Tortious Interference (What It Is, Definition And Elements In Law)

What is tortious interference?

What are the elements you need to prove?

What happens if someone interferese with your contract or business relationship?

We will look at what it means, its legal definition, what constitutes wrongful interference, what elements you need to prove, interference with contracts, interference with business relationship, compare it with lawful competition, look at examples and more.

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What is tortious interference

A person or entity commits tortious interference when he or she intentionally disrupts, obstructs or harms another’s contractual relationship or business relationship with a third party.

In other words, when a person acts in a deliberate way as to cause harm to another person’s contractual relationship or business relationship, that person can be held liable for the injuries caused.

Tortious interference (wrongful interference, contractual interference or economic interference) is a legal theory in tort law developed in common law jurisdictions.

Although the law recognizes that individuals and businesses are free to compete under the privilege of free competition, you will be in the presence of tortious interference when a person’s actions are blameworthy, unlawful or illegitimate competition.

Most of the time, the following conduct, behaviour or actions underpin tortious interference lawsuits:

  • Violence
  • Misrepresentation
  • Intimidation 
  • Obstruction
  • Coercion 
  • Disruption 
  • Unethical behaviour
  • Unlawful dealings
  • Abusive litigation 
  • Disparagement
  • Defamation 
  • Libel 
  • Slander 

While breach of contract claims are only possible between contracting parties, when a third party causes the breach of contract or is responsible for it, then the legal theory of tortious interference should be considered to seen compensatory damages against the third party.

The legal theory of tortious interference allows a plaintiff to recover damages from a defendant having intentionally caused economic damages by causing contractual interference or business interference.

Tortious interference definition

To define tortious interference, let’s first define tortious.

Tortious, in civil law, is an act that causes harm to someone.

Then, according to Cornell Law School’s Legal Information Institute, tortious interference is defined as:

Tortious interference is a common law tort allowing a claim for damages against a defendant who wrongfully interferes with the plaintiff’s contractual or business relationships.
Author

What is notable with this definition of tortious interference is that it is a common law doctrine where someone who tortiously interferes with another’s contractual or business relationships will be held liable for damages caused.

To say tortious interference is to say:

  • Malicious interference
  • Wrongful interference 
  • Intentional interference 

Types of tortious interference 

Tortious interference with contract

Tortious interference with contracts or tortious inducement of breach of contract occurs when:

  • A person induces another person to breach a contract with a third party
  • A person deliberately interferes with another person’s ability to execute his or her obligations under a contract with a third party

This is the most common form of interference claims litigated in court.

Typically, the person interfering with the contract (or the tortfeasor) may use malicious tactics such as blackmail, threats, illegitimate political influence, abuse, causes obstruction or in any other way as to cause harm to another’s contractual relationship with a third party.

When you are in the presence of wrongful interference with contractual relationship cases and the tortfeasor was aware of the existence of the contract with the third party, we refer to that as a tortious inducement of breach of contract.

Wrongful interference with business relationships

Tortious interference with business relationships or tortious interference with business expectancy occurs when:

  • A person acts in a deliberate way to prevent another person from building or developing a business relationship with a third party
  • A person acts in a deliberate way as to cause harm to an existing business relationship a person may have with a third party

For instance, a company may interfere with the sale of business between a competitor and a third party to prevent the conclusion of the contract or to induce the third party not to deal with the competitor.

Tortious interference with employment

Tortious interference with employment happens when a person, who is not a party to an employment contract, interferes in such a way as to cause damage to employment relationship or contract. 

Tortious interference with employment can take any of the following forms:

  • Causing the employment contract to be terminated
  • Causing employment-related complaints
  • Denigrating a person’s abilities or work performance
  • Threats to resign 

Negligent tortious interference 

In some jurisdictions, the tort of negligent interference may be an acceptable cause of action.

Negligent tortious interference is when a person’s negligent acts or omissions result in damages to another’s contractual dealings or business relationships.

Tortious interference claims

Depending on your jurisdiction, there may be two broad types of tortious interference claims possible, such as: 

  • Tortious interference with prospective economic advantage (could be intentional or negligent)
  • Tortious interference with contract or interference with contractual relations (could also be a claim for inducing breach of contract)

Let’s look at important factors when dealing with either of these tortious interference actions.

Plaintiff

There are two possible types of plaintiffs in a tortious interference lawsuit:

  • The person who was forced to breach a contract
  • The person who lost the benefit of a contract due to the other contracting party being induced to breach it

In tort law, both types of victims can pursue the defendant or person having wrongfully interfered with the contract.

Economic expectancy 

Tortious interference with prospective economic advantage occurs when a party interferes with another party’s business relationship or an expected business transaction.

In this case, the plaintiff must be able to demonstrate a real business transaction and a certain possible outcome or economic expectancy.

Contract existence 

Tortious interference with contract occurs when one party induces a breach of contract between two other parties or prevents another party from performing contractual obligations in favour of a third party.

If no contract existed to start with, this specific claim can be dismissed.

The plaintiff must establish a valid contract in force and effect without which the tortious interference claim can be jeopardized. 

Intention and negligence 

The tort claim of interference can be either based on intentional or negligent actions or omissions.

When the claim is based on an intentional act, the plaintiff must prove that the defendant intended to cause damages or was aware that his or her actions would harm the plaintiff.

There must be actual malice in the defendant’s actions.

In other words, a desire to cause harm.

When the claim is based on negligence, the plaintiff must prove that the defendant owed the plaintiff duty of care and he or she breached the said duty causing harm to the plaintiff.

Improper interference 

Legitimate competition, even aggressive, should be nuanced from improper interference. 

A defendant is considered to be tortiously interfering with the plaintiff’s contract or business relationship with his or her actions were malicious, unlawful, unethical, in bad faith, abusive and excessive.

When the boundaries of fair competition are exceeded, the courts can consider that the defendant has tortiously interfered with a contract or relationship.

Privilege defenses

A defendant party in a tort of interference lawsuit can present privilege defenses such as:

  • The defendant had a substantial business interest to protect
  • The defendant’s actions were objectively reasonable and in good faith
  • The defendant did not employ deceptive or improper behaviour in the circumstances
  • The defendant had a good faith and reasonable belief that its interests were being harmed and needed to take protective measures 

Company directors and officers can also invoke qualified privilege as defense against potential liability arising out of alleged tortious interference actions or breach of fiduciary duty.

When courts see that company directors and officers exercised rational business judgment, based on the business judgment rule, the courts are reluctant to interfere with business decisions after the fact.

Tortious interference elements

Intentional interference with prospective economic advantage

The tortious interference elements to prove an intentional interference with prospective economic advantage are typically the following:

  • The existence of an economic relationship between the plaintiff and a third party
  • The defendant’s actual knowledge of the plaintiff’s economic relationship 
  • The defendant’s wrongful conduct or interference 
  • The defendant’s intention to cause harm to the plaintiff’s economic relationship or the defendant’s knowledge that his or her actions could cause harm to the plaintiff
  • The damages to the plaintiff 
  • The causal link between the defendant’s wrongful conduct and damages suffered by the plaintiff

To prove tortious interference with prospective economic advantage may not be easy in court as you must prove that the “economic advantage” was realistic and concrete as opposed to uncertain or hypothetical.

Negligent interference with prospective economic advantage

In California, you can pursue a defendant for negligent interference with prospective economic advantage.

The elements of negligent tortious interference to prove in court are typically the following:

  • The existence of an economic relationship between the plaintiff and a third party
  • The defendant knew or should have known of the plaintiff’s economic relationship 
  • The defendant knew or should have known that without reasonable care the plaintiff’s economic relationship could be disrupted 
  • The defendant’s duty of care 
  • The defendant’s breach of duty of care 
  • The damages to the plaintiff 
  • The causal link between the defendant’s wrongful conduct and damages suffered by the plaintiff

Intentional interference with contractual relations

The elements of intentional tortious interference with contractual relations to prove in court are typically the following:

  • The existence of a contract between the plaintiff and a third party
  • The defendant’s knowledge of the existence of this contract
  • The defendant’s intentional interference to prevent the plaintiff to contract or perform his or her contractual obligations 
  • The defendant’s lack of privilege to induce the third party to breach contract
  • Damages caused to the plaintiff 
  • Causality between the defendant’s interference and the harm to the plaintiff 

Negligent interference with contractual relations 

In California, negligent interference with contractual relations claims do not exist.

You will need to assess whether you can pursue a defendant on the basis of negligent interference with contractual relations in your jurisdiction.

Inducing breach of contract

The elements to prove when filing a lawsuit for inducing breach of contract are similar to the tortious interference with contractual relationships except for some minor differences:

  • The existence of a contract between the plaintiff and a third party
  • The defendant’s knowledge of the existence of this contract
  • The defendant’s intentional interference to prevent the plaintiff to contract or perform his or her contractual obligations 
  • The defendant’s lack of privilege to induce the third party to breach contract
  • The defendant’s conduct caused the breach of contract between the plaintiff and the third party 
  • Damages caused to the plaintiff 
  • Causality between the defendant’s interference and the harm to the plaintiff 

Tortious interference vs legitimate competition

When presented with a tortious interference lawsuit, the court will exercise care in differentiating free and legitimate competition from malicious and wrongful interference.

It is generally accepted that businesses are free to compete and legitimately fight for the business of the same client.

However, if a party acts in bad faith and tortiously interferes with a competitor’s business relationship or contractual relationship, they can be held accountable for the damages that may be caused.

The following conduct may lead to tortious interference claims:

  • Falsely defaming a product or service 
  • Falsely disparaging a product or service
  • Filing unfounded lawsuits
  • Unfair competitive conduct 
  • Violation of antitrust laws

On the other hand, the following conduct may not lead to successful tortious interference actions:

  • Aggressive but legal competition without malicious intention
  • Discontinuing a product or service causing harm to another but without malice of any kind
  • Competitively positioning the competitor’s products or services as inferior products without the intention of causing specific harm to the competitor 

Tortious interference cases

The most notable case related to tortious interference with prospective economic advantage relates to the Pennzoil lawsuit against Texaco in 1984.

On November 19, 1985, a Texas jury awarded Pennzoil the sum of $10.53 billion in damages noting that Texaco illegally interfered with an “agreement in principle” reached between Pennzoil and Getty Oil where Pennzoil would purchase some of its shares.

Although the parties only had an agreement in principle and had not signed an actual contract, Texaco moved in and induced Getty Oil to sell its shares to Texaco instead.

Getty Oil eventually did business with Texaco in breach of the pre-contractual understanding it had with Pennzoil.

Texaco claimed that it moved to acquire Getty Oil in a legal way as Pennzoil did not have a formally binding agreement with them. 

However, the jurors indicated that they wanted to ensure they send a clear message to Texaco and others who behave improperly and cause tortious interference in the business relationship of others in a deliberate and calculated way. 

This case illustrated how the U.S. courts punish those who behave in such a way as to cause harm through tortious behaviour.

Tortious interference examples

Example 1: Tortious interference of business

Company A finds out that its competitor, Company B, is in the process of acquiring a company (Target) solidifying its position in the market.

Before Company B has the ability to close the transaction, Company A engages with Target,  intentionally denigrates Company B and induces Target to abandon the negotiations and deal with Company A instead.

In this example, Company A interferes with the prospective business relationship Company B had with the Target.

Example 2: Tortious interference of contract

Company A has a contract with Company B for the supply of certain goods.

Company C intentionally and illegally causes obstruction preventing Company A to fulfill its contractual obligation in favour of Company B.

Company B terminates the contract alleging Company A breached its contractual obligations.

Company C then engages with Company B and offers to supply it with the same goods as Company A.

In this example, Company C deliberately interfered with Company A’s contract leading to its termination for breach causing damages to Company A.

Tortious interference FAQ

Tortious Interference FAQ

How do you prove tortious interference

The most common form of tortious interference claim is related to the interference with a contract.

To prove tortious interference of contract, you typically need to prove:

  • The existence of a contract between the plaintiff and a third party
  • The defendant’s knowledge of the existence of this contract
  • The defendant’s intentional interference to prevent the plaintiff from performing his or her contractual obligations 
  • The defendant’s lack of privilege to induce the third party to breach contract
  • Damages caused to the plaintiff 
  • Causality between the defendant’s interference and the harm to the plaintiff 

What constitutes tortious interference

There are many types of actions or conduct that can be qualified as improper.

In most cases, the defendant’s conduct was illegal, unethical, in bad faith, malicious or strictly intended to cause harm to the plaintiff.

Among many variables, the courts may also evaluate the defendant’s conduct by assessing:

  • The motive behind the conduct
  • Each party’s objective and legitimate interests
  • Social interests such as freedom of action or free competition
  • The past relationship of the parties
  • The magnitude or extent of damages

Is tortious interference illegal

Tortious interference is a legal theory allowing a party to pursue another for damages caused resulting from illegal interference with an existing contract or business relationship. 

Everyone is free to compete and to attract the competitor’s clients.

However, when a person’s conduct becomes tortious, deliberately malicious and specifically intended to cause harm (and not compete), the conduct can be qualified as tortious interference.

The tortious interference act in a civil court can lead to the defendant being liable to compensate the plaintiff for damages suffered as a result of the said interference. 

However, if a company or defendant’s conduct involved fraud, violence, threats or coercion, the matter may be tried criminally.

What are the requirements for the tort of wrongful interference with a contractual relationship

The legal requirements for the tort of wrongful interference with a contractual relationship are the following:

  • The existence of a contract between the plaintiff and a third party
  • The defendant’s knowledge of the existence of this contract
  • The defendant’s intentional interference 
  • Damages caused to the plaintiff 
  • Causality between the defendant’s interference and the harm to the plaintiff 

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