Client Update: Torts: Unlawful Interference with Economic Relations

In a decision released by the Supreme Court of Canada (“the Court”) on January 31, 2014, the Court clarified the law with respect to the tort of interference with economic relations by unlawful means.

Joyce, a corporation, owned an apartment building in Moncton, New Brunswick. Corporate entities Bram and Jamb together owned a majority of Joyce while a minority interest was held by corporation A.I., whose owner and sole director was Alan Schelew. A syndication agreement between Joyce, Bram, Jamb and A.I. contained a sale mechanism giving a majority of investors the right to sell the building subject to a right of first refusal of any dissenting investor to purchase it at a professionally appraised value. In 2000, Bram and Jamb wanted to sell the property but A.I. and Alan did not. Notice was given to A.I. under the syndication agreement and the building was appraised at $2.2 million. A.I. did not purchase the property and thus it was listed for sale. While the property was listed, A.I. and Alan attempted to invoke the arbitration process under the syndication agreement, filed encumbrances against the property, and denied entry to the property to prospective buyers. Potential sale to third party purchaser for $2.58 million failed, and A.I. ultimately bought the building for the appraised value of $2.2 million.

Subsequently, Bram and Jamb brought an action against A.I. and Alan claiming that, as a result of A.I. and Alan’s wrongful conduct, the sale had been substantially delayed and was for less money than they could have obtained from a third party purchaser.

In summary, the issues and conclusions are as follows:

What is the scope of liability for the tort of causing loss by unlawful means?
The Supreme Court ruled the tort should be kept within narrow bounds. It will be available in three party situations in which the defendant commits an unlawful act against a third party and that act intentionally causes economic harm to the plaintiff.

What sorts of conduct are considered “unlawful” for the purposes of this tort?
Conduct is unlawful if it would be actionable by the third party or would have been actionable if the third party had suffered loss as a result of it. In this case, the Court ruled on the evidence A.I. and Alan had not committed the tort.

If the unlawful means tort is not available, are A.I. and Alan otherwise liable?
The trial judge made strong findings that the dissenting family member, Alan Schelew, breached his fiduciary obligations as a director of the family companies and the trial judge’s award should be upheld on that basis.

The respondents submitted that if Alan Schelew breached his fiduciary duty and these breaches were sufficient for the trial judge to have issued judgment on that basis, then it was open to the Supreme Court to affirm the judgment against Alan Schelew on that basis.

What this case means for you?
Although the tort does not prevent fair competition amongst business people, no business person can use unlawful means intended to harm the business interest of another person by causing an actionable harm to a third party with whom the innocent business person is dealing. Moreover, the decision affirms the well–established principle that no director of a business can ignore or breach the obligations owed to that company to act in good faith and in the best interests of that company at all times.

Charles LeBlond, QC, assisted by Josie Marks of our Moncton office successfully represented the respondents. They were assisted by Ottawa agents Eugene Meehan and Marie-France Major of Supreme Advocacy.

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