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September 2009
In this issue:
1. Firm News
2. Supreme Court of Canada: Former Shareholders and Directors Did
Not Breach Non Competition Clause / Misappropriate Business Opportunity:
Enerchem Transport v. Gravino 2009 CANLII 13445
3. Fifteen Nations Ratify Rotterdam Rules
4. Sometimes the Best Thought Out Legal Arguments Just Go Down the
Drain: Charting the Difficult Area of Tort Law
1. Firm News
- Rui Fernandes
and Gordon Hearn have been listed in the upcoming 2010
edition of "Best Lawyers" in the areas of Maritime Law
and Transportation Law.
- Rui Fernandes and Gordon Hearn have
also been named in the Legal Media Group Guide to the World's
Leading Shipping & Maritime Lawyers.
- Rui Fernandes will be participating on a
panel on the role of Average Adjusters at the International Marine
Claims Conference held in Dublin Ireland at the end of September.
He will be representing the Association of Average Adjusters of
Canada as the current Secretary of the Association.
- Gordon Hearn will be participating in a
panel discussion on the "World of Transportation Contract
Logistics" at the upcoming annual meeting of the Canadian
Transport Lawyers Association being held October 2-3, 2009 at
Niagara-on-the-Lake, Ontario.
- Gordon Hearn will be presenting a paper
relating to Canadian surface transportation law at the "SMC3
Loss Prevention Conference" in Atlanta, Georgia on October
21, 2009.
- Gordon Hearn will be presenting a paper
on the "Liability for Payment of Freight Charges and Trust
Obligations" to a joint meeting of the National Transportation
Brokers Association and the Delta Nu Alpha Transportation fraternity
in Mississauga, Ontario on October 22, 2009.
- Kim Stoll is the Ontario Director of the
Canadian Transport Lawyers Association and member of the Education
Committee. Kim will be the moderator for two panel presentations
at the Canadian Transport Lawyers Association Annual Meeting in
Niagara- on- the Lake October 1-3, 2009. The panels are entitled:
"Cross-border Freight Claims and Personal Injury Cases",
"Welcome to the Age of Pirates and Terrorists: Legal Initiatives".
Kim will also be the moderator for the roundtable discussion on
"Due Diligence in the Selection of Carriers and Drivers".
- The firm's 10th Annual Maritime and Transportation
Conference will be held on Friday January 15th 2010. Please
reserve the date on your calendar.
2. Supreme Court
of Canada: Former Shareholders and Directors Did Not Breach Non
Competition Clause / Misappropriate Business Opportunity: Enerchem
Transport v. Gravino 2009 CANLII 13445
The Supreme Court of Canada recently upheld
the Quebec Court of Appeal decision in Gravino v. Enerchem Transport
Inc. 2008 QCCA 1820 by dismissing Enerchem Transport Inc's application
for leave to appeal the decision.
In the Gravino case the trial judge found that
Nicholas Gravino and Richard Carson, who were former directors of
Enerchem Transport Inc. had breached their duty of loyalty towards
their former employer (Enerchem) and ordered the directors to pay
$3,100,000 for having appropriated a business opportunity upon which
they had actively worked in the course of their employment with
Enerchem.
The tangled web of activities started in 1994. Ultramar
began negotiations with Enerchem for the subchartering of three
of Enerchem's tankers under charter to Ultramar. Ultramar no longer
needed the tankers for itself. Gravino and Carson, who were then
shareholders and directors of Enerchem, actively took part in the
negotiations with Ultramar. No agreement was reached between Ultramar
and Enerchem. In February 1996, Gravino and Carson exercised their
share options selling their Enerchem shares to the majority shareholder
of the company and, in June 1996, both terminated their employment
contracts with Enerchem. By virtue of the terms of the unanimous
shareholders agreement and the exercise of their options, the non-competition
clause in the agreement ceased to apply to them as of their resignation
date.
Following their departure, Gravino and Carson founded
their own company, Petro-Nav Inc. , and competed directly with Enerchem.
They entered into discussions with Shell for the control of the
three tankers under charter to Ultramar. In September 1996, the
marketing vice president of Enerchem moved to Petro-Nav. In April
2007, Ultramar assigned its lease agreement for the three tankers
to a subsidiary of Petro Nav.
Enerchem commenced a suit against Gravino and Carson
alleging that the former directors and officers had appropriated
for themselves, to Enerchem's detriment, a business opportunity
that they had developed for Enerchem, breaching their duty of loyalty
to their former employer.
The trial judge agreed with Enerchem.
The Quebec Court of Appeal overturned the judgment
of the trial judge. The Court of Appeal looked at two issues. It
examined the non-competition clause in the shareholders agreement
and examined the obligation to act loyally and in good faith in
the context of a maturing business opportunity.
The Court of Appeal affirmed the principle that, even
where a non-competition clause is extinguished, as it was here,
the director / fiduciary is not freed from the general obligation
to act loyally and in good faith to their former employer. However,
the Court of Appeal found that directors and officers can compete
with their former employers provided that doing so is not incompatible
with their obligation to act loyally and in good faith. In the present
case, the court found that a "maturing business opportunity"
requires a sufficient degree of specificity so as to be virtually
autonomous. The Court concluded that the business opportunity that
Gravino and Carson had contemplated exploiting while in the employ
of Enerchem was then still too vague to be characterized as a "maturing
business opportunity." The opportunity had not evolved into
a privileged interest of the company in order to be deemed more
than an embryonic idea.
The Court also noted that the business ultimately
obtained by Petro-Nav was generically too different from the Enerchem1996
proposition to have proximately resulted therefrom, and too much
time had elapsed between those two junctures to be able to conclude
that the same business opportunity was at issue.
Among the criteria cited by the Court in support of
its finding that the situation in this case did not amount to Petro-Nav
or its principals usurping what was a maturing business opportunity
for Enerchem, the following are worthy of note: (a) the fact that
the existence of the opportunity in question was generally known
in business circles (as opposed to being confidential); (b) the
fact that the project was exploratory and hypothetical in nature
(as opposed to being in an advanced state of completion); (c) the
fact that the defendants had had knowledge of the business opportunity
even before a new shareholder acquired its interest in Enerchem
(as opposed to learning about it specifically by reason of their
duties); (d) the absence of a continuing conflict of interest (the
directors concerned having resigned from the board); and (e) the
fact that the opportunity that was ultimately exploited differed
in its execution from the one that Enerchem had been pursuing.
The case must be read on its facts. It does not mean that the law
has changed. The applicable law was the duty of loyalty under Articles
322 and 323 of the Civil Code of Québec. Other provinces
have similar duties of loyalty in their provincial legislation.
In Ontario, for example, Section 134 of the OBCA sets
out the fiduciary duties of directors:
Standards of care, etc., of directors, etc.
134. (1) Every director and officer of a corporation
in exercising his or her powers and discharging his or her duties
shall
(a) act honestly and in good faith with a view to the best interests
of the corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
The Ontario Court of Appeal explained these duties
and the duties of employees in Felker v. Cunningham
2000 CanLII 16801 (ON C.A.), 191 D.L.R. (4th) 734. Felker was employed
as a senior sales person with Electro Source, a company owned by
Cunningham. Mr. Felker learned of an opportunity to become the manufacturer's
representative in Canada for a company known as Microchip. Felker
and two partners, Cammuso and Bowden, put together a proposal on
behalf of Felker's company, JAS, which they planned to submit to
Microchip in the expectation of gaining a substantial client who
would get their own business started. Some years earlier, Electro
Source had had discussions with Microchip about representing its
product lines; however, it did not pursue the discussions when it
learned that Microchip manufactured a product that competed with
a product manufactured by one of Electro Source's clients.
The evidence indicated that Felker prepared a "power
point" presentation on the Compaq notebook computer he had
received from Electro Source under the employment contract. In his
testimony, Felker admitted that he did not devote his full time
and attention to his duties at Electro Source while preparing the
presentation to Microchip and that he was not concerned about advancing
the business of Electro Source during this period. He advised Cunningham
in a memo dated March 20, 1996 that he would be spending more time
out of the office on sales. Subsequent to the date of the memo,
Cunningham noticed Felker's absence from the office until the time
Felker was terminated. Felker did not disclose to Cunningham that
he was pursuing the Microchip opportunity, nor did he receive Cunningham's
permission to do so. He admitted that he was not frank, open and
honest with Cunningham in that regard.
Felker was to make his presentation to Microchip on
April 9, 1996. On April 4, Cunningham learned of Felker's activities.
He testified that he did not confront Felker as confrontation was
not his management style. Rather, he preferred that Felker come
forward and be honest and open with him about his activities concerning
Microchip. When Felker failed to come forward, Cunningham realized
that he could no longer trust him and decided to terminate Felker's
employment. He did so on April 8, 1996.
Although Felker made the proposal to Microchip, it
was not accepted. Had it been accepted, Felker would have left his
employment with Electro Source to operate his own company, JAS,
in competition with Electro Source.
Felker sued for wrongful dismissal and was awarded
damages of $100,000 by the trial judge. The Court of Appeal for
Ontario reversed this decision, finding that Felker had breached
his duty of loyalty. The Court found that Cunningham had just cause
for terminating the employment.
The Court of Appeal stated:
…it has been established law in Canada that
high echelon managers and directors of an organization owe their
employer a fiduciary obligation that transcends their implied
duty of fidelity as a regular employee. Thus, an employee who
stands in a fiduciary relationship to his or her employer has
an equitable obligation of loyalty, good faith, honesty and avoidance
of conflict of duty and self-interest. The employee must act honestly,
in good faith and with a view to advancing the employer's best
interests. This court has held that fiduciary employees cannot
enter into engagements in which they have a personal interest
that conflict with anything the employer does, or realistically
may do, without first making full disclosure and obtaining the
employer's consent: Manley Inc. v. Fallis (1977), 2 B.L.R.
277. Moreover, as the fiduciary duty is based on trust, loyalty
and confidence, and not economic cost to the employer, fiduciary
employees are not relieved of their fiduciary duties if the business
opportunity sought to further their own ends is one that the employer
would have been unwilling or incapable of exploiting: Re Berkey
Photo (Canada) Ltd. v. Ohlig (1983), 43 O.R. (2d) 518 at 530-531
(H.C.J.).
Another illustrative decision in this area, is Jordan
Inc. v. Jordan Engineering Inc. 2004 CanLII 5863. Jordan
Inc., a consulting business in the computer systems integration
field, was founded by Katherine van Nes and Sandra Murre. Both women
were professional engineers. The principals left full time employment
and started the plaintiff company in 1997. The company specialized
in providing information services and control systems for large
companies that included configuration, integration, and support
services.
The company's revenue was based on projects and services
provided to its clients. In March and April 1998, the corporation
received its first contracts. Thereafter, work increased. At times,
there were pressures upon both principals from too much work. The
two principals got along well. They socialized together outside
of work and managed to balance work with their family life and personal
commitments.
In the early period, the principals marketed the company.
They set up offices in Sandra Murre's home. She was primarily responsible
for the office activities and supervised the bookkeeper, Anna Murre,
Sandra's sister-in-law. Both Sandra Murre and Katherine van Nes
preformed the work as contracted with the clients.
The business grew. The principals did not address
having a shareholders agreement and none was entered into. They
made no arrangement for a buy-out.
The demands and pressures of business, combined with
increasing personal demands, created friction between the principals.
In the spring and summer of 1999, both Katherine van Nes and Sandra
Murre gave birth to their second children. Sandra Murre was of the
view that they should create two separate companies and she made
this proposal to Katherine van Nes. Katherine van Nes did not agree
with that proposal. Katherine van Nes and Sandra Murre continued
to run the company until October 1999.
On October 13, 1999, Sandra Murre called a meeting
with Katherine van Nes. She told Katherine van Nes she wanted to
run the company on her own. An offer in writing followed to purchase
Ms. van Nes's interest for $70,000. The proposal was that the company
would permit Katherine van Nes to work for Jordan Inc. as an employee
or independent contractor. Katherine van Nes was disappointed by
the developments. She rejected Sandra Murre's offer and obtained
her own evaluation of the company. Sandra Murre did not agree with
this valuation.
Katherine van Nes was not satisfied with the events
which followed. These included the disclosure made by Sandra Murre
with respect to Jordan Inc. and Sandra Murre's formation of a new
company called Jordan Engineering, the corporate defendant. Most
of the employees of the plaintiff company resigned and joined the
defendant company as did some of the clients.
The Ontario Superior court was asked, among other
things, to determine if there was there a wrongful appropriation
of Jordan Inc. by Sandra Murre (i.e. breach of a fiduciary duty).
In deciding that there was a breach of fiduciary duty
the court stated:
[28] Thus, directors are prohibited from putting
themselves in positions where their duty to act in the best interests
of the corporation and their self-interest conflict. If directors
use their positions to obtain a profit or other benefit for themselves,
then they are required to give up the benefit to the corporation.
I find that, as a director, Ms. Murre took advantage of a business
opportunity which was not in the best interests of the plaintiffs
when she set up her company.
[29] Similarly, the duty to act "honestly"
prohibits directors from acting fraudulently in relation to the
company; they are not to deprive the corporation of some assets
or benefits which the corporation is entitled to for their own
gain. In most cases, where there is a breach of fiduciary duty,
the fiduciary has made some profit or received some advantage
at the expense of the corporation. Here, I do not find that, as
a director, Ms. Murre was acting fraudulently, but I do find she
failed to act in the best interests of the plaintiffs when she
commenced an operation for her own gains and best interests.
[30] Although it is not a breach of a fiduciary
duty for a director to terminate his or her relationship with
a corporation and go into competition with it, a fiduciary cannot
compete with the corporation while he or she remains in her capacity
as a fiduciary. The conflict between the personal interests of
the fiduciary and her duty to act in the best interests of the
corporation is obvious in such situations and the courts, traditionally,
have provided relief whenever any competition has been found.
In Re Thomson, [1930] 1 Ch. 203, the court granted relief
against an executor who entered into competition with a business
owned by the estate for which he was responsible.
[31] Also, a fiduciary cannot use her fiduciary
position and the opportunities afforded to her in that position
to develop a competing business and then quit to begin competing
with her former organization. In Coleman Taymer Ltd. v. Oakes,
[2001] 2 B.C.L.C. 749 (Ch D.), the court held that extensive preparations
to compete by a director before he quit breached his fiduciary
duty. The fiduciary obligations extend beyond the termination
by the fiduciary.
[32] Even where a fiduciary has not used her position
to develop an opportunity, she will have some obligations extending
beyond the termination of the relationship with the corporation.
A fiduciary cannot use confidential information belonging to the
corporation, though it is not a breach to use skills, know-how,
experience, and personal goodwill acquired by the fiduciary during
her service to the corporation. As well, if a departing fiduciary
attracts customers or other employees by virtue of her qualifications
or experience, this will not breach the fiduciary duty; however,
if she affirmatively solicits customers or employees, relying
on relationships developed during her time with the corporation,
she will be in breach of her fiduciary obligations. I find that
happened here. I have no doubt that a number of clients came to
Jordan Inc. because of Ms. Murre, but they then became the clients
of Jordan Inc. As a departing fiduciary, she was under a common
law obligation not to solicit these clients for a reasonable period.
(See DiFlorio v. Con Structural Steel Ltd. (2000), 6 B.L.R.
(3d) 253 (Ont. S.C.J.) and Felker v. Cunningham 2000 CanLII
16801 (ON C.A.), (2000), 191 D.L.R. (4th) 734 (Ont. C.A.), leave
to appeal to S.C.C. dismissed without reasons [2000] S.C.C.A.
No. 538 (QL)). While I accept her position that clients willingly
came to the her new company, I find that she made no efforts to
honour her obligations to Jordan Inc. so that clients remained
with that company. Ms. van Nes was neither informed nor involved
in that process.
[33] Similarly, while Ms. Murre may not have solicited
the employees who went with her to her new company, I find that
Ms. van Nes was neither informed nor involved in giving the employees
any options. Clearly, the employees had greater loyalty to Ms.
Murre because of her physical visibility in the operation and
her dealing with them, but this does not excuse the way in which
the employees shifted from one company to another without Ms.
van Nes having any involvement in the process or with the employees.
[34] Competition prohibited by the fiduciary duty
includes not only competition by the fiduciary in her personal
capacity, but also competition by a corporation in which the fiduciary
has an interest. It has been held there is no absolute rule regarding
multiple directorships. In each case, the question of whether
there was a breach of a fiduciary duty will depend on the facts.
The relevant question is whether Ms. Murre, as a fiduciary, could
act in the best interests of both corporations. Where corporations
are in active competition with each other, it is impossible not
to conclude that a director of both corporations is in a conflict
of interest and in breach of her fiduciary duty. That was the
case here.
Katherine van Nes was awarded damages for the breach.
Rui Fernandes
3. Fifteen Nations Ratify Rotterdam Rules
On September 23, 2009 fifteen signatory nations including
the United States, Denmark, the Netherlands, Switzerland, Spain,
Poland, Guinea, Senegal, Greece, Norway, Ghana, Nigeria, Togo, Benin
and the Democratic Republic of Congo ratified the Rotterdam Rules.
The Rotterdam Rules (United Nations Convention on
Contracts for the International Carriage of Goods Wholly or Partly
by Sea) is the new regime designed to regulate marine cargo liabilities.
They are targeted to replace the Hague Rules, Hague-Visby Rules
and the Hamburg Rules.
France and China are not yet signatories, but are
public supporters of the Rotterdam Rules. The maritime nations of
New Zealand, the United Kingdom, Singapore, Bulgaria, Slovenia,
Japan, Finland and Croatia have not yet signed the Convention. Canada
has announced that it will not sign the new Convention at this time.
In a notice to industry, Transport Canada made the following announcement:
Throughout the negotiations in UNCITRAL, Transport
Canada has consulted extensively with maritime stakeholders on
the new Convention, and whether or not Canada should sign it,
subject to ratification, at the Rotterdam conference.
While many stakeholders indicated that Canada should
sign the Convention in Rotterdam, subject to ratification, there
were also many stakeholders who could not support Canada's signature
at this time and felt that such a step should be considered as
and when Canada's major trading partners have indicated their
commitment to ratify the new Convention. Taking into account the
diverse views among stakeholders on the new Convention and the
need to undertake further consultations on some of its provisions,
particularly those related to domestic carriage of goods by water,
Canada will not be in a position to sign the new Convention in
Rotterdam.
The Convention will not be fully implemented until
one year after it has been ratified by 20 signatory nations.
Rui Fernandes
4. Sometimes the Best Thought Out Legal Arguments
Just Go Down the Drain: Charting the Difficult Area of Tort Law
The recent Ontario Court of Appeal decision in Bingley
et al v. Morrison Fuels, a Division of 503373 Ontario Limited
[(2009) 95 O.R. (3d) 192] provides a nice review of important principles
of tort law as pertains to actions based on 'negligence'.
The Facts
In 1979, the Bingleys hired Stanzel Plumbing to decommission
their old oil-heating furnace and to convert their heating system
to natural gas. Stanzel Plumbing attended and removed the Bingley's
oil furnace but left in place the oil tank in the basement as well
as the oil fill pipe and the vent pipe left on the outside of the
house. Stanzel Plumbing tightened the cap on the external oil fill
pipe so that it could not be removed by hand and then turned this
pipe down towards the ground to prevent it from being filled in
this position and to indicate that it was no longer to be used.
In 2001 - 22 years later - one McDougall, an employee
of Morrison Fuels, misread a delivery ticket and mistakenly made
an oil delivery to the Bingley's home. McDougall found the oil fill
pipe on the exterior of the dwelling in the downward position with
its cap end pointing towards the ground. Wrongly thinking that the
oil fill pipe was merely loose [and, as such, not pointing in the
other 'up' direction] he raised the pipe and then loosened the cap
with a wrench. McDougall was unaware that he was pumping 933.4 litres
of furnace oil into the wrong residence. In fact, the Bingley's
oil tank had beforehand rusted and leaked, as a result of which
oil spilled onto the unfinished basement surface and entered the
soil and groundwater. The house was rendered uninhabitable and serious
environmental contamination occurred.
The Law Suits
The Bingleys sued Morrison Fuels and McDougall. The
claim was based in 'negligence'. Morrison Fuels and McDougall admitted
their negligence, settled the Bingley's claim and rectified the
situation at a cost of over $1 million.
Morrison Fuels and McDougall commenced a 'third party'
action against D.W. Stanzel Plumbing and Heating Limited and Donald
Wright Stanzel [hereinafter collectively referred to as "Stanzel
Plumbing"] claiming 'contributory negligence', alleging that
Mr. Stanzel negligently decommissioned the Bingley property in 1979
and that Stanzel Plumbing has to pay a portion of the Bingley's
losses.
At a trial of this 'third party' claim, the judge
found that Stanzel Plumbing had not in fact been negligent. Morrison
Fuels and McDougall were not accordingly entitled to be indemnified
by it, in whole or in part, for what they had paid to clean up the
problem with the Bingley's property.
At Trial
In her reasons for judgment, the trial judge focused
on various errors by Mr. McDougall. He had only been employed at
Morrison Fuels for two months when the events occurred. While he
had seen similar 'turned down' oil pipes before, he did not know,
nor had he been trained as to their significance. On the day of
the accident, he was in a hurry and misread the delivery ticket.
In particular, the ticket indicated that the exterior oil fill pipes
at the intended address were at a different location relative to
the dwelling than where the utilized pipe was actually found. In
addition, the delivery ticket indicated that the delivered volume
was to be less than 560 litres, significantly less than the amount
delivered. In short, there was plenty of 'negligent conduct' to
be found on the part of McDougall and in turn to fix on his employer,
Morrison Fuels.
The key issue at trial - Morrison Fuels and McDougall
already having admitted responsibility - was assessing the standard
of care expected of Stanzel Plumbing in 1979 for the decommissioning
and whether it met that standard. Did Stanzel Plumbing have to contribute
towards the clean up?
[Note: A necessary ingredient to any 'tort'
claim based on negligence, is the finding of important 'pillars'
or key facts to give rise to such a claim. First, the defendant
must be seen to have owed the plaintiff a 'duty of care'. That is,
the parties must have been in such proximity to each other that
it could be said that the defendant should have or did in fact reasonably
foresee that negligent conduct on its part would likely cause harm
to the plaintiff. The next item concerns 'negligent conduct'. This
calls for an analysis, the parties having some proximity to the
other, as to what standard of care was expected on the part of the
defendant and whether the defendant's conduct fell below that standard.
As such, think of a claim in negligence being successful where 'a
defendant could reasonably foresee damage being suffered to a foreseeable
plaintiff by the former's conduct, amounting to something less than
that reasonably expected of the defendant in the circumstances,
which conduct actually causes harm or loss to the plaintiff.']
A simple, rather theoretical test, but one that may
be difficult to apply to the facts of a particular case.
Just what standard would Stanzel Plumbing be held
to? The relevant 'lens' is the state of the industry and knowledge
at the relevant time, back in 1979. As put by the judge, the question
was "what would have been the standard of care expected
of an ordinary, reasonable and prudent person in the same circumstances,
having regard to the likelihood of a known or reasonably foreseeable
harm, the gravity of that harm, the burden or cost which would be
incurred to prevent the harm, industry practice and regulatory standard?".
The judge found that Stanzel Plumbing's method of
decommissioning the Bingley's furnace was an accepted practice in
1979 and that it complied with the then applicable regulatory standard,
which required that the installer ensure that a system being replaced
or being rendered obsolete "… has either been removed
or left safe and secure from accidental discharge".
Evidence was called at trial to the effect that in
1979 there was a prevailing industry practice in decommissioning
an oil heating system, if the oil tank and piping were not to be
removed, by turning the oil fill pipe down to the ground as a signal
to any fuel delivery person. Accordingly, despite noting that the
better decommissioning method would have been to remove or plug
the fill pipe, the trial judge found that Stanzel Plumbing complied
with accepted industry practice in 1979. The judge found that Stanzel
Plumbing did owe the Bingley's a 'duty of care', but that it did
not owe any duty of care to Morrison Fuels or McDougall in terms
of the decommissioning. In essence, the nature of the failures on
the part of McDougall were far reaching and fundamental, such that
Stanzel Plumbing should not be 'pinched' in terms of being expected
to have foreseen that such errors could take place in the future
by virtue of how the limited steps being taken in the 1979 decommissioning.
The judge ultimately ruled in favour of Stanzel Plumbing
on the basis that it "could not have reasonably foreseen
that a delivery of fuel oil that was not authorized by anyone and
that was made in the face of many indicators [as misread, or
missed by McDougall] to the contrary would be made into that
tightened and down-turned oil pipe."
The judge did find - should she be corrected on appeal
on the question of whether Stanzel Plumbing should be held liable
- that, on the evidence at trial, liability or blame should be apportioned
as follows:
- McDougall: 75%
- Morrison Fuels: 20%
- Stanzel Plumbing: 5%
Proceedings before the Ontario Court of Appeal
Morrison Fuels and McDougall filed an appeal to the
Ontario Court of Appeal.
A majority of the Court of Appeal reversed the trial
judge's findings and ruled that in fact Stanzel Plumbing should
be held accountable for what happened.
The majority ruled that the judge erred in applying
the 'reasonable foreseeability of harm' test to the circumstances
of the case. While the trial judge was correct, in listing this
as an essential element to a plaintiff succeeding against a defendant
for a case in negligence, the majority disagreed with the trial
judge as to how this test was to be applied to the facts of the
case. The trial judge considered whether a mistaken delivery
with the particular chain of events as unfolded was reasonably foreseeable
rather than considering whether, in general, harm from a 'mere'
mistaken delivery of oil [without more egregious facts] to the Bingley
residence was reasonably foreseeable. The majority found that
the former, more specific analysis was applied in error and that
the latter more simple test should govern.
The Court of Appeal ruled, on the basis of case law
precedent, that "one need not envisage the precise concatenation
of circumstances which led up to the accident, provided that the
general harm is reasonably foreseeable". The test is not
whether to assess whether the defendant can see the harm unfolding
in the particular way that it did, but rather one is to have
regard to only the general harm, not its 'manner of incidence',
as being reasonably foreseeable. The question is then whether, Stanzel
Plumbing could reasonably foresee the risk of a mis-delivery [which
it did, hence, the reason for the pipe being turned downward] rather
than whether it could have been expected to have foreseen all the
particular aspects, or degrees of negligence of McDougall in this
case leading up to the loss. The majority had little difficulty
in citing the fact that Stanzel Plumbing could reasonably foresee
the chance of an oil delivery person arriving at the wrong address
to delivery oil.
The correct approach led to the conclusion that the
failure to permanently plug the oil pipe created a reasonably foreseeable
risk that oil could be mistakenly pumped into the pipe at a later
point in time simply by virtue of a 'mis-delivery', without more.
The majority also noted the chance that over time somehow the pipe
might be bumped, inadvertently, into an upright position…
The majority ruled that in combining this reasonable
forseeability with the enormous potential harm and the trifling
cost of permanently plugging the fill pipe that Stanzel Plumbing
breached the standard of care owed to the Bingleys. Having concluded
that Stanzel Plumbing breached the standard of care owed to the
Bingleys, the majority opted to defer to the findings of the trial
judge as concerns the apportionment of liability between the parties.
In the result Stanzel Plumbing would be assessed 5% of the blame.
The 'Dissent'
As mentioned, one of the Court of Appeal judges parted
from the majority with her analysis of the case. This judge found
that on the particular facts of the case the method employed by
Stanzel Plumbing did meet the standard of care and that there was
a fair basis for the trial judge to find that there was no reasonably
foreseeable risk of a mistaken oil fill when the Stanzel conversion
method was used in 1979 because the Stanzel method protected against
the then perceived risk of harm created by leaving the oil heating
components in place. In essence, there was then no foreseeable risk
of a mistaken oil fill when the Stanzel method was used. Whether
applying the more fact specific analysis used by the trial judge,
or the more simple 'general foreseeability' test employed by the
majority, the dissenting judge ruled that either way Stanzel Plumbing
could not reasonably have foreseen what happened and, according
to this dissenting judge, it should not be found liable.
Conclusion
The difference in approaches between the majority
and the minority dissenting judge [agreeing with the trial judge]
is very nuanced. It is something that lawyers will have to struggle
with. It highlights challenges in the law of tort, and yet points
to one factor making the outcome in litigation unpredictable. While
illustrating an important 'foreseeability' requirement in tort litigation,
this decision shows how detailed the analysis can get, and how critical
the facts are in each case.
Gordon Hearn
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