F. Intentional Interference with Economic Interests

Author:Philip H. Osborne
Profession:Faculty of Law. The University of Manitoba

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There are a number of nominate torts collectively referred to as economic torts or business torts that deal, primarily, with the intentional interference with economic interests.200The law of torts has exhibited a great deal of caution in this area. A free market economy invites spirited and robust competition and intentionally causing economic harm to rivals is in most circumstances perfectly legitimate. Tort law has, therefore, defined wrongful business activities quite narrowly. A tort remedy is available only for serious misconduct that disrupts the efficient operation of the marketplace. The nominate torts fall into two categories, those that deal with deceptive market practices such as deceit, injurious

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falsehood, passing-off, and misappropriation of personality, and a more amorphous group that deals with improper market practices. The latter group includes conspiracy, intimidation, inducement to breach a contract, and intentional interference with economic interests by unlawful means. These torts focus on the illegitimacy of combined coercion, competition by unlawful means, and the deliberate interference with contractual rights.201

1) Deceptive Practices

Tort law provides significant protection against deceptive practices in the marketplace. This is supported by a number of policy factors, including ideas of fundamental fairness, a judicial antipathy to those who have secured an unjust enrichment at the expense of another by deception, and the goal of promoting an efficient marketplace. At the heart of the torts of deceit, injurious falsehood, passing-off, and misappropriation of personality is the simple moral proposition that you must not advance your business interests by lying. You must not lie about the nature or quality of the property or services that you offer to customers (deceit); you must not lie disparagingly about the business or trade of others (injurious falsehood); you must not lie that the goods or services that you are selling are those of another (passing-off); and you must not lie that your goods or services are endorsed or used by an identified person (misappropriation of personality). In spite of the centrality of the general concept of honesty in business dealings and the protection of both competitors and consumers from falsehood, each tort has its own rules and boundaries. This is explained in part by the historical development of the torts and in part by the fact that only deceit deals with lies that are directed at the plaintiff. In the other torts the plaintiff is harmed by lies directed at third persons.

a) Deceit

Deceit is established whenever a person has made a fraudulent statement that intentionally causes another person to rely on it to her detriment.202Most of the cases deal with economic loss arising from fraudulently induced contracts but deceit is not restricted to those loss-

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es and may extend to property damage and personal injury.203There are four essential elements to an action in deceit: misrepresentation, fraud, reliance, and damage.

A misrepresentation may be made verbally, in writing, or by conduct. The misrepresentation must normally be one of past or present fact. Statements of opinion, law and prediction, and vague and boastful sales commendations ("puffs") are not normally sufficient because the representation must be of a kind on which a reasonable person would rely. As a general rule, there must be some positive statement or conduct although half-truths, active concealment, and the failure to correct an honest misrepresentation that is later found to be untrue may also be sufficient.204There is no liability for a failure to disclose facts within one’s possession unless there are special circumstances such as a fiduciary relationship between the parties or where the vendor of land knows of serious latent defects in the property which are not easily discoverable by the purchaser and are such as to make the property dangerous or uninhabitable.205The misrepresentation must be made fraudulently. The meaning of fraud was authoritatively decided in the House of Lords decision in Derry v. Peek.206In that case, the directors of a tramway company issued a prospectus representing that their company had legislative permission to use steam power. In fact, the right to use steam power was conditional on the consent of the Board of Trade, which the directors mistakenly assumed was a mere formality. The Board did not give its consent and the company ultimately went into liquidation. The plaintiff, who bought shares on the strength of the prospectus, sought to recover his losses. The Court held that the misrepresentation was not made fraudulently. Fraud requires proof of dishonesty. It is satisfied by proof either that the defendant knew that the statement was untrue (a lie) or that the defendant made the statement recklessly, not knowing if the statement was true or false and, therefore, without a belief in its truth. Since the directors had an honest though mistaken belief in the truth of the statement, they could not be held liable in deceit.

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The defendant must intend that the plaintiff will rely on the fraudulent misrepresentation and the plaintiff must in fact rely on it.207The requirement that the defendant intends that the plaintiff will rely on the misrepresentation addresses the problem of potentially indeterminate liability in deceit.208It does not require the statement to be made to the plaintiff but it does require proof that the defendant either desired the plaintiff to rely on it or there was a substantial certainty that he would rely on it in the manner that caused the damage. The requirement of actual reliance addresses the need for causation between the fraudulent misrepresentation and the loss. There can be no liability where the plaintiff knows that the representation is untrue or decides to rely, not on the representation, but on his own inquiries or judgment.

The plaintiff must prove actual damage caused by reliance on the fraudulent misrepresentation. Damages are awarded to put the plaintiff in the position he would have been in if the misrepresentation had not been made, not to place him in the position he would have been in if the representation was true. There is some doubt about whether the rule of remoteness of damage in deceit is reasonable foreseeability or directness. Since moral turpitude is central to deceit, the wider rule of direct consequences would seem to be appropriate.209Deceit has always been a difficult tort to prove because of its central element of dishonesty. Courts are reluctant to make a finding of serious moral guilt in the absence of compelling evidence. Moreover, care must be taken in alleging fraud because an unsubstantiated allegation of fraud may lead a court to impose a higher award of costs against the unsuccessful plaintiff.

The difficulty in proving fraud and the relatively narrow scope of the tort prompted legal initiatives over the course of the twentieth century which lessened the need for plaintiffs who suffer economic harm as a consequence of misrepresentations to rely on deceit. In tort law, liability for false statements has been expanded by recognition of liability for negligent misrepresentations under Hedley Byrne.210In the law of contract, pre-contractual statements, whether they are fraudulent, negligent, or innocent, are more likely now to be construed as contractual warranties, the breach of which triggers damages designed to put the plaintiff in the position she would have been in if the statement had been true. Furthermore, most provinces have consumer protection and

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business practices legislation that provide a wide range of remedies for false representations made in the course of consumer transactions.

b) Injurious Falsehood

Injurious falsehood grew out of slander of title and slander of goods to provide a more general protection against certain false statements that injure another in his trade or business.211Slander of title is made out where a defendant makes false statements that a person does not own his land, thereby preventing that person from leasing or selling it. Slander of goods developed by analogy to protect against false statements in respect of both the ownership and the quality of the plaintiff’s goods. Eventually, the tort of injurious falsehood emerged to protect against a broad range of false statements which are disparaging of the plaintiff’s trade, business, or property in a way that leads other persons not to deal with him. The essential elements of injurious falsehood are: a false statement made of or concerning the plaintiff’s business, trade, or property, publication of that statement to a third person, malice, and actual pecuniary loss. Justification is a defence to the action.

The plaintiff must prove a false statement was made of, or concerning, the plaintiff’s trade, business, or property. Unlike defamation, which protects a person’s reputation, injurious falsehood protects a person’s business and commercial interests.212The false statement may be about the quality of the plaintiff’s products or services, the competence of his employees, the ownership of property, or the scope, nature, location, legality, viability, or existence of the plaintiff’s business operation.

There must be proof that the disparaging statement was made to a third person. The gist of injurious falsehood is that the plaintiff is damaged by the impact of the false statements on his current or future customers. The plaintiff will not be able to establish that his losses were caused by the defendant’s...

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