This Document Contains Chapters 9 to 10 Chapter 9 Termination and Enforcement of Contracts Instructor’s Manual–Answers by Shannon O’Byrne V. CHAPTER STUDY Questions for Review, page 218 1. What are the four major ways that a contract can be terminated? Answer: A contract can be terminated through performance, agreement, frustration, or enforcement of contract. 2. What is an assignment? What risks does the assignee of a contractual right assume? Answer: An assignment is the transfer of a contractual right by an assignor to an assignee. The assignee’s right to payment is no greater than the right possessed by the assignor. If the assignor is in breach of contract and therefore entitled to less than the full contract price, the assignee is likewise entitled to less. 3. What is privity of contract? Answer: It means, generally speaking, that only those who are parties to a contract can enforce the rights and obligations it contains. 4. How is vicarious performance used by business? Answer: Vicarious performance is performance of the contract through others, such as employees and agents. 5. How is a new contract created through novation? Answer: Novation is a mutually agreed-to substitution of parties in a contract or the replacement of one contract with another. 6. When is a contract frustrated? Answer: This occurs when a contract is terminated by an unexpected event or a change that makes performance functionally impossible or illegal. 7. What is a force majeure clause? Answer: A force majeure clause deals with the risk of unforeseen events. It allows a party to delay or terminate a contract in the event of unexpected, disruptive events, such as the following: natural disaster, war, or military action; strike or labour problem; monetary changes (hyperinflation, devaluation, inconvertibility); or governmental action. 8. What elements need to be established in a successful action for breach of contract? Answer: The plaintiff must prove that the other party (the defendant) has failed to keep one or more promises or terms of the contract. 9. How is the severity of a breach of contract evaluated? Answer: When a court cannot categorize a term as being either a condition or a warranty, the term is considered to be innominate. The court must then look at exactly what has happened in light of the breach before deciding whether the innocent party is entitled to repudiate the contract in addition to having a damages claim. 10. What is the difference between a warranty and a condition? Answer: A condition is an important term that, if breached, gives the plaintiff the right to terminate the contract and claim damages. A warranty is a minor term that, if breached, gives the right to claim damages only. 11. What is the purpose of awarding damages for breach of contract? Answer: The purpose of damages for breach of contract is to compensate the plaintiff for loss, not to punish the defendant for breach. The plaintiff is entitled to compensation that puts her, as much as possible, in the position that she would have been in had the defendant performed under the contract. 12. When will a court award punitive damages for breach of contract? Answer: Such damages will be awarded against the defendant only for “malicious, oppressive, and high-handed” misconduct that “offends the court’s sense of decency.” 13. When is a plaintiff entitled to damages for mental distress? Answer: The plaintiff seeking recovery for mental distress must show that the object of the contract was to secure a psychological benefit that brings mental distress on breach within the reasonable contemplation of the parties (i.e., the test in Hadley v Baxendale (1854), 9 Exch 341) and that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. 14. What is unjust enrichment? Answer: Unjust enrichment occurs when one party has undeservedly or unjustly secured a benefit at the other party’s expense. 15. What is restitutionary quantum meruit? Answer: This kind of quantum meruit refers to an amount that is reasonable given the benefit that the plaintiff has conferred. 16. What is specific performance? Answer: An order by the court for the equitable remedy of specific performance means that instead of awarding compensation for failing to perform, the court orders the party who breached to do exactly what the contract obligated him or her to do. 17. When will a court grant an injunction? Answer: When a contract contains a promise not to engage in specified activities (such as would be found in a non-compete clause) a court can order the offender to refrain from continued violation of the promise. 18. What is the remedy of rescission? Answer: Rescission means restoring the parties to their pre-contractual positions. 19. When can the innocent party treat the contract as at an end? Answer: The innocent party can elect to treat the contract as at an end when the defaulting party breaches a condition of the contract or a condition-like innominate term. 20. How can a plaintiff avoid the application of an exclusion of liability clause? Answer: The plaintiff must establish, on the basis of Tercon, that the clause does not cover what happened, or that the clause should not be enforced for reasons going to unconscionability, or that the clause should be enforced for reasons going to public policy. Questions for Critical Thinking, page 218 1. A contract is considered frustrated only in very unusual situations. Should the doctrine of frustration be applied more often? Would a broader application produce fairer results? What is the downside of such a change in commercial contracts? Answer: A broader approach to the doctrine of frustration would not necessarily produce fairer results and, in fact, may create additional uncertainty in the marketplace. Put another way, it is probably better to minimize the number of legal excuses there are for non-performance. This puts the onus on the party at the time of contracting to assess risk and decide to • enter into the contract anyway and simply absorb the risk that the event might occur • enter into the contract but only on terms that compensate for assuming the risk • purchase additional insurance • decline to enter the contract after all In short, the narrow approach to frustration encourages parties to actively anticipate the events or occurrences that might prevent performance and allocate that risk on a consensual basis. 2. Breach of a condition can signify the end of the contract, while breach of warranty does not. Should courts be allowed to exercise discretionary power in determining whether an innominate term should have this same result? What should parties do if they want to reduce the uncertainty as to how a given term will be classified? Answer: In most cases, it makes commercial sense for courts to be accorded the discretion to weigh the seriousness of the event to which the breach gave rise before determining whether the contract should be treated as at an end or not. However, pursuant to freedom of contract, parties can bargain for a term to be counted as a condition even if the event to which it gives rise is minor or trivial. Provided the parties are clear in doing so, the court will enforce that result. 3. The privity rule is one of the basic elements of contract law. Is it too restrictive? On the other hand, is there a danger in creating too many exceptions to the rule? Answer: There is a very strong argument that the privity rule—especially in relation to the third-party beneficiary—is too restrictive. Though not discussed in the textbook, it is interesting to note that Lord Denning found many occasions to ignore the rule in this context. For example, in Smith v River Douglas Catchment Bd, [1949] 2 KB 500 (CA) at 514, Lord Denning observed as follows: [Counsel] says that the plaintiffs cannot sue. He says that there is no privity of contract between them and the Board, and that it is a fundamental principle that no one can sue upon a contract to which he is not a party. That argument can be met either by admitting the principle and saying that it does not apply to this case or by disputing the principle itself. I make so bold as to dispute it. The principle is not nearly so fundamental as it is sometimes supposed to be. It did not become rooted in our law until 1861 (Tweddle v. Atkinson) and reached its full growth in 1915 (Dunlop v. Selfridge). It has never been able to supplant another principle whose roots go much deeper. I mean the principle that a man who makes a deliberate promise which is intended to be binding, that is to say, under seal or for good consideration, must keep his promise; and the court will hold him to it, not only at the suit of the party who gave the consideration, but also at the suit of one who was not a party to the contract, provided that it was made for his benefit and that he has a sufficient interest to entitle him to enforce it, subject always, of course, to any defences that may be open on the merits. For further critique of the rule, see R. Flannigan, “Privity—The end of an era (error)” (1987), 103 LQR 564. For discussion of the third-party privity rule in the United States, see A.J. Waters, “The property in the promise: A study of the third-party privity rule” (1985), 98 Harv LR 1109. It occurs to this writer that the court that established a bar to the third-party beneficiary in the 1861 decision of Tweddle v Atkinson simply misdirected itself. Through confusion, it inadvertently transformed the principle that consideration must flow from the promisee into a principle that only the party who provides the consideration can sue. The first principle is long standing and defensible. The second is not. 4. Contract law is intended to facilitate commercial activities and enable businesses to conduct their affairs so that their legal obligations are certain. Do you think, after considering the material in the last five chapters, that contract law achieves its goals? Can you think of ways to improve the effectiveness of contract law? Answer: This is a very open-ended question, giving students the opportunity to share just about any insight they may have had while studying contract law. Although it is true that contract law is facilitative, sometimes its rules catch marketplace participants by surprise. Ask students to identify those rules that they found to be unexpected. Examples might include the following: • A gratuitous promise to leave an offer open for a set time can be broken with legal impunity. • The legal doctrine of mistake is not nearly coextensive with the ordinary meaning of the word mistake; the legal doctrine of frustration is very narrow and will not excuse non-performance in the vast majority of cases. • There are bars to third parties relying on a contractual term. • Certain contracts must be evidenced in writing to be enforceable. • Most oral agreements are enforceable. • The postal acceptance rule means that acceptance is effective even when not received by the offeror. • Some exemption clauses may not be enforceable. • Displays of goods or ads are not usually offers. Next, ask the class whether it is any solution to get rid of contractual rules that might be unexpected. Alternatively, do these rules—even the more exotic ones—serve a useful purpose? 5. The Canada Radio-television and Telecommunications Commission (the CRTC) has put in place the Wireless Code (the Code) in order to deal with a number of cell phone issues, including customers receiving extremely high bills for data roaming charges. In response to this perceived unfairness, the Code places a cap on a customer’s national and international data roaming charges in certain cases unless the customer expressly agrees to pay such additional charges. Is it the role of a public authority to interfere with contractual freedom in this way? If a wireless customer fails to keep proper track of her data roaming usage and then ends up with a bill in the thousands of dollars, is that simply not the fault of the customer? Why should the CRTC interfere with the market in this way? Answer: The Toronto Star reports that CRTC’s new Wireless Code (Code), which limits data and roaming charges in certain cases, came into full effect on June 3, 2015. See The Star, “Wireless contract and roaming charge changes start today” (03 June 2015), online: The Star . The story notes that the Code applies to all wireless contracts, with some exceptions. See too CRTC, “CRTC wireless code comes into force” (2 December 2014), online: CRTC . While the cellphone industry would argue that it is incumbent on the CONSUMER TO TAKE CARE OF herself and monitor roaming charges as necessary, customers were also feeling frustration at unexpected and even tremendously high roaming charges. In some cases, it felt like gOuging. (For a recent story on a very high cell phone bill associated with roaming charges, see The Canadian Press, “Alberta Tory MLA Thomas Lucazuk apologizes for $20,000 phone bill,” Globe and Mail (25 August 2014) online Globe and Mail .) As well, wireless carriers are communication corporations, AFTER ALL, and should easily be able to alert customers when roaming charges are climbing up or otherwise take steps to protect their hapless customers. In response to these and similar concerns, the CRTC brought in regulatory amendments to defend consumers. It could also be argued that the CRTC did not lightly interfere with the market. As the Federal Court of Appeal notes in Bell Canada v Amtelecom Limited Partnership, 2015 FCA 126 (CanLII) at para 7: In 2012, the CRTC undertook a public consultation to determine if conditions in the wireless industry had changed so that its policy of forbearance should be reviewed. Following that consultation, it concluded that it need not embark upon regulation of wireless rates but that, in response to broad consumer dissatisfaction with various terms of service, it should promulgate a code of conduct for wireless service providers. CRTC provides the following, inter alia, on its website at: .
E. Bill management
1. International roaming notification 1. A service provider must notify the customer, at no charge, when their device is roaming in another country. The notification must clearly explain the associated rates for voice, text messaging, and data services. 2. Customers may opt out of receiving these notifications at any time.
2. Cap on data roaming charges 1. A service provider must suspend national and international data roaming charges once they reach $100 within a single monthly billing cycle, unless the customer expressly consents to pay additional charges. 2. A service provider must provide this cap at no charge.
3. Cap on data overage charges 1. A service provider must suspend data overage charges once they reach $50 within a single monthly billing cycle, unless the customer expressly consents to pay additional charges. 2. A service provider must provide this cap at no charge.
6. Historically, it was difficult to receive damages for mental distress in a breach of contract action. To cite two objections, some courts concluded that mental distress simply was not a reasonably foreseeable consequence of breach or were concerned that permitting such recovery would encourage plaintiffs to exaggerate the extent of their upset. How does modern contract law permitting recovery of mental distress respond to these concerns? Answer: The test in Fidler (SCC), featured in the chapter, provides that the plaintiff seeking recovery for mental distress must show: 1. that the object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties [the test in Hadley v Baxendale]; and 2. That the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. The first step of the test directly addresses the historic concern that mental distress was not reasonably foreseeable. There are many contracts that have the object of securing a psychological benefit, including insurance policies and vacation contracts. It is true that the plaintiff may exaggerate the extent of their affliction but this is so in any situation where the plaintiff seeks compensation for mental suffering. The law address this problem by insisting that the plaintiff establish their case on the balance of probabilities. If the court believes that the plaintiff is being untruthful, the court can deny the claim altogether or discount a percentage of the alleged discomfort. Situations for Discussion, page 219 1. Leonard purchased an unconstructed condominium in a large development. The contract stated that delivery of the completed condo was to be on a date set by the developer before February 1, 2010. Construction proceeded on schedule except on April 25, 2009, the whole development burned to the ground. After spending some time looking for the cause of the fire, the developer started the process of rebuilding in October 2009. It looks like the condo will be delivered about a year later than originally anticipated. Is Leonard bound by the contract under these circumstances? Does it matter if the fire was caused by the developer’s negligence? [footnote deleted] Answer: This Situation for Discussion is based on Fishman v Wilderness Ridge at Stewart Creek Inc 2010 ABCA 345 except that the Situation for Discussion does not include what is called in Fishman a force majeur clause. That is, in Fishman, the contract provided that late delivery by the developer would be forgiven in the event of fire but only on facts where the contract itself was not frustrated. (In short, the force majeur clause was extraneous to the question of whether the contract has been frustrated.) In this Situation for Discussion, Leonard will argue that the contract was frustrated because of the fire. The defendants will deny that there was any frustration because the condo was being promptly and properly rebuilt and on a timely basis. Here is what the Alberta Court of Appeal, speaking generally, stated about the law of frustration in Fishman: [4] The doctrine of frustration arises in many and varied situations, and it has been described in different ways. It essentially involves an unforeseen change to the circumstances underlying the contract, through no fault of the parties, that renders the contract incapable of performance. The change of circumstances must be fundamental in nature, such that it goes to the root of the contract. It is not enough that performance has become more difficult; performance must be impossible. The destruction of the subject of the contract can amount to frustration, but not if the risk of destruction has been allocated in the contract to one of the parties, and not necessarily if the subject of the contract can be replaced. [6] While the record is not entirely clear, it appears that the condominium might be rebuilt approximately one year after the originally scheduled completion date. Whether the possible performance of a contract is so delayed as to amount to frustration is a matter of degree and context: Krell v. Henry, [1903] 2 K.B. 740 at p. 751. For example, in Taylor v. Caldwell (1863), 3 B. & S. 826, 122 E.R. 309 it was impossible to rebuild the Music Hall in time, and unreasonable to think that the concerts should just be delayed indefinitely until it was rebuilt. Reciprocity is also important in measuring frustration; if one party to the contract can reasonably and fairly assert frustration, the other should be able to as well. In this case, if the respondents decided to rebuild the condominium, but asserted frustration and the right to sell the condominium to a third party (at a higher price), the appellants would have a legitimate reason to object. On the facts of the Situation for Discussion, there is a good argument that a delay of one year is not sufficient to undermine the entire foundation of the contract, particularly as the condo can be rebuilt as promised. There is a breach of contract because of late delivery but the contract itself stands because it has not been frustrated. If the fire had been started by the developer’s negligence, this would not likely change the outcome. The negligence is a breach of contract and delays delivery but the delay is not sufficient to undermine the entire foundation of the contract. 2. Mr. White woke up one morning to find that the interior of his car had been consumed in a fire, rendering the vehicle a total write-off. He promptly made a claim under his car insurance policy. Soon after that, the insurance company accused White of starting his own car on fire and refused to pay out the claim. When White asked the insurance company to explain on what basis it was alleging arson, the company refused to provide an answer. Since that first refusal, the local fire chief has said there was no evidence of arson but still the insurance company refuses to pay. White believes that the insurance company is in breach of contract on several fronts including: failing to pay out on the policy and failing to answer his questions regarding refusal of his claim when he first posed them. Assuming this analysis is correct, do you think White will be successful in claiming punitive damages? [footnote deleted] Answer: This Situation for Discussion is based on Whiten v Pilot Insurance Co 2002 SCC 18 which is mentioned in the chapter and explored in depth in Chapter 28 (Insurance). To succeed, Mr. White must show “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency” on the part of the insurer. As well, the plaintiff must show that the defendant has committed an independent actionable wrong—for example, two breaches of contract. In Situation for Discussion #2, all these requirements have arguably been met. The insurer is refusing to pay out on the policy based on allegations of arson that have no foundation. In fact, the local fire chief has said that there was no evidence of arson. It is also outrageous for the insurer to allege arson but refuse to explain upon what that allegation is based. Mr. White will also be able to establish two independent actionable wrongs as required by the test for punitive damages: Actionable wrongs include, as the situation for discussion suggests, failing to pay out on the policy and failing to answer questions. Other actionable wrongs would include advancing baseless theories of arson. These are breaches of contract under the rubric of breach of good faith. 3. In 2007, Susan, a law professor, was in Israel when her cellphone was stolen from her home in Toronto. Upon her return, Rogers, the cellphone service provider, advised that $12 000 in calls had been made from that phone and she was responsible for payment. Susan replied that she would not pay, since those calls were unauthorized and had been made from her phone after it had been stolen. In response, Rogers, among other actions, cut off her young son’s cellphone service. The son’s phone had been acquired by Susan for safety reasons since he would be taking the subway, alone, to school for the first time starting in September. Susan was responsible for bills associated with her son’s cellphone, but the cellphone was held under a separate contract. A judge ultimately determined that Rogers was in breach of contract when it cut off her son’s phone service, since it had no legal reason to do so. Among other heads of damage, the judge awarded Susan $612 in damages for “lost wages” because she had to drive her son to school while his cellphone was blocked. Do you think Susan’s mitigation was reasonable? What else could she have done? Do you think that Rogers should appeal this decision? Why or why not? [footnote deleted] Answer: This case is based on Drummond v Rogers Wireless (22 February 2007) oral judgment (2007) OJ no 1407. There is a good argument that Susan did not take reasonable steps to mitigate. Instead of driving her son to school and seeking lost wages, Susan could have gotten a replacement phone for him from a competitor and recovered from Rogers the difference in value, if any, between the two contracts. Here is the provincial court judge’s assessment of damages whereby the judge concludes that driving the son to school was also a reasonable way of mitigation: The plaintiff could have mitigated by buying a new phone or by arranging with a bonded company to take him. 45 minutes back and forth twice a day equals 180 minutes a day, times 3 is 540, divided by 60 is 9 hours. The plaintiff argues that she should be reimbursed at $350 an hour. With all respect to her value, which is probably greater than that, her professorial hourly rate is $68 according to the pay stubs, and $68 times 9 hours is $612.00. This case also illustrates how sympathetic facts can lead to what is arguably a windfall for the plaintiff and a questionable application of the law. Though Rogers would likely have solid grounds to appeal, the negative public relations aspect of such an appeal would be tremendous. The real life plaintiff in this case, Osgoode Hall Professor Susan Drummond, has a website devoted to her conflict with Rogers, the real life defendant. See http://www.rogersandme.ca. 4. Atlantic Fertilizer (AF) operates a fertilizer plant in New Brunswick. AF made a major sale to the government of Togo in Africa and engaged Pearl Shipping (PS) to transport the fertilizer to Togo for a fee of $60 000. The contract between AF and PS specified that AF would deliver the cargo to PS for loading on its ship between 25 and 31 March and that AF would pay $1000 (in addition to the shipping charges) for each day after 31 March that the cargo was delayed. AF had difficulty in filling the large order in its plant and notified PS that delivery would be sometime after 31 March. PS is contemplating AF’s message and deciding how it should react. Options under consideration are to wait for AF to deliver and add the $1000 daily charge to the bill, give AF a firm date by which it must deliver, or terminate the contract with AF and seek another cargo for its ship. Which options are legally available to PS? Which should PS choose? [footnote deleted] Answer: PS, the transporter, must decide, from a business perspective, how much it can wait beyond March 31 for delivery. If AF, the customer, is having difficulty filling its order now, what assurances are there that these problems will be cleared up anytime soon and that the cargo will be ready for transport? Even if AF commits to a firm date in the future, will it be able to keep that commitment? In short, should PS decide to stand by, it takes the risk that AF may never be ready to deliver the cargo in a timely fashion and opportunities to transport other cargo for a profit will be lost. A related point is that the $1000 daily late charge provides an incentive to PS to act in a timely fashion, but it probably does not compensate PS for its opportunity costs. PS must also decide whether AF’s anticipatory breach of contract is sufficiently serious to allow it to treat the contract as at an end and look for replacement cargo to transport for another party altogether. If it is, then PS can work for someone else and sue AF for any lost profit it suffers. If PS is wrong, and the anticipatory breach is not sufficiently serious in a court’s eyes to permit termination, PS itself will be liable for breach of contract to AF. Given the uncertainty of determining how a court will classify the customer’s breach, the ideal solution is to negotiate a compromise. This hypothetical is based on Armada Lines Ltd v Chaleur Fertilizers Ltd (1994), 170 NR 372 (Fed CA); reversed [1997] 2 SCR and provides a serviceable version of the facts. In Armada, the transporter purported to terminate the contract based on the customer’s serious anticipatory breach when it stated it could not deliver the cargo for transport within the time frame contractually promised. The Federal Court, Trial Division, confirmed the transporter’s entitlement to terminate and, furthermore, awarded the transporter damages. It agreed that the plaintiff was entitled to the difference between the revenue (net of expenses) that it would have earned had it carried the defendant’s cargo and the revenue (net of expenses) that the plaintiff actually earned by carrying the replacement cargo—an amount of approximately $63 000. The Federal Court of Appeal was contrary minded. It ruled that the trial judge erred in finding that anticipatory breach of condition had occurred, because the evidence fell short of demonstrating a total rejection of the obligations under the contract and there was a lack of justification for such conduct by the customer. The Supreme Court of Canada agreed with this appellate assessment, varying only on the amount of damages owed by the transporter to its customer. This chain of litigation illustrates the risk an innocent party takes in face of a breach by the other side. Will a court find that breach to be serious enough to justify termination or not? 5. Peter Pan Equestrian Ltd. (“Peter Pan”) wanted to increase the amount of natural light in its horse-riding arena. It decided to purchase a skylight system from Skylights-R-Us-Ltd which duly supplied and installed metal frame acrylic skylights on the north and south sides of the riding arena. Unfortunately, the skylights soon began to experience problems with humidity, condensation, and leaking. As well, the acrylic itself began to crack. In response to complaints by Peter Pan, Skylights-R-Us Ltd suggested that Peter Pan add supplemental heat to the building as well as install a proper ventilation system. Skylights-R-Us Ltd had previously made this suggestion to Peter Pan when negotiating the contract but Peter refused. Peter Pan refused again, saying that it had been supplied with defective skylights. Now the skylights are riddled with cracks and are beyond repair. Peter Pan has now sued Skylights-R-Us Ltd for breach of contract and is seeking damages to replace the skylights as well as undertake mould remediation work in the riding arena. What is the argument that Peter Pan has failed to mitigate? If that argument is successful, what impact does this have on Peter Pan’s damage claim? What other weaknesses do you detect in Peter Pan’s case? [footnote deleted] Answer: At the time that skylights began to fail, it was not clear what was the cause—defective product or the absence of a proper ventilation system or both. Ventilation is likely a cause, however, given that Skylights-R-Us recommended to Peter Pan on at least two occasions that such a matter be attended to. For Peter Pan to do nothing in relation to the skylights except to insist there had been a breach of contract is unreasonable and a court is likely to conclude that it failed to properly mitigate. Even assuming a breach of contract by Skylights-R-Us, it is unlikely to be tagged with mould remediation and the full extent of the damage on the skylights since Peter did not conduct himself reasonably. This problem is loosely based on Epstein Equestrian Enterprises Inc v Frank Jonkman and Sons Limited 2013 ONSC 78. On the mitigation point, here is what the court stated: 305 For the reasons below, I have concluded that … [the plaintiff] failed to mitigate its losses by virtue of its failure to install an automatic controller, add supplementary heat and install proper ventilation. 306 The principle behind mitigation was stated by the Ontario Court of Appeal in Burke v. Cory (1959), 19 D.L.R. (2d) 252 (Ont. C.A.), at pp. 263-264: It is well settled that a plaintiff cannot, in an action for damages, recover for losses which could have been prevented by the exercise of ordinary care on his part. This principle was enunciated in Jamal v. Moolla Dawood Sons & Co., [1916] 1 A.C. 175 at p. 179 in these words: "It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his own neglect." 307 As stated by the Supreme Court of Canada in Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, 296 O.A.C. 41, at para. 25: On the other hand, a plaintiff who does take reasonable steps to mitigate loss may recover, as damages, the costs and expenses incurred in taking those reasonable steps, provided that the costs and expenses are reasonable and were truly incurred in mitigation of damages (see P. Bates, "Mitigation of Damages: A Matter of Commercial Common Sense" (1991-92), 13 Advocates Q. 273). The valuation of damages is therefore a balancing process: as the Federal Court of Appeal stated in Redpath Industries Ltd. v. Cisco (The), [1994] 2 F.C. 279, at p. 302,: "The Court must make sure that the victim is compensated for his loss; but it must at the same time make sure that the wrongdoer is not abused." Mitigation is a doctrine based on fairness and common sense, which seeks to do justice between the parties in the particular circumstances of the case. The increased damages/costs associated with Peter Pan’s failure to mitigate will be deducted from any damages awarded in Peter’s favour. However, it should not be assumed that Skylights-R-Us has even committed a breach of contract. Perhaps the skylights failed due to ventilation issues in the arena, alone. In short, and amongst other issues, Peter Pan faces a serious causation problem. 6. XYZ Ltd. entered into a contract with ABC Ltd. for the supply of resin, which XYZ Ltd. needed to produce pipe necessary for a large pipeline. ABC Ltd. made the business decision to supply defective resin to XYZ Ltd. and drafted the contract between the parties to protect itself from liability in relation to that defect as follows: XYZ Ltd. assumes all responsibility and liability for loss or damage arising from the use of the resin supplied under this contract herein and acknowledges that ABC Ltd.’s liability is limited to the selling price of the resin. Another clause stated, XYZ Ltd. to notify ABC Ltd. of any objection to the resin supplied within 30 days. Failure to provide such notice constitutes unqualified acceptance and waiver of all claims. ABC Ltd. knew that the resin was dangerous and would allow natural gas to escape. In fact, this is exactly what happened. There was an explosion in the pipeline for which XYZ Ltd. supplied pipe and that XYZ Ltd. fixed at great cost. When it asked ABC Ltd. for help, ABC Ltd. refused to take any responsibility, pointing to the exclusion clauses. Because of negative publicity surrounding the gas pipe leaks, XYZ Ltd. lost both its reputation and its financial viability. Assuming that the supply of defective was a breach of contract, do you think ABC Ltd. will be able to rely on the exclusion clauses above? On what basis? [footnote deleted] Answer: This Situation for Discussion is based Plas-Tex Canada Ltd v Dow Chemical of Canada Ltd 2004 ABCA 309, which decision the Supreme Court of Canada in Tercon (discussed in Chapter 9) identified as correctly decided. In Plas-Tex, the Alberta Court of Appeal refused to allow Dow to rely on the exclusion clause in question on facts like those in the Situation for Discussion. This is because the clause was intentionally included in the contract so that Dow could, ostensibly at least, intentionally supply defective resin with impunity. The appellate court was not impressed, stating, [49] Alberta Courts have generally held that contracts should be enforced regardless of the stringency of their terms limiting liability because parties require certainty that negotiated provisions in a contract will be legally enforceable: see for example, Catre Industries Ltd. v. Alberta (1989), 99 A.R. 321 (C.A.), Canadian Fracmaster Ltd. v. Grand Prix Natural Gas (1990), 109 A.R 173 (Q.B.). However, this principle is subject to an important caveat: the court will intervene when the party desiring to enforce a liability limiting clause has engaged in unconscionable conduct. Here is what the court said in relation to the facts at bar: [54] In this case, Dow knew that defects in its product would cause the pipe manufactured from it to fail. Further, it knew that the respondents and others would be burying the pipe in order to supply natural gas all over rural Alberta. Common sense says that anyone would know that cracking of such pipe could result in potential danger to property and persons. Dow was aware of all this before it made the first commercial shipment in July 1974. Moreover, by the time it signed the contract with Profiles, some seven months later, it had significantly more detailed information about the nature of the defect and the pipe’s propensity for early failure. Dow also knew that the CSA was considering decertifying its resin. Rather than disclosing this knowledge to Profiles and other sister companies that were using the pipe made from the resin, Dow chose to protect itself from liability by inserting liability limiting clauses in its contract with Profiles. [55] There can be no doubt that this conduct was unconscionable. The trial judge committed no reviewable error in finding that Dow was prevented from relying on the limitation of liability clauses in the contract with Profiles…. Note that the court in Tercon treated the Plas-Tex case as going to a public policy analysis even though the Plas-Tex court itself deployed the term “unconscionability.” It appears that in this context, the two terms are used synonymously (though this is not always the case.) As the Supreme Court of Canada said in Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4 regarding Plas-Tex, [119] A less extreme example in the commercial context is Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309 (CanLII), 2004 ABCA 309, 245 D.L.R. (4th) 650. The Alberta Court of Appeal refused to enforce an exclusion clause where the defendant Dow knowingly supplied defective plastic resin to a customer who used it to fabricate natural gas pipelines. Instead of disclosing its prior knowledge of the defect to the buyer, Dow chose to try to protect itself by relying upon limitation of liability clauses in its sales contracts. After some years, the pipelines began to degrade, with considerable damage to property and risk to human health from leaks and explosions. The court concluded that “a party to a contract will not be permitted to engage in unconscionable conduct secure in the knowledge that no liability can be imposed upon it because of an exclusionary clause” (para. 53). (See also McCamus, at p. 774, and Hall, at p. 243.) What was demonstrated in Plas-Tex was that the defendant Dow was so contemptuous of its contractual obligation and reckless as to the consequences of the breach as to forfeit the assistance of the court. The public policy that favours freedom of contract was outweighed by the public policy that seeks to curb its abuse. 7. Imperial Brass Ltd. wanted to computerize all of its systems. Jacob Electric Systems Ltd. presented Imperial with a proposal that met Imperial’s needs. In August, Imperial accepted the proposal, along with Jacob’s “tentative” schedule for implementation, which led Imperial to expect a total computerized operation by mid-January, with the possibility of a 30-day extension. In October, it became clear that there were problems with the software being developed, and Imperial asked for corrections to be made. At the end of October, the hardware and two software programs were delivered to Imperial, and Imperial’s employees attempted to begin to use the programs. Very little training was provided, however, and there were major problems with the computer screens freezing and data being lost. More programs were delivered in January, along with some operating instructions, but Imperial’s employees were still unable to make any use of the programs they had. The programmer whom Jacob assigned to Imperial’s contract, Mr. Sharma, continued to work on the remaining programs. In May, however, Jacob informed Imperial that Sharma would be leaving the company, and Imperial informed Jacob that if that were to happen, given the problems and delays the company had already experienced, Imperial would be forced to end the contract with Jacob’s company. Is the breach by Jacob serious enough to permit the innocent party, Imperial, to treat the contract as at an end? [footnote deleted] Answer: This scenario is based on Imperial Brass Ltd v Jacob Electric Systems Ltd. (1989), 72 O.R. (2d) 17 (H.C.J.), and provides an adequate summary of the facts. This situation is meant to promote discussion about the difference between a regular breach of a contract and a fundamental breach that undermines its entire foundation. In the case above, the court held that defects in the software that was delivered, the delays that were experienced, and the probability of serious future delays in delivery made Jacob Electric Systems Ltd.’s actual performance completely different from what the parties had contemplated when they originally entered into the contract. In effect, Jacob’s non-performance on the contract was a fundamental breach. In particular, at no time was Imperial able to use the system to produce anything of use, and the scheduled dates for delivery had long passed. The departure of Mr. Sharma, the last employee with particular knowledge about Imperial’s project, was the last straw. As a result, the court ordered a refund of the full contract price, approximately $28 000, in exchange for the computer and all associated software and manuals. 8. Canadian Pacific Airlines (CP) agreed to safely transport the Newells’ two pet dogs on a flight from Toronto to Mexico City. The Newells were concerned about the safety and welfare of their dogs, but CP’s employees reassured them that the dogs would be safe in the cargo compartment of the aircraft, and reported to them before they boarded that their dogs had been safely placed in the cargo area. When the flight arrived in Mexico City, one dog was dead and the other was comatose. The Newells sued CP for general damages to compensate them for “anguish, loss of enjoyment of life and sadness” that they allege resulted from the breach of contract. Are the Newells entitled to anything other than compensation for their direct financial loss (i.e., the value of the dogs)? If so, what would be an adequate amount to compensate for the mental distress suffered by the Newells? [footnote deleted] Answer: This scenario is based on Newell v. Canadian Pacific Airlines Ltd (1976), 14 OR (2d) 752 (Co Ct) and provides an adequate summary of the facts. It should be noted that the case law concerning damages for mental distress has since been developed by the Supreme Court of Canada in the case Sun Life Assurance Company of Canada v Fidler, [2006] 2 SCR, discussed on pages 207–208 in the textbook. The court in Newell adopted the principle from Hadley v Baxendale that damages could be awarded for “vexation” if it could be established as a reasonably foreseeable consequence of the breach of the contract. The court found that the contract in question, to safely carry the dogs from Toronto to Mexico, was such that both parties must have contemplated that if the dogs were injured or died on the flight, this would cause the Newells mental distress. The evidence made it clear that CP was well aware of the Newells’ concern for their pets—they reassured them they would be safe in the cargo compartment and reported to the Newells that the dogs have been safely placed there. Other factors taken into account were that both Mr. and Mrs. Newell had been in poor health and that the trip to Mexico was for the purpose of recuperation. Mrs. Newell was confined to a wheelchair, and Mr. Newell was recovering from a heart attack. On finding out that the two dogs could not travel in the passenger cabin with them, they offered to buy out the entire first class section of the aircraft so they could take the dogs with them, an offer that was rejected. Mrs. Newell testified that they regarded the dogs as “part of our family.” The amount of general damages they were awarded for mental distress, however, was not large. Keeping in mind that the judgment took place in 1976, the court awarded only $500 to the Newells for damages for mental distress. This is less than the value of the dogs, which were purchased for $350 each. Note that the analysis in Fidler (textbook page 209) would now apply to such a scenario and would be very unlikely to lead to a different result. The plaintiff would have to show both of the following: • The object of the contract was to secure a psychological benefit that brings mental distress on breach within the reasonable contemplation of the parties (in this case, peace of mind that the dogs would be transported safely). • The degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. (The plaintiffs were very upset; the husband even suffered a heart attack upon arrival in Mexico upon seeing the dogs’ state.) Chapter 10 Introduction to Tort Law Instructor’s Manual–Answers by Shannon O’Byrne V. CHAPTER STUDY Questions for Review, page 240 1. What does the term “tort” mean? Answer: The word tort describes any harm or injury caused by one person to another—other than through breach of contract—and for which the law provides a remedy. A tort is a wrong to another person; in particular, it is the interference with another’s person, property, or reputation. 2. Give an example of a tort. Answer: Any example of a tort is acceptable. On page 225 of the text there are a number of examples: • Parking garage operators might rely on the tort of trespass when drivers leave their cars in the lot but fail to purchase the required ticket. • A customer purchases a vehicle based on the vendor’s intentional representation that the vehicle has a new engine when, in fact, it does not. • When a bar over-serves a customer, it may be found negligent if that intoxicated customer is injured or causes injury to others. 3. What are the two main categories into which torts are organized? Answer: The two categories of torts are those committed intentionally and torts committed through negligence or unintentional torts. 4. Why does the law require employers to maintain a safe workplace? Answer: Employers owe a duty of care under tort law (as well as under the contract of employment) to take reasonable care of their employees. This is based, in part, on simple negligence law and reflects, more generally, the acknowledged vulnerability that employees face in the workplace. According to Lewis Klar: There are several…formal relationships which involve duties of assistance or protection. One of the clearest examples of a relationship which involves a right of one person to control the behaviour of another is the employer-employee relationship. Concomitant with this right to control is the obligation to protect. . . . The employer is required to exercise reasonable care to ensure the safety of the employee. It has also been held that the duty owed by an employer to its employee to provide safe working conditions cannot be delegated to third parties. (See Lewis Klar, Tort Law (Toronto: Thomson-Reuters, 2012) at 21. As discussed in Chapter 10, courts have found that employers owe an “overriding managerial responsibility” to protect employees and to safeguard them from an “unreasonable risk of personal injury while on duty.” See Hunt v Sutton Group Incentive Realty Inc (2001) 52 OR (3d) 425 (Sup Ct Just) rev’d on other grounds (2002, 215 DLR (4th) 193 (CA). 5. The goals of tort and criminal law are quite distinct, even when they stem from the same event. Explain the differences. Answer: The purpose of criminal law is to sanction behaviour and secure punishment of the perpetrator. The purpose of tort law to compensate the victim for harm suffered because of the culpability of another person. 6. What is a joint tort-feasor? Answer: A joint tort-feasor is someone who, along with one or more others, causes the plaintiff to suffer loss or injury. 7. What does burden of proof mean? Answer: The burden of proof refers to having the obligation of proving the case. 8. How does the burden of proof differ between a criminal case and a tort action? Answer: In criminal cases, the burden of proof is carried by the Crown prosecutor. In a tort action, the plaintiff carries this burden. Note that the standard of proof in a criminal prosecution is beyond a reasonable doubt while the standard of proof in a tort action is on the balance of probabilities. 9. What is the difference in the way tort and criminal actions are initiated? Answer: In general, criminal actions (against the accused) are prosecuted by the Crown. In tort law, the civil suit or action is brought by the victim (plaintiff) against the perpetrator (defendant). 10. What is the purpose of damages in tort? Answer: The primary purpose is to provide financial compensation for the harm caused to the plaintiff by the defendant’s culpable conduct. 11. Under what circumstances might an injunction be awarded in tort? Answer: An injunction or order to desist from a certain action would be made where financial compensation would not provide an adequate remedy for the harm done, as in a trespass situation, for example. 12. Vicarious liability is an essential feature of modern tort law. What is it? Answer: Vicarious liability is the liability of the employer for the tortious acts of an employee committed in the usual or ordinary course of employment. 13. What might be a defence to a claim for vicarious liability? Answer: A defence to a claim of vicarious liability is that the event did not arise out of the normal course of employment, that the employee’s conduct was not sufficiently related to the conduct authorized by the employer. 14. How does contributory negligence affect the amount of damages a plaintiff may receive? Answer: If the defendant uses the defence of contributory negligence, the amount of damages that the plaintiff is awarded is reduced by the proportion for which the plaintiff is responsible. 15. Explain the difference between pecuniary and non-pecuniary damages. Answer: Pecuniary damages provide compensation for out-of-pocket expenses, loss of future income, and cost of future care. Non-pecuniary damages provide compensation for pain and suffering, loss of enjoyment of life, and loss of life expectancy. 16. How are pecuniary damages typically calculated? Answer: Pecuniary damages are calculated through evidence of actual out-of-pocket expenses; expert testimony of future financial losses, such as those that arise because of loss of future income; and expert testimony as to what it will cost to care for the plaintiff in the future, given the injuries sustained at the hands of the defendant. 17. What are punitive damages? How are they different from aggravated damages? Answer: Punitive damages are an exception to the general rule that damages are intended only to compensate the plaintiff. Punitive damages are awarded to punish the defendant for malicious, oppressive, and high-handed conduct. Aggravated damages compensate the plaintiff for intangible injuries, such as distress and humiliation caused by the defendant’s reprehensible conduct. 18. When is overlapping liability in tort and contract common? Answer: Such liability is common when a professional gives negligent advice to her client since this is both a breach of contract and a tort. Questions for Critical Thinking, page 240 1. What are the justifications for the basic legal principle that the standard of proof is higher in a criminal matter than in a civil one? Answer: Because someone convicted of a criminal offence stands to lose her freedom via imprisonment, the Canadian legal system places a higher standard of proof than in a civil suit. This also means that someone guilty of a crime may nonetheless be set free because the Crown could not prove its case beyond a reasonable doubt. However, this is the bargain the Canadian justice system has made to try to prevent wrongful convictions. A related reason for a higher standard in a criminal matter is the stigma of a criminal conviction. Note too that even with the higher standard, the innocent are sometimes convicted by the Canadian criminal justice system. For recent analysis of such injustices, see Kent Roach, “Wrongful convictions in Canada” (2011) SSRN at . One of the case studies Roach focuses on that of Tammy Marquardt, “a young single mother from Ontario who was imprisoned for 13 years for the murder of her two-and-one-half-year son on the basis of erroneous forensic pathology expert testimony that the cause of her son’s death was asphyxia.” For other famous examples, see the entry under “wrongful convictions” in the Canadian Encyclopedia Wrongful Convictions—The Canadian Encyclopedia (2015), online: Canadian Encyclopedia . See too CP03 (QL) (21 March 2003) in “Crime murder quicklist” and CP02 (QL) (12 November 2002) in “Wrongful conviction quicklist” as follows: • Gregory Parsons (Newfoundland and Labrador): Wrongfully convicted of murdering his mother in 1991 and exonerated in 1998. The Newfoundland and Labrador government apologized and awarded him $650 000 in compensation. (Note: in March, 2003, the Newfoundland and Labrador government announced a public inquiry into its justice system, precipitated by three high-profile murder cases that led to wrongful convictions. The inquiry was headed by Antonio Lamer, a retired chief justice of Canada. Justice Lamer submitted his report in 2006, as described in a press release by the Newfoundland and Labrador government at . • Thomas Sophonow (Manitoba): Wrongfully convicted in 1981 for murder; spent four years in jail. A judicial inquiry recommended an award of $2.6 million as compensation. • Michael McTaggart (Ontario): Wrongfully convicted of bank robbery; spent two years in jail. Awarded $230 000 in a civil suit. • David Milgaard (Saskatchewan): Wrongfully convicted of murder; spent 23 years in prison from the age of 16. Awarded $10 million. • Guy Paul Morin (Ontario): Wrongfully convicted of killing a nine-year-old girl; spent two years in prison. Awarded $1.25 million. • Benoit Proulx (Quebec): Wrongfully convicted of slaying his ex-girlfriend; spent two years in prison. Supreme Court awarded him $2.2 million. • Donald Marshall (Nova Scotia): Wrongfully convicted of murder; spent 11 years in prison. After legal fees were paid, he received less than $200 000 in compensation. CP notes that in 1990, a royal commission ordered he be paid a lump sum of $200 000 and a lifetime pension worth $3 million if he lives to 65. • Clayton Johnson (Nova Scotia): Wrongfully convicted of killing his wife; spent five years in prison. He received a settlement of $2.5 million in 2004. See CBC News, “N.S. to pay $2.5 million to man wrongfully convicted of his wife’s murder” (18 June 2004). There is no doubt that this list would be even longer but for the higher burden of proof in a criminal matter. 2. Punitive damages are somewhat controversial even in jurisdictions where they are relatively common. At the same time, there are circumstances in which a person’s tortious actions have been particularly callous and calculating, yet the actual loss suffered by the plaintiff is not extensive in monetary terms. In these latter cases, what are the compelling reasons for allowing the plaintiff additional compensation over and above her actual loss? Should the compensation principle of tort law be compromised in this way? Answer: Given that the Canadian approach to punitive damages has been reasonably measured and moderate, there is a strong argument that any compromise of the tort principle of compensation has been small. It is also important that the Canadian judiciary retain some way of correcting and punishing the particularly egregious defendant whose conduct has perhaps fallen short of a crime but is still tremendously objectionable. In defence of punitive damages in a civil context, the class might be interested in learning that the Supreme Court of Canada in the 2002 Whiten decision focused on the importance of proportionality and expressly directed lower courts to consider the defendant’s blameworthiness in relation to specific factors. The court is intent on restraining the size of punitive awards though, in Whiten, a record $1 million in punitives was affirmed. The following table outlines factors to consider. It draws heavily on the exact words used by the court. 3. The concept of vicarious liability developed in the business world, where the company is out to make a profit and its activities are for the most part directed to generating profit. Is it appropriate to apply a test developed in this context to a charitable organization? What are the pros and cons for holding organizations liable for the conduct of their employees? Answer: When charitable organizations deliver services—such as providing care for children, as in the Bazley case—Canadian law would be deficient not to hold them to the same standard as anyone else delivering a service. Though charities are to be valued and respected for their contribution to the community, when they deliver a service tortiously, there is good reason to hold the organization accountable. Two goals would be to provide compensation to the victim and to provide a general incentive for charitable organizations to do their charitable work in a careful, competent, and non-tortious fashion. 4. Does the idea of contributory negligence reflect the major aims and purposes of tort law? Does it make sense to reduce the amount of damages available to a plaintiff, when he may not have suffered the loss to the same extent, or at all, but for the negligence of someone else? Answer: Yes. The purpose of tort law is to hold accountable those who cause injury or harm to others by their negligence. The duty of care and standard of care are concepts that apply to everyone. It does make sense to reduce the amount of damages available to a plaintiff when he may not have suffered the loss to the same extent, or at all, but for the negligence of someone else. The damages sustained would not have been as great or may not have been suffered at all if it was not for the actions of the plaintiff. If people are the author of their own misfortune, they must be accountable either fully or partially depending on the circumstances. 5. Do you think that a tort action like Steve Moore’s (discussed in this chapter on page 236) helps to make the game of hockey safer? How? Answer: The law of tort permits a plaintiff like Moore to extract a measure of accountability from defendants like Bertuzzi (and his hockey club) based on culpability. Bertuzzi is held financially responsible for the consequences of his egregious misconduct. The lawsuit also publicly highlights when someone’s behaviour has crossed the line and may well have a positive influence on the behaviour of hockey players going forward. Who wants to be compared to Bertuzzi in the future? This stigma, in turn, makes the game of hockey safer. 6. Negligence law requires a security company like Pinkerton’s to show reasonable care in the provision of services (as discussed in this chapter on page 226). Is this standard too low, particularly in the context of a violent workplace strike? Answer: The law of negligence requires that the defendant takes reasonable care in conducting its business but that it not assume the position of a guarantor. Accidents can happen; bad things can occur without it being the fault of any of the named defendants. Tort law demands accountability but only in the context of culpability. Situations for Discussion, page 241 1. Jason attended a beach party with his friends. At the end of the evening, he and his friends started walking back to their cars when Jason realized he had left his sandals behind at the beach. He went back to retrieve them but unfortunately, was randomly attacked by a group of young men who encircled him and beat him viciously. Jason lost consciousness and awoke again in the hospital. As a result of the vicious, unprovoked attack, Jason suffered serious physical injury and great emotional trauma. Jason is now suing the men who had attacked him for the tort of battery, which is defined as the intentional infliction of harmful or offensive physical contact. Assume that Jason can prove that the tort of battery took place. Do you think a court will award Jason aggravated damages given the circumstances of his attack? What about punitive damages? Explain. [footnote deleted] Answer: This Situation for Discussion is based on Merrick v Guilbeault 2009 NSSC 60. The judge in that case stated: [47] I have reviewed the evidence and, as noted above, I have found that this attack was mindless, unprovoked and resulted in emotional distress and humiliation to the plaintiff. The plaintiff did not want to show his parents his weakness, and he felt that by doing so that he had let them and his friends down. While giving evidence he required time to regain his composure when he thought of the attack and the resulting helplessness that he felt. On the night of the attack, he was seen by his parents in an extremely vulnerable state, covered in blood and bruises. Over the following years, his parents and girlfriends witnessed his struggles with his emotional and physical afflictions. The viciousness and suddenness of the attack, the clear malice of the attack and the humiliation the plaintiff felt and still feels, call for an award of aggravated damages. I am increasing the award of damages from $45,000 to $52,000 to take into account the nature and the brutality of the attack. In addition or in the alternative, the court could have awarded punitive damages (which are intended to punish the defendant for malicious, oppressive, and high-handed conduct) but the court did not award such damages nor explain why not. Presumably, the court concluded that the damages point was adequately addressed by awarded aggravated damages only. This matter is not discussed in the text but according to the Supreme Court of Canada in Hill v Church of Scientology [1995] 2 SCR 1130 at para 196: Punitive damages may be awarded in situations where the defendant's misconduct is so malicious, oppressive and high handed that it offends the court's sense of decency. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant. They are in the nature of a fine which is meant to act as a deterrent to the defendant and to others from acting in this manner. It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence. 2. Reginald Smith, an employee of UR Safe Ltd., a security company, broke into a branch of a bank that was a customer of UR Safe Ltd. Smith did so when he was not on shift with UR Safe Ltd., and by using keys he had stolen from his employer. Using these keys, Smith gained access to the ATM room in the bank, but could not figure out how to open the ATM combination lock. He was close to giving up when he noticed that the bank kept an ATM instruction manual on a shelf right beside the ATM in the ATM room. Smith read the manual and on that basis was able to open the safe. Is UR Safe Ltd. vicariously liable for Smith’s tortious conduct? [footnote deleted] Answer: This Situation for Discussion is based on Royal Bank of Canada v Intercon Security Ltd (2005), 143 A.C.W.S. (3d) 608 (Ont SCJ). In that case, the court concluded that there was not a “significant connection” between the creation or enhancement of the risk of theft and the thefts that the employee committed. On this basis, there was no vicarious liability on the employer. The employee-thief was not responding to an alarm at the Bank —he was in fact entirely off duty. And the employee-thief accessed the Bank with a key he had stolen from his employer—not one that was in his lawful possession. Beyond this, the Bank itself provided the thief with the means of accessing the safe by leaving the combination accessible and leaving the ATM instruction manual out in the open. 3. Albert was walking home from his nightshift at 3:30 a.m. The road was very dark, and Albert was wearing a red jacket, blue pants, black shoes, and a green cap. Albert walked along the edge of the road but on the wrong side, such that his back was to oncoming traffic. Albert heard a vehicle approaching behind him but decided not to look or even move. Unfortunately, Albert was hit by the vehicle, a delivery van; the driver was taking newspapers to a local drop-off point so that carriers could then deliver them to homes on their routes. Albert was seriously injured. Albert has two witnesses. The first is a police officer who arrived on the scene and administered a breathalyzer test to the van driver. The van driver was not impaired. Albert’s second witness is an individual who lives in a house directly across the road from the accident scene. This witness heard the impact of the accident and ran outside to help. This witness’s evidence only related to the position of the plaintiff’s body and the location of the defendant’s delivery van. Will Albert be able to establish negligence as against the driver of the van? Why or why not? [footnote deleted] Answer: This problem is based, in part on Anderson v Short (1986), 62 Nfld & PEIR (NFLD SCTD) wherein the defendant’s application for a non-suit was successful. Simply because the plaintiff has been struck by a car does not of itself prove negligence. The plaintiff will have to demonstrate facts that prove negligence by the defendant driver. Neither the police officer nor the individual who heard the impact and ran out to help actually saw the accident so they cannot assist the plaintiff in this regard. Since the plaintiff’s back was turned when he was struck by the car, he has nothing to add on this point. Depending on what forensics can demonstrate based on the location of the plaintiff’s body after impact, there is a chance of success but there are not enough facts given in the hypothetical to really say for sure. Beyond this, even if the plaintiff can show negligence, he almost certainly has contributed to his own loss by walking with his back to traffic, in the dark, wearing dark clothes. The deduction from his judgment for contributory negligence could be very high indeed. 4. The plaintiff hired the defendant to renovate the wooden wharf that the plaintiff owned in British Columbia. The wharf was part of the plaintiff’s grain-loading facility in Vancouver Harbour. During this renovation process, the wharf was seriously damaged by fire. The fire was started by molten slag from an oxyacetylene torch operated by the defendant’s employee. The defendant’s employee did not minimize the fire hazard created by the torch. Among other deficiencies, the defendant’s employee failed to wet the combustible surfaces before using the torch and failed to keep a proper fire watch during cutting operations so that any slag that landed could then be doused with water. When it came time to fight the fire, the defendant’s employee ran into difficulties because the plaintiff had not provided a fire protection system anywhere near the wharf in question, not even a fire extinguisher. The plaintiff claims damages in the amount of $1 million. Assuming that the defendant’s employee has been negligent in how he used the torch, what would a possible defence of the defendant be? Should the plaintiff recover all its damages or only a portion thereof? Is the defendant responsible for the tort of its employee? Why or why not? [footnote deleted] Answer: This situation is based, in part, on Alberta Wheat Pool v Northwest Pile Drive Ltd (1998), 80 ACWS (3d) 692 (BCSC), reversed in part (2000), 80 BCLR (3d) 153 (CA). The defendant has an excellent chance of establishing the defence of contributory negligence because the plaintiff failed to maintain a proper fire protection system. As a result, the plaintiff will be able to recover only that portion of the damages not caused by its own fault. The defendant is responsible for the tort of its employees based on the principle of vicarious liability discussed in the textbook on page 230. The tort amounts to an unauthorized mode of doing something authorized by the employer—namely, welding. In short, the plaintiff will recover only a portion of its losses because the court will make a deduction from the judgment in proportion to the plaintiff’s contributory negligence. 5. Louise arrived for a two-week vacation at a Mexican resort. She spent the day at the beach and, on returning to her room, found a bottle in the fridge containing a clear liquid. Louise assumed the liquid was water and started to drink from the bottle. It turns out that a member of the cleaning staff had inadvertently left a bottle of caustic cleaning solution in the fridge in Louise’s room and this is what Louise had drunk. Louise suffered extensive injury and required emergency surgery to remove some of her esophagus. Louise wants to sue the cleaning staff member who had left cleaning solution in Louise’s fridge. Will this action be successful? Does the cleaning staff member have any defences? [footnote deleted] Answer: This Situation for Discussion is based on a news story: Elise Stolte, “Woman sues Mexican resort over caustic cleaning fluid left in fridge,” Edmonton Journal (20 February 2011) at . Based on Chapter 10’s working definition of negligence, it would be a virtual certainty that the employee has been negligent. The employee has caused loss or injury to Louise through her unreasonable or careless conduct in relation to a hotel guest. It is unreasonable for the cleaning staff member to leave a dangerous clear fluid in the fridge, especially as it could easily be mistaken for water by a guest. Though the employee could argue that Louise was contributorily negligent for not ensuring that the fluid she found in her resort room fridge was, in fact, water, this is likely to fail. Hotel guests are entitled to assume that what they find in their mini-fridges are fit for human consumption. Instructors might consider revisiting with students this Situation for Discussion at the end of Chapter 11, after the tort of negligence has been more thoroughly canvassed. Students can be asked to offer an analysis of each element in proving a negligence action. 6. Archie became drunk at the office Christmas party. When he was leaving the event, his employer grew concerned and offered to drive him home, particularly as the winter weather was getting bad. Archie declined, notwithstanding a snowstorm and his own impairment. Archie was in a serious car accident, resulting in his suffering brain injuries and multiple fractures. Is the employer responsible to Archie for negligence? Will a court find Archie contributorily negligent? [footnote deleted] Answer: Even though Archie’s employer took some steps to protect him by offering to drive him home, this is insufficient. As the court stated in Hunt v Sutton Group Incentive at para 58: the defendant Sutton [the employer] not only owed its employee an obligation to take reasonable care to avoid acts or omissions which it could reasonably have foreseen would likely cause her some harm, it also owed its employee an overriding managerial responsibility to safeguard her from an unreasonable risk of personal injury while on duty. See too at para 58: It was open to the defendant to send the plaintiff home by taxi, if necessary to take her car keys away and to take custody of her car. Alternatively, it should have taken steps to call her common-law husband to come and pick her up. Alternatively, he could have taken her to a local hotel or found somebody else who had not been drinking to do so or to drive her home. Archie will likely be found to have been contributory negligent however. As the court in Sutton stated at para 66: Having found that the defendants [including the employer] have failed to discharge their duty to safeguard the plaintiff from harm, there is an onus on the defendants to satisfy this court that the plaintiff has been contributorily negligent towards the cause of her accident. I find that her consumption of alcohol was self-induced. Just as I have found that her degree of impairment due to the consumption of alcohol was a cause of the accident, so too is her self-indulgence in the partaking of such alcoholic beverages an attributable cause of the accident. I find that turning her back to the dangers that she ought to have foreseen by allowing herself to drink and then drive home in such weather conditions as existed at the time in question was negligent on her part. She ought to have foreseen that by becoming intoxicated, her judgment would then become impaired. Her impaired judgment led her to decline her employer's offer to call her common-law husband to take her home. Her impaired judgment also caused her to misjudge the danger in driving home in such weather conditions. Note that on appeal, one of the grounds raised was that the judge had been in error to grant the plaintiff’s counsel’s motion to discharge the jury. The Court of Appeal agreed and ordered a new trial on this basis alone. Solution Manual for Canadian Business and the Law Philip King, Dorothy Duplessis, Shannon O'byrne 9780176570323, 9780176509651, 9780176501624, 9780176795085
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