Library

Supreme Court on Unlawful Interference

View PDF: LitigationNotes_Vol9-3(1)

The Supreme Court of Canada Provides Needed Clarity to the Tort of “Unlawful Interference”

In A.I. Enterprises Ltd. v. Bram Enterprises Ltd., which was a case originating in Eastern Canada, the Supreme Court was recently asked to provide clarity to the tort of “unlawful interference”, which is also known by the pseudonyms “unlawful interference with economic relations”, “interference with a trade or business by unlawful means”, “intentional interference with economic relations”, “causing loss by unlawful means”, and finally just “unlawful means”. The tort arises in a three-party situation in which party “A” pursues an unlawful course of conduct against party “B” in order to cause intentional economic harm to party “C”. The tort is designed to allow party “C” to recover against party “A” notwithstanding that “A’s” conduct was perpetrated directly against “B” not “C”.

In this case, a group of family members owned an apartment building through a web of interrelated companies. The majority of the family members wanted to sell the building, while one family member did not, and he and his company undertook a series of actions aimed at preventing the sale. Ultimately this family member—through his company— ended up buying the property for approximately $400,000 less than it could have otherwise been sold for. The majority of the family members sued to recover the $400,000 loss and the main question before the trial judge was whether the dissenting family member and his company were liable for the tort of “unlawful interference”.

At trial Justice Dionne of the New Brunswick Queen’s Bench concluded that the defendant family member was liable for the “unlawful interference” because he had pursued a course of conduct that lacked legal merit, and was therefore “unlawful”. The family member then appealed to the New Brunswick Court of Appeal, which took a considerably different view of the tort, but nevertheless dismissed the appeal on the basis that although not unlawful, the defendant-appellants’ actions met the criteria for a principled exception and should nevertheless form the basis of liability. The defendant-appellants then appealed to the Supreme Court of Canada, which was faced with the following issues in order to clarify the elements of the tort of unlawful means: (i) what sorts of conduct are considered “unlawful” for the purposes of this tort; (ii) is the tort available only if there is no other cause of action available to the plaintiff against the defendant in relation to the alleged misconduct; and (iii) should the “unlawfulness” requirement be subject to principled exceptions.

Before turning to the treatment of this tort at the various levels of court, and ultimately the Supreme Court’s ruling, it is useful to first examine the facts of this case in greater depth. Joyce Avenue Apartments Ltd. owned an apartment building in Moncton New Brunswick. In turn, Joyce was owned by Lillian Schelew and her four sons, Jeffrey, Michael, Bernard and Alan, each through corporate entities. The respondent-plaintiffs Bram Enterprises Ltd. and Jamb Enterprises Ltd. each owned 40% of Joyce. The four Schelew brothers owned equal numbers of shares in both Bram and Jamb, while Lillian held voting preferred shares in Bram. The remaining 20% ownership interest in Joyce was held by the appellant-defendant A.I. Enterprises Ltd, whose owner Alan Schelew was the sole director and was also an appellant-defendant. A.I. (effectively Alan) managed the Joyce owned building for a fee.

Joyce, as the owner of the building, and Bram, Jamb and A.I., as the investors, entered into a syndication agreement that contained a sale mechanism, which gave a majority of investors a right to sell the building subject to a right of first refusal of any dissenting investor to purchase it at a professionally appraised value. Having obtained a professional appraisal, the investors wishing to sell were deemed to have made an irrevocable offer of sale to the dissenting investor, which would remain open for 15 days.

In 2000, all of the family members except Alan and his company A.I. wanted to sell the property. They gave notice to A.I. under the syndication agreement and the building was appraised at $2.2 million. A.I. did not accept the deemed offer within 15 days and the property was listed for sale. Over the course of 16 months the plaintiff-respondents dealt with four potential investors but could not close a sale, which the respondents attributed to the actions of Alan and A.I.

At trial, Justice Dionne focused on four specific acts of the defendants A.I. and Alan, which were to: (i) misuse the arbitration provisions of the syndication agreement as a means of stalling the sale of the Joyce property; (ii) advance legally groundless defences for a “Notice of first of refusal” which were filed against the Joyce property; (iii) file an equally baseless certificate of pending litigation against the property; and (iv) deny entry to the Joyce property to prospective buyers. In the view of the trial judge all of A.I. and Alan’s conduct had the effect of “complicating, delaying, impeding, and ultimately and for all intents and purposes completely obstructing and preventing” the majority from selling the property to third parties. Justice Dionne concluded that all of this conduct was illegal because it lacked any legal basis or justification, and also that Alan Schelew’s conduct breached his fiduciary obligations as a director of Bram and Jamb, while A.I. breached its contractual obligations to Bram and Jamb under the syndication agreement. In finding that A.I. and Alan had committed the tort of “unlawful interference”, Justice Dionne found that A.I. and Alan “possessed actual intent to do whatever they could to pursue the interest of A.I. Enteprises and that they were well aware that their actions would cause harm to Jam[b] and Bram”. On this basis, damages for the foregone value of the property were awarded to the plaintiffs.

A.I. and Alan Schelew then appealed to the New Brunswick Court of Appeal, which began its analysis by noting that the unlawful means tort has been in a state of flux and has been the subject of two opposing views of the proper scope of the “unlawful means” component following the House of Lords decision in OBG Ltd. v. Allan, [2007] UKHL, [2008] 1 A.C. 1. In OBG, Lord Hoffman, writing for the majority, adopted a narrow definition of “unlawful means” whereby only breaches of the civil law such as a tort or a breach of a contract would suffice. The unlawful conduct would also need to be actionable by the party against which it was directed in order to give rise to liability. Writing for the minority in OBG, Lord Nicholls advocated a broader view, under which “unlawful means” included “common law torts, statutory torts, crimes, breaches of contract, breaches of trust and equitable obligations, breaches of confidence, and so on”. The New Brunswick Court of Appeal preferred Lord Hoffman’s narrow definition, and found that the conduct of the appellant-defendants, while lacking legal justification, did not amount to a wrong actionable by the prospective purchasers. Notwithstanding this finding, the Court of Appeal allowed for the possibility of principled exceptions mitigating the rigidity of the narrow rule, and crafted an exception to cover this case, which it described in the following terms: “In my view, the intentional erection of self-help legal barriers, some of which are enforceable through statutory processes not subject to prior judicial authorization, in circumstances where those barriers rest on rights fabricated with arguments of sand, warrants redress under the tort of unlawful means (akin to the tort of abuse of legal process).” On this basis the Court of Appeal dismissed the appeal and upheld the liability finding.

A.I. and Alan Schelew then appealed to the Supreme Court of Canada and urged the Court to adopt Lord Hoffman’s view on “unlawful”, requiring that the conduct be actionable by the third party (or would have been but for the fact that the third party did not suffer a loss). This view is premised on the tort having a limited sphere of operation such that only actionable civil wrongs against the third party provide a basis for allowing the intended victim to sue. A.I. and Alan also urged the Court to hold that the tort is only available to the plaintiff if the defendant’s conduct causing the injury does not give rise to another cause of action by the plaintiff against the defendant.

The respondents, on the other hand, argued two alternative positions; the first being that “unlawful means” should be defined by a broad bright line rule that an act is unlawful if there exists a legal proceeding through which its legitimacy can be legally challenged. In the alternative, the respondents would have accepted Lord Hoffman’s formulation if the Court held, as the Court of Appeal had, that it was subject to principled exceptions.

In examining which of the positions advanced by the appellants and respondents was to be preferred, the Court engaged in an analysis of the history and rationale of the tort, and determined that it was necessary to give the concept of “unlawful means” a “sound, economically relevant and judicially supported interpretation” in order to keep “economic torts in harmony with contemporary legal values”: No. 1 Collision Repair & Painting (1982) Ltd. v. Insurance Corp. Of British Columbia, 2000 BCCA 463, 80 B.C.L.R. (3d) 62 leave to appeal refused, [2001] 1 S.C.R. xv. In order to do so, the Court found that the tort must be understood in the context of regulation of economic and competitive activity. The Court has long been loath to develop rules to enforce fair competition, and is concerned not to undermine certainty in commercial affairs, while also traditionally affording less protection to purely economic interests than to physical integrity or property rights. On that point, the Court pointed to its decision in R.W.D.S.U. , Local 558 v. Pepsi-Cola Canada Beverages (West) Ltd., [2002] 1 S.C.R. 156, which states that “the law has never recognized a sweeping right to protection from economic harm”, before concluding that the tort of “unlawful means” should not be crafted so as to provide “sweeping relief”. This same reluctance was also noted by Lord Nicholls in OBG, who stated that: “Competition between business regularly involves taking steps to promote itself at the expense of the other…Far from prohibiting such conduct, the common law seeks to encourage and protect it. The common law recognizes the economic advantages of competition.”

Returning to the case at bar, the Court found that the reluctance described by Lord Nicholls was directly relevant to this case. The Court noted that although Justice Dionne found that the appellant-defendants intended to do whatever they could to pursue their interests while being aware of the harm it would cause to Jamb and Bram, that this same conclusion could be applied to a great number of legitimate competitive activities. As expressed by Justice Cromwell speaking for the Court, “that, it seems to me, suggests the need for a limited role for the unlawful means tort.” On that basis the Court agreed with Lord Hoffman and held that to be “unlawful” conduct must be conduct that is actionable by a third party, or otherwise would have been had they suffered a loss. The Court also concluded that given the desire to keep the tort narrow, it would be inappropriate to open “unlawful means” to the discretion of the courts, and so declined to allow for a principled exception. Finally, the Court concluded that the tort’s availability should not be restricted to instances where no other cause of action is available as this would offend the principle of concurrent liability. Ultimately, the Court found that although the appellants had acted in self interest and had harmed the plaintiffs, their conduct was not actionable by a third party and so not “unlawful”. In dismissing the appeal, however, the court upheld the finding of breach of fiduciary duties, and affirmed Justice Dionne’s damages award.

A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12