Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada et al.

[Indexed as: Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada]

65 O.R. (3d) 30

[2003] O.J. No. 2062

Docket No. C32896

Court of Appeal for Ontario,

Doherty, Laskin and Goudge JJ.A.

May 29, 2003

Torts -- Economic torts -- Wrongful interference with economic relations -- Trade association establishing advertising standards for its members -- Trade association directing its members not to advertise in calendar distributed by non-member of association -- Elements of tort of wrongful interference with economic relations established -- Intention to injure -- Interference with plaintiff's business by illegal or unlawful means -- Consequential economic loss.

In March 1990, by letter, and in August 1990, the Pharmaceutical Manufacturers Association of Canada ("PMAC"), a voluntary trade association, told its members that advertising in a calendar that had been created and distributed by Reach M.D. Inc. ("Reach") would contravene PMAC's Code of Marketing Practices. Article 12.1 of the Code authorized PMAC's Marketing Practices Committee to adjudicate written complaints concerning the marketing activities of members, and Article 12.4 made adherence to the Committee's decisions a condition of PMAC membership. Article 10.1 of the Code stipulated that member companies refrain from distributing service-oriented items, which would include such items as pads, pens, golf tees and fridge magnets.

PMAC's actions were fatal to Reach's business, and it sued PMAC for various economic torts. The trial judge found that PMAC's March 1990 letter wrongfully interfered with Reach's economic relations because the Committee had not ruled on [page31] whether PMAC members who advertised in the calendar would violate the Code. However, the trial judge held that the wrong was cured by PMAC's legitimate decision in August 1990 that the calendar did not comply with its Code. Reach appealed, and PMAC cross-appealed the finding that its conduct was tortious.

Held, the appeal should be allowed and the cross-appeal dismissed.

PMAC's liability depended on showing that PMAC committed an unauthorized act and that this act satisfied the elements of the tort of intentional interference with economic relations. PMAC's direction to its members to stop advertising in the calendar was unauthorized. Article 10.1 prohibited members from distributing their own service-oriented items; it did not prohibit members from advertising in service-oriented items produced and distributed by non-members. PMAC had no authority to rule against Reach's calendar. The Committee's ruling amounted to the tort of intentional interference with economic relations, the elements of which are as follows: (1) an intention to injure; (2) interference with the plaintiff's business by illegal or unlawful means; and (3) consequential economic loss. The elements of the tort were satisfied in connection with the March 1990 letter and also in connection with the unauthorized August 1990 ruling. The first element of the tort was met because PMAC's unlawful act was in some measure directed against Reach. It was not necessary to prove that PMAC's prominent purpose was to injure Reach. Even though PMAC's prominent purpose was to advance its own interest, its ruling was in some measure directed at Reach. PMAC's ruling interfered with Reach's business and, on the facts of this case, the means used were illegal or unlawful. The broader view of illegal or unlawful means extends its meaning from acts prohibited by law or by statute to an act without legal justification. Without deciding the outer reach of what constitutes illegal or unlawful means, it at least includes what occurred in the immediate case where the Committee made a ruling that it was not empowered to make. Reach also satisfied the third element of the tort because, as a result of PMAC's interference, Reach suffered economic loss.

APPEAL from a judgment of Maloney J., [1999] O.J. No. 2853 (S.C.J.) dismissing a claim for wrongful interference with economic relations. [page32]

Cases referred to Daishowa Inc. v. Friends of the Lubicon (1996), 1996 11767 (ON SC), 27 O.R. (3d) 215, 33 C.R.R. (2d) 322, 29 C.C.L.T. (2d) 76 (Div. Ct.), revg (1995), 30 C.R.R. (2d) 26 (Ont. Gen. Div.); Dunlop v. Woollahra Municipal Council, [1981] 1 All E.R. 1202 (P.C.); Lineal Group Inc. v. Atlantis Canadian Distributors Inc. (1998), 1998 4248 (ON CA), 42 O.R. (3d) 157 (C.A.) [Leave to appeal refused (1999), 249 N.R. 194n]; Lonhro plc. v. Fayed, [1989] 2 All E.R. 65 (C.A.); MacDonald v. Windsor-Essex County Real Estate Board (1982), 1982 1902 (ON SC), 38 O.R. (2d) 589 (H.C.J.); No. 1 Collision Repair and Painting (1982) Ltd. v. Insurance Corp. of British Columbia, 2000 BCCA 463, [2000] B.C.J. No. 1634 (QL), 80 B.C.L.R. (3d) 62 (C.A.), Torquay Hotel Co. Ltd. v. Cousins, [1969] 1 All E.R. 522, [1969] 2 Ch. 106, [1969] 2 W.L.R. 289, 6 K.I.R. 15, 113 Sol. Jo. 52 (C.A.); United Food and Commercial Workers, Local 1252 Fisherman's Union v. Cashin (2002), 216 Nfld. & P.E.I.R. 41, 217 D.L.R. (4th) 620, 647 A.P.R. 41, 84 C.L.R.B.R. (2d) 161, 2002 NFCA 48, [2002] N.J. No. 223 (QL) (Nfld. C.A.), affg (1996), 1996 11537 (NL SC), 149 Nfld. & P.E.I.R. 112, 467 A.P.R. 112, [1996] N.J. No. 343 (QL) (Nfld. T.D.); Volkswagen Canada Ltd. v. Spicer (1978), 91 D.L.R. (3d) 42, 21 N.S.R. (2d) 496, [1978] N.S.J. No. 587 (QL) (S.C. App. Div.) Authorities referred to Fleming, J.G., The Law of Torts, 9th ed. (Sydney: Law Book Company Ltd., 1998)

Peter C. Wardle and Meredith L. Hayward, for appellant. Gary O'Neill and Christopher C. Van Barr, for respondent.

The judgment of the court was delivered by

LASKIN J.A.: --

A. Introduction

[1] The general question on this appeal is whether a trade association is liable in tort for economic harm that it caused to a third party.

[2] In the late 1980s, the appellant, Reach M.D. Inc., created and distributed to Canadian doctors and other health care professionals a humorous and popular wall calendar called Herman M.D. Reach made money on this venture by selling advertising space in the calendar to drug companies, many of whom were members of a voluntary trade association, the Pharmaceutical Manufacturers Association of Canada ("PMAC"). In March 1990 and again in August 1990, PMAC told its members that advertising in the calendar contravened the Association's Code of Marketing Practices (the "Code"). This direction was fatal to Reach's business.

[3] Reach sued PMAC and others for various economic torts, including intentional interference with economic relations. The trial judge, Maloney J., found that the letter PMAC sent to Reach's customers on March 28, 1990, wrongfully interfered with Reach's economic relations. But the trial judge did not award any damages for this tort. In his opinion, the March letter was cured by PMAC's "perfectly legitimate" decision in August 1990 that Reach's calendar did not comply with the Code.

[4] Reach appeals to this court only against PMAC. It asks that we find PMAC liable in tort and that we direct a reference on damages. Reach seeks to hold PMAC liable on either of two bases: first, PMAC did not have authority under its Code -- either in March 1990 or in August 1990 -- to rule on whether its members could advertise in the calendar; or second, PMAC's August decision could not cure its previous unlawful act because the two were linked -- the one would not have happened without the other.

[5] Both bases of liability depend on showing that PMAC committed an unauthorized act and that this act satisfied the elements of the tort of intentional interference with economic relations.

[6] PMAC cross-appeals. It asks us to hold that the trial judge erred in concluding Reach had made out the tort of intentional [page33] interference with Reach's economic relations. PMAC submits that it did have authority under its Code to rule against Herman M.D. PMAC also submits that it did not intend to injure Reach, that its March 28, 1990, letter was not an illegal or unlawful act and that the letter did not cause Reach to suffer economic loss.

[7] The appeal and the cross-appeal thus raise these four issues:

1. Did the Code authorize PMAC to direct its members to stop advertising in Herman M.D.;

2. If the answer to question 1 is no, was the Committee's ruling in August 1990 a tortious act;

3. Did the trial judge err in concluding that sending the March 28, 1990, letter was a tortious act; and

4. If the answer to question 3 is no, did the trial judge err in concluding that PMAC's decision in August 1990 cured its previous unlawful act?

[8] I would answer these questions no, yes, no and no. I would therefore hold that Reach has succeeded on its main ground of appeal: the Committee had no jurisdiction under its Code to direct PMAC's members to stop advertising in Herman M.D. I would direct a reference on damages limited to one year's loss of profits.

B. Background Facts

[9] In 1988, Reach created a wall calendar containing Herman cartoons, drawn by the Canadian cartoonist Jim Unger. Reach called the calendar Herman M.D. because it featured Unger's Herman character in medical settings.

[10] Reach produced the first Herman M.D. for the 1989 calendar year. It published the calendar both in English and in French. Drug manufacturers paid to insert a two-inch by nine- inch advertisement at the bottom of a calendar page. Advertising revenues for the first Herman M.D. exceeded $800,000. Reach distributed the calendar free of charge to approximately 45,000 doctors and other health care professionals across Canada.

[11] The calendar was well received. Reach received many letters of praise and not a single complaint from the public. The trial judge also liked the calendar. He found"It was attractive and it was popular. Certainly it appealed to this court. It was seemingly harmless and obviously widely appreciated."

[12] During the time period that Reach launched Herman M.D., many pharmaceutical companies distributed their own [page34] advertising products. For example Merck Frosst Canada Inc., a PMAC member, had for a long time produced its own promotional calendar called Dingbat. Other products included Post-it( Notes, scratch pads, hockey pucks, golf tees, pens, agendas, rulers and fridge magnets. These advertising products distributed by the drug companies were known as "service- oriented items".

[13] In the mid to late 1980s, the increasing cost of prescription drugs in Canada gave rise to criticism of the marketing practices of the pharmaceutical industry. The practice of distributing service-oriented items especially came under public scrutiny. Many viewed these items as frivolous. They increased advertising costs -- and thus the cost of medication -- but did not add to the doctors' or patients' knowledge about medical conditions or treatment.

[14] In the wake of this criticism and scrutiny, PMAC became concerned that the government might attempt to regulate the prices and practices of its members. To avoid this, PMAC adopted a self-regulatory scheme. In February 1988, it introduced a revised Code. This Code targeted the marketing activities of PMAC members, including the distribution of service-oriented items.

[15] A PMAC committee -- the Marketing Practices Review Committee -- administered the Code. Article 12.1 of the Code authorized the Committee to review and adjudicate written complaints concerning the marketing activities of PMAC members. Article 12.4 made adherence to the Committee's decisions a condition of continued membership in PMAC. Article 10.1 -- critical on this appeal -- stipulated that "member companies shall refrain from distributing service-oriented items."

[16] In the summer and fall of 1989, the Committee ruled on a number of service-oriented items distributed by member companies and decided that these "single sponsored items" contravened the Code. Word then spread through the industry that the Committee might begin to apply the Code to "multi- sponsored items", such as Herman M.D. The resulting uncertainty prompted Reach to ask the Committee for clarification and for assurance that Herman M.D. would not be affected by the Code. In a letter dated September 26, 1989, to Paul Lucas, chair of the Committee, Reach noted that "This is a grave matter affecting the viability of our business." The letter continued,

Paul, I need a letter from you confirming your statement that PMAC member companies may indeed advertise in the 1990 editions of Herman M.D. while the P.M.A.C. continues its deliberations and search for guidelines that can be applied fairly and equally to all service-oriented items.

[17] Lucas replied the same day. He wrote that the Committee had not yet decided whether multi-sponsored service items [page35] contravened the Code "because of the far-reaching implications of such a decision on the companies selling these vehicles". He assured Reach that even if the Committee eventually ruled against it, PMAC members would not be prohibited from advertising in the 1990 Herman M.D.

The Code is currently undergoing review and this issue will be part of the review process. This process will be complete by late 1989 or early 1990. In the meantime it is recognized that the companies involved have closing dates for their 1990 programs which are imminent and that that there is a high level of uncertainty amongst P.M.A.C. companies as to whether they should participate. The Marketing Practices Review Committee has agreed that pending a final decision on this issue, existing programs with closing dates pre-January 1989 will not be ruled in contravention of the Code during 1990 regardless of the decision. Herman M.D. 1990 calendars have been included in this category.

[18] Lucas also told Reach that the Committee had not received any complaint about Herman M.D. and that if it did receive one Reach would be given "lots of time to try and fix it". Lucas acknowledged in his testimony that PMAC was concerned about the effect of the Committee's decisions on third-party suppliers such as Reach. Although perhaps not "a high priority item", nonetheless, PMAC did not want to put these suppliers out of business. Instead it began a dialogue with them. In November 1989, for example, PMAC's marketing section met with Reach and other third-party suppliers to hear their concerns. PMAC agreed to decide which items conformed to the spirit of the Code by July 1, 1990.

[19] With this reprieve, Reach's business surged. Companies who, months earlier, had been reluctant to buy advertising space, now bought space in the 1990 Herman M.D. Between October 12 and December 20, 1989, Reach obtained 18 advertising contracts worth nearly half a million dollars.

[20] The reprieve was short-lived. In January 1990, the Committee ruled that Merck Frosst's Dingbat calendar did not comply with the Code. In February 1990, Brian McLeod, the vice president of Merck Frosst and also the vice chair of the Committee, filed a complaint against Herman M.D. He claimed that the Committee had to rule consistently: if the Dingbat calendar contravened Article 10.1 of the Code, so too did Herman M.D. He outlined this concern in his letter of complaint to Lucas.

I am aware that the Board is concerned that a ruling of non- compliance in a "third-party" situation such as this potentially puts in jeopardy the continued viability of publishers of the calendar as well as suppliers of other promotional services. I share this concern; however, I would stress that the Board has as its primary mandate to rule on the promotional activity in question and not the way in which it is supplied. [page36]

In the case of these third-party situations, I recommend that the Board decide and that all sponsors be advised, that such an activity is not in compliance with the Code. At the same time, I would recommend that the Board institute for these situations an exempt status. This exempt status would provide a two-year period ending December 1991 in which companies could continue to advertise in such third-party media without having this activity show in our reporting of infractions. During this same period of time, the third-party suppliers would have time to revise their promotional vehicles so that their services meet the guidelines of the Code.

With such an action, the Board would be ruling in a consistent manner on all promotional activities regardless of their method of production and distribution and would be communicating clearly to all involved, that in the Board's opinion, certain activities are not in compliance with the Code.

[21] The Committee met on March 20, 1989, and reviewed a number of complaints, including that of Merck Frosst against Herman M.D. The trial judge found that the Committee did not rule on the Merck Frosst complaint because there was no evidence of such a ruling.

[22] On March 26, 1990, McLeod again wrote to Lucas undertaking that Merck Frosst would no longer distribute the Dingbat calendar [See Note 1 at end of document]. He then added an important caveat: "Inherent in this commitment is the assumption that your Committee will reach the same ruling on all calendars, irrespective of their method of production and distribution."

[23] Although this caveat seemed to confirm the trial judge's finding that the Committee had not yet ruled on Herman M.D., on March 28, 1990, Lucas wrote to each of Reach's advertisers to say that the Committee had decided that "sponsorship of service-oriented items, such as the Herman M.D. calendar" did not comply with Article 10 of the Code.

The Marketing Practices Review Committee is aware that your Company is one of several PMAC members sponsoring the specialty 1990 Herman M.D. calendars.

Accordingly, we wish to advise that sponsorship of service-oriented items, such as the Herman M.D. calendar, are not in compliance with Section 10 (Service-Oriented Items) of the PMAC Code of Marketing Practices.

We realize that plans for your sponsorship of the 1990 calendar would have been made many months ago at which time your Company may not have been in possession of full clarification with respect to acceptable service-oriented items. That is why we wish to draw your attention to this matter well in advance of the completion of your marketing plans for 1991.

Because such service-oriented items are not in compliance with the Code, the Committee would be obliged, upon receipt of a written complaint, to rule against any Company sponsoring such items in 1991. [page37]

[24] The trial judge found that "absent a ruling by the Committee . . . what Lucas did on behalf of PMAC was an improper and unwarranted act."

[25] PMAC did not send a copy of this letter to Reach, but Reach later received a copy from one of its customers. Between March and July 1990, the Committee met with Reach's representatives to discuss revisions to Herman M.D.

[26] Reach then redesigned its calendar to try to bring it into compliance with the Code. Reach included information for doctors and patients on various topics. It worked with various charities, including the Heart and Stroke Foundation and the Canadian Cancer Society, to add educational content. The revised Herman M.D. was approved by the Canadian Medical Association's Committee on Ethics.

[27] On August 23, 1990, Reach presented its redesigned calendar to the Committee. However, McLeod, on behalf of the Committee, told Reach that its calendar still did not comply with the Code. Thus, any PMAC member that advertised in the 1991 Herman M.D. would violate Article 10. In a letter dated September 7, 1990, the Committee confirmed this advice:

The Committee took careful note of the measures taken by Reach M.D. to make the calendar a more relevant and informative vehicle. In particular, we were impressed with your efforts in dialoguing with various disease-specific organizations to develop the counselling information which has been incorporated in the calendar.

Notwithstanding, I must advise that, after careful consideration, the Committee concluded that the primary function of the vehicle is that of a calendar. Accordingly, it was the unanimous decision of the Committee that the Herman M.D. calendar, as presented to us during the meeting, does not comply with Section 10 of the PMAC Code of Marketing Practices. Consequently, if any PMAC member advertises in the calendar as currently formatted, and a written complaint is received by the Committee, it is the opinion of the Committee that the Company in question would be found to be in contravention of the Code.

(Emphasis in original)

[28] The Committee's determinations in March and then in August 1990 spelled the demise of the Herman M.D. calendar. For the 1991 calendar, advertising revenues plummeted to around $200,000. Reach floundered until 1993, when it stopped production of the calendar.

C. Analysis

First issue: Did the Code authorize PMAC to direct its members to stop advertising in Herman M.D.?

[29] The trial judge held that PMAC had committed the tort of intentional interference with Reach's economic relations. He so [page38] held because he found that Lucas' March 28, 1990, letter was an unlawful act. It was an unlawful act because the Committee had not ruled on whether PMAC members who advertised in Herman M.D. would violate the Code. Conversely, the trial judge found that the ruling in August was "perfectly legitimate" because that ruling had been made by the Committee.

[30] The trial judge did not expressly consider whether the prohibition in Article 10.1 was broad enough to cover members' advertising in service-oriented items produced and distributed by non-members, such as Reach. But his findings implicitly assumed that Article 10.1 did cover these multi-sponsored items. PMAC, of course, supports the trial judge's position on the scope of Article 10.1.

[31] Reach's main submission on this appeal is that Article 10.1 did not clothe the Committee with jurisdiction to prohibit members of PMAC from advertising in Herman M.D. Article 10.1 prohibited members of PMAC from distributing their own service- oriented items. It did not prohibit members from advertising in service-oriented items produced and distributed by non- members. Thus, Reach submits that PMAC had no authority to rule against Herman M.D.: the Committee's August ruling was not authorized and, had it ruled in March, that ruling too would not have been authorized. I agree with this submission.

[32] Reach's submission should be viewed in the context of two general principles concerning court review of the actions of a voluntary trade association. First, where the association exercises authority beyond the scope of its own rules, a court can set aside a decision for lack of jurisdiction. Second, however, an association's rules and regulations should be interpreted broadly: only where the association has clearly exceeded its authority should the court intervene. PMAC's Code emphasized this second principle in Article 1, which stipulated"Observance of the PMAC Code of Marketing Practices is to be in spirit, as well as in letter".

[33] Both principles were discussed by Steele J. in MacDonald v. Windsor-Essex County Real Estate Board (1982), 1982 1902 (ON SC), 38 O.R. (2d) 589 (H.C.J.) at p. 592.

A private body such as the defendant should be allowed great flexibility in interpreting its own by-laws and rules and regulations to which members have contracted to be bound. The courts should only interfere where it is obvious the body has clearly not exercised power within such laws and regulations. Having contracted with its member to adhere to its own rules and regulations it cannot purport to exercise power outside them.

[34] In this case, the article of the Code that must be interpreted is 10.1. As originally drafted in February 1988, Article 10.1 provided: [page39]

10. Service-Oriented Items

10.1 Member companies shall refrain from distributing service-oriented items and from conducting "special promotions" which cannot be justified if subjected to professional and public scrutiny.

[35] Article 10.3 contemplated that PMAC would publish guidelines on acceptable criteria for service-oriented items. It did so in November 1989. These guidelines established a checklist for determining whether a service-oriented item could "withstand professional and public scrutiny".

General Principle

Member companies shall refrain from distributing service- oriented items and from conducting "special promotions" which cannot be justified if subjected to professional and public scrutiny.

The following checklist was developed by the Marketing Section in an attempt to establish acceptable criteria for service-oriented items. If member companies can answer YES to the following questions, the service-oriented item should be able to withstand professional and public scrutiny.

Is the item in question:

1. Of value/utility to the healthcare professional?

2. Not commercially/readily available to the healthcare professional?

3. Of minimal commercial or real value?

4. Designed to facilitate patient/healthcare professional understanding of a condition?

If each of the foregoing is answered in the affirmative, the final assessment rests in determining whether or not, in your opinion, the service-oriented item has a high potential to draw criticism from either healthcare professionals or the lay public.

[36] Even after it had been redesigned, Herman M.D. did not satisfy this checklist. Question 4, in particular, was not met. Had a member of PMAC published and distributed the 1990 or the 1991 Herman M.D., that member would have violated Article 10.1 of the Code. Further, had the member contracted out the publishing and distribution to a third party, the member would still have violated Article 10.1. Such an arrangement would at least violate the spirit of the Code, if not the letter.

[37] But that is not what happened here. No member of PMAC, either directly or through a third-party, distributed Herman M.D. Instead, members of PMAC bought advertising space in Reach's wall calendar. "Distributing" ordinarily means "dealing out" or delivering items to people: The New Shorter Oxford English Dictionary, (Thumb Index ed.) p. 709; Black's Law Dictionary, 7th ed., p. 487. No matter how broadly the word "distributing" is [page40] interpreted, its meaning here cannot be extended to include merely advertising. Indeed, advertising is dealt with separately in the Code in Article 2.

[38] Any doubt that the prohibition in Article 10.1 did not include advertising in service-oriented items distributed by non-members of PMAC was put to rest by the May 1990 amendment to that Article. The amendment added a critical second sentence to Article 10.1, so that the entire Article then provided:

10. Service-Oriented Items

10.1 General Principle

Member companies shall refrain from distributing service- oriented items and from conducting "special promotions" which cannot be justified if subjected to professional and public scrutiny. Member companies are also encouraged to use judgement in selecting advertising vehicles which may not be consistent with this general principle.

(Emphasis added)

[39] The second sentence was directed to those members who were considering advertising in a service-oriented item such as Herman M.D. And although the sentence cautions members to use their judgment, those who did choose to advertise would not contravene Article 10.1, and, therefore, would not be subject to the Code's sanctions, including loss of membership in PMAC.

[40] Undoubtedly, as Reach acknowledged, PMAC could have drafted Article 10.1 more broadly to prohibit members from advertising in service-oriented items, such as Herman M.D., which did not meet the Association's guidelines. It simply did not do so. The Committee, therefore, had no authority to rule as it did in August 1990 that advertising in Herman M.D. would contravene the Code.

[41] PMAC advances a secondary position in defence of the judgment at trial. Even if Article 10.1 was not broad enough to prohibit advertising in Reach's calendar, PMAC contends that the Committee did not rule or decide against Herman M.D. in August 1990. Instead, it just gave an advisory opinion for future guidance. PMAC points out that the Committee made decisions under Article 10.1 in response to formal complaints. Yet, the Committee's August opinion did not result from a complaint, but from a process Reach voluntarily participated in to address the Committee's concerns about its calendar.

[42] I do not accept PMAC's contention for three reasons. First, it is contrary to the position PMAC took at trial, a position that was accepted by the trial judge. At trial PMAC insisted that in August 1990, the Committee made a ruling under Article 10.1 that it was authorized to make. Second, whether called a decision [page41] or an opinion, the adverse effect on Reach was identical. The Committee signalled that its members who advertised in Herman M.D. would contravene Article 10.1. Third, the August ruling may fairly be seen as a decision on Herman M.D., which was precipitated by Merck Frosst's complaint in February 1990.

[43] I conclude, therefore, that the Code did not authorize PMAC to direct its members to stop advertising in Herman M.D., and that in so ruling in August 1990, the Committee acted beyond its jurisdiction.

Second issue: Was the Committee's ruling in August 1990 a tortious act?

[44] Reach cannot succeed on its main ground of appeal merely by showing that the Committee's August 1990 ruling was unauthorized. Instead, it must show that this ruling amounted to the tort of intentional interference with economic relations. To establish this tort, Reach must prove three elements:

(i) PMAC intended to injure Reach;

(ii) PMAC interfered with Reach's business by illegal or unlawful means; and

(iii) As a result of the interference Reach suffered economic loss.

See Lineal Group Inc. v. Atlantis Canadian Distributors Inc. (1998), 1998 4248 (ON CA), 42 O.R. (3d) 157 (C.A.).

[45] As I will discuss, the trial judge concluded that Reach made out these elements of the tort in connection with Lucas' unauthorized March 1990 letter. Equally, I conclude that Reach has satisfied the elements of the tort in connection with the Committee's unauthorized August 1990 ruling.

[46] To satisfy the first element, Reach need not prove that PMAC's predominant purpose was to injure it. This first element of the tort will be met as long as PMAC's unlawful act was in some measure directed against Reach. That is so even if -- as PMAC claims -- its predominant purpose was to advance its own interest and those of its members. In short"The defendant's manoeuvre must have been targeted against the plaintiff, although its predominant purpose might well have been to advance his own interests thereby rather than to injure the plaintiff." See John G. Fleming, The Law of Torts, 9th ed. (Sydney: Law Book Company Ltd., 1998) at p. 769.

[47] The trial judge found that PMAC targeted Reach when Lucas sent his letter to PMAC members in March 1990. Similarly, the Committee's August 1990 ruling targeted Reach and its [page42] Herman M.D. calendar. Even though PMAC may have acted to protect its members, its ruling was in some measure directed against Reach. Indeed the trial judge found at para. 23"PMAC was clearly aware of the current and potential effects of its efforts on third parties such as the plaintiff." PMAC recognized these effects when, in September 1989, it decided not to blacklist the 1990 Herman M.D. The Committee must also have recognized these effects when it ruled in August 1990. On all the evidence, I see no other reasonable inference. See Lonhro plc. v. Fayed, [1989] 2 All E.R. 65 (C.A.), and Daishowa Inc. v. Friends of the Lubicon (1996), 1996 11767 (ON SC), 27 O.R. (3d) 215, 33 C.R.R. (2d) 322 (Div. Ct.).

[48] The second element of the tort -- that PMAC interfered with Reach's business by illegal or unlawful means -- on the facts of this case is the most contentious element. Unquestionably, the Committee's August 1990 ruling interfered with Reach's business, but did this ruling satisfy the "illegal or unlawful means" branch of the tort?

[49] The case law reflects two different views of "illegal or unlawful means", one narrow, the other broad. The narrow view confines illegal or unlawful means to an act prohibited by law or by statute. See Dunlop v. Woollahra Municipal Council, [1981] 1 All E.R. 1202 (P.C.). Though unauthorized, the Committee's August 1990 ruling was not prohibited either by law or by statute.

[50] The broader view, however, extends illegal or unlawful means to an act the defendant "is not at liberty to commit" -- in other words, an act without legal justification. Lord Denning espoused this broader view in Torquay Hotel Co. Ltd. v. Cousins, [1969] 1 All E.R. 522, [1969] 2 Ch. 106 (C.A.) at p. 530 All E.R.:

I must say a word about unlawful means, because that brings in another principle. I have always understood that if one person deliberately interferes with the trade or business of another, and does so by unlawful means, that is, by an act which he is not at liberty to commit, then he is acting unlawfully, even though he does not procure or induce any actual breach of contract. If the means are unlawful, that is enough.

[51] The trial judge adopted the principle in Torquay Hotel in finding that Lucas' March 28 letter was "an improper and unwarranted act" that satisfied the second element of the tort. Several Canadian appellate courts have taken the same view. For example, the Nova Scotia Court of Appeal applied this principle in finding a franchisor liable for unlawful interference with economic interests because of its unauthorized instruction to a franchisee's bank not to honour certain cheques. See Volkswagen Canada Ltd. v. Spicer (1978), 91 D.L.R. (3d) 42, 21 N.S.R. (2d) 496 (S.C. App. Div.). See also United Food and Commercial Workers, Local 1252 Fishermans' Union v. Cashin, 1996 11537 (NL SC), [1996] N.J. No. 343 (QL), 149 Nfld. & P.E.I.R. 112, affd 2002 NFCA 48, [2002] N.J. No. 223 (QL), 217 D.L.R. (4th) 620 (Nfld. C.A.) and [page43] No. 1 Collision Repair and Painting (1982) Ltd. v. Insurance Corp. of British Columbia, 2000 BCCA 463, [2000] B.C.J. No. 1634 (QL), 80 B.C.L.R. (3d) 62 (C.A.) per Lambert J.A., dissenting.

[52] I think that the trial judge was right to take a broader view of illegal or unlawful means. It is, however, unnecessary to decide the outer limits of the principle in Torquay Hotel. Unlawful means at least include what occurred here: the Committee made a ruling that it was not authorized to make. Its ruling was beyond its powers. I see no policy reasons for taking a narrower view of unlawful means. Indeed, to do so would preclude redress against organizations like PMAC and others for any number of unauthorized acts that on a common sense view would be considered unlawful, but nonetheless, were not prohibited by law or by statute.

[53] Taking this broader view of unlawful means, I conclude that the Committee's August 1990 ruling was an act PMAC "was not at liberty to commit". Reach has, thus, met the second element of the tort of intentional interference with economic relations. It has shown that PMAC interfered with its business by unlawful means.

[54] Reach has also satisfied the third element of the tort. As a result of PMAC's interference, Reach obviously suffered economic loss. The Committee's August ruling caused Reach's advertising sales to plummet. Within a couple of years, Herman M.D. could no longer survive. I therefore conclude that because of the Committee's August 1990 ruling, PMAC is liable to Reach for the tort of intentional interference with economic relations.

Third issue: Did the trial judge err in concluding that sending [the] March 28, 1990 letter was a tortious act?

[55] Although I would allow Reach's appeal on its main submission, I will also address its alternative submission. Its alternative submission advances an entirely different theory of liability. This theory accepts the trial judge's implicit conclusion that Article 10.1 of the Code prohibited PMAC members from advertising in promotional items such as Herman M.D. Nevertheless, Reach contends that but for PMAC's unauthorized act in March 1990, it would not have ruled against Herman M.D. in August.

[56] Therefore, Reach's alternative submission depends on upholding the trial judge's finding that Lucas' March 28, 1990, letter was a tortious act, and on setting aside the trial judge's [page44] later finding that the Committee's decision in August 1990 cured this earlier tort. Here I deal with whether the trial judge erred in finding that PMAC intentionally interfered with Reach's economic relations by sending the March 28, 1990, letter to its members. Largely for the reasons I have already discussed, I conclude that he did not err.

[57] However, the third element of the tort -- economic loss flowing from the unlawful interference -- requires separate consideration. That Reach suffered economic loss because of the Committee's August ruling was abundantly evident from the financial data in the record. But PMAC submits that Reach suffered no loss flowing from Lucas' March letter because of the nature of the calendar business. That business is mainly a six-month business. Typically, advertising contracts for a given year's calendar are concluded between July and December of the previous year. PMAC, therefore, contends that Reach suffered no loss between March 1990 and the Committee's decision in August.

[58] The trial judge concluded at para. 46"there can be no dispute that the plaintiff has suffered economic loss, and has therefore met step three". He found that "almost immediately" after Lucas' letter "virtually all of the plaintiff's customers ceased doing business with it". He did not, however, explain why this was due to the letter in March rather than the Committee's ruling in August. Moreover, the evidence of any loss of advertising contracts between March and August is sketchy. At the very least, however, Reach suffered a loss of goodwill because of Lucas' letter. That loss of goodwill suffices to meet the third element of the tort. I find no error in the trial judge's conclusion that PMAC committed a tortious act in March 1990.

Fourth issue: Did the trial judge err in concluding that PMAC's decision in August 1990 cured its previous unlawful act?

[59] The trial judge did not award damages for PMAC's tortious March 28, 1990 letter because in his view the Committee's "perfectly legitimate" ruling in August that Herman M.D. did not comply with the Code "accomplished the same effect and created the same result". Regardless of what occurred in March, the ruling in August would inevitably, and did, prompt advertisers to withdraw their support for the 1991 calendar.

[60] Reach submits that the trial judge erred in concluding that the August ruling "cured" the March tort. Reach contends that the trial judge erroneously viewed the March ruling and the [page45] August decision as unrelated events. Instead, Reach says that they were inextricably linked. To hold that Herman M.D. would have been ruled against in August without the letter in March is, Reach says, entirely speculative. I do not agree.

[61] I suppose that the trial judge could have adopted Reach's position. But the standard of appellate review comes into play. The trial judge effectively, if not expressly, found that even if nothing had happened in March, PMAC would still have ruled against Reach's calendar in August. That finding is a finding of fact. It is entitled to deference from this court. The evidence in the record and the reasonable inferences that may be drawn from that evidence amply support the trial judge's finding.

-- By the fall of 1989, there was a "buzz" in the industry about the fate of multi-sponsored items. Indeed by then the Committee had already discussed whether Herman M.D. complied with the Code.

-- Reach knew about these discussions and knew by late September 1989 that PMAC had serious concerns about whether Herman M.D. violated at least the spirit of the Code.

-- PMAC then asked Reach and other third-party suppliers to submit their products for the Committee's consideration. Lucas, the chair of the Committee, told Reach and others that they would know the Committee's positions by the summer of 1990, and thus, well before publication of the 1991 calendar.

-- After the Committee ruled against the Dingbat calendar in February 1990, Merck Frosst complained about PMAC members advertising in Herman M.D. The Committee had a mandate to investigate and rule on this complaint. Even if it did not rule on Merck Frosst's complaint in March, likely it would have done so soon after.

-- Thus, it is a fair inference that even if Lucas had never sent his letter in March, the dialogue between Reach and the Committee over changes to Herman M.D. would still have occurred. That dialogue led directly to the August ruling.

[62] In the light of these considerations, the trial judge's finding that the August ruling cured the March tort is reasonable. Therefore, I would not give effect to Reach's alternative theory of liability. [page46]

D. Conclusion

[63] I would allow Reach's appeal and set aside the trial judge's order. I would declare that the Article 10.1 of the Code of Marketing Practices did not authorize PMAC to direct its members to stop advertising in Herman M.D. I would find that because of its August 1990 ruling, PMAC is liable to Reach in tort for intentionally interfering with Reach's economic relations. I would dismiss PMAC's cross-appeal.

[64] The trial judge did not assess damages. Part of the trial record is missing, thus preventing this court from making its own assessment. I would, therefore, direct a reference on Reach's damages. However, I would limit those damages to loss of profits for the 1991 calendar. I impose a one-year limit on Reach's damages because, as even Reach acknowledges, PMAC could have drafted Article 10.1 of the Code broadly enough to prohibit its members from advertising in multi-sponsored items such as Herman M.D. Had PMAC been told in August 1990 that its Code did not authorize the Committee's ruling, one can reasonably conclude PMAC would have amended its Code to prohibit its members from advertising in the 1992 Herman M.D.

[65] Finally, the parties may make written submissions on the costs of the trial and of the appeal. In accordance with this court's practice direction, the submission on the costs of the appeal should include a bill of costs and a proposed amount.

Order accordingly.

Notes

Note 1: Despite this undertaking, Merck Frosst continued to publish its Dingbat calendar until 1994.