Introduction

A contractual relationship is not often considered within the scope of torts law. In fact, it is a distinct area of the law, governed by a series of well-established principles. It is well-known, as well, that contractual relationships give rise to assurances, on which all parties to a contract have a right to rely. It may come as a surprise, then, to learn that some contractual relationships might attract the influence of torts law—specifically, inducing breach of contract.

The assurances offered by a contractual relationship extend only to those party to the contract. External entities are excluded and may not provide, nor receive, any assurances from a contract between others. But what happens if an external entity influences a contractual relationship to such an extent that the contract’s assurances are no longer reliable? In those circumstances, torts law offers a solution. The economic tort of inducing breach of contract arises to resolve the exertion of undue influence by one party, over the contractual relationship of others.

Like All Economic Torts, Inducing Breach of Contract is Broken into Elements

The law takes a pragmatic approach to establishing the existence of a tort. It is not enough to simply present a set of facts; those facts must be disassembled and applied to the relevant criteria. In a case of inducing breach of contract, those criteria are threefold. To help you get some idea of the standards they demand, each criteria is explained below.

An act of persuasion directed towards a third party who is contracting with the aggrieved party

This is the first element of inducing breach of contract, and it requires an act of persuasion. That might otherwise be phrased as an act of inducement, which is directed at a third party. The third party in question must be the party with which the aggrieved has formed a contract. The standard imposed by this criterion is twofold. Firstly, there is the act; the act must be one that has the effect of inducing or persuading. The court has developed a process for establishing the scope of those terms, too, so that factor alone is rarely black and white. Secondly, there is the direction of that act at a particular party. This is a matter of standing, and it is far easier to establish. Simply put: the only person who can sue for inducing breach of contract, is the person with whom the induced party contracted. That is, of course, because that person is the one who loses the assurances of the contract.

Intention: the knowledge that the aggrieved would lose the contractual benefit

Intention is not always a requisite feature of economic torts. However, in this case, some intention is necessary to establish that a party has induced a breach of contract. Intention, for the purposes of this criterion, could simply be knowledge that the aggrieved party would lose the benefit of the contract. Take, for example, this scenario:

  1. A has a contract with B to supply services.
  2. C wants A’s services, but cannot get them without A breaching the contract with B.
  3. C knows that B will lose the benefit of the contract with A, if it is breached.
  4. C persuades or induces A to breach the contract and provide services to C

In that scenario, C’s knowledge of the contract between A and B amounts to intention, by way of knowledge. C knows that B is going to lose the benefit of the supply contract, but induces its breach anyway. That sort of commercial behaviour is the sort that this area of law seeks to address.

The aggrieved party must sustain a loss to substantiate a claim in this economic tort

Finally, there is the last element of inducing breach of contract: loss. Like other economic torts, inducing breach of contract only becomes a tortious issue when it causes loss. Notably, that means that unsuccessful attempts by one party to induce another’s breach of contract, are not actionable. Basically, as a result, you cannot sue someone for attempting to induce breach of contract. While that is discourteous and dishonest commercial conduct, it does not result in your loss. And without a loss, there cannot be an economic tort.

Inducing Breach of Contract: Taking Steps to Seek Remedies

Establishing a tort is one thing. But determining its likely remedies is another matter entirely. In cases where a breach of contract has been induced, seeking remedies can be complicated. There are several reasons for this. Some of the more important are listed below.

It is important to distinguish this economic tort from a breach of contract: the two are distinct

Perhaps the most notable reason for the complexity of remedies in this tort, is its overlap with contract law. Contract law is a very distinct, and defined area of the law. It is separate from torts law, and offers its own remedies. However, it will not intervene to offer those remedies in respect of a party that induces a breach of contract. The reason is simple: contract law takes effect only between the direct parties to a contract. That is to say, those who have not signed a contract cannot be pursued through contract law. As a result, torts law steps up to address the conduct of those who induce a breach of contract. It may still be possible to find separate remedies against the party that breached the contract; namely, the party that was induced.

Just as the elements of this tort are different to those of breaching contract, so too are its remedies

Another distinction between torts law and contract law are the remedies offered by each. That is among the many reasons both are restricted in their application. Take, for example, the remedy of specific performance. That is a contractual remedy, in the application of which a court will order a party to fulfil its contractual obligation. Such a remedy cannot be applied to a party that induces a breach of contract. Certainly, it may be sought against the party that breached the contract. But arriving at such an order requires the sound application of contract law principles. And, as we’ve revealed, those principles differ substantially from those of torts law. So before you seek relief for a breach in contract, be sure to ascertain how each party is involved. Once you do, you can determine which area of law will best apply to each.

By Finian McGrath

 

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