Supreme Court Narrows the Tort of Unlawful Interference with Economic Relations

by Bennett Jones LLP

Canadian courts have long struggled with the tort of unlawful interference with economic relations. This struggle has generated significant ambiguity in the case law—even the tort’s name was unsettled. However, on January 31, 2014, the Supreme Court of Canada released its decision in A.I. Enterprises Ltd. v Bram Enterprises Ltd., unanimously narrowing the tort’s scope of liability. This decision will bring vital certainty to a historically vexed area of law.

In this case, a mother and her four sons owned an apartment building, and all but one son wanted to sell it. The dissenting son declined to exercise a right of first refusal. Nonetheless, he thwarted all attempts to sell the property and, ultimately, bought it for its appraised value, which was nearly $400,000 less than another potential purchaser had offered. Acting through two companies, the other family members sought damages for, among other things, unlawful interference with economic relations.

It is well-established that unlawful interference with economic relations has two key elements: intent to harm the plaintiff and the use of unlawful means. The trial judge interpreted the second element liberally. He found that the dissenting son had acted without any legal basis or justification, and his actions were thus unlawful in a broad sense. On appeal, the Court defined unlawfulness more narrowly, restricting it to conduct amounting to a civil wrong actionable by a third party, or which would have been actionable had that third party suffered a loss. However, it concluded that, although the dissenting son’s conduct gave no third party a right of action, liability to the plaintiffs could be imposed through a “principled exception” since his conduct had been akin to an abuse of process. Thus, it upheld the trial judge’s decision.

On further appeal, the Supreme Court of Canada examined the tort’s history and rationale in the context of the wider scheme of modern tort liability. It found that this context militated for a narrow interpretation of the unlawful means element. Like the appellate court below, the Supreme Court held that in order to constitute “unlawful means” for this tort, the conduct complained of must be civilly actionable by a third party, or be such that the third party could have sued had it suffered consequential loss. Next, the Supreme Court rejected the dissenting son’s argument that, in recognition of its gap-filling function, the tort only applies where no other causes of action are available. It determined that this proposed requirement was unnecessary to keep the tort within its proper bounds. Finally, the Supreme Court rejected any so-called principled exceptions. It found no principles on which such exceptions could be based. It also expressed concern that recognizing exceptions would simply confer an unstructured judicial discretion, undercutting its efforts to give a certain and narrow ambit to the tort.

Applying its newly articulated approach, the Supreme Court found that the dissenting son’s conduct had not been unlawful in the narrow sense. Since no principled exceptions had been recognized, it concluded that the dissenting son was not liable for unlawful interference with economic relations. The Supreme Court accepted, however, that the dissenting son had breached his fiduciary duties as a director of the plaintiff companies, and it upheld the trial judge’s award of damages on that basis. The dissenting son’s company was also held liable for knowing assistance in breach of fiduciary duty and knowing receipt of the proceeds of the breach.

By narrowing the scope of liability to civil wrongs actionable by third parties, this decision rescues Canadian courts from the morass of conflicting cases in this area of law. It also avoids, in the Supreme Court’s words, “tortifying” conduct prohibited by statute for reasons remote from civil liability. Thus, the decision is a welcome clarification of the tort’s boundaries. It promotes legal certainty and predictability in commercial affairs. However, it may also simply push the controversy back one level to the proper definition of “actionable”. In any event, the basic contours of liability are now clear, and refinements must await further judicial consideration.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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