April 11th, 2016
When business gets nasty, tort law gets interesting. When someone knowingly sets out to harm others, the common law gives victims special tools to seek redress. One is the tort known variously as “unlawful means” or “intentional inference with economic relations”. Last month, the Ontario Court of Appeal used it to uphold damages in favour of a transporter who displeased a financier over the timeliness of accounts receivable payments. The financier retaliated through a variety of unlawful means to compel payment. By intentionally inflicting economic harm on the transporter, the financier opened the door to “damages at large”. As a result, the transporter won $175,000 at trial, confirmed on appeal, without actually having to prove the amount of damages it suffered.
Damages at large
So how did the transporter win $175,000 without having to prove that it lost $175,000? The Court of Appeal explained this in its decision in Grand Financial Management Inc v Solemio Transportation Inc. Damages for intentional torts such as unlawful means may be awarded “at large”. In other words, they are quantified based on the judge or jury’s impression of the case. As long as the plaintiff proves all elements of the tort, the plaintiff need not quantify the amount of their damages. The judge or jury will use their discretion to choose a number that they decide is fair.
If this seems vague, it is. But it is necessary because these damages are ordered to compensate for matters that are very difficult to measure, such as damaged reputations, hurt feelings, or behaviour that should be punished or condemned. The court still needs to find that damage occurred, but it is relieved from precisely calculating the amount. For example, a common tort that allows damages at large is libel.
For unlawful means, if getting the damages seems easy, proving the tort has been historically tricky. Fortunately, the Supreme Court clarified the law in a 2014 decision (AI Enterprises v Bram Enterprises Ltd) that we reported on here.
The current test for proving the unlawful means tort has the following elements:
- The defendant must intend to economically injure the plaintiff.
- The defendant must unlawfully act against a third party in order to inflict this injury.
- The unlawful act must give the third party a cause of action against the defendant; for this branch of the test, the court will assume that the third party has suffered damages from the unlawful act.
- The plaintiff must be injured by the defendant’s unlawful act against the third party.
To sum up, this tort allows the plaintiff to sue the defendant for someone else’s cause of action. In AI Enterprises, the Supreme Court clarified that the tort is still available even if the plaintiff has another, direct cause of action against the defendant (e.g. breach of contract or negligence). Why would a plaintiff proceed with the unlawful means tort when it has another cause of action? Perhaps to avail itself of the damages at large described above.
In Grand Financial, Solemio Transportation satisfied the unlawful means test with the following facts:
- Grand Financial had a factoring agreement where it purchased the accounts receivable of one of Solemio’s subcontractors. Under this agreement, Solemio would pay the subcontractor’s receivables to Grand Financial, instead of the subcontractor. However, Solemio wanted to pay the accounts within a 45 to 90-day grace period that the subcontractor agreed to. Grand Financial was not pleased with the delay, deciding to retaliate against Solemio to expedite payment after Solemio’s debts started to accumulate.
- Grand Financial had a security interest in Solemio’s assets from a different factoring agreement it set up directly with Solemio (instead of its subcontractor). But that factoring agreement was terminated, and Solemio had no liabilities under it. Regardless, Grand Financial wrote to Solemio’s bank (RBC) and one of its main customers (Arnold Bros. Transport Ltd.) demanding payment under the security. Grand Financial also threatened to go after Arnold Bros. and its customers for the money owed by Solemio.
- Relying on Grand Financial’s demand, RBC paid Grand Financial from Solemio’s bank account. But Solemio owed nothing from that security, which Grand Financial misrepresented to the bank. Therefore, assuming RBC suffered damage from incorrectly paying out, RBC had a claim for negligent misrepresentation against Grand Financial. Also, by threatening Arnold Bros. in relation to debts that Arnold Bros. did not owe, assuming Arnold Bros. suffered damages, Grand Financial was liable to Arnold Bros. for the tort of intimidation, which I discuss further below.
- Solemio suffered significant financial injury by losing the money in its bank account and its business relationship with Arnold Bros., who cut ties with Solemio after the difficulties with Grand Financial.
Based on all this, Solemio won damages at large from Grand Financial through torts that Grand Financial committed against RBC and Arnold Bros., while intending to injure Solemio.
A threatening expansion of liability?
Before AI Enterprises, Canadian courts had not clearly decided what unlawful means meant. Could they include breaches of statute or regulation that gave no one the right to sue? The Supreme Court decided that this was too broad and restricted the test to unlawful means that were already actionable by somebody. Grand Financial applied this “narrow approach” but, in so doing, applied the tort of intimidation in a surprisingly broad way.
Intimidation is another rare tort involving illegal activity. Traditionally, intimidation required that:
- The defendant threatens to commit an unlawful act if the plaintiff or a third party does not act in a certain way.
- The plaintiff or the third party acts in accordance with the threat.
- The plaintiff suffers injury from the action brought about by the threat.
- In making the threat, the defendant intended to injure the plaintiff.
Under this test, the unlawful act did not need to be actionable on its own. This was broader than unlawful means and encompassed a wide range of illegal activity (although, for reasons beyond the scope of this article, breaches of contract did not always count).
The Court of Appeal may have now broadened intimidation even more. When explaining how Grand Financial intimidated Arnold Bros., it applied a test that did not include an unlawful act. The elements were simply: “(i) a threat, (ii) intent to injure, (iii) some act taken or forgone as a result of the threat, and (iv) resulting damages” (paragraph 73). Earlier in that paragraph, the Court did say that Grand Financial made an “unlawful threat”, but it did not explain how the threat broke the law.
Business is not always a friendly process. Threats are known to be made from time to time. How many are now actionable cases of intimidation? Hopefully the Court of Appeal revisits this issue to clarify in the near future. In the meantime, those considering threats to achieve a business objective should be mindful of the risks at large.