Economic Torts: Limits on the Conduct of Business

Introduction

The world of business is inherently competitive. Often, business owners can feel as though they’re on the defensive, with other commercial entities constantly growing around them. Of course, for many, that is simply the nature of business. But there are limits. Quite easily, commercial conduct can transgress the boundaries of acceptable and competitive behaviour. When it does, the results can be harmful. Of course, that is clear with reference to the many regulations that govern commercial conduct. But commercial conduct is not overseen by regulation alone. In fact, historically, the limits of what is commercially acceptable have been defined by torts law. The torts arising from this area of law are known as economic torts.

Economic torts recognise that commercial entities owe both each other, and consumers, some degree of integrity. Certainly, that is what individuals and companies alike rightly expect from each other. However, there are some examples of commercial conduct that fall between the regulatory cracks. Born of such conduct, are circumstances in which a party sustains an unfair loss but has no access to recompense through regulatory enforcement alone. Fortunately, in such situations, the expansive body of common law surrounding economic torts, is one avenue through which restitution may be sought.

They Don’t Ordinarily Arise in Business Dealings, so What are Economic Torts?

Torts are one area of law that don’t generally occupy much space in the general knowledge of the business community. That is largely because regulations are designed to mitigate the losses sustained by tortious behaviour. Consequently, economic torts are rarely mentioned in the context of business. Nevertheless, it is useful to have some knowledge of what they are, and how they can be addressed.  Economic torts are generally described as ones resulting in economic disadvantage. Some common examples include defamation, inducing breach of contract, intimidation, and the archaically described champerty and maintenance. These examples cover a wide field of commercial behaviour, but they all share numerous factors. Those factors are mentioned in brief below.

Like all torts, economic torts are predicated on wrongdoing

The pivotal feature of all torts, economic or otherwise, is wrongdoing. It might seem obvious that the law would only intervene where there has been wrongdoing. But it remains an important distinction to make. The reason for that is simple: economic loss is commonly encountered in business, often as a matter of course. It is not the role of the law to provide relief to those who have sustained economic loss alone. However, it is the role of the law to intervene where that loss has directly resulted from the wrongdoing of another party. Before seeking the intervention of the law, business owners must be confident that their economic loss was caused by the wrongdoing of another.

At best, economic torts result from oversight; at worst, they amount to economic coercion

Wrongdoing takes many forms, and that is something that the law recognises in terms of economic torts. Accordingly, different criteria are assigned to different torts. Wrongdoing may be entirely accidental, yet it may cause substantial economic loss to another nonetheless. On the other hand, wrongdoing can be concerted; it is not unheard of for businesses to pursue malicious campaigns against each other. In either case, though, the outcome is the same: a party sustains loss. As a result, certain economic torts are not interested in the deliberateness of alleged wrongdoing. Take for example, defamation, which may be proved without any intention to defame on the part of the defaming party. In such cases, though, the court does not fail to recognise malice altogether. In fact, it is likely that malice will invite greater damages. What is important to remember, is that economic torts can stem from inadvertence as well as malice.

Economic Torts are Rarely Litigated – Here’s Why

One of the reasons that economic torts receive relatively little attention is the infrequency with which they are litigated. A small proportion of commercial litigation involves economic torts, and there are some compelling reasons for that. But by far the most significant reason is financial. In a lot of cases, pursuing relief in economic tort is unviable. Below, are a few reasons why that is the case.

Economic torts are comprised of demanding criteria: establishing them is hard

Torts law is a complex body of common law. It has evolved over centuries, and was initially adopted from the English courts. Today, much of its complexity remains. Each tort, whether economic or not, contains a series of strict criteria. Those criteria must be met, before a court will consider providing a party with remedies. It is at the court’s discretion, too, whether it chooses to accept that the relevant standard is met. That is to say that often, economic torts are arguably either way. When that is the case, there is some incentive for both parties to pursue a matter to trial. Rarely will a tort arise so clearly on a set of facts that a party is compelled to settle prior to litigation.

So how does that translate to the infrequent litigation of economic torts that we see today? It’s simple: most businesses don’t want to spend the money necessary to litigate a matter. That is compounded, as well, by the abundant remedies offered by legislation. Essentially, businesses can usually find relief by pursuing more easily proven regulatory breaches.

Most economic wrongdoing is covered by regulation – a more attainable form of relief

In basic terms, the common law of economic torts picks up the pieces when a party is wronged to the point of loss. But successive governments have worked to codify the conduct expected in commercial situations. The purpose of doing so is to simplify those expectations, and provide accessible relief to businesses affected when expectations aren’t met. That process is continuing, too. The dynamic nature of the legislature allows the law to evolve and close regulatory gaps as they are exposed. This is ultimately pushing economic torts to the periphery of business law. However, they remain a powerful and useful tool in circumstances where regulations can’t offer a satisfactory solution.

If Someone has Caused you Economic Loss, Should you Pursue Relief in Tort?

That leads to the overarching question: should you seek relief against economic torts? The answer to that question is yes, but only in some cases. In all likelihood, there is legislation to protect you from economic wrongdoing. And part of that protection is the offer of relatively accessible relief. But if you feel that the relevant laws do not adequately encapsulate the wrongs committed against you, remedies at common law may be more applicable.

By Finian McGrath

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