Opera stars and chorus girls - the vexing tort of inducing breach of contract

Contracts should be kept rather than broken. Lord Justice Rix in Stocznia Gdanska SA v Latvian Shipping Co (No 3).

An economic tort is a curious beast. The field is infrequently litigated, partly because these common law actions have had their utility curtailed by legislation, and beset by jurisprudential uncertainty. The situation is not improved by the patchwork quilt of distinct claims within this category, ongoing disagreement about unifying threads and the divergent approaches taken by courts in Australia, New Zealand and the United Kingdom.

While a practitioner might therefore approach this topic with hesitancy, it is imperative that lawyers – particularly those in employment and commercial practices – have a firm grasp of the topic.

At their essence, the torts permit a loss-suffering party to seek damages from the true wrongdoer, even where a third party stands in the middle and is seemingly responsible for the loss. Since the tort of inducing breach of contract was first promulgated in Britain in 1853, the action and its siblings have arisen in a diverse range of contexts. Opera impresarios, milkmen and the organisation behind World Series Cricket have all sought to take advantage of these torts, with mixed success. Their utility ranges from a helpful adjunct alongside other claims to a useful measure of last resort, and the spectre of these actions can also help ensure contractual relations are respected.

It has been suggested that these separate torts  among them inducement to breach contract, unlawful interference with trade, intimidation and conspiracy may flow from a common source. The prospect of a general tort of causing economic loss by unlawful means has been mooted; Lord Denning MR suggested that if one person, without just cause or excuse, deliberately interferes with the trade or business of another, and does so by unlawful means – then he is acting unlawfully.

The High Court of Australia has similarly proposed that independently of trespass, negligence or nuisance, but by an action for damages upon the case, a person who suffers harm or loss as the inevitable consequence of the unlawful, intentional and positive acts of another, is entitled to recover damages from that other.

This article will focus on the tort of inducing breach of contract, given its foremost relevancy in the employment law context. David Howarth has estimated that 40 per cent of British cases involving the tort concern industrial relations (predominantly strikes), 20 per cent arising in other employment disputes and the remainder in commercial settings. The article will begin with a discussion of the seminal case of Lumley v Gye, before outlining each element of the tort’s modern incarnation and the relevant remedies. The article will conclude with a brief discussion of the reformoriented criticisms levelled against the action.

A German opera singer’s lasting legal legacy

165 years after it escalated into the British courts, a competition between two rival London theatres for the services of a star German opera singer has enduring relevance for private law across the common law world.

A much sought-after singer in the early 1850s, Johanna Wagner, was lured to London by Benjamin Lumley of Her Majesty’s Theatre in Haymarket on an exclusive singing contract. Before she arrived in Britain, Wagner’s services were poached by Frederick Gye of the Royal Italian Opera in Covent Garden. The day before her much anticipated debut for Gye, Lumley secured an ex-parte
injunction to prevent her performance.

The ensuing litigation had two strands; the first, Lumley v Wagner, remains the starting point today for equitable injunctions enforcing negative covenants – Wagner was prevented from performing for a short period in London other than for Lumley’s company. The second, Lumley v Gye, gave birth to the tort of inducing breach of contract.

In the end, Wagner sang for neither theatre and Lumley’s victory against Gye was pyrrhic – he won the legal claim on demurrer but lost an action for damages. As one legal historian observes, in the end Lumley, Gye, Wagner and the opera-going public – everyone in fact except the lawyers were all losers.

To understand the outcome in Lumley v Gye and its ramifications, it is necessary to briefly backtrack to an earlier opera-related case.

In 1847, another famous singer of the era broke her contract with Drury Lane Theatre to sing for Lumley at Her Majesty’s Theatre. The resulting litigation between Drury Lane and the singer, Jenny Lind, ultimately settled for $2,000. Despite indemnifying Ms Lind and paying her handsomely, Lumley was still able to recoup a considerable profit from his new singer. SM Waddams thus suggests that Lind’s case, which demonstrated that the ordinary remedy – was ineffective – and that the real dispute was between the rival employers, must almost certainly have been in the minds of the judges when they came to deal with Lumley’s cases against Wagner and Gye.

And so, with the shoe on the other foot, Lumley brought proceedings against Gye for $30,000. In a creatively-framed claim, Lumley argued that his rival had wrongfully and maliciously enticed and procured Lumley’s breach of contract. Standing against Lumley was the contractual principle of privity – counsel for Gye responded that the breach of contract is a wrong between the plaintiff and Johanna Wagner alone, and against her he may maintain an action on the contract, but not of tort.

By a 3:1 majority, the Court of Queen’s Bench held for Lumley and thereby established a new tort that endures today. The comments of Crompton J are particularly illuminating. [T]he servant or
contractor, he wrote, may be utterly unable to pay anything like the amount of the damages sustained entirely from the wrongful act of the defendant: and it would seem unjust, and contrary to the general principles of law, if such wrongdoer were not’responsible for the damage caused by his wrongful and malicious acts.

Lumley v Gye was not entirely novel. Since the 1500s, it had been accepted that an action arose where a master’s servant was enticed or harboured by another. But this tort was grounded on a master’s proprietary right to the servant (a concept which seems unthinkable today), and was distinguished by Coleridge J in dissent. His Honour chastised: I should be glad to know how any treatise on the law of contract could be complete without a chapter on this [tort], or how it happens that we have no decisions upon it.  Yet while Lumley v Gye would go untouched for almost three
decades, the tort it created has since become firmly established across the common law world.

The tort of inducing breach of contract

Despite one commentator suggesting that the tort today is almost unrecognisable as a descendant of its ancestor, Lumley v Gye still provides the essential foundation for the modern action. A helpful statement of the tort was offered in Crofter Hand-Woven Harris Tweed v Veitch:

[I]f A has an existing contract with B and C and is aware of it, and if C persuades or induces A to break the contract with resulting damage to B, this is generally speaking, a tortious act for which C will be liable to B for the injury he has done him. In some cases, C may be able to justify his procuring of the breach of contract.

The elements of 1) a contract between A and B; 2) C’s knowledge thereof; 3) C’s persuasion or inducement for A to breach the contract with B; 4) resulting damage; and 5) the defence of justification will be considered in turn.

Contract between A and B

There must be a contract on foot; inducing someone not to enter into a contract is not actionable. The contract must be valid, enforceable and not voidable or otherwise defective – cases involving mistake, a lack of capacity and contracts invalid for being contrary to public policy did not give rise to the tort.

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First published in Ethos. Written by John Wilson, Managing Legal Director, and Kieran Pender.