Michael Douglas Photo Exclusive And Other Stories

House of Lords re-defines the law on economic torts and commercial confidentiality: OBG v Allan; Douglas v Hello! Limited; and Mainstream v Young (2007).

In an important triple judgment, issued on 2 May 2007, the House of Lords has provided welcome clarification of the law relating to tort claims for economic loss caused by intentional acts - also taking the opportunity to extend the law on breach of confidence.

The judgment covers three separate cases, each of which had raised related issues. The most well-known of these is Douglas and Others v Hello!, where OK! magazine was seeking damages from Hello! magazine for the unauthorised publication of photographs of Michael Douglas's wedding to Catherine Zeta-Jones. The other two cases were OBG v Allan, relating to losses suffered by the claimant company following the unauthorised appointment of administrative receivers, and Mainstream v Young, where the defendant was alleged to have facilitated breach of contract by two employees of a property company who had diverted a development opportunity to a joint venture in which they were interested.

The judgment contains somewhat divergent opinions from each of the panel of five Law Lords who heard the case, but a majority agreed with each element of the leading judgment of Lord Hoffmann, and the essential findings are as follows.

The economic torts

Their Lordships recognised that the previous law on the so-called "economic torts" was, to quote Lord Nicholls, in a "terrible mess", and their judgment goes a long way towards clarifying the position. The key points are as follows.

The panel unanimously agreed that, contrary to what is suggested in some of the authorities and textbooks, there were in fact only two, distinct torts relevant to the cases in question. The first is the tort of inducing a breach of contract ("Inducement"), which originally dates from the classic case of Lumley v Gye in 1853. The second is the tort of causing loss by unlawful means ("Unlawful Causation of Loss"). Although these two torts can potentially overlap, their Lordships made it clear that there is no separate, intermediate tort of "interfering with contractual relations" - i.e. a hybrid tort which does not require either the intentional procurement of a breach of contract nor the intentional causation of loss by unlawful means.

As regards Inducement, there are two key ingredients. The first is that the defendant must know that he is inducing a breach of contract, or...