APRIL 2001

PUNITIVE DAMAGES AND VICARIOUS LIABILITY

When Do We Have Vicarious Liability For Punitive Damages In Ontario: 671122 Ontario Ltd. v Sagaz Industries Canada Inc. (2000), 46 O.R. (3d) 760 (C.A.) leave to appeal to S.C.C. granted Dec. 7, 2000,

Punitive damages liability is based on concepts of fault, of conduct that requires punishment beyond the punishment resulting from the obligation to satisfy the injured person for losses resulting from that conduct. Punitive damages requires wrongful, wanton, egregious conduct of a type that shocks the conscience of the court: see, for example, Whiten v. Pilot Insurance (1999), 42 O.R. (3d) 641, 170 D.L.R. (4th) 280 (C.A.), leave to appeal granted [1999] S.C.C.A. No. 157 (the case has been argued and is under reserve). See, generally, Waddams, The Law of Damages (2nd) at 11.20 - 11.100 and 11.420 - 11.425; Klar, Tort Law (2nd), at 94-95. So, where a defendant is found liable solely on the basis of vicarious liability for the conduct of another, we have a conundrum of principle: on what basis, if any, may that defendant also be held liable for the punitive damages, in addition to the compensatory damages, where the conduct of the actual actor(s) for whom there is vicarious liability is sufficient for an award of punitive damages against that other person or persons.

The issue is straightforward: a situation involving (1) conduct on the part of an employee or agent which is sufficient for punitive damages as well as compensatory damages in (2) circumstances where there will be vicarious liability for the compensatory damages and (3) the only basis for liability is vicarious liability; that is, there is no independent wrongful conduct on the part of the employer or principal which is, of itself, sufficient for a finding of liability for the punitive damages.

Vicarious liability exists in defined relationships where the unauthorized conduct of the actor is so connected to authorized acts that it is seen as an improper mode of doing an authorized act, so that "judicial policy" rationalizes holding the employer or principal be held responsible for the consequences of the act, rather than a random act wholly unconnected to the nature of the enterprise and the employee's responsibilities for which the employer or principle is not liable: see, Bazley v. Curry (1999), 174 D.L.R. (4th) 45 at 52-3 and 56 (S.C.C.).

In vicarious liability, it is only the liability (the obligation to satisfy the judgment, to pay the recoverable amounts) that is imposed on the defendant held liable on the basis of vicarious liability. The blame (the fault) and actions, the wrongful conduct, of the person(s) who acted are not imputed to the person held liable on the basis of vicarious liability. In Harroun v. Turriff (2000), 50 O.R. (3d) 634 at para. 17, 18 (C.A.), McMurtry, C.J.O wrote: "It is not the act of the wrongdoer which is attributed to the employer, nor is it the fault or blame of the wrongdoer which is attributed. It is the victim's remedy against the wrongdoer, namely liability for the wrong, which is attributed." Harroun applied Bluebird Cabs Ltd. v. Guardian Insurance Co. of Canada (1999), 173 D.L.R. (4th) 318 at 324 (B.C.C.A). Until recently, the courts in Ontario did not consider whether also imposing the punitive damages liability on the employer or principal was justified by legal principle in cases where the conduct of the employee or agent merited an award of punitive damages. Instead, what happened in Ontario (as was the case in the other common law provinces before the issue was examined) was that awards of punitive damages were made against employer or principal defendants held liable on the basis of their vicarious liability, in circumstances where there was no wrongful conduct of any degree on the part of the principal or employer, but without any consideration of whether legal principle allowed the imposition of punitive damages against the principal or employer. However, in other provinces of Canada, when the issue was considered, the decisions have been against allowing an award of punitive damages in such circumstances, absent some additional conduct on the part of the employer or principal which is viewed as requiring condemnation and which forms the basis for the extension of the vicarious liability to the punitive damages.

That situation has now changed in Ontario, too. In 671122 Ontario Ltd. v Sagaz Industries Canada Inc. (2000), 46 O.R. (3d) 760 (C.A.) leave to appeal to S.C.C. granted Dec. 7, 2000, a unanimous court set aside an award of punitive damages against a principal found liable solely on the basis of punitive damages. What is not clear from the case, so may still be open for question and a different result, is whether the court intended:

(a) to establish a general proposition that there can never be liability for punitive damages where the only basis for the liability for the compensatory damages is based solely on vicarious liability and not the independent conduct of the principal or employer; or
(b) a more limited proposition that there can not be such liability unless there is also some sort of inappropriate conduct on the part of the principal or employer which warrants the imposition of punitive damages.

The exposure to vicarious liability for punitive damages outlined in (b) is not eliminated by what was said in Sagaz, or the result. It is probably the proper analysis of where the law in the other provinces is at the moment.

In Sagaz, the Court of Appeal affirmed a trial judgment holding a principal vicarious liable for compensatory damages caused by the tortuous conduct of its agent. The court also found that there was no independent negligence on the part of the principle so that the only basis of for its liability was the vicarious liability of the principal arising out of the principal-agent relationship. The agent's conduct was such that it was sufficient to support a an award of punitive damages against the agent. Accordingly, the Court had to deal with the question of whether the principal was also vicariously liable for the punitive damages. The Court, in a brief, almost throw-away passage, the court then held that that there was no vicarious liability for punitive damages for which the agent was liable. Mr. Justice Sharpe, , wrote at paragraph 23, after referring Bazley v Curry and the circumstances under which vicarious liability exists (as outlined above) and that vicarious liability existed for the compensatory damages:

"[23] It follows that Sagaz is liable for the tortious conduct of Landow and AIM. Vicarious liability should not, however, extend to the award of punitive damages, in view of the findings of the trial judge with respect to Kavana's lack of knowledge and participation in the bribery scheme: see: S. M. Waddams, The Law of Damages (Canada Law Book: Aurora, 1999 Loose-leaf) paras. 11.420 - 11.425."

About 14 years earlier, in a Manitoba case, Janzen v. Platy Enterprises Ltd., (1986), 33 D.L.R. (4th) 32 at 52 (Man C.A.) Huband, J.A., wrote: "It makes little sense to impose liability in terms of a penalty or punitive damages against one who has been guilty of no fault and is deserving of no punishment. The imposition of punishment against one who deserves no punishment is so manifestly unjust that it would require a specific statutory foundation." The same sort of analysis for limiting the availability of punitive damages in vicarious liability situations.

The brevity of the Sagaz passage makes it impossible, at this time, for anyone to conclude with certainty whether Sharpe, J.A., meant that the broader or more limited principles I outlined earlier: no vicarious liability for punitive damages at all or vicarious liability only if the principal or employer is sufficiently blameworthy that it warrants denying the "I am only vicariously liable defence". My view of the facts of Sagaz, as found by the trial judge, is that they fall into the blameless principal or employer situation so that, on its facts, Sagaz is only authority for the more limited proposition.

In result, we appear to have two different situations: (1) the first in which the principal or employer has done nothing wrong whatsoever and (2) the second in which the employer has done something wrong, albeit not something sufficient of itself to create liability. It appears that, in the other provinces, it is still open to argue that, in the latter case, there may be conduct on the part of the principal or employer sufficient to merit the extending the award of punitive damages to the principal or employer, too, even though absent vicarious liability the principal or employer would not be liable at all and even though the conduct of the principal or employer, in itself, does not satisfy the requirements for liability for punitive damages.

What sort of conduct on the part of the employer or principal will be sufficient to deprive it of the "no vicarious liability" defence? It seems that this is conduct which requires condemnation even if it would not be, of itself, sufficient to support an award of punitive damages. Conduct of that sort makes it possible to say that the employer or principal is not free from "blameworthiness", conduct that makes it appropriate the employer or principal be "punished" by allowing liability for punitive damages. For the other cases, see: Peeters v the Queen (1994), 108 D.L.R. (4th) 471 (F.C.A.) (out of Ontario) -- some degree of complicity or blameworthiness; K.(W.) v. Pornbacher (1997), 34 C.C.L.T. (2d) 174 (B.C.S.C.) -- only where the employer has done some that made it worthy of punishment, only where the corporation can be held criminally responsible; Domenicantonio v. Finnigan (1986), 74 N.B.R. (2d) 271 at 362, para. 311 -- blameless employer should not be made to pay an amount awarded to punish and deter an employee; J.-P.B. v. Jacob and Region 1 Hospital Corp. (1997), 192 N.B.R. (2nd) 256 at 271-72, para. 39-40 (N.B.Q.B.) -- blameworthiness; G.B.R. v. Hollett (1996), 139 D.L.R. (4th) 260 at 319-20 per Chipman, J.A (N.S.C.A.) -- recklessness; Gauthier v. Brome Lake (Town) (1998), 162 D.L.R. (4th) 1 at 49-50, para. 108-110, per Gonthier, J. (S.C.C.) and Béliveau St-Jaques v. The Fédération des employees… inc. (1996), 136 D.L.R. (4th) 129 at 151-52, para. 64-65, per L'Hereux-Dubé (dissenting on other grounds) (S.C.C.) -- complicity in the conduct.

In G.B.R. v. Hollett, 139 D.L.R. (4th) at 319-20 per Chipman, J.A something that something more than just complicity was required, in order to keep the law consistent with the principles applicable to punitive damages. He stated that "[i]t should be sufficient if a managerial agent of the employer has acted recklessly in the engaging or the retaining of an employee with the resultant foreseeable danger of harm of the type which occurred" basing this analysis on United States The Restatement Of The Law of Torts (2d) (1979), Article 909. That article provides:

#909 Punitive Damages Against a Principal
Punitive damages can properly be awarded against a master or other principal because of an act by an agent if, but only if,
(a) the principal or a managerial agent authorized the doing and the manner of the act, or
(b) the agent was unfit and the principal or a managerial agent was reckless in employing or retaining him, or
(c) the agent was employed in a managerial capacity and was acting in the scope of employment, or
(d) the principal or a managerial agent of the principal ratified or approved the act.

In the insurance context, the mere fact of a breach by the insurer of a policy provision or of a good -faith obligation arising out of the nature of the relationship between insured and insurer is not, of itself, sufficient for the imposition of punitive damages. Rather, separate blameworthy conduct on the part of the insurer is required as a precondition to holding it liable for punitive damages. It follows that the mere fact of conduct on the part of an employee (usually an adjuster) - which is not found to also be the conduct of the insurer, itself: a corporate act -- sufficient for the imposition of punitive damages against the adjuster is not sufficient to allow an award of punitive damages an the insurer. In such cases, there must also be some sort of independent conduct on the part of the insurer which warrants extending its vicarious liability to the punitive damages awarded against the employee, or which could have been awarded against the employee had the employee been sued.

The Sagaz decision has been appealed to the Supreme Court of Canada. Leave has been granted. It remains to be seen whether the issue of vicarious liability for punitive damages will be dealt with by the Court and, if so, what it has to say.

D.C.

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