Tort of Inducement of Breach of Contract
31 December 2018
Wong Juen Vei explains the elements of this tort
The tort of inducement of breach of contract arises when a person intentionally induces another to commit a breach of an existing contract against a third person. An illustration of this tort can be seen as follows:
“A has an existing contract with B and C is aware of it, and C persuades or induces A to break the contract with B and resulted in damage to B.”
DEVELOPMENT OF THE TORT OF INDUCEMENT OF BREACH OF CONTRACT
The origin of this tort stems from the seminal case of Lumley v Gye (1853) 118 ER 749. In Lumley, a much sought-after opera singer, Johanna Wagner, was lured to London by Benjamin Lumley of Her Majesty’s Theatre in Haymarket on an exclusive singing contract. However, before Wagner arrived in Britain, her services were poached by Frederick Gye of the Royal Italian Opera in Convent Garden. As a result, Lumley sued Gye.
By a majority of 3:1, the Queen’s Bench held that Gye was liable for having “wrongfully and maliciously enticed and procured” Wagner’s breach of contract with Lumley, thereby establishing the tort of inducing breach of contract that endures until today.
At one time it was arguable that the principle established in Lumley only applied to contracts of employment. However, in Bowen v Hall (1881) 6 QBD 333, the English Court of Appeal accepted the broader proposition that a claimant might sue for violation of any contractual right. As a result, it is now settled law that this tort of inducement applies to contracts of all kinds.
THE POSITION IN MALAYSIA
The law relating to the tort of inducement of breach of contract was considered by the Federal Court in Loh Holdings Sdn Bhd v Peglin Development Sdn Bhd  1 CLJ (Rep) 211. The Federal Court, relying on the English case of Greig v Insole  1 WLR 302, held that at common law, it constitutes a tort for third persons to deliberately interfere in the execution of a valid contract which has been concluded between two or more parties if the following five conditions are satisfied:
- there must be direct or indirect interference, coupled with the use of unlawful means;
- the defendant must be shown to have knowledge of the relevant contract;
- the defendant must be shown to have the intent to interfere;
- the plaintiff must show that he has suffered special damages, that is, more than nominal damages; and
- so far as it is necessary, the plaintiff must successfully rebut any defence based on justification which may be put forward by the defendant.
This proposition affirmed by the Federal Court was also considered by the Court of Appeal in Kelang Pembena Kereta-Kereta Sdn Bhd v Mok Tai Dwan  1 MLJ 673 and SV Beverages Holdings Sdn Bhd & Ors v Kickapoo (M) Sdn Bhd  4 MLJ 187.
These elements of the tort shall be discussed in turn.
ELEMENTS OF THE TORT
Direct Interference or Indirect Interference Coupled with Unlawful Means
According to Lord Denning MR in Torquay Hotel Co Ltd v Cousins  1 All ER 522, the meaning of “interference” is not confined to the actual procurement or inducement of a breach of contract. Lord Denning opined that it can also cover situations whereby the third person prevents or hinders one party from performing his contract.
In D.C. Thomson & Co Ltd v Deakin  Ch 646, Lord Jenkins LJ sets out four categories of cases which could amount to a direct interference by a third party of the rights of one of the parties to a contract. These four categories are as follows:
- a direct persuasion or procurement or inducement applied by the third party to the contract-breaker, with knowledge of the contract and the intention of bringing out its breach;
- dealings by the third party with the contract-breaker which to the knowledge of the third party are inconsistent with the contract between the contract-breaker and the person wronged;
- an act by the third party with knowledge of the contract which if done by one of the parties to it would have been a breach of that contract; and
- the imposition by the third party, who has knowledge of the contract, of some physical restraint upon one of the parties to the contract so as to make it impossible for him to perform it.
In respect of cases of indirect interference, Jenkins LJ further held it is necessary to prove the use of unlawful means if the indirect interference is to be actionable.
The difference between direct interference and indirect interference was explained by Lord Hoffman LJ in Middlebrook Mushrooms Ltd v Transport and General Workers’ Union  ICR 612. His Lordship opined that the essential difference lies in causation. If the person immediately responsible for bringing the procurement or inducement was the defendant or someone for whose acts he was legally responsible, the inducement is direct. On the other hand, if it was a third party responding to the defendant’s inducement or persuasion but exercising his own choice in the matter and not being a person for whom the defendant is legally responsible, the inducement is indirect.
In Middlebrook Mushrooms, the Court of Appeal opined that the distribution of leaflets by former employees of the plaintiff who were members of the Transport and General Workers’ Union asking the public not to buy goods supplied by their former employer was an indirect interference. However, the Court held that the union had not induced a breach of contract as it had not used any unlawful means to interfere with the contract.
Knowledge of the Contract
The second requirement of this tort is that the defendant must have knowledge of the contract. However, the defendant need not have exact knowledge of all terms of the contract.
In Emerald Construction Co. Ltd v Lowthian  1 WLR 691, the defendants knew of the existence of the contract between the claimants and their co-contractors but they did not know its precise terms. Nevertheless, the evidence showed that the defendants were determined to bring the contractual relationship to an end if they could. The Court of Appeal held that this was sufficient to entitle the claimants to an interim injunction.
Intention to Interfere
This element of the tort requires the plaintiff to prove that there was an intentional invasion of his contractual rights and not merely that the breach of contract was the natural consequence of the defendant’s conduct.
In the House of Lord case of OBG Ltd v Allan and others  UKHL 21, Lord Hoffman held that to be liable for inducing breach of contract, the defendant must know that he is inducing a breach of contract. It is not enough that the defendant knows that he is procuring an act which as a matter of law or construction of the contract, is a breach. The defendant must actually realise that his procurement or inducement would result in a breach of contract.
This proposition is illustrated by the House of Lords’ decision in British Industrial Plastics Ltd v Ferguson  1 All ER 479, in which the plaintiff’s former employee offered the defendant information about one of the plaintiff’s secret processes which he, as an employee, had invented. The defendant knew that the employee had a contractual obligation not to reveal trade secrets but thought that if the process was patentable, it would be the exclusive property of the employee. He took the information in the honest belief that the employee would not be in breach of contract. The House of Lords held that he was not liable for inducing a breach of contract.
To satisfy this requirement, the plaintiff must prove that damage was suffered in consequence of the defendant’s conduct. Slade LJ in Greig v Insole held that it is sufficient for the plaintiff to show “the likelihood of more than nominal damage resulting” from the complained conduct of inducement.
There must be a causal link between the defendant’s conduct and the damage. In Jones Bros (Hunstanton) Ltd v Stevens  1 QB 275, as the contract-breaker would have taken the same steps and damage would have been sustained in any event but for the defendant’s inducement or procurement, the defendant’s inducement was held to be not an effective cause of the damage or loss. As a result, the action for inducement of breach of contract failed.
The Defence of Justification
A person inducing a breach of contract commits no actionable wrong if his interference is justified. However, what would amount to an effective justification has not been satisfactorily defined nor have the limits of the defence been precisely defined. In Glamorgan Coal Co Ltd v South Wales Miners’ Federation  2 KB 545, Romer LJ held that the following factors should be taken into account by the courts when considering the defence of justification:
- nature of the breached contract;
- the position of the parties;
- the grounds for the breach; and
- the method in which the breach was procured.
The defence of justification may be proved where the person inducing the breach of contract acts in accordance with a duty. In the English case of Brimelow v Casson  All ER 40, the defence of justification succeeded where the union officials persuaded a theatre manager to breach his contract because the company’s salaries were so low that “some chorus girls were compelled to resort to prostitution”. It has been suggested that the pressure of a moral obligation as justification is the basis of Brimelow as there was a moral duty to the defendant’s members and possibly to the public.
It is not a sufficient justification for the defendant to say he did not act maliciously and had no ill-will or desire to injure the other parties to the contract. In South Wales Miners’ Federation v Glamorgan Coal Co Ltd  AC 239, a union known as the South Wales Miners’ Federation was formed to consider trade and wages and to protect the workmen. The wages of the workmen were paid on a sliding scale agreement in accordance with the rising and falling price of coal. The union, concerned that the wages would fall too low with the price of coal, called for several “stop days” for the workmen, causing approximately 100,000 workmen to break their employment contracts with the plaintiffs. The union, inter alia, argued that there was no malice or ill-will against the plaintiffs as the union had a duty to protect the interests of its members and they could not be made legally responsible for the consequences of their action if they acted honestly in good faith and without any malice or motive.
The House of Lords dismissed the union’s defence of justification and held that it is no defence that the persons procuring the breaches of contract have a duty to protect the interest of those whom they procure and act in what they regard to be the performance of that duty in good faith, without ill-will towards the other parties to the contract, and indeed believing that the breaches of contract would be for the benefit of those other parties as well as for those whom they were under an obligation to protect. The House of Lords further held that in an action for such procurement, the plaintiffs need not prove malice in the sense of spite or ill-will.
Generally, there are two remedies available if the tort of inducement is proven i.e. damages and injunctive relief. While a contract claim would typically lie against the breaching party, the outcome that can be achieved through the tort of inducement can be more attractive both for practical reasons and legal considerations. The practical reason being that the third party sometimes may be more pecunious than the contract-breaker. Furthermore, damages in tort may be more extensive than their contractual equivalent, with a more liberal remoteness test and the absence of a stringent duty to mitigate. In an extreme case, aggravated or exemplary damages might even be awarded if the tort of inducement is proven.
In addition to damages, an injunction may be granted to prevent the defendant from continuing to induce non-performance of contract. The usual equitable requirements are applicable where an injunction is sought.
The development of business and commercial relations have caused the common law to recognise a cause of action for inducing a breach of contract, thereby affording greater security to the performance of contracts.
Nevertheless, the inducement of breach of contract remains largely a difficult tort to assert as its ambit, as well as its requirements, have yet to be clearly defined by case law. However, it is precisely this unsettled state of this tort that provides some flexibility to its application in different cases in order to achieve justice. In considering the elements and defences for this tort, Rix LJ in the English Court of Appeal decision of Stocznia Gdanska SA v Latvian Shipping Co (No.3)  2 All ER (Comm) 768 aptly observed that:
“Those considerations are designed to keep a wide-ranging tort within bounds. It is therefore important that they are not applied mechanically and that regard is had to the balancing demands of moral constraint and economic freedom. For these purposes the concept of knowledge and intention, direct participation, the causative relevance of unlawful means, and the possibilities of justification, are presumably sufficiently flexible to enable the principles of the tort to produce the right result.”