The tort of interference with business and contracts/tort of inducement to breach a contract

The tort of interference with business and contracts and the tort of inducing a breach of contract are (relatively) new torts. In Loh Holdings v Peglin Development [1984] 2 MLJ 105, the Federal Court applied Greig v Insole [1978] 1 WLR 302 and outlined the 5-stage requirement: 

Learned counsel for the appellant referred us to Greig v Insole [1978] 1 WLR 302 332 340 a passage in which, he submits summarises the law regarding the tort of inducement to breach of contract. 

“At common law it constitutes a tort for a third person deliberately to interfere in the execution of a valid contract which has been concluded between two or more other parties, if five conditions are fulfilled: 

First. there must be (a) “direct” interference or (b) “indirect” interference coupled with the use of unlawful means; see per Lord Denning M.R. in Torquay Hotel Company Ltd v Cousins [1969] 2 Ch 106 138. 

As to the meaning of “interference” this is not confined to the actual procurement or inducement of a breach of contract: it can cover a case where the third person prevents or hinders one party from performing his duties even though this be not a breach. 

Secondly, the defendant must be shown to have knowledge of the relevant contract. 

Thirdly, he must be shown to have had the intent to interfere with it. 

Fourthly, in bringing an action, other than a quia timet action the plaintiff must show that he has suffered special damage, that is more than nominal damage; see Rookes v Barnard [1964] AC 1129 1212, per Lord Devlin. 

In any quia timet action, the plaintiff must show the likelihood of damage to him resulting if the act of interference is successful; Emerald Construction Company Limited v Lowthian [1966] 1 WLR 691 703, per Diplock L.J. 

Fifthly, so far as it is necessary the plaintiff must successfully rebut any defence based on justification which the defendant may put forward.” 

Refer also: MRA International v SPC Diatech [2021] MLJU 1052 

Unlawful means

As a general rule, the person causing such inducement must utilise “unlawful means”. However, “unlawful means” has a rather wide import. In Leong Nyuk Len v Herbalink [2001] MLJU 487, the High Court observed that many categories of conduct may fall under “unlawful means”: 

As to what constitutes ‘unlawful means’ in the contextof this tort is also of interest. It has been expressed that since ‘the four species of tortious liability, intimidation, indirect procurement of breach of contract, conspiracy to use unlawful means, and unlawful interference, alldepend upon proof of an illegal or unlawful act threatened or employed by the defendant, it would make for brevity, logic and elegance in the principle could be stated that the definition of “illegal” or “unlawful” was the same under thefour rubrics. The reason for the requirement is clearly the same in all four cases, namely, the maintenance of the right to take lawful action by way of trade competition or in pursuit of industrial objectives and the like, in defence of legitimate interestsin present society. Unhappily, no such clear principle emerges from the authorities.’ (see: Clerk and Lindsell on Torts (supra) at para 23-61). 

Be that as it may be the instances that were held to be ‘unlawful means’ included assisting an associated company in defying an injunction granted to a plaintiff against that company to restrain a breach of contract, procuring or inducing another person to break his contract by way of direct or indirect interference, breach of an implied covenant (see: Loh Holdings Sdn Bhd v Peglin Development Sdn Bhd & Anor (supra), tortious conduct such as the perpetration of fraudor fraudulent misstatement, wrongful acts in the course of administration of the affairs of a company, breach of fiduciary obligations and to some extent breaches of statutes and inducing a person to act in contravention of statutes. 

A vivid illustration of the tort in practice 

An excellent example of the tort being put into practice may be seen at Xin Xin Engineering v Fukuyama Automation [2016] 9 MLJ 217. Here, Hadhariah J (presiding JCA) observed as follows: 

[21]  In the instant case, the first defendant had used the second plaintiff’s operation manual and certificate of warranty against the plaintiffs to obtain an interlocutory injunction and interfere with the plaintiffs’ business. The first defendant’s purpose is to cause harm and hardship to the very owner of the copyright and to make profit for themselves. This is not a lawful purpose. The first defendant also did not disclose the true author of the operation manual when they cancelled the second plaintiff’s name. In addition to that, the first defendant also had not obtained the consent from the second plaintiff. There was a blatant disregard of the second plaintiff’s ownership to the operation manual and certificate of warranty. It is without doubt that none of the conditions is satisfied. As such, I hold the first defendant cannot claim protection under s 13(2)(l). That section is not applicable in this case. DW3 agree that the first defendant issue its own operation manual to their customer whenever they sell their glove stripping machine. If this is true, then the first defendant should be able to produce them in court. But, the first defendant choose not to produce them. Hence, there is a real doubt whether the first defendant had their own operation manual. In the situation the first defendant put themselves in, I invoke s 114(g) of the Evidence Act 1950 against the first defendant in that if the operation manual is produced, it is the infringed copy. Taking into account all these facts finding into consideration, I conclude that the plaintiffs have proved to the satisfaction of this court that the fourth, fifth, sixth, seventh and eighth defendant had copied and infringed the second plaintiff’s operation manual and certificate of warranty as pleaded in the statement of claim. Consequently, they are liable to the plaintiffs.

Her Ladyship proceeded to grant almost all the reliefs prayed-for by the Plaintiff, with exemplary damages of RM250,000 being granted alongside costs.

Conclusion 

Every case turns on its own facts. In most cases, it will be facts and the evidence that can be lead which leads to a successful outcome.

GAVIN JAYAPAL

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