Generally, a tort is when one person or entity inflicts an injury upon another in which the injured party can sue for damages. In torts law suit, the injured party, referred to as the “plaintiff” in civil cases, seeks “compensation” in “court” through a “lawyer” from the “defendant(s)” for damages incurred (i.e. harm to property, or wellbeing).
Tort law determines whether a person should be held legally accountable for an injury against another as well as what type of compensation the injured party is entitled to.
The four elements to every successful tort case are:
- Breach of duty,
- Causation, and’
For a tort claim to be well-founded there must have been a breach of duty made by the defendant against the plaintiff which resulted in an injury. Tort law suits are the biggest category of civil litigation and can encompass a wide range of personal injury cases. However, there are three (3) main types as follows:
- Intentional torts,
- Negligence and
- Strict liability.
However, the area of law that covers injury to business, name and profits as well as damages recoverable from such injuries is referred to as Business Torts.
In this article, we shall delve into the tort of injury to business including fraudulent misrepresentation, civil conspiracy, trade libel and breach of fiduciary duty as well as the damages accruable to plaintiff and most importantly understanding these torts not only will help you identify when you have a valid claim, but also will help your organization avoid committing such acts.
What are business torts?
Business torts also called “economic torts” are wrongful acts committed against business entities – often intentional but sometimes due to negligence or recklessness – that cause (or are likely to cause in the future) some kind of financial loss. They are not criminal offences, although some business torts also may be charged as such (including restraint of trade in some cases). Businesses that are financially injured through the intentional or negligent act of another business or individual may seek monetary damages in civil court, although sometimes courts will issue injunctions ordering the defendant to cease certain unlawful activities.
It is trite that many torts involve damage to business relationships, public reputation or the ability to function in the marketplace in general, financial losses are often based on future projections. For example, a tortuous interference claim often will focus on the actual losses suffered by the interference of the contract. If the company lost a client, then damages will be based on that specific loss. But if the loss of the client through tortuous interference hurts the company’s ability to attract new clients, a more general restraint of trade claim may be filed. In such a case, the plaintiff will try to recover for the profits they believe will be lost in the future.
Types of Business Torts:
The common business torts can be categorized as follows:
- Tortuous or wrongful interference,
- Restraint of trade
- Theft of trade secret
- Fraudulent misrepresentation,
- Unfair competition and trade practices,
- Disparagement and
- Computer torts.
However, business torts covers a wide range of misconduct not only injury to business, but also to name of the company and its profits due to negligence, malpractice and improper interference with the business interest of another. While most torts involve injury to another person’s body or damage to their property, business torts involve “injury” to another’s business interest which includes losses of business opportunities, loss of clients and loss of business relations. Thus, many business torts involve losses that may occur in the future or projected losses, rather than losses that were experienced in the past.
Remedies for Business Torts:
When someone pursues a claim under business tort, the goal (or legal remedy) is usually the award of damages. The term “damages” is a legalese for a sum of money paid to the plaintiff in a lawsuit either to compensate for an injury or loss or to punish the defendant for wrongdoing. Damages in tort are generally awarded to restore the plaintiff to the position he or she was in had the tort not occurred usually referred to in Latin maxim as “status quo ante” meaning “state of affairs that existed previously”.
In law, damages are an award, typically of money to be paid to a person as compensation for loss or injury. Damages are classified as “compensatory (or actual) damages” and “punitive damages”. Compensatory damages are further categorized into ‘special damages’, which are economic losses such as loss of earnings, property damage and medical expenses, and ‘general damages’, which are non-economic damages such as pain and suffering and emotional distress. See the cases of Ezeani v. Ejidike (1964) 1 All NLR 402, Shugaba Abdulrahman v. Minister of Internal Affairs (1982) NCLR 502, Eliochin (Nigeria) Ltd. v. Mbadiwe (1986) 1 NWLR (Pt.14) at 47.
Generally, punitive damages are not awarded in order to compensate the plaintiff but to reform or deter the defendant and similar persons from pursuing a course of action such as that which damaged the plaintiff. Punitive damages are awarded only in special cases where a defendant acted in a blatantly negligent, malicious or grossly reckless manner.
Remedies for business torts usually involve some form of monetary damages award for the plaintiff. The defendant will have to reimburse the plaintiff for any losses that their tortuous conduct had caused.
As one can imagine, calculating and collecting for such losses is quite difficult. Economic losses are often projections, but keep in mind that damages for any tort must be “calculable with reasonable certainty”. So while it is impossible to predict the future, courts will generally accept estimations of losses that seem reasonable and calculated in good faith. For instance, if a business torts caused a plaintiff to lose clients, they should be able to prove not only that they will be losing clients, but what that loss will meant in terms of monetary value. The plaintiff needs to show exactly how much profit or income they will be losing due to the loss of clients.
If the defendant is still committing the unlawful act in issue, the court may issue an injunction, especially where the proper remedy may require the defendant to remove all false advertisements or any disparaging statements about the plaintiff or his business that might likely cause injury to his business, its company’s name and also profit.
Recovery of damages for lost profit:
To recover damages for lost profit, the plaintiff must prove that it is reasonably certain that he would have earned profit but for the defendant’s conduct. To decide the amount of damage for lost profits, plaintiff must determine the gross amount he would have received but for the defendant’s conduct and then subtract from that amount the expense including the value of the business such as labour, materials, rents and the interest of the capital employed that the person would have had if the defendant’s conduct had not occurred. The amount of the lost profit need not be calculated with mathematical precision, but there must be a reasonable basis for computing the loss. The measure of damages for the commission of a tort is the amount which will compensate the plaintiff for all detriment sustained by him as the proximate result of the defendant’s wrong, regardless of whether or not such detriment could have been anticipated by the defendant. It is well established that such damages may include loss of anticipated profit where an established business has been injured. See the case of Fibreboard Paper Products Corp v. East Bay Union of Machinists, Local 1304, United Steelworkers of America, AFL – C10 (1964) 227 Cal. App.2d 675, 702 (39 Cal. Rptr. 64).
In business cases, damages are based on net profits as opposed to gross revenue. See the case of Meister v. Mensinger (2014) 230 Cal. App 4th 381, 397 [178 Cal. Rptr. 3d 604]. Lost profits if recoverable are more commonly special rather than general damages and subject to various limitations. Not only must such damages be pleaded with particularity, but they must also be proven to be certain both as to their occurrence and their extent, albeit not with mathematical precision. See the case of Greenwich S.F LLC v. Wong (2010) 190 Cal. App. 4th 739, 754 [118 Cal. Rptr. 3d 53].
The general principle is that damages for the loss of prospective profit are recoverable where the evidence makes reasonably certain their occurrence and extent. It is enough to demonstrate a reasonable probability that profit would have been earned except for the defendant’s conduct. The plaintiff has the burden to produce the best evidence available in the circumstances to attempt to establish a claim for loss of profits. Historical data such as past business volume, supply an acceptable basis for ascertaining lost future profits. In some instances, lost profit may be recovered where plaintiff introduces evidence of the profit lost by similar businesses operating under similar conditions. See the case of Sargon Enterprises Inc. v. University of Southern California (2012) 55 Cal. 4th 747 773-774 [149 Cal. Rptr. 3d 614, 288 p.3d 137], S.C Anderson Inc. v. Bank of America N.T & S.A (1994) 24 Cal. App. 4th 529, 5536 [30 Cal. Rptr. 2d 286].
Regarding lost business profits, the cases have generally distinguished between established and unestablished businesses. Where the operation of an established business is prevented or interrupted as by a breach of contract, damages for the loss of prospective profit that otherwise might have been made from its operation are generally recoverable for the reason that their occurrence and extent may be ascertained with reasonable certainty from future sales. See the case of Sargon Enterprises Inc. v. University of Southern California (2012) 55 Cal. 4th 747 773-774 [149 Cal. Rptr. 3d 614, 288 p.3d 137]. On the other hand, where the operation of an unestablished business is prevented or interrupted, damages for prospective profit that might otherwise have been made from its operation are not recoverable for the reason that their occurrence is uncertain, contingent and speculative. But, although generally objectionable for the reason that their estimation is conjectural and speculative, anticipated profit dependent upon future events are allowed where their nature and occurrence can be shown by evidence of reasonable reliability.
If the business is new or speculative, damages may be established with reasonable certainty with the aid of expert testimony, economic and financial data, market surveys and analysis, business records of similar enterprises and the like. In some instances, lost profit may be recovered where plaintiff introduces evidence of the profit lost by similar businesses operating under similar conditions. In either case, recovery is limited to net profits. See the case of Berge v. International Harvesters Co. (1983) 142 Cal. App. 3d. 152, 161-162 [190 Cal. Rptr. 815].
The case law requires reasonable certainty not necessarily absolute certainty and once the occurrence of lost profit is established, a plaintiff has greater leeway in establishing the extent of lost profits particularly if the defendant was shown to have prevented the relevant data from being collected through its wrongful behavior. See the case of Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal. App. 4th 945, 974 [166 Cal.Rptr. 3d. 134].
Lost profits damages are frequently sought by clients who have suffered a business interruption due to another person’s negligence, misconduct or contractual breach. However, a claim in respect of injury to a plaintiff’s business, name and profits and not to his person or character will survive the plaintiff. This reason is because a business is in law regarded as a separate entity apart from its directors. See the case of Mainstreet Bank Ltd. v. Chahine (2015) 11 NWLR (Pt. 1471) 479 p.520, paras. F-G.
Where an injury is occasioned to a customer in business, damages are said to be at large and the party’s estate can benefit, not necessarily relating to the person’s reputation or character. See the case of Balogun v. N.B.N Ltd (1978) 3 SC 155, Westac (Nig.) Ltd. v. Sokoto State Govt. (2001) 4 NWLR (Pt.703) 304, Alakija v. Abdulai (1998) 6 NWLR (Pt. 552) 1, Foreign Finance Corporation v. L.S.D.P.C (1991) 4 NWLR (Pt.184) 157, Maune v. Abdul (2001) 4 NWLR (Pt. 702) 95, Mogaji v. Odofin (1978) 4 SC 91, Fagbenro v. Arobadi (2006) 7 NWLR (Pt. 978) 172.
For further information, do not hesitate to contact the author:
Kingsley Ezenwa Izimah, Esq.