Inducing breach of contract: The dawn of economic tort in Kenya

ALI ABDI

In order to embark on a critical discussion on the tort of inducing breach of contract and its probable absence in the Kenyan jurisprudence, one needs a stable reason. Mine is that by means of such a discussion, I am hopeful of demonstrating that the approved processes of judicial law-making by the Legislature and the Judiciary are unsatisfactory since there is no cogent footing in our laws on what Economic tort is and its lack thereof in the Kenyan jurisprudence. I will try to expound the decision of the House of Lords in “Lumley vs Gye (1853),  2  E  &  B  216,  118  ER  749  (QB)” as a desirable aspect of our legal system. This piece will try to establish this species of tort liability in our jurisprudence and also show the need of a manifestation of a general cause of action which protects certain interests against interference caused by certain kinds of conduct.

The emergence of Economic tort in the current acts of commercial practice has led to a delicate balance between the promotion of healthy economic competition and the protection of existing or reasonably certain prospective contractual relations. The view that a contract is the kind of right which will justify the imposition of liability upon a stranger should it be breached as a result of that stranger’s conduct, is supported by the respect that the common law has evinced over the centuries for private contracts. A contract is therefore seen as the cornerstone of our individualistic society. The making of contracts depends on the ability of free activity of individuals to voluntarily treat and to negotiate with each other and to agree to be bound to each other on such conditions as they choose. Accordingly, its status should be protected by the law wherever possible.

Thus, a probable way of putting the argument raised above that the reason for the “Lumley v. Gye” decision was that people such as the defendant in that case ought to be inhibited from conducting themselves so as to interfere with important rights, is that the ability to indulge in contract making plays such an essential role in our society that it must be protected by the law. Hence, although in terms of actual losses incurred as a result of a breach of contract induced by a stranger, the remedies given by law and equity to the Plaintiff against the Defendant and third party are all that are notionally required. Public interest demands that such interference with contract-making by a third party be more positively discouraged and, therefore, an additional remedy ought to be given to the Plaintiff.

Kenyan courts need to adequately address this crucial dispute that straddles the fine line between vigorous, hardnosed competition and intentional interference with contracts or acts that induce a party to breach a contract.

The torts of inducing breach of contract and unlawful economic interference have long been applied in a way that offers unique opportunities to courts and litigants alike. They have enabled the recovery of pure economic loss outside the citadel of privity of contract, and without the doctrinal restrictions imposed on claims framed in negligence. They have also brought with them several procedural advantages, including broader discovery rights, and an increased opportunity for punitive damages. Finally, and perhaps most fundamentally, they have been amenable to judicial manipulation, with their innate malleability facilitating a just outcome in individual cases. The flexibility inherent in these causes of action arises, in large part, from their amorphous nature. In this respect, the most intriguing and historically uncertain aspect of the economic torts is the common requirement that a defendant use “unlawful means” to injure the plaintiff.

Legal ambiguities

The “unlawful means” element remains a source of confusion which raises issues on whether our Kenyan courts can recognise an action for maliciously interfering with another’s economic interests, while acting alone and in the absence of unlawful means. Further needing clarity is whether an act which causes economic injury to the plaintiff, but which does not violate the plaintiff’s legal rights, is actionable solely where it is motivated by malice. Also, what remedy can a person enjoy if his business has been harmed by a competitor that has persuaded others to renege on their contractual obligations with him, or pressured or conspired with others to interfere with his interests? Finally it must be clear whether a defendant’s tortious liability should be measured using the damages principles used in tort law or in contract law.

Historically, the torts of inducement to breach a contract (the “inducement tort”) and unlawful interference with economic interests (the “unlawful interference tort”) have been difficult to plead. This difficulty reflects the courts’ struggle to clearly identify when the intentional interference with economic interests should be actionable. This struggle is, at least in part, attributable to the challenge of striking a proper balance between competition in a free market and unfair or improper market practices.

The relationship between the parties involved in an action for interference with economic interests is complicated by the fact that all these torts must involve at least three parties. Under the inducement tort, the plaintiff and a third party have a valid, subsisting contract, and the defendant, not a party to the contract, interferes. Although the plaintiff can take action against the third party for breach of contract, action can also be taken against the defendant. The unlawful interference tort arises where the defendant unlawfully interferes with the plaintiff’s economic interests by conduct directed at a third party with the intent to cause the plaintiff injury. Where there is an existing contractual relationship between the plaintiff and a third party, the tort may be made out despite the fact that the contract is not breached if the plaintiff otherwise experiences injury to its economic interests arising from the defendant’s use of unlawful means with intent to injure.

Alternatively, the tort may be committed in the absence of an underlying contract between the plaintiff and a third party, provided the plaintiff’s economic interests are injured by the defendant’s use of unlawful means in relation to a third party (where, for example, the formation of a contract is prevented by the defendant’s use of unlawful means).

Under Kenyan law, the tort of inducing breach of contract is an unfamiliar concept for most business people and it happens in their daily course of work. The few who realise it lack knowledge on the most probable cause of action to follow. The purpose of the tort is to discourage and prevent third parties from intentionally or knowingly interfering with the activities of a business in a way that results in economic loss – such as interfering with the pre-existing contractual relationships of others. Where loss and damage is caused, the third party may become liable for damages. The ability to recover from the competitor for inducing breach of contract is attractive in these circumstances, particularly if the loss is significant, as the competitor is likely to have greater means than the employee to satisfy a claim for damages.

The tort of inducing breach of contract is an intentional tort that aims to give redress for commercial wrongdoing. Butterworth’s “Common Law Series, the Law of Tort”, Second Edition (pp 1563) explains the tort thus: “The indirect forms of the tort arise where the defendant unlawfully interferes with the claimant’s contractual rights or expectations, for example, by placing physical restraint on the other contractual party, by interfering with the subject matter of the contract, or by persuading the other contracting party’s employees to withhold their vital services. Another possible difference, advocated by some, is that the Defendant’s conduct in the indirect forms of the tort must be somehow targeted at the claimant, which is something that may be presupposed on respect of direct procurement of breach.”

Further, Lord Macnaghten in “Quinn v Leathem [1901] A.C. 495 at 510” stated that, “it is a violation of legal right to interfere with contractual relations recognised by law if there be no sufficient justification for the interference.”

Accessory liability

The rationale for this tort is premised on the tortfeasor’s participatory role in the commission of another actionable wrong – the breach of contract by the third party which causes economic injury to the claimant. The tortfeasor’s liability is therefore parasitic upon the wrongful acts of another. The third party’s liability in contract towards the claimant generates a separate, but inextricably linked, species of liability in tort against the tortfeasor by virtue of his causative role in the deliberate procurement of the breach of contract between the claimant and the third party.

This tort is often referred to as an accessory liability – i.e. one that arises from the primary wrong of the underlying breach of contract – and this is important. Without a breach of contract, there can be no procuring of the breach. The tort has developed a procedural framework similar to that of defamation. Initially the burden is on the plaintiff to show intentional interference with contract. This establishes the prima facie tort. The burden then shifts to the defendant to show justification or privilege for his conduct. However, for one to succeed in a cause of action for this tort, he must fulfil the prerequisite elements that were set out in “OBG Ltd v Allan, [20057] UKHL 21 (UK HL)” which are: that the defendant had knowledge of the contract between the plaintiff and the third party; that the defendant’s conduct was intended to cause the third party to breach the contract; that the defendant’s conduct caused the third party to breach the contract; and that the plaintiff suffered damage as a result of the breach.

The case of Lumley v Gye expanded contractual relations into a universal principle in Common Law, stating a liability for inducing breach of any kind of contract. In that famous case, the  manager of  an  opera company  was  held liable  for  inducing an  opera  singer by  offering her  higher wages to  break her  contract to  sing exclusively with  the  plaintiff’s  opera  company  instead.  Several new principles were established which make this case particularly interesting. Firstly, it  was  established  that  any  kind of contract, even  apart  from the  master-servant  relations, is  protected  from interference. Secondly, no so-called improper means, like coercion or intimidation, were needed to constitute interference. Actually, the malice consisted of the defendant’s intentional inducement to the singer to break her contract. As a consequence, contractual relations are protected even from competitive interference.  Thirdly,  since  the  defendant in  the  Lumley  case induced  the  singer to break an exclusive dealing provision, it  can be  noted that  at least certain contractual relations are protected from interference even if they actually restrain trade.

“Lumley v Gye” was a landmark case on issues arising out of an Inducing Breach of Contract claims. During the case, the sitting judge, Crumpton J, stated: “…it must now be considered clear law that a person who wrongfully and maliciously, or… with notice, interrupts the relation subsisting between master and servant [employer and employee]… commits a wrongful act for which he is responsible at law. He who procures a wrong is a joint wrongdoer.” This principle, of liability for procurement of a wrong, applies to a breach of contract as well as an actionable wrong. Wightman J held that, “it was undoubtedly prima facie an unlawful act on the part of Miss Wagner to break her contract, and therefore a tortious act of the defendant [knowingly] to procure her to do so.”

The statements above, in my understanding, mean that he who wilfully induces another to do an unlawful act, which, but for his persuasion, would or might never have been committed, is rightly held responsible for the wrong which he procured. This is something that occurs in the commercial world with alarming frequency, especially in relation to employees, where the practice of poaching employees is rampant. One employer poaching another organisations’ employee is a form of inducing breach of contract since one offers a higher pay, or other benefits, and the employee proceeds to breach an existing employer’s contract so that he can join the employ of a new organisation.

Corrective mentality of tort law

In establishing the requisite intention of the defendant for this tort, it does not matter whether procuring the breach of contract was an end in itself, a means to securing some further end (such as obtaining an economic advantage for themselves) or even if he would have preferred to achieve his further end by some other means. In other words, a defendant may intend to induce a third party to breach a contract with the claimant even if the defendant does not want the breach to occur. Neither does it matter if he had no intention to injure the claimant. Malice towards the claimant may be consistent with an intention to induce a breach of the claimant’s contract but it is not a prerequisite towards establishing such an intention. On the other hand, if the breach of contract was neither an end in itself nor a means to an end but merely a foreseeable consequence of the defendant’s actions, then it cannot be said that he intended to cause the breach of the claimant’s contract.

If a person intentionally and knowingly injures another, then only a deliberate violation of the rules calculated to do injuries will give rise to civil liability. This approach accords with the corrective mentality of tort law, and explains why the plaintiff is entitled to a civil remedy in damages. When one party deliberately and dishonestly violates the rules of a game or other competitive process with a view to intentionally disadvantaging a specific party, it is common to view the violating party as a “cheater”, who has directly “wronged” the disadvantage party. Indeed, the disadvantaged party may even assert that it has been “cheated”. Accordingly, the cheating rationale justifies the unlawful means torts in a manner that is consistent with the corrective focus of tort law upon compensating plaintiffs who have been personally wronged by the fault of the defendants. Such a view is intuitively satisfying, and is similar to the position that underlies the other main category of intentional economic torts, i.e., the misrepresentation torts such as deceit, which impose liability for “lying”.

In fact, in creating a right of recovery where the defendant causes economic harm by cheating, the economic torts may be seen to protect a legal right that is personal to the plaintiff. This is the right to compete with others on an equal footing, wherein the defendant may not act to the detriment of the plaintiff through conduct which the law itself forbids the plaintiff from pursuing against the defendant (or that it would forbid were the positions of the plaintiff and the defendant reversed). Viewed this way, the unlawful means torts are a tool of corrective justice which address defendants’ violation of the plaintiff’s right to equality before the law within the context of economic competition.

The Kenyan courts need to take a more appropriate institutional role in expounding this tort. Under this rationale, the courts will not be seeking merely to prevent “unfair” competition and preserve the integrity of the broader market in preventing cheating. Instead, their principal focus will be to redress a wrong by the defendant against the plaintiff (i.e., the violation, through cheating, of the plaintiff’s right to compete on a footing that is equal under the law). And in doing so, the courts will not be guided by an amorphous concept of conduct that is “unacceptable”, but a more restricted concept of “cheating”, with all that this entails i.e., the mental sub-elements of a deliberate and dishonest violation of the law. Thus, this rationale would keep the tort of inducing breach of contract “strictly limited in their purpose and effect in the commercial world”.

Therefore, in setting proper jurisprudence in regard to this tort, Kenyan courts, in my view, should be asked to strike a balance between competing interests on the basis of the social desirability of those aims. An acceptable starting point at this moment in time is that endeavours which promote free enterprise activity should be supported by the law by imposing liability on those who interfere with such endeavours. Also, it should consider that not all interferences with endeavours which promote free enterprise should attract liability. There should be no such liability if the interference is the natural result of the promotion of a socially desirable aim. The courts will need to obtain evidence to enable them to decide between the relative desirability of the two conflicting aims.

Character of the case

Secondly, the courts have clearly recognised that in regard to the protection against acts of inducing breach of contract, some countervailing social objectives may override that protection. Therefore, in view of this, it can legitimately be said that they assume certain social facts and desiderata when facing the kinds of dispute discussed in this article. It is therefore not legitimate to argue that they should not take their position to its logical conclusion; nor should they be permitted to continue to hide behind the pretence that only the legislature can and does build policy into the law.

Thirdly, there is no question but that to balance competing interests and conducting social aims will be very difficult. But, in my view, this is no reason for saying that the courts should decide cases without regard to policy reasoning of the kind advocated. If they do so, the results will only look more objectively reached; they will not be more objective, or more just. To say that it is not proper for the courts to delve into social data is to say that the lady who represents justice is blind-folded because she wants to make her decisions in ignorance, rather than by treating disputes on their real merits.

Kenyan courts in further expounding the much needed jurisprudence of the tort of inducing breach of contract, vis-a-vis dealing with the realities of administering a judicial system, should follow the words of the greatest Common Law judge, Oliver Wendel Holmes, when he said:

“But whether, and how far, a privilege shall be allowed is a question of policy. Questions of policy are legislative questions, and judges are shy of reasoning from such grounds. Therefore, decisions for or against the privilege, which really can stand only upon such grounds, often are presented as hollow deductions from empty general propositions like sic utere tuo ut alienum non laedas, which teaches nothing but a benevolent yearning, or else are put as if they themselves embodied a postulate of the law and admitted of no further deduction. .. . When the question of policy is faced it will be seen to be one which cannot be answered by generalities, but must be determined by the particular character of the case. . . . I do not try to mention or to generalize all the facts which have to be taken into account; but plainly the worth of the result, or the gain from allowing the act to be done, has to be compared with the loss which it inflicts. Therefore, the conclusion will vary, and will depend on different reasons according to the nature of the affair.”

As a result, the current development of business and commercial relations has caused common law and civil law jurisdictions to recognise a cause of action for inducing breach of contract, thereby affording greater security to contracts. As such, by applying a dynamic concept of fault to the needs of modern business and commercial transactions, Kenya should make inducing breach of contract actionable under its laws. ^

Writer is an intern at Ahmednasir, Abdikadir & Co Advocates;

E-mail: aliabdi.053@gmail.com

Email your news TIPS to Editor@nairobilawmonthly.com, and to advertise with us, call +254715061658 anytime of the day