5. Torts Against Business Relations — Overview

This is the overview of the group of torts against business relations in Law of Torts, Unit 4. It covers the torts that protect a person's trade, goodwill and economic interests: injurious falsehood, negligent misstatement, passing off and conspiracy. This post shows what each protects and what separates them.

The Problem This Topic Solves

A business can be harmed without any physical damage. A rival can spread a lie that the business has closed. Another trader can sell goods that look like the business's own and take its customers. A careless statement can make someone lose money by relying on it. Several persons can combine to drive a business out of the market. None of these involves a blow to a person or a trespass on land, so the law needs separate torts for pure economic harm.

These torts are easy to confuse because all of them damage trade, but each has a different core. One needs a false statement and malice. One needs a misrepresentation that exploits goodwill. One needs a special relationship of reliance. One needs a combination of people. This overview sets out those cores side by side.

The Group at a Glance

The table below compares the torts in this group.

Injurious Falsehood

Injurious falsehood, also called trade libel or slander of goods, is a false statement made with malice that causes special damage to the plaintiff's trade, goods or property interests. It differs from defamation because it protects economic interests and not reputation as such. The plaintiff must prove falsity, malice and special damage. In Ratcliffe v. Evans (1892), it was held that a general loss of trade is enough as special damage, and the plaintiff need not name every lost customer.

Injurious falsehood needs malice but no special relationship between the parties. Full study: Injurious Falsehood and Negligent Misstatement.

Negligent Misstatement

Negligent misstatement is a careless statement or piece of advice that causes pure economic loss to a person who relied on it. It needs a special relationship of proximity and reliance, a duty of care in making the statement, a breach, and resulting loss. Hedley Byrne v. Heller (1964) established that a duty of care can arise for such statements, but the claim failed there because of a disclaimer saying the advice was given "without responsibility".

It differs from deceit because no fraud is needed. It differs from ordinary negligence because it allows recovery of pure economic loss, which was historically barred. The Note on injurious falsehood covers both torts together, so the contrast between them is studied there.

Passing Off

Passing off is a common-law tort that protects a trader's unregistered goodwill against deceptive misrepresentation by a rival. The classic requirements are goodwill, misrepresentation and damage. In Erven Warnink v. Townend (1979), the Advocaat case, Lord Diplock set out five elements. In Reckitt & Colman v. Borden (1990), the Jif Lemon case, the test was restated as the three-part classic trinity.

The remedies are an injunction as the primary remedy, damages, an account of profits, and delivery up or destruction of infringing material. Passing off is common law and needs no registration. Trade mark infringement is statutory and needs a registered mark. Full study: Passing Off.

Conspiracy

Civil conspiracy is a combination of two or more persons to commit an unlawful act, or a lawful act by unlawful means, that causes actual damage to the plaintiff. It is not actionable per se. In lawful-means conspiracy, liability turns on whether the predominant purpose of the combination was to injure the plaintiff and not to advance the defendants' own interests. In unlawful-means conspiracy, liability arises once independently unlawful means are used and damage results, without proof of predominant purpose.

In Quinn v. Leathem (1901), a combination to injure a butcher's trade was held actionable. In Mogul Steamship Co. v. McGregor, Gow & Co. (1892), a combination was held not liable because its predominant purpose was to advance the defendants' own trade interests. Civil conspiracy needs proof of actual damage, but criminal conspiracy is complete on the agreement alone. Full study: Conspiracy.

How to Tell Them Apart

Ask four questions in order. Was there a false statement made with malice about the plaintiff's trade or goods? That points to injurious falsehood. Was the plaintiff's loss caused by relying on the defendant's careless advice? That points to negligent misstatement. Did the defendant present its goods so as to take the plaintiff's goodwill? That points to passing off. Did two or more persons act together to injure the plaintiff? That points to conspiracy.

A Practical Example

A runs a furniture workshop and has built a reputation under the name "Golden Oak". B, a rival, tells A's wholesalers that A has shut down, knowing this is untrue, to divert their orders. Orders from A fall, though A cannot name every wholesaler who stopped buying. This is injurious falsehood: the statement was false, made with malice, and caused loss of trade, which is enough as special damage.

B then starts selling furniture under the name "Golden Oak Works" with a similar sign, so that customers think it is A's business. This is passing off, because B misrepresents its goods as A's and takes A's goodwill. If B and two other dealers also agree together to cut off A's timber supply only to ruin A, the combination may be a conspiracy. The Notes on each tort give the tests for each of these claims.

Quick Revision Points

• Torts against business relations: injurious falsehood, negligent misstatement, passing off, conspiracy.
• Injurious falsehood: false statement, malice, special damage; Ratcliffe v. Evans (1892).
• Negligent misstatement: special relationship, duty of care, pure economic loss; Hedley Byrne v. Heller (1964), disclaimer defeated the duty.
• Passing off: goodwill, misrepresentation, damage; Erven Warnink (1979), Reckitt & Colman (1990); injunction is the main remedy.
• Conspiracy: combination, unlawful act or means, actual damage; Quinn v. Leathem (1901), Mogul Steamship (1892).
• Passing off needs no registration; trade mark infringement does.