Canadian Appeals Monitor Information and Commentary on Upcoming and Recent Appeal Court Decisions

Do Equitable Ends Justify Expanding “Unlawful Means”? The Supreme Court of Canada Grants Leave in A.I. Enterprises Ltd. v. Bram Enterprises Ltd.

Posted in Case Comments, Class Actions, Competition, Contracts, Insurance, Procedure, Torts
Ronald Podolny

Introduction

The Supreme Court has granted to leave to appeal in a case that has the potential to elucidate an area of tort law where confusion has reigned for far too long. In the words of the House of Lords, “the law in this area is a mess.” The subject that has engendered this confusion is the scope of the “unlawful means” element in the economic torts, and in particular, in the torts of intentional interference with economic interests and intentional interference with contractual relations.

Decisions Below

The case arose out of a dispute over the ownership of a property. In 1985, three companies – Bram Enterprises, Jamb Enterprises and A.I. Enterprises – acquired an apartment building in Moncton. The property was vested in a fourth company, which acted as an agent for the three. The syndication agreement provided that if the majority decided to sell, the minority would have the right to purchase the building at its appraised value, failing which the property could be marketed to the public.

In 2000, the majority investors decided to sell the property. A minority investor, A.I. Enterprises, declined to sell, but also declined the opportunity to purchase the building at its appraised value. Its president, Alan Schelew, continued to resist the sale of the property, arguing that the majority failed to comply with the syndication agreement.

During the time that Mr. Schelew resisted the sale, including by instituting arbitration proceedings, encumbering the property and denying third party access to it, the majority investors received two offers. Neither transaction closed. In 2002, the majority sold the property to the minority investor for its most recent appraised value (less than the 3rd party offers).

The majority investors then sued A.I. Enterprises and Mr. Schelew for the difference between the third party offers and the price which A.I. Enterprises ultimately paid.

The trial decision, reported at A.I. Enterprises v. Joyce Avenue Apartments Ltd., found that but for the defendants’ “numerous illegitimate and unlawful obstructive tactics” the property would have sold to a third party for a price higher than what the minority investor paid for it. The trial judge held that the decision to encumber the property had no “lawful reason.” Following a well-established (although, arguably, not the most recent, as described below) line of Canadian cases, he defined “wrongful conduct” broadly as conduct the tortfeasor was “not at liberty to commit.” Accordingly, the trial judge found that the defendants were liable in the tort of “intentional interference with economic relations” and awarded Bram Enterprises and Jamb Enterprises monetary damages.

In the New Brunswick Court of Appeal, A.I. Enterprises argued that the House of Lords’ decision in OBG v. Allan, [2007] UKHL 21 (“OBG”) and the Canadian decisions that followed it have significantly narrowed the definition of “unlawful means” component of this tort. In particular, it was argued that the “unlawful means” element has been restricted by recent jurisprudence to only acts that would themselves be actionable by the third party as against the tortfeasor. In the words of Lord Hoffmann:

In my opinion, and subject to one qualification, acts against a third party count as unlawful only if they are actionable by that third party. The qualification is that they will also be unlawful means if the only reason why they are not actionable is because the third party has suffered no loss.

In other words, if A commits an act upon B that causes harm to C, C can only sue A for intentional interference with economic relations if the act would have been independently actionable by B. The OBG decision was not raised at trial, introducing “an element of awkwardness” for the appellate counsel.

The New Brunswick Court of Appeal observed that Canadian jurisprudence on the subject, until recently, was “unhelpful”. Formulations such as “not at liberty to commit” or “not authorized by law” or “an act without lawful justification” do not provide courts sufficient guidance and, in the words of the Court of Appeal, “fail for vagueness.”

The Court turned to the recent Ontario Court of Appeal decision in Alleslev-Krofchak v. Valcom Ltd., leave to appeal to S.C.C. refused, which adopted a narrow definition of the “unlawful means” element. The New Brunswick Court of Appeal noted the nearly-simultaneous decision of the Ontario Court of Appeal in Barber v. Molson Sport & Entertainment Inc., which appears to contradict the Valcom finding. Without any explanation, the New Brunswick Court of Appeal dismissed the significance of Molson, stating that it regards Valcom as reflecting the law of Ontario.

Having adopted the narrow definition of the “unlawful means” element, the Court of Appeal nevertheless observed that “the Supreme court of Canada typically eschews the formulation of rules or frameworks which do not admit exceptions.” The Court held that the present case merited an exception to the rule that conduct must be independently actionable by the third party in order to constitute “unlawful means.” It held that while the conduct of A.I. Enterprises and Mr. Schelew was not actionable, it nevertheless was “akin to the tort of abuse of process” and constituted “improper use of the civil litigation process.” Thus, despite not strictly falling within the definition of “unlawful means” in OBG or Valcom, the New Brunswick Court of Appeal held that A.I. Enterprises’ and Mr. Schelew’s conduct merited the imposition of liability in tort of intentional interference with contractual relations.

Potential Significance

As stated above, the law in this area is in flux in Canada. In Ontario alone, two nearly-simultaneous contradictory decisions were issued by the Court of Appeal in 2010. In Valcom, the Court adopted the narrow definition of “unlawful means,” restricting it to actionable wrongs. However, in Molson, a different panel of the same court (one judge sat on both panels) adopted the broad definition adopted in the earlier case of Reach M.D. Inc. v. Pharmaceutical Manufacturers Assn. of Canada, where the “unlawful means” requirement was defined to encompass any act that “the defendant is not at liberty to commit – in other words, an act without legal justification.”

Adding to the confusion arising from the apparent contradiction among the two appellate decisions on this topic, the Ontario Court of Appeal in Agribrands Purina Canada Inc. v. Kasamekas stated:

What is clear from … jurisprudence is that, to constitute unlawful conduct for the purposes of the tort of intentional interference, the conduct must be actionable. It must be wrong in law. Conduct that is merely not authorized by a convention or an understanding is not enough.

The difficulty is that, as the Court itself observed, this holding was in obiter, in a case involving unlawful means conspiracy, rather than intentional interference with economic relations or intentional interference with contractual relations. As the Court notes,

[r]eliance on the tort of intentional interference to supply the definition of ‘unlawful conduct’ for the tort of civil conspiracy does not recognize that these two economic torts have evolved separately, and thus each have developed their own concept of unlawful conduct.

It would be desirable, therefore, if the Supreme Court clarifies the conflict between the various decisions on this topic and endorses the narrow definition of the “unlawful means” element stated in Valcom. Indeed, any other definition would punish conduct that would otherwise not attract liability simply because it is affected through a third party. The entire purpose of the torts of intentional interference with economic relations and intentional interference with contractual relations is to circumvent the rigid privity requirements which would prevent injured parties from vindicating their rights simply because the tortuous conduct was not effected directly upon them. These torts are meant to “fill the gap” in cases where “the only persons who might have a valid claim have suffered no loss, and the only person who has suffered a loss … has no claim.” (See J.W. Neyers, “Rights-based Justifications for the Tort of Unlawful Interference with Economic Relations” (2008), 28 Journal of Legal Studies 215). They cannot become an instrument to assert claims that would otherwise disclose no cause of action simply because the actions complained of were inflicted through a third party.

Our lawyers have written extensively about these torts. See, in particular, Brandon Kain and Anthony Alexander, “The ‘Unlawful Means’ Element of the Economic Torts: Does a Coherent Approach Lie Beyond Reach?”, in Todd L. Archibald and Randall Scott Echlin, eds., Annual Review of Civil Litigation, 2010 (Toronto: Thomson Carswell, 2010) 33 and Ron Podolny, “The Tort of Intentional Interference with Economic Relations: Is Clarity Out of Reach?” 52 Canadian Business Law Journal 63 (2012).

Case Information

A.I. Enterprises Ltd. et al. v. Bram Enterprises Ltd. et al. (N.B.)

SCC Court File No. 34683

Date of Decision: October 25, 2012