Legal Blog

Torts

Occasionally a case is decided that gives a great list of tests for torts and a good fact situation to illustrate them. Alleslev-Krofchak v. Valcom 2010 CarswellOnt 8085 (C.A.) is one such case.

Facts

The individual plaintiff, who had worked for the Department of National Defence, had left the armed forces and, for the next 7 years, worked as a consultant, mostly for DND, through the corporate plaintiff, her holding corporation (“Holdco”). She was recognised as a leader in her field.

The corporate defendant was a consulting company whose business was to provide the federal government with the services of engineers and other consultants. The individual defendants were employees of the corporate defendant.

DND issued a request for proposal. The corporate defendant was not itself able to submit a proposal because the RFP required that the successful bidder had to have specified experience that it did not have. The corporate defendant retained the individual plaintiff, through Holdco, to assist with its bid.

The individual plaintiff facilitated an agreement whereby the corporate defendant contracted with a larger American corporation (“Amerco”) who had the necessary experience. Pursuant to their agreement, the corporate defendant would be the prime contractor in the proposal and Amerco would be the subcontractor.

To be awarded the contract, the corporate defendant was forced to propose the individual plaintiff as the project manager. Worse, the individual plaintiff insisted that her contract be with Amerco. Accordingly, the defendants had no control over her. The defendants did not like this, but had no choice.

As the contract progressed, the corporate defendant hired another project manager and insisted that Amerco fire the individual plaintiff, citing grounds that the trial judge found were without foundation. When Amerco refused to fire her, the corporate defendant locked her out of the project and substituted the new project manager.

Amerco did not like what the defendants had done or the emails that the defendants had sent, emails that the trial judge found had defamed the plaintiff. Consequently, Amerco ultimately terminated its contract with Holdco.

Following her termination, the individual plaintiff was unable to obtain any DND work.

Defamation

The trial judge held that the defendants had defamed the individual plaintiff. The emails asserted that the individual plaintiff had lied to the defendants, lacked integrity, was not trustworthy, and was so lacking in management skills that some members of the project would leave if she were not removed from the project. The defendants did not appeal that finding, but did appeal the damages. More about that later.

Economic Relations

Interference with economic relations requires a defendant to intend to cause loss to a plaintiff. The defendants argued that they had not intended to cause loss to Holdco because they did not know that Holdco contracted with Amerco; rather, they thought that the individual plaintiff had the contract. This argument did not succeed because the trial judge inferred that the defendants knew about the arrangement between Holdco and Amerco; after all, the defendants had contracted with Holdco rather than the plaintiff for the first part of the project.

Another necessary criterion for the tort is that a defendant must achieve its purpose by “unlawful means.” The defendants argued that the unlawful means had to be used against the third party, not against the plaintiffs. Accordingly, defaming the individual plaintiff and conspiring to injure the plaintiffs could not be “unlawful means.” The defamation and conspiracy had to be actionable in the hands of Amerco and it was through Amerco that the plaintiff had to be injured.

The Court agreed with the defendants’ argument regarding the issue of defamation and regarding any conspiracy to harm the plaintiffs.

However, the Court giveth and the court taketh away. The trial judge had held that, when the individual defendants conspired to defame the individual plaintiff, they knew that removing her would likely cause Amerco to withdraw from the project and thwart its plans to expand into the Canadian aerospace market and compete with the corporate defendant. Accordingly, the conspiracy was actionable by Amerco and this was the “unlawful means” on which to found the tort against the plaintiff.

Further, the actions of the corporate defendant were also a breach of its contract with Amerco and this also served as the “unlawful means.”

Inducing Breach

The next tort was inducing breach of contract.

There was no doubt that the defendants, by locking out the individual plaintiff, forced Amerco to remove her from the project and frustrated Amerco’s contract with Holdco. The trial judge held that this frustration was sufficient to induce breach of contract. The Court of Appeal disagreed; there needed to be an actual breach. If a defendant merely frustrates the contract, the only tort available is interference with economic relations.

However, this statement of law did not help the defendants because the trial judge also held that the defendants caused, and therefore induced, Amerco to actually breach its contract with Holdco.

Damages

     The trial judge awarded the following damages:

a)   $100,000 to the individual plaintiff for defamation;

b)   $100,000 for general damages to the individual plaintiff for the torts of inducing breach of contract and for interference with economic relations;

c)   $129,000 in specific damages to the individual plaintiff and $373,000 to Holdco for interference with economic relations and for inducing breach of contract.

The defendants argued that $100,000 for defamation was too much. The Court brushed aside this complaint.

The defendants argued that the general damages for inducing breach and economic interference duplicated the general damages award for defamation. The Court noted that the defendants’ defamation did not lead to the general damages for interference and inducing breach; these general damages compensated for damage to the individual plaintiff’s reputation and self-esteem. These damages were incurred regardless of whether the small Canadian aerospace community also knew of the defamation.

The defendants also argued that the specific damages for the two torts duplicated each other in time. The Court rejected that argument also.

Finally, the defendants argued that the damages did not account for contingencies. The Court simply noted that reductions for contingencies were case specific and were an exercise in judicial discretion that it would not overturn.

Upshot

In the result, the Court of Appeal dismissed all of the grounds for appeal although, in some cases, it differed in its analysis from the trial judge’s reasons. Once the trial judge found that the defendants acted in a manner that was blameworthy and abusive, they were not going to get far with the Court of Appeal.