Business disputes: contractual rights v tortious remedies
When a problem arises in a business relationship, many people mistakenly believe that the only thing they need to check in order to ascertain their respective rights and obligations will be the terms of any contract that has been agreed.
However, as Ken Stangoe, dispute resolution lawyer explains ‘It is also important to think about whether there are any statutory or common law rules that may apply, and if they can be used to strengthen your position when it comes to achieving a favourable and commercially sensible outcome.’
In particular, it is important to consider whether the law of tort may be relevant as this can often be used to plug gaps in contractual arrangements, thereby enabling you to seek redress in circumstances where a breach of contract claim is not possible.
What is the law of tort?
Tort is a branch of law that imposes liability on a person or organisation who has committed a ‘civil wrong’ against someone else, who they may or may not be in a contractual relationship with, and this has led to the wronged party suffering loss, harm or injury.
There are many types of civil wrong encompassed within this area of law, including negligence, nuisance, trespass, defamation, breach of confidence, misrepresentation, and infringement of intellectual property rights.
Remedies in tort
The two primary remedies available where a tortious act has occurred are compensation or an injunction.
Compensation will usually be appropriate where you have suffered financial loss or some other type of damage with economic consequences, such as reputational harm caused by a defamatory social media post or loss of revenue caused by a former joint venture partner seeking to ‘pass off’ goods made by them as being goods made by you.
An injunction may be appropriate where a civil wrong is continuing and you need an urgent court order to bring it to a halt, or where it is imperative that your opponent immediately does something to mitigate your losses and they are refusing to do this on a voluntary basis.
Why it is important to consider a tort based claim
In some scenarios there may be no contractual right for you to take action in respect of a problem that has arisen, but there may be tort-based rights on which you can rely.
This may be the case, for example, where you have shared confidential information with an independent contractor who is now trying to unlawfully exploit this for their own benefit. Where there is no confidentiality agreement in place, it may be possible for you to fall back on the tortious breach of confidence rules in order to prevent your information being misused.
Conversely there may be occasions where both a contractual and tortious claim may be possible, but where pursuing a tort-based claim might result in a more generous court order (e.g. for compensation) than would be likely if you were to rely on your contractual rights alone.
This might be the case, for example, where your dispute concerns the purchase of a business which you believe has been grossly overvalued by the seller. If a contract-based claim was to be pursued, the compensation to which you would be entitled would be calculated as the difference between the true value of the business and its value as warranted. In contrast, if a tort-based claim was to be pursued then the compensation would be calculated as the difference between the true value and the price paid – which in some cases may produce a more favourable award.
Defences to a claim based in tort
Depending on the circumstances, it may be possible for a claim based in tort to be defended on one of several grounds. This includes where it can be shown that you are at least partly to blame for what has gone wrong, or where there is evidence of your express or implied consent to the tortious conduct occurring.
How we can help
Our dispute resolution lawyers are trained to identify all potential means by which your legal rights can be protected, and appropriate redress obtained if something goes wrong. This means that as well as advising you on your contractual rights and options when a business dispute arises, they can also advise you on any statutory or common law rights that may exist, and which ought to also be borne in mind.
Armed with this information, they can then help you to formulate a dispute resolution strategy which is geared towards helping you achieve the best possible outcome. In some cases this may mean relying solely on your contractual rights, while in others it may mean relying on other rights either in addition or as an alternative course of action.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.