“Stealing” Clients from Competitors? – Do it without “Inducing a Breach of Contract”
By its very nature, business is competitive with businesses always looking to increase their market share. One method of increasing market share is to stimulate new demand for your products and services (i.e. Telus selling cell phone services to a client that did not previously use a cell phone).
A second method of increasing market share is to “steal” business away from your competitors (i.e. Telus convincing customers of Rogers or Bell to switch to Telus). When “stealing” clients from a competitor, businesses need to be careful not to cross the line into committing the tort of “inducing a breach of contract”.
Basic Elements of the Tort
It is difficult to describe where the line is for most types of torts without using generalities. Most situations will be very fact-dependent, so it is definitely best to get specific advice for the circumstances you’re facing at any particular time. Nonetheless, the basic elements of the tort of “inducing a breach of contract” are as follows:
- The existence of a valid and enforceable contract between the plaintiff and another contracting third party;
- Knowledge or awareness of the existence of the contract by the defendant; or wilful blindness by the defendant to the existence of the contract;
- A breach of the contract by the other contracting party;
- Inducement of the breach by the defendant;
- Intention by the defendant to cause the breach; and
- Harm to the plaintiff.
The law seeks to protect the existence of valid and enforceable contractual relationships. Where a person intentionally acts in a way that promotes the breach of those legal rights, it can result in this tort.
Although it is one of the key elements of this tort that the “intention” of the defendant’s conduct must be to cause the breach of contract, it is not safe to argue that the actual intention was to further the plaintiff’s business goals as a competitor. The origin case for this tort, Lumley v Gye (1853 Eng. QB), involved just such a situation. The defendant, an opera house, enticed a performer to perform for him instead of for the plaintiff opera house. The goal of the defendant was not to induce a breach of contract, but to engage the performer at a higher fee to promote his business. This was still found to be a tort of inducing breach of contract.
The intention requirement is more accurately framed as whether you are seeking to accomplish your goal through the means of inducing a breach of contract. In Alberta, a similar position was described in 369413 Alberta Ltd v Pocklington, 2000 ABCA 307, wherein the Alberta Court of Appeal accepted that “intent can also be inferred when the consequences of the conduct were a necessary or reasonably foreseeable result” of the defendant’s conduct.
Encouraging Exercise of Legal Termination Rights
However, there is some authority for the notion that it is not a tort if the defendant has encouraged a contracting party to terminate their contract in a way not amounting to breach. In Cutsforth v Mansfield Inns Ltd,  1 All ER 577 (QB), the defendant landlord owned a number of buildings that housed juke boxes, supplied by the plaintiff. The landlord told its tenants that they must rent juke boxes from approved suppliers (which excluded the plaintiff company). On that basis, the landlord said the tenants must terminate their contracts with the plaintiff or be in breach of their tenancy agreements. The result of the case was no tort of inducing breach of contract, since it was up to the tenants whether they would terminate their contracts legally or via breach. “The inducement was to do something which did not have to result in a breach of contract” (See APT Industries Ltd v Bingo Press & Specialty Ltd (1991), 81 Alta LR (2d) 179, quoting Cutsforth, at para 43).
The Alberta Court of Appeal has also provided an indication on this point. In Pocklington, supra, the court stated that “if the defendant acted under bona fide belief that contractual rights would not be infringed, liability will not be found … but for a mistaken belief to be bona fide … some basis for the belief must exist, and some reasonable effort must have been made by the defendant to learn the truth”.
From a principled standpoint, this seems reasonable. How can you be held liable for convincing a contracting party to act within their rights, especially when no person has had their rights infringed?
Invitation for Discussion
If you would like to discuss this or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.