D must intend to procure or persuade T to breach P’s contract (although it need not be the only, or even the predominant, intention). It is not sufficient that the breach is the foreseeable consequence of D’s desire. As Lord Hoffman succinctly put it, the breach of contract must either be "an end in itself or a means to an end". A desire to injure P is not required.

The tort of unlawful interference

In order to be liable for the tort of unlawful interference with P’s trade or business, the following is required:

(i) D must use unlawful means against T. In order to qualify as unlawful means, D’s actions must be civilly actionable by T (unless the only reason why they are not actionable is because T has suffered no loss); 

(ii) D’s unlawful means must be such as to interfere with T’s ability to deal with P;

(iii) D must intend to damage P (although, again, it need not be the only or the predominant intention, provided it is the desired end or the means of attaining it, for example, D is liable even if the primary aim is to protect or promote his own economic interests, if that will necessarily injure P); and

(iv) P must be damaged in fact.

The distinction between the torts of procuring a breach of contract and unlawful interference

Their Lordships also helpfully took the opportunity to emphasise the distinction between the torts of unlawful interference and procuring a breach of contract, and unanimously recommended the abandonment of any blurring between the two. The differences are in at least the following four respects:

(i) unlawful interference is a tort of "primary liability" for D, not requiring a wrongful act by T. Procuring a breach of contract creates "accessory liability", dependent upon the primary wrongful act of the contracting party, T;

(ii) unlawful interference requires the use of means by D which are independently unlawful as against T. Unlawful means on the part of D are not required for procuring a breach of contract;

(iii) liability for unlawful interference does not depend upon the existence of contractual relations between any of D and T, D and P or T and P: it is sufficient that the intended consequence of the wrongful act is damage in any form, for example, to P’s economic expectations. Procuring a breach of contract has the breach of contract by T at its core: if there is no primary liability for T, there can be no accessory liability for D; and

(iv) although both are described as torts of intention, the results which D must intend are different. In unlawful interference, D must intend to cause damage to P. For procuring a breach of contract, an intention to cause a breach of contract by T is both necessary and sufficient, even if D did not intend to cause any damage to P. 

The easiest way of distinguishing between the two types of cause of action is to consider what claim, other than P’s claim against D, could be brought from the relevant fact pattern:

(i) if P could also bring a claim against T, then the claim against D is likely to be a claim for procuring or inducing the breach of contract by T; 

(ii) if, on the other hand, T could bring a claim against D, then the claim against D is likely to be a claim for unlawful interference.

Of course, there is no reason why the same facts cannot give rise to both accessory liability and primary liability: if D, intending to cause loss to P, threatens T with assault unless he breaks his contract with P, D will be liable as accessory to T’s breach of contract and will be primarily liable for unlawful interference. An example of this is in industrial disputes, where a trade union uses unlawful means (inducing members to break their contracts of employment) to put pressure upon the employer to break its contract with someone else who is the union’s real target. 

So was Hello! liable to OK! in respect of the Douglases’ wedding photos?

The House of Lords, by a majority, held that Hello! was liable to OK!. However, the ratio for the decision was that Hello! committed a breach of confidence, in the sense that OK! had paid for the benefit of the obligation of confidence imposed upon the guests in respect of any photographs of the Douglases’ wedding and Hello! was bound by that confidence. 

In respect of OK!‘s claim for an economic tort, their Lordships were unanimous that none had been committed. The majority determined, obiter, that Hello!, whatever it did, it did not do anything to interfere with the ability of the Douglases to deal with OK! or to perform their obligations under the contract. By contrast, the minority determined that, as there was no confidence in the photos, which was capable of protection by law, there could be no breach of confidence by OK! and so OK! did not use any unlawful means. 

So is that the end of the story for economic torts?

Well not quite. Despite their Lordships’ extremely useful and clarifying judgment as to the scope and limits of the economic torts, in particular that, absent an inducement of a breach of contract or some form of conspiracy, unlawful means must be used in order to found liability, some questions still remain. 

In particular, their Lordships disagreed as to what amounts to "unlawful means" for the purposes of unlawful interference. The majority determined that, in order to qualify as unlawful means, D’s actions must be civilly actionable by T (unless the only reason why they are not actionable is because T has suffered no loss). However, Lord Nicholls of Birkenhead thought that unlawful means should extend beyond the normal civil wrongs of a tort or a breach of contract to criminal wrongs. He also suggested that the tort of procuring or inducing a breach should extend beyond a breach of contract to a breach of statutory duty or equitable or fiduciary obligations. These questions remain for another day.

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) [2007] UKHL 21. Their Lordships also clarified the scope of the English law of conversion and breach of confidence.

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, Rachel Couter (+44 20 7071 4217, [email protected]) or Philip Rocher (+44 20 7071 4202, [email protected]) in the firm’s London office.   

© 2007 Gibson, Dunn & Crutcher LLP

The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.