House of Lords overhaul economic torts

The decision of the House of Lords handed down earlier this month has made headlines in the mainstream as well as the legal press. For the mainstream press, the interest in the decision lay in the continuing saga arising out of Hello!'s publication of unauthorised photographs of the wedding of Catherine Zeta Jones and Michael Douglas in 2000. For the legal press, a further interest (beyond the lure of celebrity gossip) lay in the analysis of the law of confidence and the controversy this provoked amongst the Law Lords (OK!'s appeal was upheld by a majority of 3:2 and the opposing views of the Law Lords were expressed in trenchant terms).

However, the appeal of OK! magazine was in fact just one of three appeals which were heard together (OBG Ltd and others v Allan and others; Douglas and another and others v Hello! Ltd and others; Mainstream Properties Ltd v Young and others and another [2007] UKHL 21). The reason these three appeals were heard together was because they raised common issues in relation to the precise scope and nature of torts for economic loss caused by intentional acts. Whilst perhaps not so glamorous as the nuptials of the Douglases and its implications for the continuing development of the law of confidence, the consideration of these economic torts is no less important as it has shone a light into what is a difficult and uncertain area of tort.

Prior to this decision, it was thought that, in addition to the tort of conspiracy, there were three main economic torts; the tort of procuring a breach of contract, the tort of intimidation and the tort of unlawful interference. There was, though, a line of authority which had blurred the distinction between the tort of procuring a breach of contract and the tort of unlawful interference in that it held that the original tort of procuring a breach of contract had been extended to a tort of "unlawful interference with contractual relations" (the so-called "unified theory").

The House of Lords disapproved of the unified theory, holding that previous cases which had referred to a tort of "unlawful interference with contractual relations" were actually instances of a wider tort of "causing loss by unlawful means". Further, this wider tort of causing loss by unlawful means subsumed the tort of intimidation but was entirely separate from the tort of procuring a breach of contract. The House of Lords took the opportunity to outline the essential elements of these two torts.

The tort of procuring a breach of contract is an accessory liability, dependent upon the primary wrong of a third party breaching its contract with the claimant: no primary liability, no accessory liability. In contrast, the tort of causing loss by unlawful means is a primary liability not dependent on the third party having committed a wrong against the claimant. Rather, it requires the defendant intentionally to have caused loss to the claimant by using unlawful means which interfered with the liberty of third parties to deal with the claimant. These unlawful means might be threats and intimidation but could also be any other actionable wrong against the third party (e.g. false statements). A wrong which was not actionable only because the third party had not suffered any loss would still be sufficient for these purposes. Importantly, however, there would be no liability where the wrong committed by the defendant against the third party had no affect on the third party's freedom to deal with the claimant.

Although the torts of procuring a breach of contract and causing loss by unlawful means are separate, the House of Lords made it clear that there is no reason in principle why the same act should not give rise to liability under both torts. An example was given where A, intending to cause loss to B, threatens to assault C unless he breaks his contract with B. A would be liable as accessory to C's breach of contract (i.e. liable for the tort of procuring a breach of contract) but he would also be liable for the tort of causing loss to B by unlawful means (in that the threat of assault to C was unlawful and interfered with C's liberty to deal with B).

In addition, both torts have similar requirements in relation to intention. A defendant will have the requisite intention if the breach of contract or loss caused to the claimant is either the end he desired or (importantly) a means to an end he desired. In relation to the latter, the defendant will not be able to avoid liability (as the Court of Appeal had allowed Hello! to do in relation to OK!'s claim for causing loss by unlawful interference) on the basis that it only wanted to protect its own economic interests and it had not been his intention to cause loss to the claimant. This will be regarded as two sides of the same coin - the loss to the claimant is the means by which the defendant achieves the end of protecting its economic interests. However, there will be no liability where the breach of contract or loss caused to the claimant is only a foreseeable consequence of the defendant's actions.

There was one further substantive area of law which was scrutinised in relation to one of the appeals (OBG Ltd v Allan). This was the tort of conversion and the question of whether it was possible to convert contractual rights. This question proved every bit as controversial as OK!'s appeal in relation to the law of confidence. By a majority of 3:2 (and again with opposing views being expressed in trenchant terms), it was held that it was not possible to convert contractual rights. The anomalous line of authorities which dealt with "document cases" (whereby a person who had misappropriated a document constituting or evidencing title to a debt – which is simply a contractual right to money – was nonetheless able to found liable in the tort of conversion for the face value of the document) would not be extended.

Comment

This is a landmark decision in that it has clarified the law in an area which was previously difficult and uncertain. The unified theory has been unanimously disapproved in favour of 2 individual torts, inducing breach of contract and causing loss by unlawful means.

This clarification should assist business and their advisers when considering potential claims in this area, although there are still some uncertainties: applying the test as to the necessary intention to attract liability is likely to give rise to debate depending on the individual circumstances and, interestingly, the question of whether there should be liability for procuring breaches of non contractual duties and obligations has been left open.