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This Document Contains Chapters 9 to 11 Chapter 9 Termination and Enforcement of Contracts Instructor’s Manual–Answers by Shannon O’Byrne I. TEACHING OBJECTIVES After studying this chapter, students should have an understanding of • the termination of a contract by performance • the termination of a contract by agreement • the termination of a contract by frustration • the methods of enforcing contracts • the concept of privity • remedies for breach of contract This is the final chapter in the contracts part of the textbook. It provides students with information on the basic ways in which a contract comes to an end and introduces them to the law of remedies. As this is a challenging area, the Business Law in Practice scenario is designed to be particularly student friendly. The scenario—involving breach of a construction contract—is accessible and straightforward, thereby allowing students to focus more on the concomitant legal principles. A contract ordinarily comes to an end not through breach, frustration, or agreement, but because the contract has been fulfilled by both sides. Given that the norm in the area of termination of contracts is performance, it coincides with the risk management theme of the textbook—a matter discussed in more detail below. II. TEACHING STRATEGIES As this chapter concludes the contracts section of the text, it can be helpful to offer a general summary in the following terms: I. Risks related to the contractual arena, on a chapter-by-chapter basis: Chapter 6 Contract formation • The negotiator ends up with unwanted obligations or fails to get wanted terms. Chapter 7 Contractual terms • The drafted or offered term is ambiguous; it will be interpreted against the party that created it • The court implies a term the party did not want. • The court refuses to imply term that a party wanted based on the parol evidence rule. • An event occurs that makes the contract more expensive to perform. • An event does not occur and the contract is more difficult to perform. Chapter 8 Defects • The contract is set aside because of a defect (minor, mistake, writing, etc.). • The contract is not set aside despite a defect (the mistake made or pressure exerted or the like is not actionable). Chapter 9 Termination • The innocent party faces poor performance, late performance, incomplete performance, inability to perform, and/or unwillingness to perform. II. Risk management strategies in the contractual arena 1. Reactive • Negotiate a settlement. • Consider mediation, arbitration. • Does frustration apply? • Is there an obligation to mitigate? • Do implied terms apply? • Does the parol evidence rule assist? • Do we litigate? 2. Proactive • Know the rules of contractual formation. • Define terms, ask questions, do the homework. • Put all terms in writing. • Include all necessary clauses (don’t rely on implied terms), including consideration of: – an entire contracts clause – a force majeure clause – an exemption /limitation of liability/liquidated damages – a condition precedent clause – a condition subsequent clause – a price escalation/wage escalation clause – a clause permitting an assignment of contractual rights – an ADR clause – a clause mandating insurance against liability III. STUDENT ACTIVITIES Task 1: An alternative way of reinforcing a risk management approach is to ask students to consider what went wrong with Janet and Alphonso’s contract with Charles Conlin and how such problems might be avoided in the future. Once students have suggested some preventive legal solutions, ask them to consider the extent to which they are workable business solutions. For example, although Charles Conlin could have asked for a clause limiting Janet and Alphonso’s damages for breach to a nominal amount of money, how would such a demand play out in negotiations? Would Charles Conlin’s insistence on this point drive Janet and Alphonso to contract with the competition? Task 2: A comprehensive, multipart, multi-chapter assignment has been set out in Chapter 6 of this Instructor’s Manual. For this chapter, something less challenging is suggested. Ask the students to • gather newspaper/online articles that describe commercial litigation • summarize the nature of the dispute • identify which party was successful and why • identify what remedy, if any, was awarded; • assess whether the damages awarded, if any, should be classified as compensatory or punitive • assess whether the remedy was reasonable, on the assumption that the newspaper account is accurate IV. EXPLANATION OF SELECTED FEATURES Page 195 Photo Caption: What kinds of issues can a construction contract raise in relation to the termination and enforcement of contracts? The Business Law in Practice scenario, of course, provides a fruitful source of information for an answer to this question. Issues include the contractor failing to perform adequately, refusal by the customer to continue with the contract or pay invoices, how performance by others on behalf of the contractor can lead to breach, whether failures in performance are sufficient to permit the innocent party to treat the contract as at an end or whether the breach in question will result in damages only, and the unusual availability of damages for mental distress. As this chapter emphasizes, however, most of the time, contracts—including construction contracts—are performed without serious incident or conflict. Page 200 Landmark Case: Taylor v Caldwell (1863), 122 ER 309 (CA) Critical Analysis: Why did the court not simply decide that the owner of the music hall was liable when he failed to supply the promised venue, no matter how extenuating the circumstances? The court has to construct the contract based on the parties’ objective intentions. This court determined that the continuing existence of the music hall was essential to the performance of the contract and, implicitly, that the owner did not assume the risk of fire destroying it. In the words of the court, “the Music Hall having ceased to exist, without fault of either party, both parties are excused, the plaintiffs from taking the Gardens and paying the money, the defendants from their promise to give the use of the Hall and Gardens and other things.” On other facts, a court could just as easily have concluded that the existence of the Music Hall was warranted by the owner. Its subsequent unavailability—albeit not due to any fault of the owner—would then have been a breach of contract. Page 200 International Perspective: Force Majeure Clauses Critical Analysis: What is the problem with drafting a clause that is very simple, such as “In the event of a force majeure, the affected party may terminate its obligations under a contract”? Similarly, what is the problem with drafting a very specific clause that lists the events that allow a party to terminate the contract? Overly broad force majeure clauses run the risk of failing for uncertainty. Overly specific clauses run the risk of failing to contemplate or cover events that do in fact occur. Should an event occur that is not covered by the clause, the affected party may end up being without a contractual defence and be liable for breach. As Mary Jo Nicholson warns in Legal Aspects of International Business (Scarborough: Prentice Hall, 2007) drafting a force majeure clause is not a task for amateurs. In the proper case, however, businesspeople should consider contacting the relevant trading associations for an appropriate draft clause, since such associations often provide force majeure clauses customized for the trade in question. The safest approach, as always, is to consult a lawyer. Page 202 Case: London Drugs Ltd v Kuehne & Nagel International Ltd, [1992] 3 SCR 299 Critical Analysis: Do you agree with Justice Iacobucci’s decision? Should employees be able to rely on a clause in a contract to which they are not parties? How could employees protect themselves if they were not permitted to rely on such a clause? The London Drugs decision resoundingly accords with business expectations and is a welcome advancement of the common law. London Drugs knew that K&N employees would be involved in handling its transformer, had the opportunity to purchase as much of its own insurance as it liked, and no doubt paid a lesser amount for storage because it had ostensibly agreed to a $40 limit. As Justice Iacobucci observes, It stretches commercial credulity to suggest that a customer, acting prudently, will not obtain insurance because he or she is looking to the employees for recovery when generally little or nothing is known about the financial capacity and professional skills of the employees involved.... In addition, employees such as the respondents do not reasonably expect to be subject to unlimited liability for damages that occur in the performance of the contract when said contract specifically limits the liability of the “warehouseman” to a fixed amount. According to modern commercial practice, an employer such as Kuehne & Nagel performs its contractual obligations with a party such as the appellant through its employees. As far as the contractual obligations are concerned, there is an identity of interest between the employer and the employees.... When parties enter into commercial agreements and decide that one of them and its employees will benefit from limited liability ... the doctrine of privity should not stand in the way of commercial reality and justice. Instead of seeking to gain protection as a third-party beneficiary, it is always open to the employee to purchase insurance, either independently or via his employer. It is unlikely, however, that non-professional employees would pursue such an option. Page 205 Case: Tercon Contractors Ltd v British Columbia (Transportation and Highways) 2010 SCC 4 Critical Analysis: Do you think that the Supreme Court of Canada’s three-issue analysis injects too much uncertainty into contract law? Should parties be bound by whatever clause they agree to? The three-step analysis offered by the SCC is intended to advance certainty by insisting that an otherwise applicable exclusion clause will operate unless something is seriously amiss, such as unconscionability or very strong public policy grounds against its application. Parties should ordinarily be bound by the terms to which they agree but not in every case—otherwise, the law would be tolerating injustice and overreaching. Page 206 Ethical Considerations: Is it Unethical to Breach a Contract? Critical Analysis: Should contract law start punishing more regularly those who breach contracts because such conduct amounts to a betrayal of trust and may lead to the market being undermined? Is it practical to ask the law to enforce a moral code or is Holmes’ approach preferable? What non-legal penalties might a contract-breaker face? It is exceptional for contracts law to punish the contract breaker. This is reserved for the defendant who has behaved truly egregiously. The default rule is Holmes’ bad man theory of law. It carries the day in most contract disputes—meaning that damages in contract are compensatory only. Contract law is not asked to enforce the moral code that you should keep your promises. Contract law enforces the legal principles that you should keep your promises or pay damages in lieu. Those who fail to keep their contracts, however, will earn a reputation for unreliability and face market discipline on that basis. In short, others will be reluctant to deal with them. Page 209 Business Application of the Law: Breach of Contract and Reasonable Foreseeability Critical Analysis: Has Rogers breached its contract with Nagy by bundling her cell phone account without her permission? Assuming this is breach of contract, are the nature of Nagy’s damages reasonably foreseeable? What other problems might Nagy have in proving all the elements of her action for breach of contract? This matter has not gone to trial (and presumably is unlikely to) so there is no judicial decision from which to work. It could be argued that Rogers is in breach of contract for making a change to the organization of Nagy’s accounts without her permission. That said, the nature of Nagy’s damages—a marriage breakup, depression, and job loss—are beyond what would be reasonably foreseeable as arising naturally from some a breach. It is also the case that these losses were not even caused by Roger’s breach of contract—assuming there is one—but by other factors. And as a final example, Nagy’s damages for depression may not fall within the Fidler decision since the object of the cellphone contract was not to secure a psychological benefit per se beyond the sense of security one might feel by carrying a cellphone and having, for example, access to 911 services. Page 209 Case: Fidler v Sun Life Assurance Company of Canada, 2006 SCC 30 Critical Analysis: Do you agree that damages for mental distress should be recoverable? Do you think that a plaintiff who is left feeling angry or frustrated by a breach would pass the test for recovery stated in Sun Life or is something more pronounced required? Virtually anyone who is the victim of the breach of a contract would be angry and frustrated. Permitting recovery for temporary upset is not a good use of legal resources. Beyond this, a slippery slope would be created if the courts became too liberal in allowing parties to sue for mental distress when a contract was breached. Page 211 Business Application of the Law: Liability for a stolen Ford Mustang Critical Analysis: Enterprise’s legal analysis may well be correct that the rental contract made Kirsten responsible for the car when it was stolen and on that basis, was entitled to $47 000 as its contractual remedy. But what price did Enterprise pay by insisting on its strict contractual rights? What should it have done differently in handling this dispute with Cockerill? It would appear that Enterprise wanted to wash its hands of the problem of the stolen Mustang when it insisted that Kristen was responsible. This proved to be a disastrous strategy, particularly because the Mustang was stolen under an after-hours car return system operated by the car rental company, albeit with liability expressly relegated to the customer should something go amiss. Instead, Enterprise should, for example, have offered to join forces with Kristen to work with her insurer. In this way, Enterprise would be able to understand exactly why her insurer was denying coverage and bring in legal analysis as necessary to rebut the insurer’s assessment. Simply sending out the bill to Kristen and telling her to pay up is, at best, highly problematic. At the end of the day, it seems that Kristen’s insurer may have been in error in denying coverage but in the meantime, Enterprise looked like the bad guy. It is terrifying for any customer to feel that she may be on the hook for nearly $50 000, even for a short period of time. The price Enterprise paid for its mishandling of the matter was widespread media coverage of its demands on Kristen. Its reputation took a hit since Kristen was a very sympathetic person whom the general public could relate to and sympathize with. As well, Enterprise had a very unsatisfied customer in Kristen. Enterprise did take the step of apologizing and promising to do better in the future. In a statement to CBC, Enterprise stated: "We are now thoroughly examining our processes and looking for ways to better communicate with our customers. We want to acknowledge and thank you for bringing this matter to our attention so that we could properly address it." See Blair Rhodes, “Kristen Cockerill won't have to pay for stolen $47K rental car,” CBC News (07 January 2014) online: CBC news at . Page 213 Photo Caption: Should the court enforce contracts as they relate to aesthetics and matters of taste or should contractors be given the discretion to follow cheaper alternatives? The default rule is that courts should enforce contracts in relation to aesthetics; otherwise, the innocent part is not getting what she bargained for. Any other rule could also lead to mischief. For example, were the rule otherwise, a contractor could intentionally underbid on a project, confident in the conclusion that he could use inferior quality fittings when it came time to actually perform. This would produce a very unjust outcome. Chapter 10 Introduction to Tort Law Instructor’s Manual–Answers by Shannon O’Byrne I. TEACHING OBJECTIVES After studying this chapter, students should have an understanding of • the broad scope of tort law • the difference between a civil action and a criminal action • the purpose of tort remedies • how business can manage its potential liability in tort This chapter provides an introduction to the role and purpose of tort law as it relates to the business environment. To this end, it defines tort law, distinguishes it from criminal law, discusses the nature of liability in tort, and provides an introduction to the kind of damages that are recoverable in a tort action. Consistent with the theme of the book, this chapter also emphasizes the importance of managing tort risk. With this introductory chapter in place, students are in a better position to learn about the specific torts that apply to business. This is accomplished in Chapters 11 and 12 of the textbook. II. TEACHING STRATEGIES Students generally enjoy learning tort law, perhaps because fact situations giving rise to tortious liability are inherently interesting. Instructors find that it is simple to spark class discussion. It is critical that students understand the fault-based nature of torts at common law and why, therefore, not every loss or injury will result in a successful tort claim. In both examples in the textbook on page 226, for instance, the vehicle owner has suffered an identical loss but in a common law jurisdiction unaffected by legislation on point, the owner will only be able to recover in the first instance. To help students conceptualize how tort law affects operations, this chapter follows the traditional strategy of distinguishing between intentional torts and the tort of negligence. It is helpful to emphasize that the majority of tortious liability faced by a business is likely to be in negligence (perhaps concurrently with an action for breach of contract). It is less common for businesses to commit intentional torts. III. STUDENT ACTIVITIES Task 1: In Chapter 3 of this Instructor’s Manual, under Student Activities, students are asked to choose a business and apply the risk management process to it. This assignment can be reintroduced at this point, with students being asked to assess a business in relation to its risk for tort liability. The students can do a risk analysis and apply to it the knowledge of torts as they acquire it. For a comprehensive analysis of a larger version of this kind of study assignment, see D. DuPlessis and S. Gunz, “Legal risk assessment exercise” (1997) 15 JLSE 153. Task 2: To help students grasp the distinction between tortious and criminal liability (see Figure 10.1 on page 230 of the textbook) ask them to consider the following statement: “Victims of crime should not be permitted to sue the defendant in tort. The defendant should not be punished twice.” Many students will disagree with this statement and, in fact, the statement may well provoke them. All to the good. The ensuing discussion will help the class to see that what criminal law accomplishes (and the interests it protects) is distinct from what tort law accomplishes (and the interests it protects). Alternatively, or in addition, the instructor may want to relate discussion to the Business Application of the Law on page 234 of the textbook, which, among other matters, discusses the punitive damages awarded against Exxon in a civil class action suit. In addition to being subject to a successful civil action described in the box, Exxon was indicted by the U.S. federal government on five criminal charges with potential penalties totalling $5 billion. The company soon agreed to plead guilty to three counts with a fine of $25 million, or less than 1 percent of the total potential criminal fine, plus $900 million in civil fines to be paid over 10 years. In addition, the company paid $2.1 billion in cleanup costs and several hundred million dollars more to fishermen for their lost summer catch. In all, the company paid $3.4 billion. See Nina Totenberg, “Supreme court weighs Exxon Valdez damages,” NPR (27 February 2008), online: NPR . Students might be asked to address the distinct rationales for Exxon being subject to so much legal liability and what the alternatives are, if any. IV. EXPLANATION OF SELECTED FEATURES Page 226 Case: Fullowka v Pinkerton’s of Canada Ltd, [2010] 1 S.C.R. 132 Critical Analysis: Do you agree with the Supreme Court of Canada’s analysis? The issue that this box implicitly emphasizes is that tort law compensates on the basis that the defendant has conducted itself on a blameworthy basis or, in the language of tort law, has failed to exercise reasonable care. This means that if the defendant did nothing wrong—if it did use reasonable care—then it should not have any legal responsibility to the families of the murdered deceased even though the circumstances are tragic and heart-breaking. The Supreme Court of Canada was correct to rule that Pinkerton’s was hired to use reasonable care in preventing trespassers from accessing the mine, not to guarantee a result. Discussion can be left at this level of generality but it may be worth noting that the families of the deceased had received compensation from the WCB so they are not left without compensation altogether. See footnote 8 on page 227 of the text for a brief account of the WCB context to this case. Workers’ Compensation schemes are briefly described later in the chapter but essentially, it means that the surviving families of the murdered workers received compensation from the WCB because their loved ones were killed on the job. The WCB scheme in place at the time of the litigation would potentially permit the families to recover additional compensation from third parties like Pinkerton’s (versus the employer) but it would also have to reimburse the WCB first. It is suggested that any discussion of subrogation not be expanded beyond this point. Page 227 Photo caption: The law requires employers to keep the workplace safe. How can the risks of a workplace accident be managed? A business should seek to make workplace safety an important aspect of the corporate culture. Part of this process would include taking an inventory of workplace dangers and seeking to reduce or eliminate risks associated with those dangers. For example, the photo illustrates the risk of worker injury due to improper use of a ladder. According to the law firm Parsons & Associates, the risk management steps a business can take to avoid ladder-related injury include as follows: • “Make sure that the area is barricaded before you get on the ladder, to avoid the possibility that other workers may walk into the ladder when it is in use. • Walk up the ladder carefully, holding on to the rungs, and maintain three points of contact on the ladder at all times. • Avoid walking up a ladder holding objects in your arm. Use your tool belt, or hoist materials to get around this problem. • Wear sturdy, comfortable boots with slip-resistant soles while climbing a ladder. Avoid climbing a ladder while wearing wet, muddy shoes. • Inspect overhead for all electrical lines before setting up a ladder. • Place the ladder on dry terrain that has high traction and not on a slippery surface. • Set the ladder angle correctly.” See: Parsons & Associates, “How to Prevent Workplace Ladder Injuries” (undated document), online: . For an even longer list of ladder safety tips, see the Texas Department of Insurance, “Ladder Safety” (undated document), online: Texas Department of Insurance, , including this one: “Don’t lean out to the side when you are on a ladder. If something is out of reach, get down and move the ladder to the work area.” Note that the Canada Safety Council offers a course on ladder safety. See . Page 232 Business and Legislation: Workers’ Compensation Critical Analysis: Should employees be deprived of their right to sue their employer when that employer has been in the wrong and caused the employee’s injury? Unlike the tort system at large which is fault based, WCB compensation is based on a no-fault scheme. As summarized by Lewis Klar in Tort Law 5th ed (Toronto: Thomson Reuters, 2012) at 21: The basic premise of no-fault is that those who have been disabled due to injury, and by extension, disease, should be financially assisted, rehabilitated and, if necessary, retrained, without regard to the cause of their disability. No-fault programs [such as the WCB] do not distinguish among victims of accidental, negligent or deliberate conduct which results in the disability either in terms of eligibility or quantum of benefits. This means that all employees injured on the job receive compensation even if they themselves were the sole cause of their own injuries. Under a WCB scheme, the employee trades her cause of action against the employer (which may or may not have proven successful) for guaranteed compensation regardless of fault, albeit at a level that might fall below what a court might otherwise award. Under the law of negligence, by way of contrast, an injured employee has to prove that her injury was caused by the negligent or other tortious conduct of the employer. Failure to do so would leave the injured worker without compensation in face of great potential need. Page 233 Caption: Dennis Schulz was catastrophically injured at a Bon Jovi concert. Schutz alleges that several people starting fighting in the stands and one of them ended up falling on him from above, breaking his neck and resulting in quadriplegia. What kinds of damages should Schultz seek and why? [footnote deleted] Dennis should seek both pecuniary and non-pecuniary damages. His pecuniary damages would include cost of future care, loss of future income, and special damages for out of pocket expenses resulting from the injury-causing event. His non-pecuniary damages would include pain and suffering, loss of enjoyment of life, and loss of life expectancy. Depending on the facts proven at trial, Dennis may also be entitled to punitive damages. According to press accounts, Dennis Schulz is seeking $7 million for medical care. Schulz’s lawyer, Patrick Phelan, was reported as anticipating a trial date in 2010 or 2011. Phelan said that his client “prefers not to talk to reporters but added that ‘his attitude is excellent,’ especially considering the circumstances. How would you feel if you had no motion in your arms and legs?” See CBC News, “Edmonton man left quadriplegic after Bon Jovi Concert awaits day in court” (9 January 2009) at . Page 234 Business Application of the Law: Punitive Damages in the United States and Canada Critical Analysis: Do you think that Canada should follow the approach taken by the U.S. Supreme Court or do you prefer the flexibility of the Canadian approach? Would it be a good idea just to set a fixed dollar amount as a maximum and not worry about ratios or word descriptors? Students will know from the media that punitive damages awards in the U.S. can be spectacularly large. What follows is a portion of the U.S. Supreme Court’s analysis of punitive damage in the Exxon case, which it concludes by noting, “Despite these limitations, punitive damages overall are higher and more frequent in the United States than they are anywhere else.” In the words of the U.S. Supreme Court, State regulation of punitive damages varies. A few States award them rarely, or not at all. Nebraska bars punitive damages entirely, on state constitutional grounds…Four others permit punitive damages only when authorized by statute: Louisiana, Massachusetts, and Washington as a matter of common law, and New Hampshire by statute codifying common law tradition…. Michigan courts recognize only exemplary dam¬ages supportable as compensatory, rather than truly punitive…while Connecti¬cut courts have limited what they call punitive recovery to the “expenses of bringing the legal action, including attor¬ney’s fees, less taxable costs.” As for procedure, in most American jurisdictions the amount of the punitive award is generally determined by a jury in the first instance, and that “determination is then reviewed by trial and appellate courts to ensure that it is reasonable.” … Many States have gone further by imposing statutory limits on punitive awards, in the form of absolute monetary caps, see, e.g., Va. Code Ann. §8.01–38.1 (Lexis 2007) ($350,000 cap), a maximum ratio of punitive to compensatory damages, see, e.g., Ohio Rev. Code Ann. §2315.21(D)(2)(a) (Lexis 2001) (2:1 ratio in most tort cases), or, frequently, some combination of the two, see, e.g., Alaska Stat. §09.17.020(f) (2006) (greater of 3:1 ratio or $500,000 in most actions). The States that rely on a multiplier have adopted a variety of ratios, ranging from 5:1 to 1:1. [footnotes deleted.] To read the full decision, go to . See too Mark B. Greenlee, “Kramer v. Java World: Images, issues, and idols in the debate over tort reform” (1997) 26 Cap UL Rev 701 for an analysis of the Liebeck case (involving McDonald’s hot coffee) and the myths surrounding it. The Liebeck case is also discussed in the Business Applications of the Law: Punitive Damages in the United States and Canada box feature on page 231 of the textbook. Canada’s approach to punitive damages is considerably more measured and controlled than what generally occurs in the United States. This is due, most recently, to the Supreme Court of Canada’s pronouncements in Whiten (also referenced in the Punitive Damages in the United States and Canada box). The Canadian perspective insists on proportionality between the defendant’s conduct and the defendant’s punishment via a damages award, thereby seeking to accord quantification with principles of justice. It conscientiously tries to make the award about punishing the defendant in a reasonable way, not about granting a lottery win to the plaintiff. Simply setting a fixed dollar amount for punitive, regardless of circumstances, is a problem because, as the U.S. Supreme Court notes, there is no “standard” tort or contract injury. On what basis, then, could a judge fashion a “standard” tort or contract punitive award (at 33 of the decision). For further discussion of the Whiten case, see Chapter 28 (Insurance) of the text. Page 234 Photo caption: Should the defendant’s ability to pay be a consideration in the awarding of punitive damages? This has to be a factor since the award must punish the defendant. A small punitive damages award against a large corporation would contain no sting. Page 235 Photo caption: How can business avoid being ordered to pay punitive damages? Since punitive damages are about proportional punishment for egregious behaviour, a business can avoid punitive damages by avoiding conduct that would trigger such a judicial response. A legal risk management plan—which eliminates, reduces, or transfers risk—would also go a long way to managing the risk of punitive damages. See the Managing Tort Risk section on page 238 of the textbook. These steps will also assist a business in avoiding punitive damages. For example, insurance companies (including the insurer in the Whiten case) face punitive awards for denying cover to the insured by, for example, wrongly alleging arson. Employees of insurance companies need to understand that their conduct—including making groundless allegations—can have serious consequences for their employer when the matter is litigated. On a related front, spreading defamatory falsehoods is also an occasion ripe for punitive damages, perhaps in a wrongful dismissal context. Ask students to come up with other examples of how egregious conduct by a business might lead to punitive damages in tort and how a company can ensure that such conduct does not occur. Page 236 Business Application of the Law: Steve Moore’s tort action against Todd Bertuzzi Critical Analysis: In what way do the criminal and civil actions against Bertuzzi overlap? In what way are they distinct? For context, the instructor may decide to show the CBC video clip (contained on the CD accompanying the text), which offers a brief account and footage of the actual on-ice attack against Moore. The criminal and civil actions against Bertuzzi overlap because the same course of conduct—his attack on Moore—gave rise to two legal consequences, one in tort pursuant to civil law and one under the Criminal Code. Differences arise, however, in what must be proven to establish the wrong in question, by whom, and to what standard. The Criminal Action: Bertuzzi pled guilty to a charge of assault causing bodily harm but otherwise the Crown would have had to have proven beyond a reasonable doubt that Bertuzzi committed the crime as charged. The relevant Criminal Code provision states: 267. Every one who, in committing an assault, (a) carries, uses or threatens to use a weapon or an imitation thereof, or (b) causes bodily harm to the complainant, is guilty of an indictable offence and liable to imprisonment for a term not exceeding ten years or an offence punishable on summary conviction and liable to imprisonment for a term not exceeding eighteen months. In a trial of such a charge, the Crown would have to establish that the force was applied by Bertuzzi, that it was intentional, and that the actions caused bodily harm to Moore. The Crown would have to establish that Moore was not the aggressor or even if Moore were the aggressor, that the response from Bertuzzi was not reasonable in light of Moore’s actions. There is no suggestion on the facts that Moore was anything but a victim in the attack. The Civil Action: In the civil action based in tort, the plaintiff, Moore, has to show on a balance of convenience that all the ingredients of the alleged tort occurred. For example, to establish the tort of battery, the injured party, Moore, must prove that Bertuzzi is responsible for the tort on the balance of probabilities. As discussed in Chapter 10, battery is the intentional infliction of harmful or offensive physical conduct. Figure 10.1 on page 230 provides a brief synopsis of the differences between a civil and criminal action. Chapter 11 The Tort of Negligence Instructor’s Manual–Answers by Shannon O’Byrne I. TEACHING OBJECTIVES After studying this chapter, students should have an understanding of • the conduct that the law of negligence addresses • the principles of the law of negligence • the defences in a negligence action • the common kinds of negligence actions that businesses face • the difference between negligence and strict liability The central objective of this chapter is to introduce students to the tort of negligence—the most prevalent form of tort liability that a business faces. The chapter spends considerable time on the steps involved in establishing negligence to help students understand that the law identifies general standards that it then uses to evaluate the conduct of the defendant. The law generally requires reasonableness, not perfection, from business owners, managers, and employees. This insight helps students regard negligence law from a risk management perspective in that businesses can take many steps to prevent a successful negligence claim. Put another way, understanding the ingredients to a negligence claim is critical to devising effective strategies to reduce the scope of business-related harm from occurring in the first place. This chapter also illustrates the evolving nature of negligence law, including the more recently established commercial host liability. II. TEACHING STRATEGIES Instructors will find it productive to emphasize each element in a successful tort claim. It helps students to go over each element, adding specific examples of what the element would or would not include. This is the most effective way to bring the generic ingredients to life. An example follows: 1: duty of care. Ask students to imagine a defendant standing in the middle of the circle. What the duty of care question seeks to determine is whether the plaintiff is inside or outside that circle. Start with a situation in which there clearly is a duty, as when, for example, a driver hits a pedestrian in a crosswalk. Alternate with a clear example of where no duty is owed. For example, imagine that someone (Mr. X) walks by a local business and sees that the sidewalk leading up to the business is covered in ice and snow. Mr. X becomes concerned; he is quite certain someone walking on this sidewalk is going to fall and seriously injure herself. Notwithstanding, there is no duty for Mr. X to clear the sidewalk. Foreseeability of an injury, on its own, does not create duty. It is the business owner’s duty to keep the sidewalk clear. Conclude with an example in which it is a close call on whether a duty is owed. The Hercules case, textbook page 254, is a good choice since it was only on policy grounds that the court declined to find that a duty was owed. See discussion infra. Have students discuss what influences the court to draw the circle to include some people or exclude others. Emphasize that the span of the circle surrounding defendants has grown over time. Textbook page 256, which discusses negligence and the service of alcohol, provides an excellent example. As a result, at least in part, of increasing intolerance of harm caused by impaired driving, liability now attaches to the commercial host who caused the defendant’s drunkenness or failed to prevent harm from occurring from that impairment. III. STUDENT ACTIVITIES Task 1: The instructor is referred to the task set out in Chapter 10. It began in Chapter 3 of this Instructor’s Manual, when students are asked to choose a business and apply the risk management process to it. This assignment can be reintroduced at this point. This task will help students locate negligence law within a risk management context. Task 2: Show the class the video clip regarding the listeriosis outbreak at Maple Leaf (The National: “Listeriosis Report”) on the DVD that supports this Instructor’s Manual. During this outbreak, twenty-two people died from consuming tainted meat, and countless others were seriously sickened. Ask students to consider the role of negligence law both in securing compensation for those who have suffered injury and in providing incentives for producers so that such events are less likely to occur in the future. Also at issue is the role of government in providing an effective standard for and enforcement of safety in the food industry. For example, on July 21, 2009, special investigator Sheila Weatherill released a report critical of the Canadian Food Inspection Agency, which included the criticism that too few inspectors were out in the field. For a summary, see . For the entire report, see: . Task 3: Ask students to research and compare how XL Foods of Brooks, Alberta, handled its 2012 E. coli outbreak with the approach in crisis management taken by Maple Leaf. Which approach was better and why? XL Foods is one of Canada’s largest meat-processing plants. When E. coli was detected in meat from the plant, XL Foods found itself in the middle of a growing crisis. See, for example, analysis of Canadian Food Inspection Agency (CFIA) at . Most significantly, CFIA noted the following: The CFIA’s in-depth review of the plant determined that there was no single factor that would lead to E. coli O157:H7 contamination of product leaving the plant. The combination of several deficiencies probably played a role. By themselves, each of these findings would not typically signal an immediate concern during the course of normal inspection activities. Deficiencies were identified by the CFIA in the areas of E. coli O157:H7 control measures and sampling and testing procedures. The detection of E. coli O157:H7 in slaughter facilities is not uncommon, and plants need to have adequate measures in place to monitor higher than normal detection rates and modify control measures accordingly. Establishment 38 had monitoring measures in place but was not properly conducting trend analysis of the data it collected. The CFIA review found that the plant needs to improve its trend analysis and also strengthen its response measures when a higher than normal number of detections are made. In addition, the company’s control measures for meat that tested positive for E. coli O157:H7 were not always being followed correctly. While containers of meat testing positive for E. coli O157:H7 were properly handled, a small number of containers produced immediately before and after the contaminated product were not always diverted from the fresh meat line. This process, known as bracketing, is an established food safety control. The company’s maintenance plan required updating in order to address minor sanitary issues, mostly related to the older age of the building. The CFIA detected issues related to adequate control of condensation and ventilation issues. These specific deficiencies are not likely related to the E. coli O157:H7 contamination. Media accounts as the crisis at XL Foods unfolded quickly moved from simply reporting on the events—including a growing list of product recalls—to criticizing the company for failing to communicate with the public over problems in its plant and for failing to apologize soon enough. See for example, the article by André Picard, who wrote, Transparency is the hallmark of good crisis communication. Yet, in this instance, XL Foods Ltd., the company where the tainted beef originated, the Canadian Food Inspection Agency, which oversees the monitoring and enforcement of food safety regulations, and Agriculture Minister Gerry Ritz, who is ultimately responsible for food regulation, have distinguished themselves with foot-dragging, the uttering of half-truths, cowering in fear, and inappropriate beef boosterism. They have, individually and collectively, failed lamentably in the practice of Communications 101. … But here’s the thing: When you’re poisoning people, even unintentionally, a voice message [apology] three weeks into the outbreak doesn’t cut it, nor do ministerial blandishments, nor do CFIA press releases whining that “investigations into outbreaks of food-borne illness can be complex.” For further analysis, see André Picard, “Communication breakdown: How Canadians were let down on E. coli response,” The Globe and Mail (7 October 2012), online: Globe and Mail . By way of contrast, Maple Leaf received high marks for how it handled its Listeria outbreak. For helpful analysis on this point, see the Picard article above, as well as Janet Davison, “How should a company manage a meat recall crisis? XL Foods’ limited public response ‘antithesis’ of Maple Leaf Foods’ actions in 2008,” CBC (9 October 2012) at http://www.cbc.ca/news/canada/story/2012/10/08/f-xl-foods-maple-leaf-recall-crisis-management.html. Task 4: Ask students to research what has happened with Listeria issues at Maple Leaf since the first outbreak. What are the ongoing problems at Maple Leaf plants? How can potential liability in negligence be mitigated from a risk management perspective? What has the government done? For example, see Health Canada at . See too the analysis offered by Maple Leaf under the category “Enhanced Food Safety Protocols” at . For discussion of subsequent sanitation issues at Maple Leaf, see, for example, Canadian Press, “Maple Leaf plant’s problems persisted even after listeria find” 09 November 2009), online: CBC News . IV. EXPLANATION OF SELECTED FEATURES Page 244 Landmark Case: Donoghue v Stevenson [1932] AC 562 (HL) Critical Analysis: Is it reasonable to make manufacturers liable for their products to end users? Would it be enough, simply, to make the retailer liable for breach of contract and leave the manufacturer out of the equation? Because the plaintiff was not in a contract with the manufacturer, there is no cause of action in contract, there being no privity. However, the plaintiff has suffered an injury that is closely tied to the culpable manufacturer. The court’s articulation of the neighbour principle therefore resonates very clearly on these facts. Most students will agree that the manufacturer should be liable to end users as this encourages manufacturers to take reasonable care in the production of goods. Placing liability on the manufacturer also has the benefit of being direct and helping to ensure recovery. Before Donoghue, the plaintiff would presumably sue the retailer for breach of contract and the retailer, in turn, would sue the manufacturer or supplier for breach of contract. On this basis, the manufacturer would pay for its negligence but in a circuitous way. Note too that if the retailer were no longer in business, the plaintiff would be left without a remedy, and the manufacturer would have suffered no financial consequences for making such a shoddy product. Donoghue marked an improvement over this former scenario. Page 245 Photo caption: Why is the consumer of ginger beer the neighbour of the beer’s manufacturer? To rely closely on Lord Atkin’s words in Donoghue, the consumer is the manufacturer’s neighbour because she is so closely and directly affected by its action that it ought reasonably to have her in contemplation as being so affected when directly its mind to those acts (or omissions) which are called in question. Page 248 Case: Resurfice Corp v Hanke, [2007] 1 S.C.R. 333 Critical Analysis: Do you agree with the court’s analysis that Hanke entirely caused his own loss through carelessness? Surely the machine could have been better designed by, for example, making it impossible for the water hose to fit into the gas tank portion. Should the court have required more from the manufacturer so that an operator’s momentary inattention could not create such catastrophic consequences? According to the trial judge, at para 45, Hanke “carelessly and unthinkingly, or absent mindedly turned hot water into the gasoline tank. A ‘walk around’ procedure that was mandated for operators would have alerted him. It was not done.” On this basis, the manufacturer had no liability. The alleged design defect which permitted a water hose to fit into a gasoline tank had no bearing on causing the loss. Perhaps surprisingly, the Supreme Court of Canada affirmed this analysis. In short, the trial level judge and the Supreme Court of Canada concluded that “but for” the design flaw, the accident would have happened anyway because the plaintiff knew the difference between the two tanks to begin with. But what about making the design fool-proof since it is reasonably foreseeable that people will be absent-minded, particularly given that catastrophic consequences could follow? The other view is that manufacturers are not guarantors: if operators refuse to pay proper attention, the consequences are on them. Page 249 Case: Spagnolo v Margesson’s Sports Ltd (1983), 145 DLR (3d) 381 (Ont CA) Critical Analysis: What if the plaintiff were injured as the thief was fleeing the parking lot in the stolen vehicle? Would this change the outcome? The Court of Appeal directly addressed this possibility and concluded that the outcome could well have been different. The court stated, Without doubt, the position of Y & R Properties Limited [the parking lot owner] would be made more difficult if the damage to the plaintiffs had occurred in the course of the theft or even in the course of the immediate flight therefrom. It would be easier to argue that damage to third parties in these circumstances is reasonably foreseeable as an ordinary consequence of the nervousness and panic which may accompany the theft. That kind of case, however, must await another day for decision. In the case at hand we are far beyond that hypothetical case. I cannot conclude that the likelihood of damage to third parties six days after the theft is any greater with a thief at the wheel of the vehicle than with a driver lawfully in possession. Page 250 Case: Mustapha v. Culligan of Canada Ltd 2008 SCC 27 Critical Analysis: Do you agree with the Supreme Court of Canada’s resolution of this case? Do you think that Mustapha’s action in contract might succeed even though the tort action failed? On the one hand, it seems only fair that those who have an extreme psychological reaction to a tortious event should be compensated. On the other hand, it may be unfair to ask service providers to be financially responsible when such a pronounced and unexpected reaction occurs. The Supreme Court of Canada seems to be following the second line of reasoning in requiring that the mental injury in question must have occurred in a person of ordinary fortitude. As for the second question, Mustapha’s action in contract also failed. The Supreme Court of Canada concluded that the damages were not reasonably foreseeable pursuant to Hadley v Baxendale as well as Fidler v Sun Life Assurance (see textbook page 215). That the plaintiffs could suffer psychological damages in face of breach was not in the contemplation of the parties when the contract was entered into. Note that under the special circumstances branch of Hadley v Baxendale, the plaintiff would be in a position to recover if he had advised Culligan that cleanliness was very important to him and any breach in that regard would cause him to suffer psychological consequences. Page 252 Case: Kralik v Mount Seymour Resorts 2008 BCCA 97 Critical Analysis: Do you agree with the court of appeal’s decision that Kralik was contributorily negligent? Kralik made a mistake in grabbing onto the chairlift when he realized too late that he had not seated himself in time. However, making a mistake in this context means that he did not exercise reasonable care and, in that way, caused a portion of his own loss. The other portion of his loss was caused by the negligence of the ski lift operator, according to the court, for failing to stop the chairlift in a timely fashion. Page 252 Photo caption: Is the law too harsh for deducting from a plaintiff’s damages award because he made a mistake? While it may seem harsh from one perspective to deduct from the plaintiff’s damages claim based on contributory negligence, the foundation of the tort system is to attribute liability based on culpability—whether by a plaintiff or a defendant. Page 253 Case: Crocker v Sundance Northwest Resorts Ltd [1988] 1 SCR 1186 Critical Analysis: Was Crocker treated too harshly by the court in deducting 25 percent from his award for contributory negligence? Was Crocker treated too leniently given that Sundance’s defence of volenti non fit injuria failed? At one important level, there is a sense of harshness in the court’s finding of contributory negligence because, by definition, the plaintiff will receive from the defendant less than is necessary to fully compensate the plaintiff for the loss. However, a finding of contributory negligence means that the defendant did not cause all of the plaintiff’s loss and that, in fact, some of the loss was caused by the plaintiff himself. From this perspective, the treatment is fair and justifiable. There is some merit to the argument that Crocker consented to the risk but, in the end, the court quite rightly put an enormous onus on Sundance to ensure that participants understood the nature of the risk to which they were consenting and, furthermore, were in fit condition to participate in a hazardous inner-tubing activity. Crocker had been drinking and on that basis alone should have been disqualified from the contest, both for his own safety and for the safety of others. Page 254 Case: Hercules Managements Ltd v Ernst & Young [1997] 2 SCR 165 Critical Analysis: Do you agree with the court’s formulation that the sole purpose for which financial statements are produced is for the annual general meeting? Are accountants being too sheltered by the courts? Why did the shareholders simply not sue the accountants for breach of contract? The court was classically concerned that auditors, in the words of Ultramares Corp v Touche (1931), 255 NY 170 (CA) not face liability “in an indeterminate amount for an indeterminate time to an indeterminate class.” This is a valid concern since financial statements can be widely circulated. If everyone who ever read these statements could successfully sue the negligent accountants who produced them, accountants would indeed have trouble staying in business. By relying on policy analysis in the second part of the Anns test, the court ensured that accountants would see greater protection than that. At the same time, the court is open to some criticism for being overly solicitous of the accountants. The plaintiffs in this action were not from a far-flung locale with tangential claims. They were among current shareholders of the companies in question at the time in question. The court would have had a more solid policy foundation had it concluded that the purposes of financial statements are for the AGM and for existing shareholders to assess the company’s health for investment purposes. Had this been the case, the shareholders’ action would have succeeded. The shareholders did not simply sue the accountants for breach of contract because they might fail, as they did here, to prove a contract between them and the accountants. It was therefore prudent to also have sued in tort. Page 256 Photo caption: Why should retailers be responsible for defective products? Retailers sell products that can pose a serious risk to the health and well-being of consumers. The law of negligence requires the retail industry to assume responsibility for certain consequences of freely chosen business activities. This stance helps to ensure compensation for someone who suffers loss or injury because of a defective product and provides incentives on retailers to take care in what they do. Page 257 Case: McIntyre v Grigg (2006) 274 DLR (4th) 28 (Ont CA) Critical Analysis: Do you agree that bars should be held responsible when their patrons cause injury to themselves or others? It seems reasonable to anticipate that most students would agree with this proposition and with good reason. Bars economically benefit from serving alcohol and should bear some responsibility for staving off the negative consequences of alcohol consumption. The bar is also in the better position to stop an impaired patron from driving. Members of the public like McIntyre—who was hit by a car driven by Grigg—have absolutely no opportunity to do so. Page 259 International Perspective: Strict Liability Critical Analysis: Which approach to liability do you prefer and why? For a detailed analysis, see the discussion of Question for Critical Thinking 2. The primary reason for introducing strict liability to product liability is to try to guarantee recovery for the injured consumer. Under a fault-based regime, liability is based on culpability. Which system is preferable is driven by what policy analysis an individual finds prefers: assured recovery regardless of the defendant’s fault or recovery expressly premised on the defendant’s fault. Instructor Manual for Canadian Business and the Law Philip King, Dorothy Duplessis, Shannon O'byrne 9780176570323, 9780176509651, 9780176501624, 9780176795085
