Inducement to breach a contract is a common law legal principle. It is also known as tortious interference with contractual relations. It occurs when a third party intentionally causes one of the parties in a contractual relationship to breach their obligations. In Australian law, this tort is actionable if specific elements are satisfied.
This is a serious legal issue that can lead to significant financial and reputational harm. Understanding how inducement is established and the legal remedies available is important for Australian businesses.
In this article, our contract solicitor looks into:
- what elements are required for a claim of inducement to breach a contract
- key case law and legal principles
- defences and remedies available for affected parties
Key Takeaways
- For a claim of inducement, a valid contract, the defendant’s knowledge, intentional inducement, actual breach, and resulting damages must all be established
- Inducing a breach of contact must be intentional, not accidental, meaning the third party must have aimed to cause the breach
- Justification, absence of intent, or lack of knowledge of the contract can serve as defences
- The affected party can seek damages, injunctions, or restitution for losses caused by the breach
Legal Elements of Inducing a Breach of Contact
For a claim to succeed, the following elements must be established:
1. Existence of a Contract
A valid, enforceable contract must exist between the contracting parties. If the contract is void or illegal, no action for inducement can be taken.
2. Knowledge of the Contract
The third party (the defendant) must have knowledge, or at least a reasonable belief, that a contract exists between the other parties.
Knowledge can be actual or constructive, meaning the defendant “should have known” about the contract even if they didn’t directly know of its existence.
3. Intentional Inducement or Persuasion
The third party must have actively persuaded or encouraged one party to breach the contract. Mere negligence or indifference will not suffice; the inducement must be intentional. The defendant’s actions must directly cause the breach, rather than simply contribute to it.
Australian courts have emphasised that the intent of the third party is crucial. Read on further below to see key case law on inducement.
4. Actual Breach of Contract
There must be an actual breach of contract resulting from the inducement. Without an actual breach, the claim cannot proceed.
5. Resulting Damage
The plaintiff must show that they suffered some loss as a result of the breach. This can include financial losses, lost business opportunities, and reputational damage.
Remedies for Inducing a Breach of Contact
Damages: The primary remedy for inducement to breach a contract is an award of damages. The plaintiff is entitled to seek compensation for any financial losses suffered due to the breach. Damages are calculated based on the harm caused by the breach, which can include lost profits, consequential losses, and other foreseeable damages.
Injunctions :In certain cases, courts may grant an injunction to prevent further interference or breaches of contract. Injunctive relief is typically granted when monetary damages would be inadequate or when the breach is ongoing or imminent. For example, if a competitor induces an employee to breach their contract, an injunction could prevent the employee from leaving the original employer until the dispute is resolved.
Restitution: In rare cases, remedies of restitution may be awarded, where the third party is ordered to return any benefits gained from the breach of contract. This ensures that the third party does not profit from their wrongful interference.
Defences Available to the Inducing Party
While inducement to breach a contract is actionable, the defendant may rely on certain defences to avoid liability:
Justification or Privilege: The third party may argue that their actions were justified based on public interest or a legal right. For example, inducing a breach in an illegal contract may not attract liability.
Absence of Intent: If the defendant can show that they did not intentionally induce the breach, this may serve as a defence.
No Knowledge of Contract: Lack of knowledge of the existence of the contract can also serve as a valid defence, as intentional interference is a critical element.