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Using a Claim for Interference with Contractual Relations as a
Means of Retaining Customers: How Effective is it and What are
the Risks?
Lisa Goldacre, School of Business Law, Curtin University of Technology, Western
Australia*
ABSTRACT
In a competitive market, traders may seek to enforce their legal rights in an attempt to retain customers and
ultimately market share. One vigorous approach is to threaten a competitor with a claim in tort for interference
with contractual relations should the competitor be successful in its attempts to persuade a customer to switch
patronage. This paper considers the law as it applies in Australia in situations where customers are bound by a
current ‘all requirements’ contract for supply of goods for a fixed term with no provision for early termination.
This paper outlines the elements required to successfully make out a claim for interference with contractual
relations as developed since Lumley v Gye (1853) 2 El & Bl 216; 118 ER 749 and explains the available
remedies. Consideration is given to the commercial usefulness of pursuing such a claim in circumstances where
the claim in the first instance usually lies against the customer for breach of contract. Finally, the use of this
cause of action as a means of retaining customers and the interaction with competition and consumer protection
legislation, in Australia the Trade Practices Act 1974 (Cth), is examined. Aspects of this paper will have
resonance in other common law countries, particularly those with similar legislation.
Introduction
Increasingly, the tort of intentional interference with contractual relations is making an
appearance as part of commercial strategy to retain, perhaps even increase, market share.
The use of such a claim has emerged in a range of commercial situations that sit outside the
traditional Lumley v Gye1 scenario of inducing a breach of contract that is for personal
services.
This paper considers the law as it applies in Australia in situations where customers are
bound by a current “all requirements” contract for the supply of goods or services for a fixed
term with no provision for early termination. Typically, a customer, in breach of its all
requirements fixed term contract, switches patronage to a competitor. The competitor is then
met with a claim for intentional interference with contractual relations by the original
supplier/contracting business. The desired outcome is that the competitor, when faced with
the threat of litigation will no longer wish to do business with the customer or is injuncted
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from doing the same. Claims in these circumstances have been made in industries as varied
as the provision of maintenance services to the owners of lifts, the manufacture and supply of
nailplates in the roof truss industry, the promotion of subscriptions for debentures, disputes
regarding the provision of products such as petrol and gas and the provision of auditing
services regarding the distribution of films.2
This paper considers what must be established to successfully claim that a competitor has
interfered with contractual relations with customers in a manner that establishes liability for
any loss suffered as a result of the subsequent breach of contract. Distinctions are often made
between direct and indirect interferences with contractual relations.3
This paper does not
consider liability in circumstances where there is an indirect interference with a contract in
the sense of a secondary boycott that is typical in industrial or employment disputes.4
Only
acts of interference resulting in a procurement of a breach of contract causing loss in
circumstances where the acts of interference are direct are considered. This is where the
procurer deals with the customer-contract-breaker first hand, rather than influencing a third
party in an attempt to procure the breach of contract. The paper is so confined because this
conduct of the competitor, if proven, is then unlawful. An act amounting to an indirect
interference giving rise to a claim for this tort must of itself be unlawful.5
Interference with potential contractual arrangements, including renewals are also not
considered. This would encompass a situation where the competitor has persuaded a
customer not to renew or take up a first offer. In this scenario, the customer is contractually
free to make arrangements with a competitor. 6
Thus, the focal point is a claim for direct interference with contractual relations. It is
submitted that in the normal hurly burly of competition many market players, either
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newcomers or more ambitious or aggressive players, may not see their solicitation methods or
‘marketing techniques’ as potentially unlawful acts, for which they may be liable for any loss
suffered by a competitor as a result. As will be discussed, in determining the elements of this
tort, the courts seek to achieve a balance between the effective operation of competition in the
market, which includes a rejection of the notion that a business somehow ‘owns’ customers
and acts that interfere with another’s legal rights so as to amount to unlawful conduct. There
are significant difficulties with the provision of evidence in this regard.
This paper outlines the elements required to successfully make out a claim for interference
with contractual relations as developed since Lumley v Gye (1853) 2 El & Bl 216; 118 ER
749 and explains the available remedies. Consideration is given to the commercial usefulness
of pursuing such a claim in circumstances where the claim in the first instance usually lies
against the customer for breach of contract. Finally, the use of this cause of action as a means
of retaining customers and the interaction with competition and consumer protection
legislation, in Australia the Trade Practices Act 1974 (Cth), is examined. Aspects of this
paper will have resonance in other common law countries, particularly those with similar
legislation.
Elements of the action in the tort of interference with contractual relations
The elements of the tort of interference with contractual relations are well known and remain
substantially unchanged from those set out in Lumley v Gye in 1853, notwithstanding the
significant changes in commercial practice since that time. Halsbury’s Laws of Australia
defines the tort of interference with contractual relations as occurring where:
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…a person knowingly and intentionally interferes with contractual relations or the
contractual rights of the complainant, thereby causing damage to that person, where
there is no sufficient justification for that interference.7
Therefore there must be:
1. A valid existing contract;
2. Intention (of which knowledge is a part);
3. An act of inducement which causes the loss complained of;
4. The absence of any legal justification.
The difficulties encountered in establishing the elements in relation to this tort are discussed
in turn below. Consideration is then given to the risks a business is exposed to by pursuing a
competitor for interference with contractual relations in an attempt to retain market share.
1.
A valid existing contract
Exclusive or all requirements contracts usually arise because the supply of the good or
service requires a substantial investment of capital by the provider of the good or service to
enable the supply, for example cylinders that allow for the delivery of LPG to a site. The
equipment is generally provided at minimal cost to secure the business. In order to make
such arrangements profitable, the supply of the good or service is “locked in” for a period,
requiring the customer to take all of its requirements of that particular product/service from
that business.8 Therefore, the non-performance of this type of contract by a customer has the
potential consequence of not just lost profits, but also out of pocket expenses because of the
investment made with the customer in relation to the expenditure of capital for the installation
of equipment or use of the company’s intellectual property and/or personnel.
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The contract must be a valid binding contract, not simply an expectation or hope of such an
agreement. In the case of Film Financial Consultants Ltd v Becker Group Ltd 9(“Film
Financial”) Film Financial was engaged as an independent film distribution auditor for films
to be distributed in Australia. In general, motion pictures are distributed pursuant to a Head
Distribution Licence entered into between producers of the motion picture and a worldwide
distributor in Australia (“the principal distributors”). Becker Group was a sub-distributor of
films. It was a requirement of being appointed sub-distributor that the sub-distributor undergo
an audit regarding the distribution of the films. Film Financial claimed it was appointed
under the terms of a contract with the principal distributors to audit various movies to be
distributed by Becker Group. A dispute arose between Becker Group and Film Financial.
Becker Group eventually refused access to their premises and records to Film Financial as
auditor and told the principal distributors that they would not accept Film Financial, in
particular its principal consultant, as auditor on any future films.
Film Financial claimed damages for, amongst other things interference by Becker Group with
the auditing contract between the principal distributors and Film Financial so as to cause a
breach. Part of the difficulty faced by the court was that there was significant doubt as to
whether there was a valid existing contract for Film Financial to audit Becker Group in
relation to the various movies. It was accepted by the Court that the evidence showed in
relation to all but one film the arrangements were tentative only and could have been varied
by the principal distributor at any time.
10
In relation to these films, as there was no binding
arrangement there was no actionable interference.
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It is also clear that there must be a breach of the contract. That is, after all, the loss caused by
the interference.11 It is accepted that it is not a tortious act to induce a person to lawfully
terminate a contract.12 Similarly, if the contract is void there can be no claim for intentional
interference, as a breach of such a contract is not possible13. If a party seeks to rely on the fact
that there is no liability for interference with contractual relations on this ground they need to
be able to show that this was an honest belief reasonably held. For example, that they
received legal advice to that effect.14 This is also relevant when determining a defendants’
intention, as discussed further below.
The other issue that arises in a practical sense is that the claimant must be certain its business
has not waived its right to sue the customer for a breach of contract. It can be potentially
fatal to a claim for interference with contractual relations if it can be shown that there is an
express or implied acceptance of the customer’s repudiation of the contract. This could occur
quite easily in larger organisations. For example, a customer may write, email or telephone
someone within the organisation who, without proper understanding of the nature of the
contract indicates their disappointment the customer is leaving the organisation but does not
specify the company will enforce its rights in relation to any non-performance of the contract.
Another possible scenario is where the customer is in credit on their account in relation to the
supply of the goods or services and the credit department, upon notification from the
customer that they have ceased to take supply of the goods or services issues a refund. It is
arguable in both these circumstances that the claimant business has accepted the repudiation,
or conducted itself in a manner to indicate its acceptance of the customer's repudiation.
Given the requirement that there must be a valid existing contract it follows that no tort can
be committed if there is no longer in existence a binding contract due the acceptance of the
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customer’s repudiation. The customer is then contractually free to make arrangements with a
competitor.
2.
Intention (of which knowledge is a part)
A review of the authorities disclose significant discussion in relation to the concept of what is
meant by a defendant having the requisite intention to interfere with the contract. The older
cases often treat the concepts of determining a defendant’s intention to interfere and
knowledge of the contract as two separate elements to be proven by the plaintiff.15 However,
it is clear, in Australia at least, that to speak of a defendant's intention to interfere with
contractual relations necessarily involves the defendant having knowledge of the contract.16
What remains contentious is the extent of constructive knowledge sufficient to sustain an
allegation the defendant had knowledge of the contract so as to intend interference with the
same.
In an oft-quoted passage from Allstate Life Insurance Co v Australia and New Zealand
Banking Group Ltd l17 Lindgren J states:
Linguistic confusion can arise in respect of the alleged tortfeasor’s state of mind with
respect to breach of the contract. Both “intention” and “knowledge” have been used in
this context. But a person’s “knowledge” that what he is inducing will constitute a
breach of contract and his “intention” to induce the breach of contract by what he is
doing refer to one and the same thing.18
Justice Lindgren reviewed the Australian authorities on this issue and went on to say:
… the gravamen of the tort is intention. Although the requirement of knowledge of the
contract is sometimes discussed as if it were a separate ingredient of the tort, it is in
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fact an aspect of intention.
ISBN : 978-0-9742114-7-3
The requirement that the alleged tortfeasor have
“sufficient knowledge of contract” is a requirement he have sufficient knowledge to
ground an intention to interfere with contractual rights … although an alleged
tortfeasor must have “a fairly good idea” that the contract benefits another in the
relevant respect, knowledge of the contract may be sufficient for the purpose of
grounding the necessary intention to interfere with contractual rights although the
precise term breached is not known.(Emphasis supplied).19
Therefore, there can be no intention to interfere with the contract without knowledge of the
contract.20 The defendant’s knowledge is assessed at the time it acts to procure a breach, not
knowledge that is acquired with the benefit of hindsight.21 As noted above, if it can be shown
that the alleged procurer honestly and reasonably believed that the contract in question is
invalid, there can be no intention to interfere.22
The question then arises as to whether the defendant must have been aware of the precise
terms of the contract.
It would appear that knowledge of the precise terms is not a
requirement.23 In Fight Vision Pty Ltd v Onisforou24 the New South Wales Court of Appeal
stated the position thus:
The plaintiff must prove that the defendant intentionally procured the breach. The
requirement that the defendant had sufficient knowledge of the contract is a
requirement that he had sufficient knowledge to ground an intention to interfere with
the contractual rights. Ignorance of the existence of the contract of its terms born of the
inadvertence or negligence is not enough. On the other hand, reckless indifference or
wilful blindness to the truth may lead to a finding of the necessary intention.25
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Whilst the defendant’s actual or subjective knowledge of the contract is relevant, clearly
constructive knowledge will be sufficient to ground an intention to interfere with contractual
rights in some circumstances. The question is therefore what constitutes such knowledge.
Even without industrial espionage or recruitment of former employees, most successful
players in competitive markets are very aware of typical, or even particular arrangements that
may be in place within their industry. Ironically, this ‘common knowledge’, which makes a
business competitive in a tight market, may in turn increase the risk of being liable for the tort
of intentional interference with contractual relations. The following cases are illustrative in
this regard.
The degree of knowledge required was considered by Pincus J in Schindler Lifts Australia
Pty Ltd & The Debelak & Others26 (‘Schindler”). After a review of the authorities and
commentators on this point, Pincus J restated that knowledge of the actual terms of the
contract was not a requirement. He referred to the case of D C Thompson & Co Limited v.
Deakin [1952] Ch 646 at 687 as “the high water mark (for the) line of authority… that
common knowledge about the way business is conducted” might be enough to establish
knowledge”.27
In the Schindler case, the applicant was the Swiss based lift group Schindler. Schindler had
purchased a family company Precision, which installed and maintained lifts. The respondents
were previous directors of Precision. After some time they set up a business, Liftronic in
competition with Schindler. Key managers and employees left Schindler and went to work
for Liftronic. Schindler complained that Liftronic were soliciting their customers in a manner
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that amounted to an intentional interference with contractual relations such that they should
be liable for any loss caused as a result of that interference.
In considering whether the defendant had the requisite intention, Pincus J specifically
considered whether knowledge that is ether well known in the industry, or obvious by
circumstance, was sufficient to establish this tort.
Pincus J noted that negligence was
insufficient and also rejected the proposition that the simple fact a business is in receipt of
goods or services on a regular basis of itself demonstrates the existence (and therefore
knowledge) of a contract.28 Pincus J was of the view that this type of market behaviour does
not indicate with any certainty the existence of a continuing or fixed term all requirements
contract. The arrangements could simply be on an ad hoc basis.29
The decision in this case attempts to address some of the practical difficulties encountered
with the application of the principles laid down in Lumley v Gye to commercial contracts.
Businesses compete to get custom. Any notion that there is a proprietary right in customers
was expressly rejected. The issue to be proven is whether knowing or believing that contracts
were in existence, the defendant procured a breach.30 This is an important line to be drawn for
the commonsense operation of commerce, as pointed out by his Honour Pincus J at p295:
It seems to me that a problem which is undistinguishable in principle would arise if a
new lift maintenance company simply sent out letters soliciting the business of all the
lift proprietors in a city. It would be known to a new company that many – perhaps
most – would have existing maintenance contracts. If the attractiveness of the contract
offered were great enough, obviously some would be likely to cancel their existing
contracts or attempt to do so, and sign up with the new company.
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In my opinion, although some of the more recent English authorities might suggest that
such a general solicitation would be unlawful, the better view is that it would not be.
Surely a new maintenance company, attempting to break in, is not obliged when seeking
business to warn each prospective customer that it may be unlawful to rescind an
existing maintenance contract.31
His Honour was also of the view that the facts here (targeting existing customers) differed
little from a general solicitation scenario on the basis that “any lift owner is likely to have
some sort of existing maintenance arrangement, whether under a continuing contract or
otherwise.”32 On the evidence presented, the Court concluded that the respondents had done
no more that put forward an offer that was tempting. Some of the ‘temptee’s’ would in fact
have been able to terminate their contracts lawfully, others would have risked repudiating
their contracts. The Court found that this situation could not be distinguished from a general
solicitation. This was in essence because no evidence could be led in relation to an intentional
act of inducement – they did not want Schindler’s customers to cancel their contracts – they
wanted their business.33
In Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd34(“Multinail”) the Supreme Court of
Queensland considered the issue of intention to interfere with contractual relations in relation
to an all requirements contract. The plaintiff, Multinail, manufactured and sold nailplate to
roof truss fabricators. Nailplate holds the roof trusses together. This market is apparently
lucrative and highly competitive. There were three competitors for the production and supply
of nailplate in the Australian market. The market therefore had a small number of players.
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The production of roof trusses has substantial set up costs. A typical arrangement in this
market is for nailplate manufacturers to supply computer equipment, software and personnel
to assist with the fabrication and design process. Given the set up costs, the specificity of
programmes and equipment, fabricators typically remain with the same nailplate
manufacturer. Further, as there is significant investment expenditure by the nailplate
manufacturer, it is usual that there is an all requirements supply contract for a fixed term with
no provision for early termination.
In the early 1990’s Campbells Timber and Hardware (“Campbells”) entered into a number of
agreements with Multinail for the supply of nail plate to Campbells which were due to expire
at the end of 1995. The agreements were exclusive all requirements contracts, with no
provision for early termination. At some time in 1993 it became apparent that Campbells
required an upgrade of their equipment. Campbells approached suppliers in relation to
costings for new equipment only. The senior management of Pryda had in place a strategy to
acquire the totality of Campbells’ business and saw this as the perfect opportunity to
implement the same.
The supply of new equipment was not inconsistent with Multinail’s contractual relations with
Campbells, as long as Multinail continued to supply the nailplate to Campbells. Obviously
there would be no commercial incentive for Pryda to provide the equipment at a low cost
without securing an exclusive arrangement for the supply of nail plate for an extended period
of time.
There was significant evidence before the Court in relation to the manner in which proposals
regarding the price of equipment were exchanged during the tender process. Extraordinary
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evidence was provided to the court by way of a document entitled “a budget narrative”. In
this document the managing director of Pryda made it quite clear that Multinail’s market
share was increasing and there was a need to convert one of its larger fabricators. This
fabricator was Campbells.
Pryda’s knowledge of the contract was an essential element of establishing that Pryda had
intentionally procured a breach of the Campbell’s contract. The Court considered whether
Pryda’s knowledge of the contractual arrangements as inferred from knowledge common to
the industry was sufficient to ground intention. It is interesting to note that the Court refers
several times to the grape vine being in good working order and the gossip-ridden nature of
the (trade) …, which all participants encouraged.35
The court found that the officers and employees of the defendant undertook a deliberate
strategy to secure the business of Campbells such that it amounted to the tort of interference
with contractual relations.36 In the end, the court found on the evidence that the defendant
had actual knowledge of the agreement (because a copy had been sent by the plaintiff’s
solicitors). However, it was clear the Court was of the view that the arrangements between
parties (exclusive arrangements for a fixed period with no provision for early termination)
were so well known within the industry that there was no possibility that Pryda would have
been unaware of the nature of the contract between Multinail and Campbells and that this
would have been sufficient knowledge to ground intention.37
This seems in stark contrast to the reasoning of Pincus J in Schindlers case, where his
broader, some would say pragmatic view, would allow for the ‘conversion of a customer’ in
those circumstances – Pryda simply wanted Campbells business and took advantage of the
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opportunity presented by Campbell’s request for costings for equipment. The difference in
outcome can be attributed to the strength of the evidence led in relation to the directors and
officers knowledge of the contract and the actual act of inducement (as discussed below). The
evidence indicated that the directors were aware of the existence of a continuing or fixed term
all requirements contract. It wasn’t a case of Pryda simply wanting Campbells business –
they wanted Campbells to cancel its contract with Multinail.
It is clear that knowledge of competitors’ arrangements with their customers that is common
to an industry would be sufficient to ground a necessary intention to interfere with contractual
rights. It is clear a business cannot be excused on the grounds they did not know the actual
arrangements, or prevaricate about the extent of their understanding if evidence can be lead to
show information sharing in that marketplace. Even with the requisite knowledge, the act of
inducement that caused the breach must also be proven.
3.
Acts of inducement
A plaintiff must establish that the third party competitor’s inducement in fact causes the
customer to break its contract with the plaintiff. In the case of Short v The Citibank (1912)
12 SR (MSW) 186 Street J at page 202 said:
I think that a person complaining of a breach of contractual relations brought about by
these means must show that the person whose actions are complained of did something
in the nature of effectually dissuading or prevailing upon the other party to the contract
to violate his obligations under it. The persuasion may take the form of advice or
friendly solicitation, or it may take the form of intimidation or molestation, but in every
case I think it must be shown the defendant deliberately intervened between the
contracting parties either with the express desire of depriving the plaintiff of the benefit
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of his contract, or under such circumstances that he must have known that the effect of
his intervention would be to deprive the plaintiff of that benefit.38
It matters not whether the customer is irresolute in its commitment to the contract or
predisposed to breaking it.39 Whether there has been an act amounting to inducement is a
question of causation. However, on a commonsense approach to causation, a defendant may
be able to show that “inducing the breach of contract was not the cause of the loss because
the loss would have been suffered in any event”.40
The focus is therefore on the causal nature of the facts before the court rather than a semantic
dissection of the difference between the words persuasion, procurement and advice.41 It
appears from the above that the act of inducement need not be the sole reason why the
customer breached the contract. In accordance with the accepted rules regarding liability for
damages, the act of the defendant must cause the loss and the loss flowing from those acts,
here the breach of the contract, not be too remote.
Absent the discovery of incriminating internal memos, as in the Multinail case above, or
evidence of a competitors disgruntled former employees, gathering probative evidence to
demonstrate not just intention, but that the competitors conduct caused the customer to breach
the contract will be difficult. Even Erle J in Lumley v Guy was cognisant of this reality and
noted that this cause of action was not “easy of proof”. 42 In making a claim against a
competitor it should also be pointed out that it is unlikely an ex customer would be
cooperative and assist with the delivery of evidence of the interference, unless they had relied
on a misrepresentation by the competitor. As noted above in relation to Schindlers case it is
not enough to simply solicit customers, as this is how business is won on a daily basis. The
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evidence must disclose that the defendant intended the customer to cancel the contract and
acted in a manner that procured the cancellation.
There is also an obvious tension in the cases between, as a matter of policy and regard to
other tenets of the law, the desire to ensure that those within the market can compete freely
(subject of course to relevant competition legislation) and acts of interference with existing
contractual rights that give rise to an actionable claim. Indeed a businessperson might ask the
question “Why can't I make an offer to persuade someone to bring their business to me?”
“Why can’t I offer sufficiently good rates that the customer makes a commercial decision that
it is worth paying the damages that flow from the breach of the first contract?”
We have already seen that courts have rejected the notion of ownership of customers as a
general proposition. In Independent Oil Industries Limited v The Shell Company of
Australia43 Jordan CJ was of the view that the defendant oil companies in that matter were
perfectly entitled to sell or not sell their goods to the retailers as they chose. His Honour saw
the question as whether the conduct allegedly amounting to interference with contractual
relations afforded a temptation to break their contracts or was it an endeavour to procure a
breach. 44 In the Multinail case the Court found the inducer had crossed the line and procured
the breach because of an offer “too good to refuse”.45
In the Multi nail case there were three acts that procured the breach of contract. The three
factors were:
i) Extraordinarily generous terms of the offer.46
ii) An agreement to subsidise any damages the customer may be liable for as a result
of the breach of contract. 47
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iii) Misrepresentations made by the defendant during the course of negotiations with
the customer in order to procure the breach.48
The evidence in this case demonstrated a deliberate strategy by the defendant to acquire the
customer from the plaintiff and that this strategy had been implemented over a number of
years. It is interesting to note in determining that there had been no interference with
contractual relations in Independent Oil, Jordan CJ was of the view that the defendant’s act
was not part of a deliberate strategy to procure, without legal justification, a breach of
subsisting contracts49. It is not easy to reconcile the two cases other than to suggest that it is a
matter of degree to be assessed in all the circumstances.
The overwhelming theme consistent to all decisions as to whether or not the defendant has
committed the requisite act of inducement is a question of fact to be considered and
scrutinised by the court by which different minds may come to different conclusions.50 Any
deliberateness or implementation of a strategy targeted at a particular customer is likely to
come under scrutiny by the court.
4.
Are there any circumstances in which interfering with another's contractual
relations can be justified?
The defence of justification is available where the inducer acts to protect a superior right.
Superior rights capable of protection are those rights that are propriety in nature or arise
under legislation51. Interestingly, in the Film Financial case mentioned earlier, the court
made comments obiter (the tort of interference with contractual relations was not made out
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for other grounds) that the defence of justification would have been available in these
circumstances because the defendant had interfered with the contractual relations between the
plaintiff and the principal distributor to protect a superior right. The superior right in question
was the reputation of the business, which the court equated to goodwill. In refusing the
auditor permission to come onto the premises to inspect records the defendant Becker was
also protecting property rights, which were superior to mere contractual rights.
Remedies
In the event of non-performance of a contract, a commercial decision needs to be made
whether the claim in the first instance should be against the customer. Even though the claim
for damages for breach of contract lies in the first instance with the customer, pursuing the
customer for a breach of contract may not be seen as commercially viable or attractive, not
only because of damage to market share (in the sense that customer is lost) but also to
reputation in the market place. This is not a commercial decision that sustains a positive
reputation in market place. Potential customers may be wary of a company who sues its
customers and if the market is very competitive, customers may switch back and forth
between suppliers with regularity.
Second in terms of damages, it may be that not all losses following from the breach of the
contract (i.e. installation/capital costs) can be recovered from smaller customers. Therefore
commencing an action against a competitor for this tort appears more preferable than suing
the customer (contractor breaker) for obvious commercial reasons.
Are the remedies that flow from a finding of interference with contractual relations
commercially useful and easily available? It is usual to seek an injunction to prevent the
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competitor from dealing with the customer in the future. It is therefore extremely important
that any application for an injunction in relation to a claim for continuing interference with
contractual relations be made in a timely and expeditious manner.
In the case of HC Sleigh v Blight52 the plaintiff company applied for an injunction to prevent
the completion of the sale of a petrol site. The plaintiff moved quickly but not quickly
enough. Notification of the inconsistent terms of the contract to all defendant parties and the
application for injunction occurred within a 3-month period, after the signing of the contract,
but before completion. The contract was also voidable because of misrepresentations made
by the customer-vendor during negotiations that there was no existing all requirement
contract for supply.
In these circumstances it would appear that the defendants were treated in a manner akin to
bona fide purchases for value without notice. They did not have notice of the inconsistent
agreement before the signing of the agreement on 17 March 1969, which was when the
contractual rights were acquired. They only had notice of the prior inconsistent contract after
signing the contract, before the transfer was settled. What the plaintiff was requesting was an
injunction to prevent the completion of these contractual rights. The court did not require the
defendants to rescind the contract upon receiving notice of the inconsistent terms, even
though they could have done so because of the customer’s misrepresentation. Therefore,
even though the plaintiff appeared to act on an urgent basis and there was no inordinate
delay, the injunction was unsuccessful.
The commercial imperative for the grant of an injunction is to stop the poaching of clients
and to retain clients in terms of agreements currently on foot. However, the court may be of
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the view that damages are an adequate remedy, especially if the time for an injunction has
passed. A true and accurate assessment of damages may be difficult to compile, particularly
when one includes the nebulous cost of staff and directors time and resources being diverted
from core business once involved in drawn out litigation.
If an injunction is not available then damages are at large.53 Damages can be recovered either
against the contract breaker customer (provided there are no difficulties with vitiating factors
or acts of repudiation as noted above). Any difference in damages can be recovered from the
tortfeasor (that is the procurer of the breach). This loss can obviously only be recovered
once.54
The measure of damages is the diversion of trade from the plaintiff at least for the extent of
the period of the contract and other losses flowing that are not too remote.55 Damages can
include an assessment of:
 loss of profit from sales during the remainder of the contract;
 the loss of chance to renew the contract and future profits;
 where there is an all requirements contracts and equipment has been supplied to the
contract-breaker-customer, the cost of the investment in the provision of capital or
even the cost of additional working capital to compensate for lost income.56
An award of exemplary damages in matters involving commercial contracts is only available
where the action lies outside a claim based on the contract. Even so, awards of exemplary
damages in commercial situation are rare. However, in the Multinail case discussed earlier,
the court was of the view that the defendant had treated the plaintiff’s contractual rights with
such contempt and disdain that its behaviour called for an award of exemplary damages. The
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court considered the highly competitive nature of the marketplace and the substantial profits
to be made on the conversion of a customer. 57 The court had regard to the strong evidence of
a deliberate strategy vigorously implemented by a competitor to increase its market share
through the procurement of a breach of contract.
The plaintiff was a fierce contender for available business and had been identified by
the defendants as a likely impediment to their own plans for expansion. They coolly
drew up a plan to disrupt and damage their competitor’s business. They implemented
the plan knowing that if successful they would deprive the plaintiff of profits from its
contract. That was their stated objective. Their plan was executed in the full
realisation that Campbells was the plaintiff’s largest customer and that the loss of its
business would have a very substantial detrimental impact on the plaintiff’s profitability
and, perhaps viability.58
Although this paper considers the effectiveness and risks involved in the use of this tort as a
sword against competitors who seek to interfere with the contractual relations of their
customers, traders should review very carefully any deliberate strategy that targets existing
customers of their competitors. Importantly staff at all levels of the organisation need to be
aware of the impact their conduct may have. It is also relevant to note here that in certain
circumstances company officers can of course be personally liable if they were involved in
the commissioning of a tort by the company that they direct.59
There are also significant difficulties for customers if they have already signed a contract
with the third party defendant/competitor. Often the contract-breaker may be in breach of the
new contract for non-performance, unless of course the competitor has been injuncted from
performance. In this situation, the customers only choice may be to return to the original
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contract.60 It may not be readily obvious to the contract-breaker that the competitor is in fact
engaging in an unlawful act that may eventuate in embroiling them in expensive litigation.61
The contract breaker may of course have recourse against the third party competitor if the
second contract can be avoided or set aside on various grounds, for example as a result of any
misrepresentation. In a market where there are a number of players, the end result may well
be that the customer will deal with neither party in the future and significant damage is
inflicted on the corporate reputation of both businesses.
Issues arising under the Trade Practices Act 1974 (Commonwealth) ("The TPA")
Competition Law
As already indicated this paper considers the law as it applies in Australia where customers
are bound by current all requirements contracts for supply of goods or services for a fixed
term with no provision for early termination. As noted above this is often particular to
certain industries. As with all exclusive arrangements they must not substantially lessen
competition in a market place.62 Often all requirements contracts are appropriate and not anticompetitive as they allow for investment in the marketplace for new products and for capital
expenditure that a small business owner operator retailing the goods to the public may not
otherwise be able to afford. Conversely, the investment by the supplier must be one that is
worthwhile and allows the business to trade profitably.63
In pursuing a claim for interference with an exclusive contract, market players may
inadvertently expose themselves to risk of a breach of the anti–competitive provisions of the
TPA.64 This is particularly so if a strategy or pattern emerges that a business regularly turns
to the enforcement of these rights as part of a deliberate strategy to increase market share. It
is notable that in several cases judges have questioned the plaintiff’s motives in bringing such
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claims. For example, in the Schindlers case Pincus J commented on the excessive amounts
that the plaintiff spent on legal costs and the fact that the costs would substantially exceed the
damages awarded.
65
He was of the view that the plaintiff had used its lawyers’ office as a
fighting post in its commercial battle with the defendant.66 In the Independent Oil case noted
above Jordan C.J. thought that the claim by the plaintiff was “an attempt on the part of the
plaintiff to extend the arena for the manoeuvres of trade competition from the market place to
the law court”.67
The use of a legal right to impede competition or exert pressure on consumers may breach
some provisions of the TPA and if pleaded may find some sympathy with the courts given the
tenor of the above comments. It is worth noting again that an indirect inducement to breach
of contract is not dealt with in this paper. Therefore, an indirect interference with contractual
relations that amounts to a secondary boycott (that is a contract arrangement or understanding
between competitors that is in breach of section 45 of the TPA that contains an exclusionary
provision) will not be discussed.68
Theoretically, there is a possibility that the umbrella provision of section 45 the TPA, which
prohibits competitors entering into a contract, arrangement, or understanding that
substantially lessens competition in a market, could be breached if the threat or
commencement of actions for the tort of interference with contractual relations was prevalent
between competitors in a market. A breach might arise if there was sufficient evidence to
show that an understanding had been reached between competitors that the threat or
commencement of the legal action was in itself a communication between competitors that
these are “our customers” and a signal that competitors should “back off”. 69 The evidence
would need to demonstrate that the claim or threat of the claim is a mechanism or process
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that disguises a market sharing arrangement.70
Given the commercial considerations in
commencing this type of litigation and the effect it has on customers’ levels of comfort and
corporate reputations, this would seem commercially unlikely and indeed would be extremely
difficult to prove.
It is however entirely possible that a single decision to pursue a customer for a claim for an
intentional interference with contractual relations could be evidence of a misuse of market
power pursuant to section 46 of the TPA. It is clear that legal rights can be a source of
market power.71
Consideration was given to this issue in the case of Queensland Wire Industries Pty Ltd v
Broken Hill Pty Ltd72:
…nor is it helpful to characterise conduct … by determining whether it is the exercise of
some contractual or other right … The fact that action is taken pursuant to the terms of
the contract has no necessary bearing whether it is the exercise market power in
contravention of section 46.73
As noted by Miller, the exercise of contractual rights other than in good faith may open the
possibility of a breach of section 46.74
Once it is established that a player in the market has market power, the issue arising will be
whether the exercise of a legal right can be said to be ‘taking advantage’ of that market
power. Specifically, is the firm pursuing the claim for an injunction or damages based on an
intentional interference with contractual relations substantially because of the firms’ market
power, rather than for commercial reasons.75 The difficulty here is that it is entirely possible,
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perhaps even likely, that a firm with no substantial degree of market power could pursue such
a claim as a matter of commercial judgement. It would seem that other factors would have to
come into play, not merely the pursuit of a claim in these circumstances. For example, if the
plaintiff was a long established market player, with a substantial market share in an industry
with high capital start up costs, who then pursed such claims indiscriminately as part of a
strategy to damage or eliminate competition, then these factors together might combine to
demonstrate a proscribed use of market power. A misuse of market power cannot be
authorised by the authorities.76 It also carries with it significant risks in terms of pecuniary
penalties and personal liability for officers of the corporation directly involved in the
breach.77
Consumer Protection Provisions
There is potential for an exposure to a claim for unconscionable conduct under Part IVA of
the TPA. The claim would be made by the customer contract-breaker against the original
contracting business/supplier. Unconscionable conduct is specifically prohibited when
dealing with small businesses.78 Section 51AC relevantly provides a corporation must not in
trade or commerce, in the connection with the supply (or acquisition) or possible supply (or
acquisition) of goods or services to a person (other than a listed public company) engage in
conduct that is, in all the circumstances, unconscionable. Sub-section 3 lists the matters that
the court may have regard to when determining whether the corporation has acted
unconscionably in relation to the connections of supply or acquisition of goods and services
for a business purpose. Matters that are considered include the relevant strengths of the
bargaining positions of the supplier and business consumer.
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When considering the position of parties to an all requirements contract and the exercise of a
legal right to retain a customer, there may be an infringement that provision. It has been
suggested by Webb79 that the most relevant sections in relation to the exercise of a legal right
are sub-section (3)(b) and (k). In regards the former provision consideration will be given to
whether, as a result of conduct engaged in by the supplier, the business consumer was
required to comply with conditions that were not reasonably necessary for the protection of
legitimate interests of the supplier that is, they remain with the original contract. Pursuant to
sub-section (k) the extent to which the supplier and business consumer acted in good faith
will be examined.80
It is possible that an all requirements or exclusive arrangements contract, which arrangements
are potentially extended by the threat of suing a competitor for interference with contractual
relations could amount to conduct that is unconscionable within the meeting of section 51AC.
This is possible because the exercise of the legal right apropos the competitor might be a
mechanism by which the original supplier or acquirer ties the customer to what might be
exponentially disadvantageous terms. When faced with such a threat the customer-contractbreaker may have no option but to return to the original all requirements contract. This can
be seen in the evidence presented in the Multinail case regarding the difficulties faced by the
customer because of continuing with the second contract and being involved in the litigation
between the two competitors.81 Conduct such as this may breach this provision prohibiting
unconscionable conduct when dealing with small business.
In relation to the competitor, it is always possible that a competitor could claim that the
conduct of the party claiming damages as a result of intentional interference with contractual
relations is behaving unconscionably within the meaning the common law pursuant to
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section 51AA. This section codifies the common law into the TPA rather than extending the
concept in any way, as with the other provisions in section 51AC/AB. A claim pursuant to
Section 51AA was pleaded in the Film Financial case.82 It is difficult to prove
unconscionable conduct, as the party claiming that the conduct is unconscionable must show
that they labour under a special disability, of which the other party was aware and took
advantages of that fact. It is not simply that a hard bargain was driven or conduct that might
be viewed as unfair (and that might be expected in an aggressively competitive market) was
engaged in.83 . It is possible to imagine a scenario where the conduct may be considered
unconscionable if the procurer of the breach was perhaps a new player to the market, was
under resourced and the applicant was aware of commercial disabilities and proceeded to
implement a determined strategy (such as the one in the Multinail case mentioned above) to
harm or destroy the competitor.84 This will be difficult to demonstrate in a commercial
context.
Recourse under Section 52 of the TPA – Liability for Misleading or Deceptive Conduct
Generally it is easy to imagine a scenario of the customer-contract-breaker mounting a claim
against either business if there been any misleading or deceptive conduct in the course in
negotiating contracts.85
What warrants examination is whether the competitor procuring the breach might also be
liable under section 52 for misleading and deceptive conduct stemming from the tortious
behaviour. In an interesting case between two very well known car rental companies in
Australia re W.T.H Pty Ltd (trading as Avis Australia) v Budget Rent-a-car System Pty Ltd,86
a claim was bought buy Avis against Budget in relation to an advertising campaign. Avis
alleged the advertisement was not only misleading and deceptive but it also induced its
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customers to breach their contracts with Avis. 87 Avis sought an injunction to prevent further
screenings of the offending television advertisement.
The television advertisement was
approximately 30 seconds in duration. A discount flat rate promotion was promoted and the
Managing Director stated:
…and by the way if you happen to have one of their (competitors) credit cards we will
give you $10 and a new Budget card for it.88
At or about this point in the advertisement, the traveller arrives at the Budget desk and the
Managing Director begins to serve him with what is described as a “trade in” that is, the
customer trades in the Avis credit card and receives $10 cash and a Budget card. Avis
claimed that the advertisement, which was by its nature a comparative advertisement, was
misleading or deceptive because it contained incorrect descriptions of the Avis product and
there were comparisons of the products that created false impressions as to quality of the
service and the business.
Avis also claimed that the conduct constituted the tort of inducing Avis credit card holders to
break their contracts with Avis, based on the fact that that each Avis credit card remained the
property of Avis and was not transferable. It had to be returned to Avis upon request and kept
safe by the cardholder. 89
The court found that the advertisement was misleading and deceptive under section 52. The
overall impression on viewers of the advertisement was that on surrendering their Avis credit
card to the Budget desk they would receive $10 and a Budget credit card, not simply a
Budget card (which was in fact customer loyalty card that offered a reward for discounted
rates, not a credit facility).
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In relation to the claim in tort for an inducement to breach their contract as a result of the
same conduct (the television commercial) Lockhart J found that a prima facie case was
established that the viewers of the television commercial who held Avis cards had been
induced by the advertisement to breach their contract with Avis. The terms of the contract
were clear and the conditions of those contracts were “inconsistent with the act of the card
holder surrendering his card to Budget representatives in the circumstances encouraged by
the television advertisement.”
This seems to be at the “high water mark” end of the requirement for intention as noted
above90. It is difficult to distinguish the medium of an advertisement from the general
solicitation as referred to by Pincus J in the Schindler case. It is submitted that a television
commercial would be more akin to a general solicitation “affording a temptation” to viewers
of an advertisement rather than an act of inducement as illustrated earlier. This case is
difficult to reconcile with the authorities dealing with the tort of interference with contractual
relations and appears not to have been followed, at least with regard to the issue of whether a
television advertisement can amount to an act of inducement sufficient to ground liability for
the tort of interference with contractual relations.
Conclusion
It is well established that this tort can be used in a commercial context, beyond contracts for
personal services such as the Lumley v Gye scenario. It is clear however that there are
significant issues for a plaintiff when establishing all the requisite elements. The practical
difficulties in gathering probative evidence have been noted. The difference between
tempting a customer and inducing a breach is not always obvious. A claim against a
competitor should only be pursued when there is strong evidence of a deliberate strategy
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vigorously implemented by a competitor to increase its market share through the procurement
of a breach of contract. Whether the customer contract breaker is also pursued for breach of
contract is a commercial decision, and generally one that is unlikely to sustain a positive
reputation in a competitive market place.
Further, the indiscriminate exercise of this legal right exposes a business to risks in relation to
potential claims under competition and consumer protection legislation, particularly if the
corporation has substantial power in a market. It must be clear that the exercise of the legal
right is in good faith and not exercised for any other purpose. It may be that in assessing the
commercial risks and effectiveness of the pursuit of such a claim against a competitor,
businesses should perhaps be mindful of the adage to “play the ball not the man” and
consider instead why their competitor could in fact pilfer their customer.
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* BA, LLB (UWA). I am extremely grateful for the assistance, encouragement and wise counsel of Dr Pauline Sadler in the preparation of
this paper.
1
(1853) 2 El & Bl 216; 118 ER 749. Of course a claim for interference with contractual relations still continues to be used for claims of
interference for a breach of a contract for personal services and remain useful in other commercial scenarios see for example Fight Vision
Pty Ltd v Onisforou (1999) 47 NSWR 473 and Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 874 as examples.
2
Schindler Lifts Australia Pty Ltd & The Debelak & Others (1989) 89 ALR 275; Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002]
QSC 105( unreported, Chesterman J, 16 April 2002, BC2002201783): Independent Oil Industries Limited v The Shell Company of Australia
Limited & another (1937) 37 SR (NSW) 394: New Zealand Industrial Gases Limited v Oxyman (1992) 24 IPR 161; H.C Sleigh ltd v Blight
[1969] V.R. 931; Film Financial Consultants Limited v Becker Group Limited Anor [2006] NSWSC 319 (unreported, Rothman J, 21 April
2006 BC200602580); Allstate Life Insurance Company & Others v Australia & New Zealand Banking Group Limited & Others (1995)
58FCR 26 .
3
J G Flemming The Law of Torts, 9th ed, LBC Information Services, Sydney, 1998, pp758-761; D Baker, S Baly, l Corbin, A Gibson Torts
law in principle, 3rd ed, LawBook Co. Sydney 2002 para 19-20 to 19-21; F McGlone and A Stickley Australian Torts Law LexisNexis
Butterworths, Sydney 2005 pp419 to422; M Izzo “The limits of Lumley v Gye: Commercial disputes and the tort of interference with
contractual relations” (2005) 13 Torts Law Journal 188 at 189.
4
For examples see J G Flemming The Law of Torts, 9th ed, LBC Information Services, Sydney, 1998, p756 and the authorities referred to
therein; F McGlone and A Stickely Australian Torts Law LexisNexis Butterworths, Sydney 2005 at p420
5
For examples see Flemming, Op. cit., at pp759 – 761 and cases referred to therein
6
Whether a trader has any recourse in this circumstance is governed by emerging torts such as unlawful interference with trade or
business/economic interest, or potentially competition or consumer protection legislation, in Australia, the Trade Practices Act 1974 (Cth)
(“the TPA”). Whilst recent Australian decisions acknowledge the development of the law in England for the broader tort of unlawful
interference with trade or business/economic interest and its possible application in Australia, it is clear that this tort is yet to be accepted in
Australia. It is apparent however, that to establish this broader tort there must be an unlawful act For statements regarding for emergence of
this tort see for example cases such as Lord Debenture Trust Corp plc v Ural Caspian Oil Corp Limited & Others [1995] 1 All ER 157. In
Australia, the High Court considered the application of this tort in Australia in Sanders v Snell (1998) 196 CLR 329. See also Film
Financial Consultants Limited v Becker Group Limited Anor [2006] NSWSC 319 (unreported, Rothman J, 21 April 2006 BC200602580) at
para [73] to [81] for a discussion on recent cases where the tort of interference with economic interests was pleaded. In that case Rothman J
of the Supreme Court of New South Wales accepted that there was a possibility that such a tort does exist and stated that the High Court had
made it clear in Sanders v Snell (1998) 196 Commonwealth Law Reports 329 that the interference must be by an unlawful act. Further, he
speculated at para[80] that “it depends not only upon the inevitable consequence of an intentional act but an act which has as its purpose the
causing of harm or loss”; See also Flemming, op. cit., pp765 -771
Halsbury’s Laws of Australia, /415, Tort / (5) intentional interference with trade or business, available at<http//: www.lexisnexus.com.au/
accessed 13 February 2007.
8
See for example Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105(unreported, Chesterman J, 16 April 2002,
BC2002201783). The supply of the product nail plate for use in the roof truss business was accompanied by the provision of equipment and
computer software, technical support through engineers and other personnel at minimal cost. The profit was made through the supply of the
product nail plate. This was common throughout the industry. This is a very common arrangement in the petroleum and LPG industry. Oil
companies or gas companies supply equipment cylinders, pumps and the like on the provision that customers obtain all their requirements
for a particular product from that one supplier e.g. see New Zealand Industrial Gases Limited v Oxyman (1992) 24 IPR 161. This is
certainly common practice in the Australian LPG industry.
9
Film Financial Consultants Limited v Becker Group Limited Anor [2006] NSWSC 319 (unreported, Rothman J, 21 April 2006
BC200602580) Film Financial was appointed to audit various movies including the movie Waking Ned Divine pursuant to the terms of the
Head Distribution Licence. Film Financial also claimed that contracts existed in relation to its audit of other films, including Kolya, The
Body and D’Artagnan. A dispute arose between Becker Group and Film Financial in relation to a comment made by the principal of Film
Financial that some figures had been ‘fudged’ by a subsidiary of Becker Group. The comment was made in relation to an audit that had
been earlier conducted by Film Financials for the movie The Blair Witch Project and disseminated to the parties to the Head Distribution
agreement. Becker Group took exception to the use of the word ‘fudged’. After some correspondence Becker Group eventually refused
access to their premises and records to Film Financial as auditor of the movie Waking Ned Divine. It was accepted by the Court that the
evidence showed in relation to the films other than Waking Ned Divine that the Head Licensee could at any time have decided not to audit or
audit using different personnel and that therefore the arrangements were tentative and tentative only.
10
Ibid., paragraph [55]
11
Some cases and commentators suggest that hindering the performance is sufficient. See Izzo op.,cit at p189
12
Ibid., at [Para 63] citing Independent Oil Industries Limited v The Shell Company of Australia Limited & another (1937) 37 SR (NSW)
394; Sanders v Snell (1998) 196 CLR 329..
13
News Ltd v Australian Rugby Football League Ltd (1996) 139 ALR 193; H.C Sleigh ltd v Blight [1969] V.R. 931
14
See ibid., and Scott Murray and Cait Dugan “ Interference with Contractual Relations: When companies compete too vigorously”(2003)
13 (3) Australian Corporate Lawyer10 at p12
15
See the cases referred to in the judgement of Lindgren J in Allstate Life Insurance Company & Others v Australia & New Zealand
Banking Group Limited & Others (1995) 58FCR 26 at pp 37-43: Flemming op. cit., at p 761
16
Allstate Life Insurance Company & Others v Australia & New Zealand Banking Group Limited & Others (1995) 58 FCR 26
17
(1995) 58 FCR 26
18
Ibid., Lindgren J at page 37
19
Ibid., Lindgren J p 43
20
See further comments from Chesterman J in Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, 16 April
2002, BC2002201783)at paragraph [80] “knowledge and intention are not, of course synonymous, but there can have been no intention to
induce the breach of contract if the alleged tortfeasor was ignorant of it.”
7
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21
The matter of H.C. Sleigh v Blight [1969] V.R. 931 dealt with the issue of the knowledge that only arose with hindsight, that is, a binding
agreement had been entered into prior to the acquisition of knowledge of the contractual arrangements in place between the
vendor/contractor breaker and the plaintiff oil company. The purchasers could have either rescinded their contract as it was voidable on the
grounds of misrepresentation or not completed the purchase. The court was clear that subsequent knowledge of the contract before
completion will not render a third party liable for the tort of interference, even if they affirm avoidable contract. See also the High Court of
New Zealand decision in New Zealand Industrial Gases Limited v Oxyman(1992) 24 IPR 161. In that matter the applicant was a long
established New Zealand business, which had supplied compressed gas for over some 80 years. New Zealand Industrial Gases (NZIG) had a
substantial share of the market. The facts in this matter were that NZIG had an all requirements of contract with its customer. It also
supplied cylinders in which gas was bailed. Fisher J was of the view that the filling of NZIG’s cylinders with the Oxyman’s gas resulted in
the customer breaching the agreement with NZIG (because the NZIG could no longer fill that cylinder). The court put to one side the
determination of requisite knowledge stating that even if Oxyman didn’t know at the time of filling NZIG’s cylinders it now did know of the
contract and the likelihood of a breach if it continued to fill the cylinders with its own gas. This was in the context of whether an injunction
was required to restrain future conduct. The Court’s point appeared to be that if the plaintiff continued to do it to interfere in the manner
described (it now had knowledge and therefore any continued filling of the cylinder would be intentional) they would be liable for
intentional interference with contractual relations. The court declined to award an interlocutory injunction when it was of the view that
damages were a sufficient remedy in the event of continuing interference by the defendant.
22
See note 13 above. In Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, 16 April 2002,
BC2002201783)Chesterman J said at para [108] “in an appropriate case where an alleged tortfeasor honestly and reasonably believed that
the contract in question is invalid it would not be possible to prove an intention to induce a breach of the contract. “ He then continued
“Browne-Wilkinson J in the matter of Swiss Bank Corp v Lloyds Bank Limited [1979] CH 548 at 580 said:“…it is not enough to show that
there is room for honest doubt whether the defendants of the plaintiff’s rights of priority: if when such doubt exists a defendant chooses to
adopt a course which to his knowledge would undoubtedly interfere with the plaintiff’s contract on view of the law, in my judgement he
must at least show that he was advised and honestly believed that he is legally entitled to take that course.” :See also Fight Vision Pty Ltd v
Onisforou (1999) 47 NSWR 473 at p522
23
Emerald Constructions Co Ltd v Lowthian & Ors [1996] 1 WLR 691.
24
Fight Vision Pty Ltd v Onisforou (1999) 47 NSWR 473
25
Ibid at page 512
26
(1989) 89 ALR 275
27
Ibid. at p 293.
28
Ibid. Pincus J also referred to the judgement of Winn LJ in Torquay Hotel Co Ltd v Cousins28 at page148:
…once it is established that an individual or company which can only keep going by receiving, periodically, certain essential
commodities, habitually receives them from a certain supplier, and this fact is well known, it is an unreal exercise to trouble to
investigate how much any person knew about the precise contractual terms on which supplies were obtained.
29
Ibid. p293 -294 Pincus J noted, “…the mere fact that customers are apparently having their lifts maintained by a particular person
supplies proof of the reckless intention, the applicants here a considerably advanced. But it is my opinion that it is not enough; an
alternative supplier of maintenance service is not obliged to infer, from the mere fact that a potential customer is already having its lift
service, that there is a continuing contract whose breach he must be careful not to induce.”
30
Ibid. pp 294 -295 where His Honour stated “It seems to me that a lift maintenance company is entitled to try to persuade people not to
contract with other companies (whether or not the others install the lifts in question), and the idea that there is some sort of property in such
customers appears to me to have no legal foundation”
31
Ibid at p295
32
Ibid
33
Ibid: Note also New Zealand Industrial Gases Limited v Oxyman(1992) 24 IPR 161. Interestingly Fisher J at page 168 states:
“The defendant is a relative new comer which to some extent went into the business with its eyes open at the extent to which the defendant
knew about the terms of the plaintiff’s contracts with its customer is an open question at this stage.”
34
[2002] QSC 105( unreported, Chesterman J,16 April 2002, BC2002201783).
35
Ibid at [35]. At paragraph [9 ] Chesterman J noted “there was said to be a well developed grape vine amongst fabricators and nail plate
supplies to the extent that all participants in that market with a keen interest in each others business”.
36
Ibid at paragraph [103] “it was obvious that a contract made between Campbells and the first defendant by which Campbells were
obliged to buy its nail plate from the first defendant prior to 1995 would breach the plaintiff’s contract. There can be no doubt that the first
defendant desired that result and strove to bring it about. Its declared strategy since 1992 had been to capture one of the plaintiff’s major
customers …The only purpose the first defendant had in making the sale of equipment conditional upon Campbells agreeing to buy its nail
plate was to supplant the plaintiff as the supplier nail plate to Campbells. The first defendant clearly intended to make a contract with
Campbells by which Campbells would purchase nailplate from it and, at the same time and by the same means, to end the supply of
nailplate by the plaintiff.”
37
Ibid., at para [29] to[48] [80] to[102]
38
Short v The Citibank (1912) 12 SR (MSW) 186 Street J at page 202 as cited by Lingren J in Allstate Life Insurance Company & Others v
Australia & New Zealand Banking Group Limited & Others (1995) 58FCR 26 at p 40.
39
As Chesterman J noted at para [106] in Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105(unreported, 16 April 2002,
BC2002201783): It is no defence that Campbells may have been irresolute in its commitment to the plaintiff. It does not matter whether it
was predisposed to breaking its contract with the plaintiff or whether it required a determined effort to achieve that end. If in fact the first
defendant induced or procured or solicited it to break its contract that is enough.
40
In Fight Vision Pty Ltd v Onisforou (1999) 47 NSWR 473 the NSW Supreme Court was of the firm view that whether there had been an
act amounting to inducement was a question of causation “In our view, any question is one of causation. A finding of inducing breach of
contract carries with it a finding that the defendant’s actions caused the breach of contract and the loss which flowed. It does not matter
that the contract breaker yields readily or before the inducement was willing to beak the contract” at pp534-535
41
Fleming op., cit at p 758.
42
(1853) 2 El & Bl 216; 118 ER 749: At page 755 His Honour stated “…. as the act itself (the procurement of the breach) is not likely to be
a frequent occurrence nor easy of proof, therefore the action for this wrong, in respect of other contracts than those of hiring, are not
numerous.”
43
Independent Oil Industries Limited v The Shell Company of Australia Limited & another (1937) 37 SR (NSW) 394 at p 419
44
Ibid. p 420; Comments made by Pincus J in the Shindler case to this effect are noted above at notes 26 to 32
45
Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105(unreported, Chesterman J, 16 April 2002, BC2002201783)Para [113]
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including the sale of new equipment at a price so far below cost that the defendants were sufficiently embarrassed to require destruction of
all documents in the customers’ possession detailing the costs of the same to prevent those details becoming known to the other customers:
Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, Chesterman J, 16 April 2002, BC2002201783) at para
[113]
47
A litigation or defence fund was set up by the defendant company Pryda to assist Campbells in the costs they were facing in relation to the
litigation with Multi-nail. Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, Chesterman J, 16 April 2002,
BC2002201783) at para [113]
48
The defendants had misrepresented to the customer Campbells that Campbells could only have the equipment (the? and jigs from
America) if the “deal” included Campbells purchasing the defendants nail-plate. The deal was not only extremely profitable in relation to
the purchase of the equipment but Campbells were to save more than $100,000 a year on the supply of nail-plate alone. Multinail Australia
Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, Chesterman J, 16 April 2002, BC2002201783)at para [113].
49
Independent Oil Industries Limited v The Shell Company of Australia Limited & another (1937) 37 SR (NSW) 394at 418
50
Ibid. at 419: See also M Izzo “The limits of Lumley v Gye: Commercial disputes and the tort of interference with contractual relations”
(2005) 13 Torts Law Journal 188 at p192.
51
Zhu v Treasurer of NSW (2004) 211 ALR 159
52
[1969] V.R. 93: The facts were that the Plaintiff HC Sleigh had in place an agreement with its customer, the vendor of a petrol site, that
the customer would purchase all of his requirements for petrol from the Plaintiff and would not transfer control or possession of the site
without its permission . The vendor customer arranged to sell the site to the defendant purchasers (the Bishops). The defendant purchasers
arranged for the supply of petrol to come in future from the defendant oil companies. The defendants’ case was at the time that the contract
was negotiated and drawn up, they were unaware of the existence of the contract. In fact, the Bishops had specifically asked whether there
was any contract of supply in place and the vendor-customer had misrepresented the situation. On 17 March 1969 the contract of sale was
executed. On 19 March, the Plaintiff forwarded a copy of its contract with the vendor-customer to the defendant purchasers, the Bishops.
However, the defendant oil companies (the fifth defendant) were not told of the existing contract between the plaintiff and the vendorcustomer until 3 June. On 6 June, details of the agreement were provided to the oil company by the plaintiff’s solicitor. On 12 June, the
contract between the defendant-purchaser and customer-vendor (and presumably the fifth defendant oil company) was completed. On 19
June the Plaintiff attended at the roadhouse to tell the defendant-purchasers (the Bishops) about the agreement. It was not until 25 June that
a writ for the injunction was issued. The purpose of the injunction was to prevent the completion of the sale including the registration of the
title (to this end the registrar of titles was joined as a party to the injunction application).
53
See for examples F McGlone and A Stickley Australian Torts Law LexisNexis Butterworths, Sydney 2005 at p421
54
Fight Vision Pty Ltd v Onisforou (1999) 47 NSWR 473 at 534. See also commentators at note three above.
55
New Zealand Industrial Gases Limited v Oxyman(1992) 24 IPR 161. In Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC
105( unreported, Chesterman J, 16 April 2002, BC2002201783) a claim was made for loss of chance for prospective customers because of
the dispute with Campbells. A potential customer had provided reasons for his not taking up business with the plaintiff because he was in
litigation with a customer. The court was of the view that this was too remote that it was the plaintiff’s decision to pursue his legal rights,
not the defendants breach that caused this head of damage: at para 151
56
Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, Chesterman J, 16 April 2002, BC2002201783) at para
131and following.
57
Ibid at para 157
58
Ibid
59
Ibid. For a detailed discussion of liability of companies and their officers see M Izzo “The limits of Lumley v Gye: Commercial disputes
and the tort of interference with contractual relations” (2005) 13 Torts Law Journal 188 at pp193 to 197.
60
Izzo, Op. cit., pp198-199.
61
See Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, Chesterman J, 16 April 2002, BC2002201783)
62
S47 Trade Practices Act 1974 (Cth) (“the TPA”)
63
May promote interbrand competition: Melway Publishing Pty v Ltd v Robert Hicks Pty Ltd 92001 205 CLR 1. Exclusive dealing may also
be authorised or notified:ss88,90 and 93.
64
In the event that a business is not a Constitutional corporation for the purposes of the TPA, the various Australian states have adopted
mirror anti-competitive laws under state competition codes pursuant to Competition Policy Reform Act 1995(Cth)
65
Schindler Lifts Australia Pty Ltd & The Debelak & Others (1989) 89 ALR 275 at p 279
66
Ibid.
67
Independent Oil Industries Limited v The Shell Company of Australia Limited & another (1937) 37 SR (NSW) 394at at p 193
68
For an example of this see SpotWire Pty Ltd v Visa International Service Association Inc & Anor [2003] FCA 762 (unreported, Bennett
J, Federal Court NSW district Registry 23 July 2003, BC200303965)
69
Similar to the parallel conduct cases TPC v Email (1980) 43 FLR 383; ACCC v Mobil Oil Australia Ltd (1997) ATPR 41-568
70
ACCC v Amcor Printing Group Ltd [2000] FCA 17 ; TPC v Nicholas Enterprises Pty Ltd (no2) (1979)40 FLR 83: Re British Basic Slag
Ltd Agreements [1963] 1 WLR 727.
71
See NT Power Generation Pty Ltd v Power and Water Authority (2004) ATPR 42-021. and the exercise of intellectual property rights as
analogous (ie refusal to grant a licence – an exercise of a legal right). See A Monotti “Intellectual property Rights and Refusal to supply”
(2005) Vol 15 (1) Australian Corporate Lawyer p12;
72
(1989) 167CLR177
73
as quoted in R V Miller, Miller’s Annotated Trade Practices Act, 27th ed, Thompson Lawbook Co Sydney 2006 at p 372
74
Ibid. at p373 para [1.46.43] and authorities therein.
75
Ibid. at p370: ACCC v Boral Besser Masonry Ltd [1999] FCA 1318 approved on appeal by the majority in the High Court Boral Besser
Masonry Ltd v ACCC (2003) ATPR 41-915; See also S Crones “Exercising Contractual Rights and Imposing Restrictive Conditions – A
Misuse of Market Power?” (1997) Australian Business Law Review Vol 25 296
76
Section 88 TPA
77
Pecuniary penalties pursuant to s76 of the TPA: Corporations up to $10mil per contravention: Individual up to $500,000 per
contravention. Proposed under the Trade Practices Legislation Amendment Bill (No1) 2005 (Cth):$10 million or 10% turnover (includes
related bodies corp.) Individual excluded from being director/manager and prohibition against indemnity by corporation, directly or
indirectly.
78
A business consumer of for the purpose of this section is a transaction under $3 million dollars s51AC (9) and (10)
79
E Webb “Section 51AC and Retail Leasing – A False Start but Some Guidelines for the Future” (2000) 8 Australian Property Law
Journal 135 at 141
80
Ibid pp 141 -142
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Multinail Australia Pty Ltd v. Pryda (Aust) Pty Ltd [2002] QSC 105( unreported, Chesterman J, 16 April 2002, BC2002201783)
Film Financial Consultants Limited v Becker Group Limited Anor [2006] NSWSC 319 (unreported, Rothman J, 21 April 2006
BC200602580) at para[ 87] to [93]
83
Ibid. It is possible to imagine a scenario where the conduct may be considered unconscionable if the procurer of the breach was perhaps a
new player to the market, was under resourced and the applicant was aware of commercial disabilities and proceeded to implement a
determined strategy (such as the one in the Multinail case mentioned above) to harm or destroy the competitor.
84
Note the comments made about being a new player in the market in New Zealand Industrial Gases Limited v Oxyman (1992) 24 IPR 161.
85
Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25: Miller, op. cit., at pp535-537. In particular any representations about what the
exclusive arrangement or all requirements might mean, and misrepresentations about the quality of provision the service the competitor that
is false (and of course the competitor would have a claim if the requisite deception could be proven). See Schindler at note 2 above at page
279. The question here would be whether these types of statements are ordinarily taken as puffery.
86
(1984) ATPR para 40-479
87
Ibid. It is interesting to note that the court referred to the increase in market share by Budget over the previous five years and the fact that
the dispute arose out of an advertising campaign that was specifically designed to further increase market share at p45,502. Nothing was
raised in relation to the anti- competition provisions of the TPA in this case.
88
Ibid. p 45,505
89
Ibid., at p 45,506
90
See note 26 above.
82
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