INTRODUCTION
The tort of unlawful interference with economic rights is one of those fewer known torts which has evolved over the years, it can be defined as the unlawful interference of a person in the contract between two parties which may involve inducing one of the parties to breach the contract or interfering with their contracting rights unlawfully.
This tort is often at cross-roads with trade competition in the market, it was clarified in the case of mogul steamship that trade competition or cartels created even-though causes damage to the plaintiff is not actionable as it seeks to achieve a lawful object with lawful means. This article seeks to understand the application of the tort of unlawful interference with economic rights on the recent tussle between Amazon and future retail limited.
JURISPRUDENCE OF UNLAWFUL INTERFERENCE WITH ECONOMIC RIGHTS
It is in this context that it is important to understand what really encompasses the tort of unlawful interference with economic rights, it can be broadly divided 3 parts which are as follows -:
1) The tort of procuring of another person to break a subsisting contract.
2) The tort of causing loss by unlawful means.
3) The tort of causing loss by unlawful acts.
There are typically 3 parties involved in such types of disputes, for instance party A is a company who is adversely affected by a deal between company B and company C, so it decides to interfere with the economic rights between the two parties B and C by using either of the above 3 parts, with this background in mind it is very important to understand the constituent elements of this tort –:
It was first time laid down by the house of lords in the OBG vs Allan, that the tort of unlawful interference has a few essential elements which are -: 1) a wrongful interference with the actions of a third party in which the claimant has an economic interest, 2) an intention to thereby there by to cause loss to the claimant.
It is important that there must be intent to injure and cause loss to the claimant, the actions undertaken by the defendant maybe unlawful in itself or the act maybe lawful but carried out using unlawful means, what is more important is that it affects the freedom of contract between the claimant and the third party, so for instance in the example given in para 3 A must act in such a manner so as to cause loss to B by procuring C to either break the contract or prevent him from performing the contract.
BACKGROUND OF THE AMAZON VS FUTURE RETAIL BATTLE
Amazon.Com Nv Investment Holdings Llc or Amazon has been making several leaps when it comes to ruling the retail trade industry in the offline as well as in the online sphere, one of its recent mega acquisitions in the physical multi-brand retail segment came with its acquisition of Aditya Birla group owned “More”, this step forms the backdrop of amazon’s larger vision to rule the retail segment in India.
The share acquisition deal between future coupons and Amazon, was another step for amazon to rule the retail segment in india, more so because future retail limited or ‘FRL’ was the wholly owned subsidiary of future coupon limited or ‘FCPL’, through this agreement Amazon agreed to buy 49% of FCPL stake.
Under the said agreement between FCPL and amazon, FCPL was prohibited from selling the assets of FRL to selective third parties which included Reliance, hence, when FRL finalized an asset sale deal with Reliance it was opposed by Amazon as it violated the terms of the FCPL SHA, and it went to the emergency arbitrator making FCPL and FRL both a party to the dispute, interestingly Amazon itself did have any contract or agreement with FRL, instead FCPL had an agreement with its subsidiary FRL where all the restrictions and stipulations were listed.
UNLAWFUL INTERFERENCE BY AMAZON
FRL in its suit before the Delhi High Court claimed that there was unlawful interference by amazon with the asset sale agreement between reliance and FRL, in light of this it is very important to understand as to why and how was there an unlawful interference by amazon, when it was reliance who was interfering with the contract between FCPL and Amazon.
According to the FDI/FEMA rules, FDI or ‘Foreign Direct Investment’ in the multi brand retail segment is limited to only 51% and with government approval, this meant that there was no automatic route of FDI for multi-brand retail segment, as a result amazon cannot acquire more than 51% stake in FRL, and even if it does it has to be approved by the government.
This essentially ruled out direct investment by amazon in FRL as amazon was a foreign entity and was bound by the rules of FDI/FEMA but amazon decided to acquire strategic control or rights over FRL by acquiring 49% in its parent company FCPL which was subject to approval by CCI or ‘Competition Commission of India’, while stipulating the terms of the SHA between Amazon and FCPL it restricted FCPL from encumbering or selling the assets of the FCPL and FRL in any way, it also stipulated a condition which gave them the first right to refusal in case of any decision related to encumbering or selling the assets of the FCPL and FRL.
In order to protect their investment amazon also added restrictive stipulations or clauses in the SHA between FCPL and FRL, thus, it also prohibited FRL from selling their assets or creating charge on their assets of any kind to specific entities which included Reliance, this is how amazon acquired strategic control or rights over FRL without acquiring a single share in it.
FRL in its appeal before the supreme court claimed that amazon was unlawfully interfering with its asset sale agreement with reliance as amazon had misrepresented and concealed material facts from the CCI in order to get approval for the share acquisition in FCPL.
In simple words, at the time of amazons share acquisition in FCPL it claimed that whatever restrictive stipulations and clauses contained in the FCPL SHA and FRL SHA was for protection of its investment, amazon at that time didn’t reveal the real purpose of their investment in FCPL which was to acquire strategic rights over FRL because it cannot directly acquire FRL due to the restrictions imposed under the FDI/FEMA rules.
As a result, the SHA between Amazon and FCPL was invalid as amazon concealed material facts and the real purpose of the deal from the CCI, it failed to inform the CCI about the conflation of the shareholders agreement between the FRL and FCPL which would have helped amazon to acquire strategic rights over FRL and this way it would have bypassed the FDI/FEMA rules to create monopoly in the multi-brand retail segment in India.
It is very important for FRL to show that amazon had intended to cause loss to the FRL by its actions as intention to cause loss is a pre-requisite of unlawful interference, in the case of Lonrho vs shell petroleum the court held that that it is very important that the defendant must have intended to cause damage to the claimant, in this case even if the defendant used unlawful means, his intention to do so was to forward his own business interests and not cause loss to the plaintiff.
This case becomes extremely important in the present case as amazon too in the present case through the contract is trying to further its own business interests, hence, it cannot be said to be unlawful interference with economic rights.
Similarly in the Indian judgement of rohtas industries limited vs rohtas industries staff union the court held that even though they used unlawful means using strikes to cause loss to the plaintiff, it is not actionable as the intention of the defendants or the workers was not to harm the claimant but to benefit themselves.
CONCLUSION
On 17th December 2021, The CCI suspended the FCPL-Amazon deal and withdrew the approval which was granted in 2019 on the grounds that the Amazon has concealed material information and hidden the true purpose of the deal to gain approval for the contract.
This means that the CCI accepted FRL’s claim and suspended the 2019 Amazon-FCPL deal which is the whole basis of this dispute. The case is now pending in the NCLT as the Amazon has challenged the CCI’s order of suspension of the deal dated 17th December 2021.
With the growing competition in the e-commerce marketplace industry and other allied fields the ‘tort of unlawful interference with economic rights’ becomes a very important civil wrong and is bound to affect the future of the industry, and this judgement has set a precedent on the future litigation related to this tort.
Author: Mr. Rohan Kalita, 2nd Year BBA.LLB student at Gujarat National Law University
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