SCC Clears the Air in Family Feud, Clarifies Tort of Unlawful Interference Too

Lillian Schelew and her four sons, Jeffrey, Michael, Bernard, and Alan, have been involved in residential real estate leasing since the 1970s. Jamb Enterprises Ltd (“Jamb”) was owned by the four brothers equally, and Bram Enterprises Ltd (“Bram”) was owned by four brothers equally with Lillian Schelew holding a separate class of preferred voting shares. Jamb and Bram each owned 40% of Joyce Avenue Apartments Ltd, with the remaining 20% being held by AI Enterprises Ltd (“AI”). AI’s sole shareholder and director was one of the four sons, Alan, who managed the family’s rental buildings for a fee.

Joyce Avenue Apartments Ltd. owned a six-storey apartment building at 99 Joyce Avenue in Moncton, New Brunswick. In 2000, the Schelew family wanted to sell the apartment, appraised at $2.2 million – however, Alan Schelew did not.

In 2002, after putting the building on the market and after two purchase deals failed to close, Alan Schelew decided to exercise his rights under the family’s syndication agreement and bought the apartment at its appraised $2.2 million price. The rest of the family, through their corporate entities Jamb and Bram, sued AI and Alan Schelew. They claimed that, as a result of Alan’s wrongful conduct when the apartment was on the market, the sale had been substantially delayed and was ultimately sold for less money than they could have obtained from a third party purchaser.

More than a decade later, the Supreme Court of Canada’s decision in AI Enterprises Ltd v Bram Enterprises Ltd, [2014] 1 SCR 177 [AI v Bram, SCC], resolves the family feud surrounding 99 Joyce Avenue and offers much-needed clarity about one of the least understood torts in Canadian law.

Decision of the Court of Queen’s Bench of New Brunswick

In AI Enterprises Ltd v Bram Enterprises Ltd, 2010 NBQB 245 (oddly unreported), the New Brunswick Court of Queen’s Bench concluded that but for the actions of Alan and AI, the family would have sold the Joyce property in 2001 for $2.58 million.

Justice Dionne found that Alan’s conduct amounted to the tort of unlawful interference with economic relations: Alan misused the arbitration provisions of the family’s syndication agreement to stall the sale of 99 Joyce Avenue, he intentionally encumbered the property with a legally groundless “Notice of Right of First Refusal” in the local land titles registry, he subsequently filed an equally baseless certificate of pending litigation against the Joyce property, and he denied entry to the building for prospective buyers looking to inspect the apartment. In the trial judge’s view, all of this conduct was unlawful because it lacked any legal basis or justification.

Decision of the New Brunswick Court of Appeal

In AI Enterprises Ltd v Bram Enterprises Ltd, 2012 NBCA 33 [AI v Bram, NBCA], the three appellate justices of the New Brunswick Court of Appeal held that Alan’s conduct did not amount to an actionable wrong against the prospective third party purchasers – even though his conduct lacked any legal justification. The NBCA followed the majority ruling of the House of Lords in OBG Ltd v Allan, [2007] UKHL 21 [OBG], as expressed by Lord Hoffmann. For the House of Lords, the unlawful conduct in the tort of unlawful interference with economic relations needs to be conduct which would be grounds for liability in tort law, contract law, or equity by the party who was targeted. Lord Nicholls of Birkenhead was of the minority view that the unlawful conduct can also include a wider range of actions which a person is not permitted to do – including criminal conduct, and generally any sort of behaviour for which a legal proceeding exists to deter.

Although the NBCA preferred Lord Hoffman’s position on the tort of unlawful interference with economic relations, the unanimous appeal court crafted a principled exception to cover the case at hand. The three appellate justices took particular issue with Alan’s “intentional erection of self-help barriers, some of which are enforceable through statutory processes not subject to prior judicial authorization, in circumstances where those barriers rest on rights fabricated with arguments of sand” (AI v Bram, NBCA para 9). Although there was never a genuine issue of contractual interpretation, Alan used the syndication agreement to provide him with a convenient pretext to torpedo any sale of 99 Joyce Avenue. For the NBCA, Alan’s actions basically amounted to the tort of abuse of legal process; as such, the principled exception applied and the trial decision was upheld.

Decision of the Supreme Court of Canada

The unanimous SCC agreed with the result arrived at by the courts below, but held that the tort of unlawful interference with economic relations was not the basis upon which Alan Schelew was liable.

Justice Cromwell, for the bench of seven, ruled that at its core the tort captures “the intentional infliction of economic injury on C (the plaintiff) by A (the defendant)’s use of unlawful means against B (the third party)” (AI v Bram, SCC para 23). For example, where the defendant master of a trading ship fires its cannons at a canoe that was attempting to trade with his competitor, the plaintiff’s trading ship, the plaintiff can hold the defendant liable under this tort (para 24). However, significant debate has arisen about what sort of conduct constitutes the “unlawful means” used against the third party – such was the central focus of the House of Lords in OBG.

The SCC favoured confining the tort of unlawful interference with economic relations to narrow grounds, as the judges of Anglo-Canadian common law have traditionally been reluctant to restrict fair competition – a role better suited to elected parliamentarians.

Accordingly, Justice Cromwell ruled that “unlawful means” is restricted to acts that would give rise to civil liability to the third party (or would do so if the acts had caused loss) – not merely any act whose legitimacy can be successfully challenged through a legal proceeding. If third party B could sue defendant A in tort, contract law, or equity for A’s conduct, which was directed at causing economic injury to C, then C can seek compensation from A for the tort of unlawful interference with economic relations.

Here, in the case at bar, the SCC agreed with the NBCA’s finding that the prospective third party purchasers who sought to buy 99 Joyce Avenue suffered no actionable wrong from Alan Schelew’s conduct. As such, the Supreme Court ruled that the tort was not made out, and no principled exception could apply. For Justice Cromwell, the NBCA had erred in creating a principled exception to the narrow view of the “unlawful means” requirement:

My difficulty with the “principled exception” approach is that I cannot, with respect, find any principle on which it is based. Providing trial judges with “wiggle room” to deal “adequately” with cases that do not fall within the scope of the tort’s liability simply confers an unstructured judicial discretion to do what appears to the particular judge to be just in the particular circumstances (para 84).

Having found that Alan Schelew was not liable for the tort of unlawful interference with economic relations, the Court went on to find that Alan had breached his fiduciary duties as a director of Jamb and Bram to act in good faith in the interests of the corporations. Thus, the SCC ultimately dismissed Alan’s appeal and upheld the rulings of the courts below.

Commentary

The scope of the tort of unlawful interference with economic relations has been in a state of flux for many years. Lawyers often relied on the tort’s vagueness when their client’s case could not fit squarely into tort, contract law, or equity. The SCC noted that:

There is not even any generally accepted nomenclature for the tort. It is variously referred to as “unlawful interference with economic relations”, “interference with a trade or business by unlawful means”, “intentional interference with economic relations”, or simply “causing loss by unlawful means” (para 2).

Although the “unlawful means tort has been addressed by many appellate courts across the country” (para 71), Canada’s highest bench has now provided the common law with a definitive outline of what the tort entails and when it will apply: in three-party situations where the defendant commits an actionable civil wrong against a third party, and that act intentionally causes economic harm to the plaintiff.