Judgments

Decision Information

Canadian National Railway Co. v. Norsk Pacific Steamship Co. (C.A.)

Collection	Judgments
Date	1990-01-05
Report citation	[1990] 3 F.C. 114
File numbers	A-226-89
Subjects	Maritime Law Railways Torts

Decision Content

A-226-89

Canadian National Railway Company (Respond- ent) (Plaintiff)

Norsk Pacific Steamship Company Limited, Norsk Pacific Marine Services Ltd., Fletcher Challenge Ltd., the tug Jervis Crown, Francis MacDonnell (Appellants) (Defendants)

and

Crown Forest Industries Ltd., the barge Crown Forest No. 4, Rivtow Straits Ltd. and R.V.C. Holdings Ltd. operating under the firm name and style of Westminster Tug Boats and the said Westminster Tug Boats, the tug Westminster Chi- nook and Barry Smith (Defendants)

and

Her Majesty the Queen (Respondent) (Third Party)

INDEXED AS: CANADIAN NATIONAL RAILWAY CO. V. NORSK PACIFIC STEAMSHIP CO. (CA.)

Court of Appeal, Heald, Stone and MacGuigan JJ.A.—Ottawa, November 7, 8 and 9, 1989; Janu- ary 5, 1990.

Torts — Negligence — Pure economic loss — Collision between log barge in tow of tug and railway bridge property of federal Crown causing bridge closure and rerouting of railway traffic — Trial Judge did not err in finding owners and managers of tug liable in negligence for pure economic loss in absence of damage to CNR's property — Requirements of reasonable foreseeability and sufficient degree of proximity between tortfeasor and claimant met.

Maritime law — Torts — Collision between log barge in tow of tug and railway bridge — Trial Judge did not err in holding owners and managers of tug liable in negligence for pure economic loss suffered by railway due to bridge closure Reasonable foreseeability and sufficient degree of proximity tests met.

Railways — Log barge in tow of tug colliding with railway bridge owned by federal Crown — Temporary bridge closure requiring CNR to reroute trains — CNR awarded damages for pure economic loss — Trial Judge correct in holding owners

and managers of tug liable in negligence for pure economic loss in absence of physical damage to CNR's property.

This is an appeal by the owner and master of the tug Jervis Crown from a judgment awarding the Canadian National Railway Company ("CNR") damages in tort for economic loss arising from a collision between a log barge in tow of the tug and a bridge owned by Public Works Canada ("PWC") and used by CNR to cross the Fraser River at New Westminster, British Columbia.

Negligence as to the collision was admitted. There being no claims for loss of freight revenue, but solely for the additional costs of operation, CNR and two other railways were awarded the costs incurred in rerouting their trains over another bridge. It was agreed before trial that the claims of the other two railways would stand or fall on the result of the CNR's claim. It is therefore only the latter's claim which is directly in issue on this appeal.

The question is whether the Trial Judge was correct in holding that the appellants could be held liable in negligence for pure economic loss in the absence of any physical damage to CNR's property.

Held, the appeal should be dismissed.

Per Stone J.A.: A loss to be recoverable must not only be foreseeable; there must also be a sufficient proximity or "neigh- bourhood" between a wrongdoer and a plaintiff such as to give rise to a duty of care owed by the former to the latter.

The following elements were found important by the Trial Judge in determining liability for pure economic loss: knowl edge of the claimant as a specific individual or identity likely to suffer the damage as opposed to knowledge of a general class of people; foreseeability of the precise nature of the loss; and sufficient degree of proximity between the act committed by the tortfeasor and the injury complained of "that an ordinary right thinking person would feel that the tortfeasor is morally bound to compensate the victim". Taken collectively, if not perhaps individually, those elements demonstrate that sufficient proximity giving rise to a duty of care owed by the appellants to CNR existed. In the exceptional circumstances of the case, there was no reason in policy for negativing this duty of care or for denying recovery of the loss.

Per MacGuigan J.A. (Heald J.A. concurring): It can be concluded from the Supreme Court of Canada decisions in Rivtow Marine, Agnew-Surpass, Haig and Baird that there is no absolute rule in Canada preventing recovery for pure eco nomic loss even where there is no physical damage to the plaintiffs property.

The case law shows that for liability to arise in the case of pure economic loss, courts require, in addition to the general principle of reasonable foresight, that there be a sufficient

proximity between the plaintiff and the defendant. Resolution of liability for economic loss is not a policy decision. One should rather look to principle and think of the judgment required for liability as a perception of sufficient proximity.

The best statement of the proximity principle is that formu lated by Deane J. of the High Court of Australia in Sutherland Shire Council v. Heyman. His Lordship said that proximity embraced various forms: "physical proximity (in the sense of space and time) between the person or property of the plaintiff and that of the defendant; circumstantial proximity such as an overriding relationship of employer and employee or of a professional man and his client; causal proximity in the sense of closeness or directness of the causal connection between the particular act and the injury sustained; assumed proximity which reflects an assumption by one party of a responsibility to take care to prevent injury, or reliance by one party upon such care being taken by the other in circumstances where the other party knew or ought to have known of that reliance". It was also said that "the requirement of a relationship of proximity serves as a touchstone and control of the categories of cases in which the common law will adjudge that a duty of care is owed".

The actual knowledge of the appellants found by the Trial Judge (knowledge of the CNR as a party likely to suffer damage and knowledge of the precise nature of the loss) was not necessary for liability; all that was required in that regard was reasonable foreseeability. The principle of sufficient prox imity was realized particularly by the third ground advanced by the Trial Judge to the effect that the property of the CNR (the tracks on both sides of the river) was not only in close proximi ty to the bridge but it could not properly be enjoyed without the essential link of the bridge. In effect, the Trial Judge found that the CNR was so closely assimilated to the position of PWC that it was very much within the reasonable ambit of risk of the appellants at the time of the accident. That constituted both "physical and circumstantial closeness".

CASES JUDICIALLY CONSIDERED

CONSIDERED:

Attorney-General for Ontario v. Fatehi et al. (1981), 34 O.R. (2d) 129; 127 D.L.R. (3d) 603; 18 C.C.L.T. 97; 13 M.V.R. 180 (C.A.); revd on other grounds [1984] 2 S.C.R. 536; (1984), 15 D.L.R. (4th) 132; 31 C.C.L.T. 1; 31 M.V.R. 301; 56 N.R. 62; 60 A.C. 270; D. & F. Estates Ltd. v. Church Comrs. for England, [1989] 1 A.C. 177 (H.L.); Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.); Donoghue v. Steven- son, [1932] A.C. 562 (H.L.); Dorset Yacht Co. Ltd. v. Home Office, [1970] A.C. 1004 (H.L.); Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.); Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976), 136 C.L.R. 529; 11 A.L.R. 227 (H.C.); Junior Books Ltd. v. Veitchi Co. Ltd., [1983] A.C. 520; [1982] 3 All ER 201 (H.L.); Candlewood Navigation Corpn. Ltd. v. Mitsui O.S.K. Lines Ltd.

("The Mineral Transporter"], [1986] A.C. 1; [1985] 2 All ER 935 (P.C.); Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd., [1986] A.C. 785; [1986] 2 All ER 145 (H.L.); Rivtow Marine Ltd. v. Washington Iron Works et al., [1974] S.C.R. 1189; (1973), 40 D.L.R. (3d) 530; [1973] 6 W.W.R. 692; Kamloops (City of) v. Nielsen et al., [1984] 2 S.C.R. 2; (1984), 10 D.L.R. (4th) 641; [1984] 5 W.W.R. 1; 29 C.C.L.T. 97; Agnew-Surpass Shoe Stores Ltd. v. Cummer-Yonge Investments Ltd., [1976] 2 S.C.R. 221; (1975), 55 D.L.R. (3d) 676; [1975] I.L.R. 1-675; 4 N.R. 547; Haig v. Bamford et al., [1977]

1 S.C.R. 466; (1976), 72 D.L.R. (3d) 68; [1976] 3 W.W.R. 331; 27 C.P.R. (2d) 149; 9 N.R. 43; B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228; (1986), 26 D.L.R. (4th) 1; [1986] 3 W.W.R. 216; 1 B.C.L.R. (2d) 324; 36 C.C.L.T. 87; 65 N.R. 261; Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; (1986), 75 N.S.R. (2d) 109; 31 D.L.R. (4th) 481; 186 A.P.R. 109; 34 B.L.R. 187; 37 C.C.L.T. 117; 42 R.P.C. 161; Baird v. The Queen in right of Canada, [1984] 2 F.C. 160; (1983), 148 D.L.R. (3d) 1; 48 N.R. 276 (C.A.); Gypsum Carrier Inc. v. The Queen, [1978] 1 F.C. 147; (1977), 78 D.L.R. (3d) 175 (T.D.): Bethlehem Steel Corporation v. St. Lawrence Seaway Authority, [1978] 1 F.C. 464; (1977), 79 D.L.R. (3d) 522 (T.D.); Interocean Shipping Company v. The Ship Atlantic Splendour, [1984] 1 F.C. 931; (1983), 26 C.C.L.T. 189 (T.D.); Nicholls v. Town ship of Richmond et al. (1983), 145 D.L.R. (3d) 362; [1983] 4 W.W.R. 169; 43 B.C.L.R. 162; 1 C.C.E.L. 188; 24 C.C.L.T. 253; 33 C.P.C. 310 (C.A.); Maughan and Maughan v. International Harvester Company of Canada Limited (1980), 38 N.S.R. (2d) 101; 112 D.L.R. (3d) 243 (C.A.); Yumerovski et al. v. Dani (1977), 18 O.R. (2d) 704; 83 D.L.R. (3d) 558; 4 C.C.L.T. 233 (Co. Ct.); affd (1979), 120 D.L.R. (3d) 768 (Ont. C.A.); Sutherland Shire Council v. Heyman (1985), 60 ALR 1 (H.C.); Simpson v. Thomson (1877), 3 App. Cas. 279 (H.L.); Hill v. Chief Constable of West Yorkshire, [1989] A.C. 53 (H.L.); Yeun Kun Yeu v. Attorney-Gen eral of Hong Kong, [1988] A.C. 175 (P.C.).

REFERRED TO:

Cattle v. Stockton Waterworks Company (1875), L.R. 10 Q.B. 453; Ultramares Corporation v. Touche, 255 N.Y. 170; 174 N.E. 441 (Ct. App. 1931); Morrison Steamship Co., Ld. v. Greystoke Castle (Cargo Owners), [1947] A.C. 265 (H.L.); East River S.S. Corp. v. Transamerica Delaval, Inc., 106 S. Ct. 2295 (1986); Reid v. Rush & Tompkins Group plc, [1989] 3 All ER 228 (C.A.); Nunes Diamonds (J.) Ltd. v. Dominion Electric Protec tion Co., [1972] S.C.R. 769; (1972), 26 D.L.R. (3d) 699; University of Regina v. Pettick et al. (1986), 51 Sask. R. 270; 38 C.C.L.T. 230; 23 C.L.R. 204 (Q.B.); Dominion Tape of Canada Ltd. v. L. R. McDonald & Sons Ltd. et al., [1971] 3 O.R. 627; (1971), 21 D.L.R. (3d) 299 (Co. Ct.); Smith et al. v. Melancon, [1976] 4 W.W.R. 9 (B.C.S.C.); MacMillan Bloedel Ltd. v. Foundation Com pany of Canada Ltd. (1977), 75 D.L.R. (3d) 294; [1977]

2 W.W.R. 717; 1 C.C.L.T. 358 (B.C.S.C.); Trappa Holdings Ltd. v. District of Surrey et al. (1978), 95

D.L.R. (3d) 107; [1978] 6 W.W.R. 545 (B.C.S.C.); Gold v. The DeHavilland Aircraft of Can. Ltd., [1983] 6 W.W.R. 229; (1983), 25 C.C.L.T. 180 (B.C.S.C.); Spar tan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd., [1973] Q.B. 27 (C.A.); S.C.M. (United Kingdom) Ltd. v. W. J. Whittall and Son Ltd., [1971] 1 Q.B. 337 (C.A.); Ross v. Caunters, [1980] Ch. 297; Lumley v. Gye (1853), 2 El. & Bl. 216 (Q.B.).

AUTHORS CITED

Atiyah, P. S. "Negligence and Economic Loss" (1967), 83 L.Q. Rev. 248.

Blom, Joost. "Economic Loss: Curbs on the Way Ahead?" (1987), 12 Can. Bus. L.J. 275.

Burns, Peter J. "Recent Developments in Negligence Law" in Negligence Law in the 1990's. Vancouver: Continuing Legal Education Society of British Columbia, 1985.

Cane, Peter. "Economic Loss in Tort: Is the Pendulum

Out of Control?" (1989), 52 Mod. L. Rev. 200. Feldthusen, Bruce. Economic Negligence, 2nd ed.

Toronto: Carswell, 1989.

Feldthusen, Bruce. "Economic Loss: Where Are We Going After Junior Books?" (1987), 12 Can. Bus. L.J. 241.

Feldthusen, Bruce. "Pure Economic Loss Consequent Upon Physical Damage to a Third Party" (1977), 16 U.W.O.L. Rev. 1.

Fleming, John G. The Law of Torts, 7th ed. Sydney: Law Book Co. Ltd., 1987.

Jones, Michael A. "Economic Loss—A Return to Prag matism" (1986), 102 L.Q. Rev. 13.

Jutras, Daniel. "Civil Law and Pure Economic Loss: What Are We Missing?" (1987), 12 Can. Bus. L.J. 295.

Linden, Allen M. Canadian Tort Law, 4th ed. Toronto: Butterworths, 1988.

Markesinis, B. S. "An Expanding Tort Law—The Price

of a Rigid Contract Law" (1987), 103 L.Q. Rev. 354. Smilie, J. A. "Negligence and Economic Loss"

(1982), 32 U.T.L.J. 231.

COUNSEL:

P. D. Lowry and J. W. Perrett for appellants (defendants).

David F. McEwen for respondent (plaintiff) Canadian National Railway Company.

SOLICITORS:

Campney & Murphy, Vancouver, for appel lants (defendants).

McEwen, Schmitt & Co., Vancouver, for respondent (plaintiff) Canadian National Railway Company.

The following are the reasons for judgment rendered in English by

STONE J.A.: I respectfully agree with Mr. Jus tice MacGuigan that in the circumstances of this case a duty of care was owed by the appellants (defendants) to the respondent (plaintiff) and, accordingly, that the former are liable to make good the pure economic loss sustained by the latter. I am also in general agreement with the reasons proposed by him, but wish to add these reasons for so concluding.

I accept from the outset that the issue whether and in what circumstances the law should permit recovery for pure economic loss is a "vexatious"' one. Courts of highest authority have shown vary ing degrees of reluctance to permit inroads on the exclusionary rule laid down in Cattle v. Stockton Waterworks Company (1875), L.R. 10 Q.B. 453 and upheld by the House of Lords in Simpson v. Thomson (1877), 3 App. Cas. 279. Indeed, Mr. Lowry submits that the rule has stood now for more than a century and remains good law both in the United Kingdom as in Canada, and also that such judicial inroads as may have occurred have been carefully circumscribed.

I begin with a brief review of the foundation cases. The plaintiff in Cattle contracted with Knight, the owner of lands adjoining both sides of a road, to make a tunnel under the road so as to connect the lands on both sides, the soil of the road itself being declared by statute to be in the owners of the adjoining land. The work was delayed and the plaintiff was put to expense when water leak ing from the defendant's watermain higher up on the road interfered with the performance of the work. The claim was one for pure economic (or financial) loss flowing from this interference with the plaintiff's right to enjoy a higher return of profit from the contract. In rejecting the claim, Blackburn J. asked (at page 457) whether the plaintiff Cattle could "sue in his own name for the loss which he has in fact sustained, in consequence of the damage, which the defendants have done to the property of Knight, causing him, Cattle, to lose

' Per Wilson J., in Kamloops (City of) v. Nielsen et al.,

[1984] 2 S.C.R. 2, at p. 25.

money under his contract?", and he answered the question in the negative. His reasons for so doing are stated succinctly, at pages 457-458:

In the present case the objection is technical and against the merits, and we should be glad to avoid giving it effect. But if we did so, we should establish an authority for saying that, in such a case as that of Fletcher v. Rylands [Law Rep. 1 Ex. 265; Law Rep. 3 H.L. 330) the defendant would be liable, not only to an action by the owner of the drowned mine, and by such of his workmen as had their tools or clothes destroyed, but also to an action by every workman and person employed in the mine, who in consequence of its stoppage made less wages than he would otherwise have done. And many similar cases to which this would apply might be suggested. It may be said that it is just that all such persons should have compensation for such a loss, and that, if the law does not give them redress, it is imperfect. Perhaps it may be so. But, as was pointed out by Coleridge, J., in Lumley v. Gye (2 E. & B. at p. 252; 22 L. J. (Q.B.) at p. 479), Courts of justice should not "allow them selves, in the pursuit of perfectly complete remedies for all wrongful acts, to transgress the bounds, which our law, in a wise consciousness as I conceive of its limited powers, has imposed on itself, of redressing only the proximate and direct consequences of wrongful acts." In this we quite agree. No authority in favour of the plaintiffs right to sue was cited, and, as far as our knowledge goes, there was none that could have been cited.

• • •

In the present case there is ... at most ... a neglect of duty, which occasioned injury to the property of Knight, but which did not injure any property of the plaintiff. The plaintiffs claim is to recover the damage which he has sustained by his contract with Knight becoming less profitable, or, it may be, a losing contract, in consequence of this injury to Knight's property. We think this does not give him any right of action.

Two years later, the reasons underlying the rule were further articulated by Lord Penzance in Simpson, supra, at page 289:

But in the argument at your Lordships' Bar the learned Counsel for the Respondents took their stand upon a much broader ground. They contended that the underwriters, by virtue of the policy which they entered into in respect of this ship, had an interest of their own in her welfare and protection, inasmuch as any injury or loss sustained by her would indirect ly fall upon them as a consequence of their contract; and that this interest was such as would support an action by them in their own names and behalf against a wrong-doer. This proposi-

tion virtually affirms a principle which I think your Lordships will do well to consider with some care, as it will be found to have a much wider application and signification than any which may be involved in the incidents of a contract of insurance. The principle involved seems to me to be this—that where damage is done by a wrongdoer to a chattel not only the owner of that chattel, but all those who by contract with the owner have bound themselves to obligations which are rendered more oner ous, or have secured to themselves advantages which are ren dered less beneficial by the damage done to the chattel, have a right of action against the wrongdoer although they have no immediate or reversionary property in the chattel, and no possessory right by reason of any contract attaching to the chattel itself, such as by lien or hypothecation.

The appellants (defendants) contend that the exclusionary rule has been recognized in Canada by the highest authority, and cite by way of exam ple references to Cattle in Rivtow Marine Ltd. v. Washington Iron Works et al., [1974] S.C.R. 1189; and in Kamloops (City of) v. Nielsen et al., [1984] 2 S.C.R. 2. Further, in Attorney-General for Ontario v. Fatehi et al. (1981), 34 O.R. (2d) 129 (C.A.), (reversed on other grounds [1984] 2 S.C.R. 536), Wilson J.A. (as she then was), after canvassing the authorities including the view expressed by Pigeon J. in Agnew-Surpass Shoe Stores Ltd. v. Cummer-Yonge Investments Ltd., [1976] 2 S.C.R. 221, at page 252 that it had been settled in Rivtow "that recovery for economic loss caused by negligence is allowable without any recovery for property damage", observed at page 139:

Despite this, the exclusionary rule dies hard. In two recent cases, Bethlehem Steel Corp. v. St. Lawrence Seaway Author ity et al., [1978] 1 F.C. 464, 79 D.L.R. (3d) 522, and Hal- Canadian Investments Ltd. v. North Shore Plumbing & Heat ing Co. Ltd. et al., [1978] 4 W.W.R. 289 (B.C.S.C.), the right to recovery for pure economic loss was limited to cases where there had also been physical damage to person or property or where such physical damage was threatened.

And, at page 140, she added:

I have concluded from a review of the leading English and Canadian authorities that, while Canadian courts have made greater inroads into the exclusionary rule than the English courts, there has been no dramatic movement away from it despite the observation of Mr. Justice Pigeon in the Agnew- Surpass case, supra. I say this because the majority in Rivtow, supra, found it necessary to base recovery on the existence of an independent tort, breach of the duty to warn arising from

the special relationship between the parties, and Laskin J. required a threat of physical damage to person or property. None of the Court seems to have been prepared to go as far as Lord Justice Edmund Davies in his dissenting judgment in the Spartan Steel case, supra, and permit recovery of the economic loss as a direct and reasonably foreseeable consequence of the defect in the design or manufacture of the crane. In cases where there is no independent tort and no threat of physical damage the exclusionary rule would seem to be still very much alive in Canada.

The appellants (defendants) lay much stress on three recent decisions of the House of Lords and the Privy Council as reaffirming the exclusionary rule in English common law, in none of which was a claim for pure economic loss allowed. The first, Candlewood Navigation Corpn. Ltd. v. Mitsui O.S.K. Lines Ltd. ["The Mineral Transporter"], [1986] A.C. 1 (P.C.), involved a claim by a bare- boat charterer for the cost of repairing a ship damaged in a collision with another ship, as well as a claim by a time charterer (also the owner of the ship) for loss of charter hire and lost profits during the time the ship was laid up. In Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd., [1986] A.C. 785 (H.L.), the plaintiff, a c & f buyer of goods carried in a ship, claimed against the carrier for damage done to the goods during transit, in which the risk of loss but not the property had passed to the plaintiff who was not a party to the contract of carriage. Finally, D. & F. Estates Ltd. v. Church Comrs. for England, [1989] 1 A.C. 177 (H.L.) involved a claim by tenants against a main contractor for the cost of repairing defective plastering work performed on premises by a sub-contractor, and a separate claim by the occupiers of the premises for the loss of enjoyment of use and occupation during the period of restoration.

As is apparent in Candlewood itself (at pages 24-25) in denying recovery for pure economic losses, the earlier decision of the House of Lords in

Junior Books Ltd. v. Veitchi Co. Ltd., [1983] A.C. 520 was carefully circumscribed, and the reason ing of the different judges of the High Court of Australia in Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976), 136 C.L.R. 529 was not found of assistance. The result, according to the appellants (defendants), is that the exclu- sionary rule survives to this day in the United Kingdom. That much, indeed, seems apparent from the speech of Lord Fraser of Tullybelton, at page 17:

These two cases of Cattle, L.R. 10 Q.B. 453, and Simpson, 3 App. Cas. 279, have stood for over a hundred years and have frequently been cited with approval in later cases, both in the United Kingdom and elsewhere. They show, in their Lordships' opinion, that the justification for denying a right of action to a person who has suffered economic damage through injury to the property of another is that for reasons of practical policy it is considered to be inexpedient to admit his claim.

And, as his Lordship put it in remarking on Junior Books at pages 24-25, "That case may be regarded as having extended the scope of duty somewhat, but any extension was not in the direction of recognising a title to sue in a party who suffered economic loss because his contract with the victim of the wrong was rendered less profitable or unprofitable."

Fundamentally, the concern expressed in these cases is entirely practical, being directed against the opening up of indeterminate liability as well as the need in the law for a reasonable degree of certainty. At the same time, there is variously expressed a strong concern for a fair and just result in particular cases, a concern which is per haps mirrored in the series of rhetorical questions (recited by my colleague) posed by Wilson J. in Kamloops, supra, at pages 28-29. As for the former concern, at the heart of it seems to be a recognition that in our society at any given point of time there are likely to be found numerous and, indeed, complex and even pervasive sets of con tractual relations respecting different kinds of eco nomic activity that draw along with them the creation of societal benefits enuring to wide seg ments of the general population. For the law to impose on a careless wrongdoer liability beyond that attracted by ownership or possession of prop-

erty that is physically damaged by negligence, including pure economic loss consequential there on, would be to expand the ambit of liability in a way that might seriously overburden generators of such activity and correspondingly undermine the range of those benefits available to the community at large. Better that this sort of loss be left to be insured against or allocated in some other way under the terms of the contractual engagement, rather than placed exclusively upon the shoulders of a single wrongdoer. This, I conceive, may well have been the concern of Estey J. in B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228, at page 243 where he stated:

No doubt the courts of this country will continue to search for reasonable and workable limits to the liability of a negligent supplier of manufactured products or services, to the liability of a negligent contractor for contractual undertakings owed to others, and to the liability of persons who negligently make misrepresentations. In this search courts will be vigilant to protect the community from damages suffered by a breach of the "neighbourhood" duty. At the same time, however, the realities of modern life must be reflected by the enunciation of a defined limit on liability capable of practical application, so that social and commercial life can go on unimpeded by a burden outweighing the benefit to the community of the neigh bourhood historic principle.

That a loss to be recoverable must at all events be foreseeable is I think well settled, but the existence of a duty of care and, therefore, of prima facie liability for a loss now depends on much more than mere foreseeability. 2 I am satisfied that the loss was foreseeable. There must also be a sufficient proximity or neighbourhood between a wrongdoer and a plaintiff such as gives rise to a duty of care owed by the former to the latter. I do not intend to canvass the origins and application of the "neighbourhood" principle, for to do so would be to go over once again territory already covered by my colleague, and shall content myself with a few remarks on the two propositions laid down by Lord Wilberforce in Anns v. Merton London Bor-

2 Thus, in Hill v. Chief Constable of West Yorkshire, [1989] A.C. 53 (H.L.), Lord Keith of Kinkel said, at p. 60:

(Continued on next page)

ough Council, [1978] A.C. 728 (H.L.) for deter mining liability in negligence in the light of recent developments. His first proposition requires that, for determining the existence of a prima facie duty of care, a court must ask itself whether [at page 751] "as between the alleged wrongdoer and the person who has suffered damage there is a suffi cient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter". Secondly, if the answer to this question be "yes", a court must then consider [at page 752] "whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise". This formulation was, indeed, applied by the Supreme Court in B.D.C. Ltd., supra, and Kamloops, supra.

Nowadays, in the United Kingdom, there seems to be a developing tendency to view the Anns formulation somewhat more narrowly than may have been the case heretofore. In Candlewood, for example, Lord Fraser of Tullybelton, at page 21, drew attention to "the warning given by Lord Keith of Kinkle in Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson & Co.

(Continued from previous page)

It has been said almost too frequently to require repetition that foreseeability of likely harm is not in itself a sufficient test of liability in negligence. Some further ingredient is invariably needed to establish the requisite proximity of relationship between plaintiff and defendant, and all the circumstances of the case must be carefully considered and analysed in order to ascertain whether such an ingredient is present. The nature of the ingredient will be found to vary in a number of different categories of decided cases.

And in Yeun Kun Yeu v. Attorney-General of Hong Kong, [1988] A.C. 175 (P.C.), per Lord Keith of Kinkel, at p. 192:

Foreseeability of harm is a necessary ingredient of such a relationship, but it is not the only one. Otherwise there would be liability in negligence on the part of one who sees another about to walk over a cliff with his head in the air, and forebears to shout a warning.

Ltd., [1985] A.C. 210, at page 240 of the need to resist the temptation to treat these passages from Lord Wilberforce's speech as being of a definitive character", and added that they are "in any event not directly applicable to the facts of the instant appeal, because none of the trilogy of cases referred to by Lord Wilberforce was dealing with claims against a wrongdoer by a person who was not the victim of his negligence but by a third party whose only relation to the victim was con tractual". What I am able to discern from these and other recent English cases' is that, fundamen tally, the existence of a duty of care is to be determined on the exclusive application of the first of these two propositions, the second being con fined to any matter of policy for denying recovery notwithstanding that a duty of care has been found to exist.

While numerous cases have come before the courts in which claims for pure economic loss have been allowed or rejected, it would seem that a proper understanding of the problem facing us may require an appreciation of what the decided cases actually stand for, particularly those where recovery was allowed. I have already mentioned the two English cases on which the exclusionary rule is founded, and also the first two of the three most recent decisions of the House of Lords and the Privy Council upholding the rule. All four of these fall into the same general category, i.e. pure economic loss arising from an interference with a subsisting contractual relationship between a plaintiff and the owner or possessor of property injured by a defendant wrongdoer. So too does the Australian case of Caltex, supra, allowing recov ery of such a loss. In other cases, falling into entirely separate categories, pure economic loss was also allowed: e.g. Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.); and Haig v. Bamford et al., [1977] 1 S.C.R. 466 (reliance on negligent misstatement); Rivtow, supra (manufacturer's failure to warn); Kam- loops, supra (municipal authority's neglect of

3 See e.g. Yeun Kun Yeu v. Attorney-General of Hong Kong, supra, footnote 2, per Lord Keith of Kinkel, at pp. 190-192.

statutory duty); and Ross v. Caunters, [1980] Ch. 297 (solicitor's liability).

Having said this, as seems particularly apparent from the first of the three recent English cases (Candlewood, supra) and restated in the second (Aliakmon, supra), in the United Kingdom at least a claim for pure economic loss arising from interference with contractual rights is not recover able. Although, as I have pointed out, the authori ties in this country have expressed concern with respect to the problem of indeterminate liability in cases of pure economic loss, no binding authority has as yet gone the length of the House of Lords. Rather, on the basis of the decided cases here, it would seem that the important inquiry is whether a relationship of proximity existed between the appellants (defendants) and the respondent (plain- tiff) such as gave rise to a duty of care owed by the former to the latter. This approach was accepted by Blackburn J. in Cattle itself where, in quoting the words of Coleridge J. in Lumley v. Gye (1853), 2 El. & Bl. 216 (Q.B.), he observed that the courts have imposed on themselves "redressing only the proximate and direct consequences of wrongful acts". Ritchie J. limited his criticism of this test in Rivtow, supra, when he stated at pages 1211-1212:

Mr. Justice Blackburn's thinking in this instance appears to me to be controlled by the then current notions as to proximity and remoteness of damage and I think that his approach requires reassessment in light of the judgment in M'Alister (Donoghue) v. Stevenson ....

It was the approach taken by Estey J. in Hofs- trand, supra, in rejecting a claim for pure econom ic loss.

We are not here concerned with the liability of all users of the railway bridge as was the case in Gypsum Carrier Inc. v. The Queen, [1978] 1 F.C. 147 (T.D.), but only with the use being made of it

by the respondent (plaintiff) at the time of the collision. In any case, the evidence before us sug gests that the agreements with the railway compa nies for use of the bridge were not, as was found to be so in that case (at page 152) "substantially the same in meaning and effect" for, as my colleague Mr. Justice MacGuigan points out, the agreement to which the respondent (plaintiff) was a party contained a feature which was not present in the other user agreements. Furthermore, and not with out some significance, the respondent (plaintiff) was found at trial to have provided the bridge owner without charge consultative services of a full-time engineer.

In his submissions, Mr. Lowry challenged both reliance on the Trial Judge's factual conclusions [(1989), 49 C.C.L.T. 1; 26 F.T.R. 81, at page 28 C.C.L.T.] that:

1. The probability of the Cdn. National Railway as a dis tinct legal person as opposed to it being merely a member of a group, suffering the loss which it claims, was not only foresee able but was actually known to the defendants.

2. The precise nature of the economic loss was also not only foreseeable but was actually known.

3. The damage has been caused and is by no means indefi nite either as to quantum or as to time.

4. There exists a sufficient proximity or close relationship between the loss claimed and the tortious act.

5. The property of the Cdn. National Railway is not only in close proximity to the bridge but the latter constitutes an essential link between the Cdn. National Railway tracks on each side of the river, without which that property cannot be properly enjoyed by the claimant.

as well as the validity of the elements he con sidered important in finding liability for pure eco nomic loss, (at pages 28-29 C.C.L.T.):

1. Knowledge of the claimant as a specific individual or identity who is likely to suffer the damage as opposed to knowledge of a general or unascertained class of people.

2. Not only must it be established that loss was probably foreseeable but the precise nature of the loss should have been foreseeable.

3. There must be a sufficient degree of proximity between the act committed by the tortfeasor and the injury complained of, that an ordinary right-thinking person would feel that the tortfeasor is morally bound to compensate the victim (Caltex Oil Australian Property Ltd. v. the Dredge Willemstad). This has also been expressed in terms of sufficient proximity of the property to lead to a duty of care to the claimant.

In my judgment, taken collectively, if not, perhaps, individually, 4 these elements demonstrate that suf ficient proximity giving rise to a duty of care owed by the appellants (defendants) to the respondent (plaintiff) existed; the case is a compelling one for recovery of the loss claimed. In the exceptional circumstances of this case, I can find no reason in policy for negativing this duty or for denying recovery of the loss. In so saying I wish once more to emphasize that the issue before us is solely concerned with liability for pure economic loss suffered by the respondent (plaintiff) and not at all with claims of the same nature advanced by other users of the bridge.

Finally, as the decided cases also show, the challenge of formulating a principle of general application for cases of this kind having a "defined limit on liability capable of practical application" 5 has proven to be both elusive and daunting, and it is not at all easy to see the future shape such a formulation might take or even, indeed, that one will soon emerge. Nonetheless, I am minded of the optimism expressed by Sir Robert Megarry V.-C. in Ross v. Caunters, supra, at page 321:

I am content—indeed, happy—to leave it to other courts in other cases on other facts to evolve the test or tests that have to be applied. In some cases there may be not much more than the "feel" of the case to point to the answer. But enough decisions in enough cases must sooner or later make possible the induc-

In Caltex, supra, there is found some support for the notion that knowledge by a wrongdoer of a claimant as a specific individual as a suitable test of proximity and therefore of duty (see the judgments of Gibbs J., at p. 555 and of Mason J., at p. 593), but this was rejected in Candlewood, supra, at p. 24 as lacking in logic. Here in Canada, Dickson J. (as he then was) at p. 476 of Haig v. Bamford, supra, considered such a test "too narrow", while Wilson J. at p. 31 of City of Kamloops, supra, expressed some scepticism as to its adequacy, saying that while such a test "may make the class determinate ... it gives no guarantee that it will be small". As I see it, a problem with this test, taken by itself, is that it could unduly limit liability where there are no rational grounds for so doing, or expand it considerably for knowledgeable defendants but not otherwise.

5 B.D.C. Ltd. v. Hofstrand Farms Ltd., supra, per Estey J., at p. 243.

tive process of laying down a test or tests by which all may be guided.

I would dismiss this appeal with costs.

The following are the reasons for judgment rendered in English by

MACGUIGAN J.A.: This is an appeal by the owner and master of the tug Jervis Crown from a judgment of Addy J. [(1989), 49 C.C.L.T. 1; 26 F.T.R. 81] awarding the plaintiff/respondent Canadian National Railway Company ("CNR") damages in tort for economic loss arising from a collision between a log barge in tow of the tug and a bridge owned by Public Works Canada ("PWC") and used by CNR to cross the Fraser River at New Westminster, British Columbia.

PWC had no insurance on the bridge, and there were no grants in lieu of taxes paid on it.

Negligence as to the collision with the bridge was admitted, and, there being no claims for freight revenue lost but solely for additional costs of operation, CNR and two other railways were awarded the costs incurred in rerouting their trains upriver across a Canadian Pacific Limited bridge and tracks en route to and from Vancouver.

The courts have often contrasted direct injury to property with what is frequently called pure eco nomic loss, which was defined by Estey J. in Attorney General for Ontario v. Fatehi, [1984] 2 S.C.R. 536, at page 542, as follows:

By "pure economic loss" the courts have usually been taken to refer to a diminution of worth incurred without any physical injury to any asset of the plaintiff.

Professor Bruce Feldthusen, "Pure Economic Loss Consequent Upon Physical Damage to a Third Party" (1977), 16 U.W.O.L. Rev. 1 at page 4, distinguishes pure economic loss from consequen tial economic loss as follows:

Consequential economic loss is a financial loss which by defini tion is always claimed by the same party who has suffered physical damage. It is a loss one suffers because one has suffered physical damage.... Pure economic loss is a financial loss which is not consequent upon injury to the plaintiff's own person or property.

Professor P. S. Atiyah, "Negligence and Economic Loss" (1967), 83 L.Q. Rev. 248, at page 265, has referred to damages which can be recovered for pecuniary loss as "parasitic on some physical damage done to the plaintiff himself".

There has been what Professor John G. Flem- ing, The Law of Torts, 7th ed. at page 162, has called "ingrained opposition" to recovery for pure economic loss on the ground that (at page 163) "the burden of compensating anyone besides the primary casualty is feared to be unduly oppressive because most accidents are bound to entail reper cussions, great or small, upon all with whom he had family, business or other valuable relations." In the words of Professor Feldthusen (at page 26):

The major difficulty with pure economic loss ... is that for each occurrence of physical damage, a potentially large or indefinite class may experience foreseeable economic loss. In those circumstances the plaintiff may be the cheapest cost- avoider, and the costs of shifting the loss to the tortfeasor will increase as the poll of potential plaintiffs is expanded.

The sole question on this appeal is whether the Trial Judge was correct in holding that the appel lants could be held liable in negligence for such pure economic loss in the absence of any physical damage to CNR's property.

The New Westminster Railway Bridge, which spans the Fraser River between Surrey and New Westminster, was built in 1904 and is owned, operated and maintained by Her Majesty the Queen in right of Canada, represented by the Minister of Public Works. It carries a single rail way track. Its sole purpose is to service railway traffic, both passenger and freight, but it incorpo-

rates a swing span to permit marine traffic to navigate the waterway.

The commercial marine traffic transiting the Fraser River through the swing span is substantial. On November 28, 1987, while being towed down stream by the tug in heavy fog, the barge collided with the bridge, causing extensive damage to it, which necessitated its closure for several weeks while repairs were made. The appellants admitted liability for negligence as to the collision itself.

During the down-time for the bridge the rail ways had to reroute traffic over another bridge farther upstream. Freight was either delayed or not transported at all. The use of the waterway was also interfered with, and cargo was delayed and/or transported by land.

Four railways were, by contract with PWC, licensed to use the bridge. All of the operating costs of the bridge are recovered from the four railways, with PWC making neither profit nor loss from its operation.

Of the four railways CNR was the principal user, accounting for 85-86% of the railway cars using the bridge in 1988. On the average it sent across 32 trains with 1,530 cars a day. CNR therefore bore the principal burden of the conse quential losses resulting from the accident.

The smallest railway user, Canadian Pacific Limited did not participate in the litigation. Before trial there was an agreement that the entitlement of the other two railways, the Burlington Northern Railway and the B.C. Power and Hydro Authority Railway, to recovery for pure economic loss would stand or fall on the result of the CNR's claim. It is therefore only the CNR claim which is directly in issue on this appeal. There is, nevertheless, an extra clause in the CNR's licence agreement with PWC which is not found in the other such agree-

ments. This provision, clause 10, is as follows (Appeal Book at pages 158-159):

The Railway agrees that it will:

(a) in the case of emergency, (as determined by Canada), and upon request of Canada, proceed to make such repairs, changes, or alterations to the Bridge, or maintenance thereof, including without limiting the generality of the foregoing, the approaches thereto, the wooden trestles, steel superstruc tures, (including the swing span) thereof and the signal system thereof, (including the interlocking plant therefor), as are absolutely necessary, in the opinion of Canada, for the safe and proper operation of the Bridge, (including all ap proaches thereto), and that Canada shall reimburse the Railway the reasonable cost of making such repairs, changes, alterations, or maintenance in accordance with accounts rendered therefor from time to time to Canada by the Railway; PROVIDED HOWEVER, that no such repairs, changes, alterations or maintenance shall be made or carried out until Canada approves a Memorandum of Understanding to this agreement, setting out the nature of the repairs, changes, alterations or maintenance required to be done, the details of the work to be performed in relation thereto, and the basis of payment therefor; and

(b) upon the written request of Canada from time to time, provide to Canada consulting services or inspections related to the planning, design and construction of the Bridge; PROVIDED HOWEVER that no such services or inspections shall be performed or made until Canada approves a Memo randum of Understanding to this agreement, setting out the nature of the services or inspections to be performed, the details thereof and the basis of payment therefor; and

(c) upon the written request of Canada from time to time, perform such maintenance and repairs to the signal system and interlocking plant of the Bridge as are requested; PRO VIDED HOWEVER that no such maintenance or repairs shall be made or carried out until Canada approves a Memoran dum of Understanding to this agreement, setting out the nature of the maintenance and repairs required to be done, the details of the work to be performed in relation thereto, and the basis of payment therefor.

The Trial Judge's conclusions as to the facts, which were not challenged before us, were as follows (at pages 26-28 C.C.L.T.):

1. The New Westminster bridge was designed and used exclusively for rail traffic.

2. The Cdn. National Railway has used it continuously since 1915 and it constitutes an integral part of the railway's main line and is in effect the connecting link between the Vancouver terminus and the main line. It constitutes the sole direct link between the Cdn. National Railway tracks on the north and on the south shores of the main arm of the Fraser.

3. The bridge is entirely owned by P.W.C. but is used by four railways pursuant to license agreements with P.W.C. under which they pay a toll for each railway car that crosses

the bridge. The toll is fixed in such a way as to cover the entire cost of operation of the bridge.

4. The license agreements are identical except that the Cdn. National Railway agreement has an extra clause whereby the Cdn. National Railway is to provide P.W.C. with such services as emergency repairs, changes, alterations and maintenance, consulting inspection and planning services, maintenance and repairs (other than routine matters), pertaining to the signal system, frogs and the interlocking plant.

5. Consulting services are provided to P.W.C. without charge by a full-time engineer employed by the Cdn. National Railway, whose sole duties involve the Westminster Railway bridge and two other railway bridges in the vicinity which belong to that railway.

6. The Cdn. National Railway periodically arranges without charge for a complete inspection of the girders, stringers and other metal portions of the bridge and also uses its "sperry" car to inspect the rails.

7. At times, Cdn. National Railway provides materials for the bridge. Following the collision, it supplied P.W.C. without charge with a large girder to assist the jacking up of the swing span, thus saving several days of bridge closure.

8. When the bridge is closed for routine maintenance, the timing and duration are negotiated and arranged between the Cdn. National Railway and P.W.C.

9. More than 86 per cent of the cars crossing the bridge belong to the Cdn. National Railway and all of the defendants were fully aware of the fact that the Cdn. National Railway was the primary user.

10. Captain MacDonnel, the master of the JERVIS CROWN and other masters and seamen operating in the river commonly refer, to the bridge from time to time as the C.N. Rail bridge. Captain MacDonnel himself had been familiar with the bridge for over 40 years and until sometime after the collision actually believed that it belonged to the Cdn. National Railway.

11. All of the defendants knew that the port Mann-Thornton marshalling and switching yard of the Cdn. National Railway, which is the main switching yard for the greater Vancouver area, is situated approximately 1 1/2 miles up-river from the bridge on the south bank of the Fraser.

12. The defendants knew that there was no other rail bridge over the main arm of the river below the Westminster bridge and, because the bridge had been damaged previously, they also knew that in the event of a closure of the bridge due to damage, the Cdn. National Railway would have to detour over the Cdn. Pacific Railway bridge upriver between Mission and Matsqui and divert over the Cdn. Pacific Railway tracks on the north bank of the Fraser.

13. The Cdn. National Railway is not claiming for loss of freight business but only for the actual costs incurred by reason of the bridge closure.

Immediately following his findings on the facts, the learned Trial Judge proceeded to draw his conclusions (at pages 28-29 C.C.L.T.):

The following conclusions arise from these facts:

2. The precise nature of the economic loss was also not only foreseeable but was actually known.

3. The damage has been caused and is by no means indefi nite either as to quantum or as to time.

4. There exists a sufficient proximity or close relationship between the loss claimed and the tortious act.

It is neither necessary nor would it be desirable to attempt to formulate a set of rules which would apply to all cases where pure economic loss would be recoverable. However, the follow ing requirements seem to me to be important, if one is to avoid opening the floodgates to crippling litigation:

1. Knowledge of the claimant as a specific individual or identity who is likely to suffer the damage as opposed to knowledge of a general or unascertained class of people.

2. Not only must it be established that loss was probably foreseeable but the precise nature of the loss should have been foreseeable.

It has also been suggested in certain cases that the tortfeasor should not be exposed to liability out of all proportion to his wrong or moral culpability and that the degree of negligence, lack of care of recklessness should be considered as a factor. In other cases it has been stated that the economic loss must not overshadow that caused by the physical injury, or damage.

Allowing recovery of economic loss to the Cdn. National Railway in this case would neither involve compensation in an indeterminate amount, nor for an indeterminate time nor to an indeterminate class. In the circumstances, I have no difficulty in finding that the defendants owed a duty to the Cdn. National Railway to refrain from damaging the bridge which they well knew was constantly used by the latter as an integral part of its railway system, it being clearly foreseeable that the offending conduct involved an unreasonably great risk of harm to the claimant.

The Cdn. National Railway will therefore be entitled to recover its economic loss as claimed.

The state of the English authorities on the ques tion of liability for economic loss is such that in the most recent pronouncement of the House of Lords on the subject in D. & F. Estates Ltd. v. Church Comrs. for England, [1989] 1 A.C. 177, at page 201, Lord Bridge of Harwich plaintively remarked that "the authorities, as it seems to me, speak with such an uncertain voice that, no matter how searching the analysis to which they are subject, they yield no clear and conclusive answer." Another observer describes the law as a "conceptu- al morass" in which "The pendulum is swinging wildly and is yet to find a regular rhythm": Peter Cane, "Economic Loss in Tort: Is the Pendulum Out of Control?" (1989), 52 Mod. L. Rev. 200 at

page 214.

Nevertheless, a frequently accepted starting point for an analysis of economic loss is the obser vation of Lord Wilberforce with its two proposi tions, given for the majority of the House, in Anns v. Merton London Borough Council, [1978] A.C.

728 (H.L.), at pages 751-752:

Through the trilogy of cases in this House—Donoghue v. Stevenson [1932] A.C. 562, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, and Dorset Yacht Co. Ltd. v. Home Office [1970] A.C. 1004, the position has now been reached that in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neigh bourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter—in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise: see Dorset Yacht case [1970] A.C. 1004, per Lord Reid at p. 1027. Examples of this are Hedley Byrne's case [1964] A.0 465 where the class of potential plaintiffs was reduced to those shown to have relied upon the correctness of statements made, and Weller & Co. v. Foot and Mouth Disease Research Institute [1966] 1 Q.B. 569; and (I cite these merely as illustrations, without discussion)

cases about "economic loss" where, a duty having been held to exist, the nature of the recoverable damages was limited: see S.C.M. (United Kingdom) Ltd. v. W. J. Whittall & Son Ltd. [1971] 1 Q.B. 337 and Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. [1973] Q.B. 27. [Emphasis added.]

In Donoghue v. Stevenson, [1932] A.C. 562 (H.L.), at page 580, Lord Atkin had laid down the basic principles of modern negligence law:

You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be—persons who are so closely and directly affected by my act that I ought reasonably to have them in contempla tion as being as affected when I am directing my mind to the acts or omissions which are called in question.

Dorset Yacht Co. Ltd. v. Home Office, [1970] A.C. 1004 (H.L.), where seven Borstal boys had damaged a yacht in an escape attempt in another yacht, was treated by the House of Lords as a direct application of Donoghue v. Stevenson. It is the third case in the trilogy, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.), which, in relation to pure economic loss, requires a closer scrutiny.

From the time of Cattle v. Stockton Water works Company (1875), L.R. 10 Q.B. 453, it was generally believed that pecuniary loss is not recov erable in the law of negligence absent physical injury or damage. This exclusionary rule, as it has often been called, was considered to have survived the extension of the range of negligence by the good neighbour principle of Donoghue v. Steven- son. Professor Bruce Feldthusen, Economic Negli gence, 2nd ed., (Toronto: Carswell, 1989), at page 200 believes that the case law supports a firm exclusionary rule which he states as follows:

The recovery of pure economic loss will be precluded in negli gence when it is consequent upon an injury to the person or property of a third person. 6

Professor J. A. Smillie, "Negligence and economic loss" (1982), 32 U.T.L.J. 231, says [at page 231] that "Prior to 1963 [i.e. Hedley Byrne], a rule denying liability in negligence for purely economic loss . . . had been applied consistently for almost ninety years." The rationale for the exclusionary rule was most pithily expressed in an oft-quoted phrase of Cardozo C.J. in Ultramares Corporation v. Touche, 255 N.Y. 170, at page 179, 174 N.E. 441 (Ct. App. 1931) at page 444, where he described recovery for pure economic loss as "a liability in an indeterminate amount for an indeterminate time to an indeterminate class."

In Hedley Byrne, however, the House of Lords held that a negligent misrepresentation may give rise to an action for damages for financial loss (although the defendant was found not liable on the facts because of an express disclaimer of re sponsibility). Lord Devlin in particular went very far in striking at the exclusionary rule (at page 517):

... the distinction is now said to depend on whether financial loss is caused through physical injury or whether it is caused directly. The interposition of the physical injury is said to make a difference of principle. I can find neither logic nor common sense in this. If irrespective of contract, a doctor negligently advises a patient that he can safely pursue his occupation and he cannot and the patient's health suffers and he loses his livelihood, the patient has a remedy. But if the doctor negli gently advises him that he cannot safely pursue his occupation when in fact he can and he loses his livelihood, there is said to be no remedy. Unless, of course, the patient was a private patient and the doctor accepted half a guinea for his trouble: then the patient can recover all. I am bound to say, my Lords, that I think this to be nonsense.

Lord Devlin and Lord Hodson both relied on Morrison Steamship Co., Ld. v. Greystoke Castle (Cargo Owners), [1947] A.C. 265 (H.L.), and Lord Hodson put the issue this way (at page 509):

6 Although Professor Feldthusen believes that the exclusion- ary rule is "firm", he acknowledges that it is "subject to a number of specific exceptions".

It is difficult to see why liability as such should depend on the nature of the damage. Lord Roche in Morrison Steamship Co. Ltd. v. Greystoke Castle (Cargo Owners) instanced damage to a lorry by the negligence of the driver of another lorry which, while it does no damage to the goods in the second lorry, causes the goods owner to be put to expense which is recoverable by direct action against the negligent driver.

Lord Pearce (at page 536) cited Greystoke Castle as authority for the proposition that "economic loss alone, without some physical or material damage to support it, can afford a cause of action".

Hedley Byrne was greatly relied upon by the High Court of Australia in Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976), 11 A.L.R. 227, in allowing recovery for economic loss. In that case a dredge, while deepening a shipping channel in Botany Bay, had broken an underwater pipeline which carried petroleum prod ucts from a refinery (the owners of which owned the pipeline) on the southern shore to plaintiff's oil terminal on the northern shore. The plaintiff sup plied the crude oil to the refinery for processing, and retained notional ownership in the oil being refined and owned the products actually passing through the pipeline. The Court unanimously (although with a different rationalization for each of the five Judges) allowed recovery for the costs of arranging alternative means of transporting petroleum products until the pipeline was repaired.

Gibbs J., although acknowledging that subse quent authorities have not regarded Hedley Byrne as obliterating the distinction between damages for pecuniary loss and damages for material or physi cal loss, wrote (at page 245):

In my opinion it is still right to say that as a general rule damages are not recoverable for economic loss which is not consequential upon injury to the plaintiff's person or property. The fact that the loss was foreseeable is not enough to make it recoverable. However, there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a

consequence of his negligence, and owes the plaintiff a duty to take care not to cause him such damage by his negligent act. It is not necessary, and would not be wise, to attempt to formulate a principle that would cover all cases in which such a duty is owed; to borrow the words of Lord Diplock in Mutual Life & Citizens' Assurance Co Ltd v Evatt [1971] 1 All ER 150; [1971] AC 793 at 809: "Those will fall to be ascertained step by step as the facts of particular cases which come before the courts make it necessary to determine them." All the facts of the particular case will have to be considered. It will be material, but not in my opinion sufficient, that some property of the plaintiff was in physical proximity to the damaged property, or that the plaintiff, and the person whose property was injured, were engaged in a common adventure.

Stephen J. (at page 259) spoke of "The need, in cases of purely economic loss, for some further control of liability apart from that offered by the concept of reasonable foreseeability", and opined (at page 260) that "in the general realm of negli gent conduct it may be that no more specific proposition can be formulated than a need for insistence upon sufficient proximity between tor- tious act and compensable detriment". He added (at page 261):

Some guidance in the determination of the requisite degree of proximity will be derived from the broad principle which underlies liability in negligence. As Lord Atkin put it in a much cited passage from his speech in Donoghue v Stevenson ([1932] AC at 580; [1932] All ER Rep at 11) the liability for negli gence "is no doubt based upon a general public sentiment of moral wrongdoing for which the offender must pay". Such a sentiment will only be present when there exists a degree of proximity between the tortious act and the injury such that the community will recognize the tortfeasor as being in justice obliged to make good his moral wrongdoing by compensating the victims of his negligence. Again, as Lord Morris said in the Dorset Yacht Case ([1970] AC at 1039), courts may have recourse to a consideration of what is "fair and reasonable" in determining whether in particular circumstances a duty of care arises; so too, I would suggest, in determining the requisite degree of proximity before there may be recovery for purely economic loss.

As the body precedent accumulates some general area of demarcation between what is and is not a sufficient degree of proximity in any particular class of case of economic loss will no doubt emerge; but its emergence neither can be, nor should it be, other than as a reflection of the piecemeal conclusions arrived at in precedent cases.

The salient features for establishing sufficient proximity in the case he found to be fivefold: (1) the defendants' knowledge that damage was inher-

ently likely to produce the kind of consequential economic loss which occurred; (2) their knowl edge, from charts, of the existence of the pipeline and of its use by the plaintiff; (3) the fact that damage was negligently caused to the property of the pipeline owner; (4) the nature of the detriment suffered, i.e., the loss of use of the pipeline; and (5) the fact that the claim was not for loss of profits but for the direct consequence of the expense incurred in employing alternative modes of transport.

Mason J. found liability in the fact that the defendants could reasonably foresee "that a specif ic individual, as distinct from a general class of persons" (at page 274) would suffer financial loss as a consequence of his conduct.

Jacobs J. opted for a "physical propinquity" test, provided only that there is a physical effect (which he distinguishes from physical injury) on property of the plaintiff. However, since he linked this physical propinquity of the plaintiff's property to the place where the defendant's act or omission had its physical effect, it appears that he would have limited recovery to the plaintiff's crude oil and products at the refinery at the time of the incident, absent the agreement of the parties as to the amount of damages.

Murphy J. appears to have rejected the exclu- sionary rule entirely.

Returning to House of Lords' decisions, one finds the high point for what I may call Lord Devlin's point of view in Junior Books Ltd. v. Veitchi Co. Ltd., [1983] A.C. 520, a Scots appeal where, after a floor laid by the defenders had cracked, the pursuers sued for damages including the cost of relaying the floor and various items of economic and financial loss consequential upon replacement, such as the cost of removal of ma chinery and loss of profits during relaying. It was not alleged that the state of the floor gave rise to any danger of injury to people or property in the factory. That the majority of the House put the

recovery allowed upon wide grounds is evident from the speech of Lord Roskill (at page 539):

My Lords, I think there is no doubt that Donoghue v. Stevenson . . by its insistence upon proximity, in the sense in which Lord Atkin used that word, as the foundation of the duty of care which was there enunciated, marked a great develop ment in the law of delict and of negligence alike .... But that advance having been thus made in 1932, the doctrine then enunciated was at first confined by judicial decision within relatively narrow limits....Though initially there is no doubt that because of Lord Atkin's phraseology in Donoghue v. Stevenson . "injury to the consumer's life or property," it was thought that the duty of care did not extend beyond avoiding physical injury or physical damage to the person or the prop erty of the person to whom the duty of care was owed, that limitation has long since ceased ....

And again, in the context of Lord Wilberforce's second proposition in Anns (at page 546):

... the only suggested reason for limiting the damage (ex hypothesi economic or financial only) recoverable for the breach of the duty of care just enunciated is that hitherto the law has not allowed such recovery and therefore ought not in the future to do so. My Lords, with all respect to those who find this a sufficient answer, I do not. I think this is the next logical step forward in the development of this branch of the law. I see no reason why what was called during the argument "damage to the pocket" simpliciter should be disallowed when "damage to the pocket" coupled with physical damage has hitherto always been allowed. I do not think that this development, if development it be, will lead to untoward consequences. The concept of proximity [used to establish the duty of care under Lord Wilberforce's first proposition] must always involve, at least in most cases, some degree of reliance—I have already mentioned the words "skill" and "judgment" ...

Lord Brandon of Oakbrook in dissent said (at page 551):

The effect of accepting the respondents' contention with regard to the scope of the duty of care involved would be, in substance, to create, as between two persons who are not in any contractu al relationship with each other, obligations of one of those two persons to the other which are only really appropriate as between persons who do have such a relationship between them.

He went on (at page 552) to warn against "the inherent difficulty of seeking to impose what are really contractual obligations by unprecedented and, as I think, wholly undesirable extensions of the existing law of delict."

In the light of the recent trilogy of House of Lords/Privy Council cases, Junior Books seems less a "landmark decision" than "an anomaly, to be distinguished, restricted and eventually forgotten".' In the first of these recent decisions, Candlewood Navigation Corpn. Ltd. v. Mitsui O.S.K. Lines Ltd. ["The Mineral Transporter"J, [1986] A.C. 1 (P.C.), where it was held that a time charterer could not recover damages for pecuniary loss caused by damage to the chartered vessel by a third party, Lord Fraser of Tullybelton, who had participated in the majority view in Junior Books, contented himself with distinguish ing that case on the ground that its extension of the scope of duty "was not in the direction of recognising a title to sue in a party who suffered economic loss because his contract with the victim of the wrong was rendered less profitable or unprofitable" [at pages 24-25]. He saved his real fire for Caltex (at page 24):

Their Lordships have carefully considered these reasons for the decision in the Caltex case, 136 C.L.R. 529. With regard to the reasons given by Gibbs and Mason JJ., their Lordships have difficulty in seeing how to distinguish between a plaintiff as an individual and a plaintiff as a member of an unascertained class. The test can hardly be whether the plaintiff is known by name to the wrongdoer. Nor does it seem logical for the test to depend upon the plaintiff being a single individual. Further, why should there be a distinction for this purpose between a case where the wrongdoer knows (or has the means of knowing) that the persons likely to be affected by his negligence consist of a definite number of persons whom he can identify either by name or in some other way (for example as being the owners of particular factories or hotels) and who may therefore be regarded as an ascertained class, and a case where the wrong doer knows only that there are several persons, the exact number being to him unknown, and some or all of whom he could not identify by name or otherwise, and who may there fore be regarded as an unascertained class? Moreover much of the argument in favour of an ascertained class seems to depend upon the view that the class would normally consist of only a few individuals. But would it be different if the class, though ascertained, was large? Suppose for instance that the class

The phrases are taken from Feldthusen, "Economic Loss: Where Are We Going After Junior Books?" (1987), 12 Can. Bus. L.J. 241 at p. 273. A generally similar point of view was expressed in the same symposium by Professor Joost Blom, "Economic Loss: Curbs on the Way Ahead?" (1987), 12 Can. Bus. L.J. 275.

consisted of all the pupils in a particular school. If it was a kindergarten school with only six pupils they might be regarded as constituting an ascertained class, even if their names were unknown to the wrongdoer. If the school was a large one with over a thousand pupils it might be suggested that they were not an ascertained class. But it is not easy to see a distinction in principle merely because the number of possible claimants is larger in one case than in the other. Apart from cases of negligent misstatement, with which their Lordships are not here concerned, they do not consider that it is practicable by reference to an ascertained class to find a satisfactory control mechanism which could be applied in such a way as to give reasonable certainty in its results.

Similarly they are, with the utmost respect to Stephen J., not able to find in his speech a statement of principle which appears to them to offer a satisfactory and reasonably certain guide. The opinion of Jacobs J. does appear to their Lordships to provide a reasonably certain test, namely the traditional test of physical propinquity. But that gives no support to the argument presented by Mr. Gleeson.

In these circumstances their Lordships have concluded that they are entitled, and indeed bound, to reach their own decision without the assistance of any single ratio decidendi to be found in the Caltex case.

Nevertheless, in reasserting the exclusionary rule he found a small niche for Caltex (at page 25):

Their Lordships consider that some limit or control mech anism has to be imposed upon the liability of a wrongdoer towards those who have suffered economic damage in conse quence of his negligence. The need for such a limit has been repeatedly asserted in the cases, from Cattle's case ... to Caltex, . . . and their Lordships are not aware that a view to the contrary has ever been judicially expressed. The policy of imposing such a limit is consistent with the policy of limiting the liability of ships and aircraft in maritime and aviation law by statute and by international agreement .... Not only has that rule been generally accepted in many countries including the United Kingdom, Canada, the United States of America and until now Australia, but it has the merit of drawing a definite and readily ascertainable line. It should enable legal practitioners to advise their clients as to their rights with reasonable certainty, and their Lordships are not aware of any widespread dissatisfaction with the rule. These considerations operate to limit the scope of the duty owned by a wrongdoer, and they do so at the second stage mentioned by Lord Wilber- force in the passage cited above from his speech in Anns v. Merton London Borough Council . . . .

Almost any rule will have some exceptions, and the decision in the Caltex case may perhaps be regarded as one of the "exceptional cases" referred to by Gibbs J. in the passage already quoted from his judgment. The exceptional circum stances may be those referred to by Stephen J., . .. already mentioned. Certainly the decision in Caltex does not appear to have been based upon a rejection of the general rule stated in Cattle's case.

In my view what is of capital importance is that the Privy Council stressed the necessity for "some limit or control mechanism", but did not adopt an absolute rule excluding liability for pure economic loss.

In the second decision, Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd., [1986] A.C. 785 (H.L.), where bad stowage had caused damage to goods on shipboard, it was held that for a claim in negligence, the plaintiff buyers had to have either the legal ownership or a possessory title to the goods damaged and not merely contractual rights in relation to them. The reasons for dismissing the claim were set forth for the House by Lord Bran- don of Oakbrook, the dissenting judge in Junior Books, who said (at pages 816-817 A.C.):

In any event, where a general rule, which is simple to under stand and easy to apply, has been established by a long line of authority over many years, I do not think that the law should allow special pleading in a particular case within the general rule to detract from its application. If such detraction were to be permitted in one particular case, it would lead to attempts to have it permitted in a variety of other particular cases, and the result would be that the certainty, which the application of the general rule presently provides, would be seriously undermined. Yet certainty of the law is of the utmost importance, especially but by no means only, in commercial matters. I therefore think that the general rule, re-affirmed as it has been so recently by the Privy Council in The Mineral Transporter [1986] A.C. 1, ought to apply to a case like the present one, and that there is nothing in what Lord Wilberforce said in Anns' case [1978] A.C. 728 which would compel a different conclusion.

Finally in D. & F. Estates, supra, where negli gence had occurred in plastering by subcontrac tors, an action against the general contractors for replastering, for the cost of cleaning carpets and other possessions dirtied by falling plaster and for damages for disturbance by other parties was rejected since the losses claimed were found to be pure economic loss. Lord Bridge of Harwick said (the speech of Lord Oliver of Aylmerton being to the same effect) of the majority decision in Junior Books (at page 202):

The consensus of judicial opinion, with which I concur, seems to be that the decision of the majority is so far dependent upon the unique, albeit non-contractual, relationship between the pursuer and the defender in that case and the unique scope of the duty of care owed by the defender to the pursuer arising from that relationship that the decision cannot be regarded as laying down any principle of general application in the law of tort or delict. The dissenting speech of Lord Brandon of Oakbrook on the other hand enunciates with cogency and clarity principles of fundamental importance which are clearly applicable to determine the scope of the duty of care owed by one party to another in the absence, as in the instant case, of either any contractual relationship or any such uniquely proxi- mate relationship as that on which the decision of the majority in Junior Books was founded.

Lord Bridge concluded (at page 206) that once a hidden defect in a chattel is discovered so that it is rendered harmless, whether it is then valueless or capable of economic repair "the economic loss is recoverable in contract by a buyer or hirer of the chattel entitled to the benefit of a relevant warran ty of quality, but is not recoverable in tort by a remote buyer or hirer of the chattel". Lord Bridge also took comfort from the recent decision of the United States Supreme Court in East River S.S. Corp. v. Transamerica Delaval, Inc., 106 S. Ct. 2295 (1986), where it was held that no products- liability claim lies in admiralty when a commercial

party alleges injury only to the product itself resulting in purely economic loss.'

The "uncertain voice" of the English authorities to which Lord Bridge referred in D. & F. Estates is, I believe, now amply manifest, but I think it is nevertheless possible to hazard certain general conclusions. First, there is in England a strong preference for upholding the exclusionary rule, particularly in cases such as these involving prod ucts liability where a claim in tort can be seen as an end-run around limitations on contractual lia bility (Lord Brandon in Junior Books and Leigh and Sillavan, Lord Bridge in D. & F. Estates). Second, there is nevertheless a recognition that there are, at the very least, exceptional cases in which the rule does not apply. Junior Books has not been overruled, and the result in Caltex has not been disapproved of. The rule cannot therefore be regarded as absolute. Third, in these exception al cases where liability is allowed there will be found factors of unusual proximity or propinquity somewhat analogous to those which under the first of Lord Wilberforce's propositions establish the basic criterion of duty itself (Hedley Byrne, Caltex, Junior Books).

III

The law on pure economic loss is more open in Canada than in England, if only because there have been many fewer decisions, especially by the Supreme Court of Canada. It would hardly be an exaggeration to say that there is only one real

8 In Reid v Rush & Tompkins Group plc, [1989] 3 All ER 228 (C.A.), at p. 238, Ralph Gibson L.J., speaking for himself alone, says of D. & F. Estates:

I think it is clear that their Lordships were not, as I understand their speeches, dealing with the tort of negligence in all its forms and it does not seem to me that they were intending to lay down a rule that in no case can damages for economic loss be recovered except under the principles estab lished by the Hedley Byrne case. I take Lord Oliver's state ment, namely that damages for pure economic loss cannot be recovered unless the case can be brought within the principle of reliance established by the Hedley Byrne case, to apply only to the sort of case under consideration in D & F Estates v Church Cmrs for England.

decision, Rivtow Marine Ltd. v. Washington Iron Works et al., [1974] S.C.R. 1189, a case that has been frequently cited in the House of Lords.

The plaintiff/appellant had sued for the cost of repairs to two pintle-type cranes on board a log barge it had chartered and for loss of the use of the barge during the repair period. The structural defects in the cranes were discovered only after a similar crane had collapsed, killing its operator. The respondents had been aware that such cranes were subject to cracking due to negligence in design, but had not warned the appellant of the potential danger.

Ritchie J., for the seven Judges in the majority, held that the lower courts were right in disallowing the claim for repairs and for such economic loss as it would in any event have sustained even if proper warning had been given. He wrote (at page 1207):

Mr. Justice Tysoe's conclusion [in the B.C. Court of Appeal in the same case] was based in large measure on a series of American cases, and particularly Trans World Airlines Inc. v. Curtiss-Wright Corp. ((1955), 148 N.Y.S. 2d 284), where it is pointed out that the liability for the cost of repairing damage to the defective article itself and for the economic loss flowing directly from the negligence, is akin to liability under the terms of an express or implied warranty of fitness and as it is contractual in origin cannot be enforced against the manufac turer by a stranger to the contract. It was, I think, on this basis that the learned trial judge disallowed the appellant's claim for repairs and for such economic loss as it would, in any event, have sustained even if the proper warning had been given. I agree with this conclusion for the same reasons; but while this finding excludes recovery for damage to the article and eco nomic loss directly flowing from Washington's negligence and faulty design, it does not exclude the additional damage occa sioned by breach of the duty to warn of the danger.

However, because in Mr. Justice Ritchie's view the failure to warn was an independent tort, he believed the Trial Judge was right in allowing and the Court of Appeal wrong in disallowing, eco nomic loss resulting from the inactivity of the barge for the period after the respondents became seized with the defects.

To support this conclusion Ritchie J. interpreted Cattle in the light of Donoghue v. Stevenson and relied heavily on Hedley Byrne (at pages 1213-1215):

In the present case there is no suggestion that liability should be based on negligent misrepresentation and to this extent the Hedley Byrne case is of no relevance. I refer to it for the sole purpose of indicating the view of the House of Lords that where liability is based on negligence the recovery is not limited to physical damage but extends also to economic loss. The case was recently distinguished in this Court in J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co. ([1972] S.C.R. 769), where Pigeon J., speaking for the majority of the Court, said at p. 777:

Furthermore, the basis of tort liability considered in Hedley Byrne is inapplicable to any case where the relation ship between the parties is governed by a contract, unless the negligence relied on can properly be considered as "an independent tort" unconnected with the performance of that contract ... This is specially important in the present case on account of the provisions of the contract with respect to the nature of the obligations assumed and the practical exclusion of responsibility for failure to perform them.

In the present case, however, I am of opinion that the failure to warn was "an independent tort" unconnected with the performance of any contract either express or implied.

In the course of the exhaustive argument which he presented on behalf of the appellant, Mr. Locke referred to a number of recent decisions in the Court of Appeal of England to illustrate the development of the thinking in that Court on the question of recovery for pure economic loss in an action for negligence where no physical damage has been sustained by the plaintiff.

In one such case, SCM (United Kingdom) Ltd. v. W. J. Whittal & Son Ltd. ([1970] 3 All E.R. 245), the Court held that economic loss flowing directly from physical harm was recoverable but Lord Denning indicated that he would deny recovery for other economic loss except in exceptional circum stances. His reasoning appears to rest on the basis that the damage was too remote although he observed, in the courts of his judgment:

I must not be taken, however, as saying that economic loss is always too remote.

A further lengthy discussion of the same subject is contained in the reasons for judgment of the same learned judge in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd. ([1972] 3 W.L.R. 502), where he appears to treat the question of remoteness of damage as one to be determined "as a matter of policy" and after referring to the cases of Cattle v. Stockton Waterworks Co. and Societe Anonyme de Remorquage a Helice v. Bennetts, he said:

On the other hand, in the cases where economic loss by itself has been held to be recoverable, it is plain that there was a duty to the plaintiff and the loss was not too remote.

In the case of Ministry of Housing and Local Government v. Sharp ([19701 2 Q.B. 223), at p. 278, Salmon L.J. appears to me to have dealt with the question both accurately and suc cinctly when he said:

So far, however, as the law of negligence relating to civil actions is concerned, the existence of a duty to take reason able care no longer depends on whether it is physical injury or financial loss which can reasonably be foreseen as a result of a failure to take such care.

I am conscious of the fact that I have not referred to all relevant authorities relating to recovery for economic loss under such circumstances, but I am satisfied that in the present case there was a proximity of relationship giving rise to a duty to warn and that the damages awarded by the learned trial judge were recoverable as compensation for the direct and demonstr ably foreseeable result of the breach ....

The two Judges dissenting in part would have included in the allowable loss the cost of repair of the cranes on the ground that threatened physical harm should be treated the same as actual physical harm. Laskin J. (as he then was) wrote (at pages 1218-1219 S.C.R.):

... the doctrine of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., which has been considered in this Court and had been applied in other Courts in Canada, shows that economic or pecuniary loss is not outside the scope of liability for negligence.

The present case is not of the Hedley Byrne type, as the reasons of my brother Ritchie show, but recovery for economic loss alone is none the less supported under negligence doctrine. It seems to me that the rationale of manufacturers' liability for negligence should equally support such recovery in the case where, as here, there is a threat of physical harm and the plaintiff is in the class of those who are foreseeably so threatened ....

Support for such recovery in the present case will not lead to "liability in an indeterminate amount for an indeterminate time to an indeterminate class", to borrow an often-quoted state ment of the late Judge Cardozo in Ultramares Corp. v. Touche, at p. 179. The pragmatic considerations which underlay Cattle v. Stockton Waterworks Co. will not be eroded by the imposi tion of liability upon Washington as a negligent designer and manufacturer .... Liability here will not mean that it must also be imposed in the case of any negligent conduct where there is foreseeable economic loss; a typical instance would be claims by employees for lost wages where their employer's factory has been damaged and is shut down by reason of another's negligence. The present case is concerned with direct economic loss by a person whose use of the defendant Washing- ton's product was a contemplated one, and not with indirect economic loss by third parties, for example, persons whose logs could not be loaded on the appellant's barge because of the withdrawal of the defective crane from service to undergo repairs. It is concerned (and here I repeat myself) with econom-

is loss resulting directly from avoidance of threatened physical harm to property of the appellant if not also personal injury to persons in its employ.

Despite the wider recovery he would have allowed, Laskin J. is much closer to the exclusion- ary rule than the majority because of his retention of the physical harm concept. For the majority, it seems that any economic loss which occurs apart from a relationship between the plaintiff and the tortfeasor is recoverable if there is a sufficient "proximity of relationship" between the two par ties. In fact, the principle adopted by the majority is the corollary to that adopted by the majority in Nunes Diamonds (J.) Ltd. v. Dominion Electric Protection Co., [1972] S.C.R. 769. Ritchie J. quotes Pigeon J. in that case (at page 777) to the effect that "the basis of tort liability considered in Hedley Byrne is inapplicable to any case where the relationship between the parties is governed by a contract". It may well be simply an accident of timing that Rivtow Marine followed soon after Hedley Byrne and before the House of Lords' negative reaction set in the 1980's, but it remains the principal Canadian authority, although subse quent English cases have been remarked upon in passing several times by the Supreme Court, most notably in Kamloops (City of) v. Nielsen et al., [1984] 2 S.C.R. 2.

The issue in Kamloops was whether a munici pality can be held liable for negligence in failing to prevent the construction of a house with defective foundations by a purchaser who took it without notice either of the state of the foundations or of the inadequacy of the municipal surveillance.

Wilson J. for the majority extensively surveyed the cases on recovery for pure economic loss, since the municipality argued that the economic loss in the case was analogous to the cost of repairs to the crane which was expressly disallowed by the majority in Rivtow Marine. Wilson J. acknowl edged (at page 33) that "the majority judgment of this Court in Rivtow stands until such time as it

may be reconsidered by a full panel of the Court", but she added that (at page 34):

... I tend to think that the problem of concurrent liability in contract and tort played a major role in the restrictive approach taken by the majority in Rivtow and that, as in the case of Hedley Byrne, we will have to await the outcome of a develop ing jurisprudence around that decision also .

However, she distinguished Rivtow Marine on at least two grounds: (1) Rivtow was a lawsuit between private litigants as compared with a claim against a public authority for breach of a private- law duty of care arising under a statute; (2) "there are no contractual overtones to this case as there were in Rivtow" (at page 34), where there was "some concern that the tort door should not be opened so far as to permit a recovery in tort which would not have been available in contract" (at page 34). Neither the result nor the reasons are therefore directly relevant to the case at bar, since recovery was ultimately allowed on a statutory basis. Nevertheless, it seems to me that both the thrust and the tone of what the Court did militate against an absolute exclusionary rule. The summa tion on the issue by Wilson J. points this way (at page 35):

I do not believe that to permit recovery in this case is to expose public authorities to the indeterminate liability referred to in Ultramares. In order to obtain recovery for economic loss the statute has to create a private law duty to the plaintiff alongside the public law duty. The plaintiff has to belong to the limited class of owners or occupiers of the property at the time the damage manifests itself. Loss caused as a result of policy decisions made by the public authority in the bona fide exercise of discretion will not be compensable. Loss caused in the implementation of policy decisions will not be compensable if the operational decision includes a policy element. Loss caused in the implementation of policy decisions, i.e. operational negli gence will be compensable. Loss will also be compensable if the implementation involves policy considerations and the discre tion exercised by the public authority is not exercised in good faith. Finally, and perhaps this merits some emphasis, economic loss will only be recoverable if as a matter of statutory interpre tation it is a type of loss the statute intended to guard against.

It seems to me that recovery for economic loss on the foregoing basis accomplishes a number of worthy objectives. It avoids undue interference by the courts in the affairs of public authorities. It gives a remedy where the legislature has implied- ly sanctioned it and justice clearly requires it. It imposes enough of a burden on public authorities to act as a check on the arbitrary and negligent discharge of statutory duties. For these reasons I would permit recovery of the economic loss in this case.

What is most striking, perhaps, is the majority's refusal to be stampeded by any floodgates argu ment based upon Cardozo C.J.'s statement in Ultramares.

The appellants in the case at bar contended that the decision of Wilson J. in Kamloops should be read in the light of her alleged affirmation of the exclusionary rule as a member of the Ontario Court of Appeal in Attorney-General for Ontario v. Fatehi et al. (1981), 34 O.R. (2d) 129 (C.A.), but in my view that contention breaks down on an analysis of the Fatehi decision in the Ontario Court of Appeal. In that case, the defendant admitted negligence in the operation of a motor vehicle, but denied liability for the Ontario Crown's costs in clearing the wrecked vehicles, spilled gasoline, broken glass, and general debris from a highway. Brooke J.A. (dissenting) would have upheld the Trial Judge's decision that the Crown was a property-owner whose property had suffered damage.

It is perhaps fair to say that both Wilson and Thorson JJ.A. in the majority inclined to the exclusionary rule in their dicta. Indeed, Thorson J.A. admitted (at page 146):

If it had been necessary to do so in this case on the theoretical assumption that the only ground for appeal argued by counsel for the appellant was that the Crown's loss was a purely economic one, I would have been disposed to allow the appeal on that ground.

Wilson J.A. (as she then was) was, however, ultimately unwilling to rest her judgment on the exclusionary rule (at page 142):

However, even if I am right that this is an action for the recovery of pure economic loss I cannot say on the existing state of the law that the learned trial Judge was clearly wrong in permitting recovery. I prefer therefore to base my judgment on the appellant's second ground of appeal.

On appeal, the Supreme Court of Canada unanimously held that the case was not one of economic loss at all but of direct damage to the property of the plaintiff occasioned by the negli gence of the defendant. The Supreme Court inter preted the Court of Appeal majority below as having suspended judgment on pure economic loss (supra, at page 544):

The law in Canada remains, as was said in the majority below, somewhat uncertain by reason of the decision of this Court in Rivtow Marine, supra.

The Supreme Court's own view was that the law was open, and that it should remain so for the moment (at page 545):

Nonetheless it must be acknowledged that Rivtow has been variously applied or rejected by the courts of this country, some of whom find in the majority judgment recognition of economic loss and some of whom have found the opposite. It is not possible to say whether the law of Canada, as reflected in the authorities to date, contemplates recovery for a pure economic loss in the sense of Junior Books, supra, in the House of Lords.

In this proceeding it is unnecessary, in my view, to settle this issue because ... this is not a case of economic loss but of direct damage to property of the plaintiff occasioned by the negli gence of the respondent.

Although the issue was specifically left open by the Supreme Court of Canada in Fatehi as in Kamloops, the straws in the wind, if I may call them that, seem to incline against the exclusionary rule. Thus in Agnew-Surpass Shoe Stores Ltd. v. Cummer-Yonge Investments Ltd., [1976] 2 S.C.R. 221, Pigeon J., writing for four Judges, said of the Rivtow decision, in which he had been part of the majority, (at page 252):

It is now settled by the judgment of this Court in Rivtow Marine Ltd. v. Washington Iron Works that recovery for economic loss caused by negligence is allowable without any recovery for property damage.

He therefore held in Agnew-Surpass that an exculpatory clause for a lessee should be narrowly interpreted so as to leave the lessee liable for a loss of rental income on the part of the owner-landlord

of a shopping centre where a fire had been caused through his negligence.

Similarly, in Haig v. Bamford et al., [1977] 1 S.C.R. 466, a case where the Supreme Court allowed recovery against accountants who had failed to use reasonable care in the preparation of accounts, Dickson J. (as he then was) wrote for six of the nine Judges (at page 483) with no words of qualification, "Recovery for economic loss caused by negligence has been allowed in Rivtow Marine Ltd. v. Washington Iron Works".

Moreover, it was argued with some justification by the respondent on the present appeal that Madam Justice Wilson's emphasis in Kamloops in a series of rhetorical questions summarizing the reassessment of the exclusionary rule implied her own favourable answers to the questions (at pages 28-29):

It took the decision of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., supra, to spark a review and reassessment of the economic loss rule by legal scholars and judges, and this review has been going on now for almost two decades. How, it is asked, can one justify to injured plaintiffs the difference in treatment the law accords to physi cal and to economic loss caused by a defendant's negligent acts? In one you are compensated by the wrongdoer: in the other you have to bear the loss yourself. Does it make sense to permit the recovery of economic loss for negligent words but not for negligent acts? What is the significant difference between them? Why, if economic loss is reasonably foreseeable as a consequence of negligent acts, should it not be as recover able as reasonably foreseeable physical injury to persons or to property? And should Chief Judge Cardozo's fear of indetermi nate liability to an indeterminate class preclude recovery by a very specific plaintiff in a very specific amount? Can a policy consideration which leads to a manifest injustice in certain types of cases be a good policy consideration? Is there some rationale whereby injustice in specific cases can be avoided and Chief Judge Cardozo's fear guarded against at the same time?

Two other recent Supreme Court of Canada decisions are relevant. In B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228, where a courier was unaware that an envelope contained a Crown grant that had to be registered within a stipulated time, it was held by the Court that there was no duty of care as required by the first Anns proposi tion. Nevertheless, Estey J. widely surveyed the

law of negligence and pure economic loss, taking the same view as Pigeon J. in Agnew-Surpass of Rivtow Marine (at pages 239-240):

In Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189, this Court divided on some aspects of the issue of negligently caused economic loss, but both the majority and the dissenting judgments recognized that, in principle, a defendant could be held liable in tort for economic losses arising wholly in the absence of associated physical injury or damage. Rivtow concerned the liability of the manufacturer of a defectively made crane to the crane's ultimate consumer, for the cost of the repairs and for profits lost while the crane was out of service. The case therefore raised issues of products liability and bears little resemblance to Hedley Byrne, supra, and the cases follow ing it. Consistently with the cases cited supra, however, both Ritchie J. for the majority and Laskin J., as he then was, in dissent referred to the need to find sufficient proximity between the parties to the action.

Estey J. stressed the necessity of a "proximity" test throughout, ostensibly in relation to the first Anns principle, but often in contexts (e.g. Junior Books) where it could reasonably be applied to the second Anns proposition.

The other Supreme Court case is Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147, where the principal issue was whether a solicitor could be liable to a client in tort as well as in contract. Le Dain J. delivered the reasons for decision of the Court and on the relevant point said (at page 206):

3. A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence.

Where there is no question of a contractual exclu sion, it was thus held that the principle of Hedley Byrne should be applied.

These two cases add nothing directly with respect to the exclusionary rule, but it seems to me that both point in the direction of limiting it. B.D.C. [at page 239] approves a broad statement that, on the basis of Rivtow Marine, "a defendant could be held liable in tort for economic losses arising wholly in the absence of associated physical injury or damage". Central Trust [at page 206] would support the exclusionary rule only where otherwise the plaintiff could "circumvent or escape a contractual exclusion or limitation of liability".

There was one case in which this Court con sidered the issue of recovery for pure economic loss: Baird v. The Queen in right of Canada, [1984] 2 F.C. 160 (C.A.). In that case, the Trial Judge [(1982), 135 D.L.R. (3d) 371] had struck out the statement of claim as disclosing no cause of action on the ground that a claim for compensa tion for economic loss was not within the scope of Crown liability when the statutory duties in issue were imposed upon the Minister of Finance and the Superintendent of Insurance. In reversing, Mr. Justice Le Dain said for the majority of the Court (at page 183):

The next question is whether, if there were a duty of care owed by the Minister of Finance or the Superintendent of Insurance to the appellants and a breach of that duty, there could in principle be recovery for purely economic loss. Counsel for the Crown contended that the kinds of cases in which there could be recovery for economic loss that is not consequential upon personal injury or property damage were limited to those represented by Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465 (H.L.) and Rivtow Marine, supra: negligent misrepresentation, and negligent failure to warn of a dangerous defect in a product. There is in my opinion nothing in subsequent judicial commentary on this question which suggests that recovery for purely economic loss is to be limited in principle to these categories of cases. In Agnew-Surpass Shoe Stores Ltd. v. Cummer-Yonge Investments Ltd., [1976] 2 S.C.R. 221 at page 252 there was the following general reference to the significance of Rivtow Marine: "It is now settled by the judgment of this Court in Rivtow Marine Ltd. v. Washington Iron Works et al. ([1974] S.C.R. 1189) that recovery for economic loss caused by negligence is allowable without any recovery for property damage." It would appear that whether such recovery will be permitted in a particular case of negligence will depend on the application of general principles or considerations not confined to certain categories or types of cases. These principles and considerations are very

fully examined in Caltex Oil, supra, which was itself an example of recovery for purely economic loss in a case which did not fall within the Hedley Byrne and Rivtow Marine categories. Whether the question is to be approached from the point of view of duty of care or remoteness of damage or generally as a policy question it is not plain and obvious to me at this stage that the possibility of such recovery in the present case should be excluded as a matter of principle.

Again, this is something less than a decisive au thority, but it is significant that the Court looked on the rule as broader than would be encompassed in the categories of cases represented by Hedley Byrne and Rivtow Marine, and believed that "whether such recovery will be permitted in a particular case of negligence will depend on the application of general principles or considerations not confined to certain categories or types of cases," such as were set out in Caltex.

There are also three cases in the Trial Division, Gypsum Carrier Inc. v. The Queen, [1978] 1 F.C. 147; Bethlehem Steel Corporation v. St. Lawrence Seaway Authority, [1978] 1 F.C. 464; and Interocean Shipping Company v. The Ship Atlan- tic Splendour, [1984] 1 F.C. 931. The Gypsum Carrier case not only involved a ship collision with the same bridge as in the case at bar but is on all fours with it save that there seems to have been scant evidence as to foreseeability and no argu ment made as to the proximity of railway prop erty. Having found that the railway had neither easements nor any lesser proprietary interests in the bridge, Collier J. stated (at page 158):

I am satisfied that, in this case, the absence of physical damage to any property of the railway companies does not, by itself, preclude recovery for the additional expense the railway companies incurred (the economic loss).

Nevertheless, he found that the action failed on the first Anns principle, viz., that on the evidence no duty of reasonable care had been established.

In Bethlehem Steel, a ship had collided with and destroyed a bridge over the Welland Canal. One claim was for the loss of profits of ships held up by the obstruction in the Canal, a second for the extra cost of shipping cargo from Toronto rather than through the Canal. Addy J. disallowed recovery, holding that the relationship between the claim ants and the damaged object had been much closer in the Gypsum Carrier case, where (at page 470) "the damaged object was the very thing which was used by the claimants and they at least had certain contractual rights covering it." In the case at bar, he distinguished his previous decision in Beth- lehem Steel as follows (at page 26 C.C.L.T.):

In that decision, I did indeed approve and apply the floodgates rule and made no mention of alternatives. However, an exami nation of the facts of that case indicates quite clearly that no circumstances whatsoever were present which might have been capable of prevailing over the very practical objections which constitute the raison d'être of that exclusionary rule.

In Interocean Shipping, where the Atlantic Splendour overstayed at a dock because of mechanical difficulties delaying four other ships scheduled to take on iron ore at the same dock, on a stated case Dube J. stated the law as follows (at pages 936-937):

My assessment of the present state of the developing juris prudence on this vexed question of pure economic loss is that there need not be physical injury for the plaintiff to recover, provided: firstly, there was a duty owing by the defendant to the plaintiff; secondly, there was a breach of that duty; thirdly, the economic losses flowed directly from the defendant's negli gence; and fourthly, the consequences were reasonably foreseeable.

He went on to distinguish the Gypsum Carrier case on the facts (at page 938):

Those in charge of the vessel in the Gypsum case could not, of course, have foreseen the rerouting of trains as they were heading for the railway bridge. Similarly, the navigators in the Bethlehem Steel case did not know they were about to disrupt ship schedules on the canal. But those in charge of the M/V Atlantic Splendour purposely kept the vessel moored at the dock, when they could have had her towed away immediately. They could have prevented the economic damage to the other vessels, but for their own reasons chose not to do so. They

knew, or ought to have known, that they were monopolizing the only available berth. They saw, or ought to have seen, the other vessels sitting idle in the water. It is not beyond the ken of reasonable seamen to foresee that vessels in waiting suffer economic losses. The procrastination of the defendant, admitted or to be proven at trial, was the direct, foreseeable cause of the economic losses suffered by the plaintiffs.

Provincial appeal courts in three provinces have denied the exclusionary rule. The most forthright statement is that of Lambert J.A. for the British Columbia Court of Appeal in Nicholls v. Town ship of Richmond et al. (1983), 145 D.L.R. (3d) 362, at page 367, 9 on a motion to strike out a pleading in a wrongful dismissal case based on negligently inducing a breach of contract:

So the question in this case becomes: Is there a legal policy that denies recovery, as a matter of principle, where, in a relationship of proximity that may exist between officers and employees of a corporation, an act, omission or misstatement occurs, and the perpetrator should reasonably have foreseen that it would result directly in economic loss to a fellow employee, as, for example, by dismissal from employment? I am not persuaded that there is or should be such a general legal policy. In particular cases recovery may be denied as a matter of policy, but the policy would be a narrower one, applicable on the basis of facts that are not as yet revealed in this case. I reach no conclusion now as to the existence or scope of such a narrower policy.

In my opinion, such cases as Cattle v. Stockton Waterworks Co. (1875), L.R. 10 Q.B. 453, and Weller & Co. v. Foot & Mouth Disease Research Institute, [1965] 3 All E.R. 560, should be seen as specific examples of a denial of recovery on the basis of absence of proximity, or remoteness of damage, or both, and not as establishing a principle that damages can never be recovered for economic loss if the loss arises from the breach of a contractual relationship between one victim who suffers economic loss and another victim who suffers physical injury. The answer to such problems lies not in a uniform denial of recovery but in an application of the customary and

9 In the disapproving view of Dean Peter J. Burns, "Recent Developments in Negligence Law", Negligence Law in the 1990's, (Vancouver: The Continuing Legal Society of British Columbia, (1985), at p. 1.1.10, "the combined effect of Nielson and Nicholls . . . is the creation of a vastly expanded area and range of potential civil liability that must ultimately increase the costs of public and private activities and in many cases even deter desirable undertakings in the commercial and public sectors".

sometimes difficult questions relating to proximity, foreseeabili- ty, causation and remoteness.

Suppose an airline has a policy of discharging pilots who suffer from a medical disability and requires its pilots to undergo a medical examination each year by a doctor, selected by the airline, who knows the purpose of the examination. Suppose the doctor carelessly and incorrectly diagnoses a disa bility and the pilot is discharged. Would the pilot, as a matter of legal policy, be denied a cause of action against the doctor? I do not think so. Yet the loss suffered by the pilot would be economic loss arising from the doctor's negligent interference with the pilot's contractual relations with the airline. I leave unanswered the question of what difference it would make, if any, if the doctor was a salaried employee of the airline.

In Maughan and Maughan v. International Harvester Company of Canada Limited (1980), 38 N.S.R. (2d) 101 (C.A.), although denying an action against a manufacturer for a breach of warranty on defective goods to a user who bought from a dealer without an express warranty, the Nova Scotia Court of Appeal was prepared to find the manufacturer liable to the user for economic loss caused by negligence. MacKeigan C.J.N.S., for the Court, interpreted Rivtow Marine in the light of the comments by Pigeon J. in Agnew-Sur pass and Dickson J. [as he then was] in Haig, and said (at page 109):

I need not strain ... to find factual similarity with Rivtow. Mr. Justice Ritchie rejected the idea of any special rule restricting recovery of economic loss in negligence cases.

In Yumerovski et al. v. Dani (1977), 18 O.R. (2d) 704 (Co. Ct.), affd (1979), 120 D.L.R. (3d) 768 (Ont. C.A.), where the negligent driving of a travel agent taking members of a family to their charter flight caused the death of one of the passengers, leading the other members of the deceased's family to forgo the trip, they sued for the cost of the tickets, and the Trial Judge allowed recovery, following Caltex. On appeal, MacKin- non A.C.J.O. concisely stated for the Ontario Court of Appeal (at page 768):

Because of the special relationship between the parties which was established by the defendant's undertaking, as part of the inducement to the plaintiffs to purchase the airline tickets from

him, to drive one or more of the members of this limited and closely knit family group to the airport, and for the reasons given by the trial Judge, the appeal is dismissed with costs.

There are a number of other cases in which lower courts have allowed recovery for economic loss in the absence of property damage: University of Regina v. Pettick et al. (1986), 51 Sask. R. 270 (Q.B.); Dominion Tape of Canada Ltd. v. L. R. McDonald & Sons Ltd. et al., [1971] 3 O.R. 627 (Co. Ct.); Smith et al. v. Melancon, [1976] 4 W.W.R. 9 (B.C.S.C.); MacMillan Bloedel Ltd. v. Foundation Company of Canada Ltd. (1977), 75 D.L.R. (3d) 294 (B.C.S.C.); Trappa Holdings Ltd. v. District of Surrey et al. (1978), 95 D.L.R. (3d) 107 (B.C.S.C.); Gold v. The DeHavilland Aircraft of Can. Ltd., [1983] 6 W.W.R. 229 (B.C.S.C.).

In my view, this survey of the law leads to the apparent conclusion that in Canada there is no absolute rule preventing recovery for pure econom ic loss even where there is no physical damage to the plaintiff's property. This it seems to me, is the only possible conclusion to be drawn from Rivtow Marine, Agnew-Surpass, Haig and Baird.w

What the courts insist upon for liability, again and again from Hedley Byrne on, is that there must be a special relationship or sufficient prox imity between the plaintiff and the defendant: "sufficient proximity" (Stephen J. in Caltex and Estey J. in B.D.C.); "proximity" (Lord Roskill in Junior Books); "loss .. . not too remote" (Lord Denning, M.R., in Spartan Steel & Alloys Ltd. v. Martin & Co. (Contractors) Ltd., [1973] Q.B. 27 (C.A.) at page 37, as cited by Ritchie J. in Rivtow

10 This would also appear to be the situation under Quebec's Civil Code. Daniel Jutras, "Civil Law and Pure Economic Loss: What Are We Missing?" (1987), 12 Can. Bus. L.J. 295, at p. 309 writes that "there is some evidence that neither Quebec nor France has a de facto rule precluding the recovery of pure economic loss." Cf. also the critique of privity of contract, from a comparative law point of view, in B. S. Markesinis, "An Expanding Tort Law—The Price of a Rigid Contract Law" (1987), 103 L.Q. Rev. 354.

Marine." I think it is thus latent in the cases that a principle of sufficient proximity is required, in addition to the general principle of reasonable foresight, for liability to arise in the case of pure

economic loss.

A possible conceptual difficulty with a sufficient proximity principle is that it may lead to confusion between Lord Wilberforce's two propositions in Anns, as it does, arguably, in B.D.C. The first proposition in Anns [at page 751] flows directly from Donoghue v. Stevenson: "whether, as be tween the alleged wrongdoer and the person who suffered damage there is a sufficient relationship of proximity or neighbourhood".

However, Lord Wilberforce's second proposi tion, as I see it, does not have to be entirely separate from his first. "[w]hether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise" [at page 752] is perhaps not so much a separate question as a reflection on and a deepening of, the answer to the

II Lord Denning uses a similar phrase "too remote to be recovered as damages" in S.C.M. (United Kingdom) Ltd. v. W. J. Whittall and Son Ltd., [1971] 1 Q.B. 337 (C.A.) at pp. 344-345. He then (at p. 346) offers this summation:

Seeing these exceptional cases you may well ask: How are we to say when economic loss is too remote or not? Where is the line to be drawn? Lawyers are continually asking that question. But the judges are never defeated by it. We may not be able to draw the line with precision, but we can always say on which side of it any particular case falls. The same question might be asked in the case of the escaping borstal boys. If their house masters are negligent, and they escape and do damage, the Home Office are liable to persons in the neighbourhood, but not to those far away. Where, again, is the line to be drawn? Only where "in the particular case the good sense of the judge decides." That is how Lord Wright put it in the case of nervous shock in Bourhill v. Young [1943] A.C. 93, 110: and I do not think we can get any nearer than that. But, by building up a body of case law, we shall give guidance to practitioners sufficient for all the ordinary cases that arise.

first. It can lead to a possible negation of the first, but for reasons that may be intrinsic and already contained in the answer to the first question, even if it is affirmative—because it is not affirmative enough, as it were.

Even where the second question appears to be an entirely separate one, the negative considerations it raises are really all boiled down to the avoidance of "indeterminate" liability, that is, to the necessi ty of tying any liability down to something deter minate. This second issue, it seems to me, may be thought of as measured by the degree of the proximity in the first answer. In other words, while the first question envisions that the parties be neighbours, the second necessitates that they be close neighbours. The first answer may in one sense be said to respond to both questions, even though in my view they are best put separately.

In Spartan Steel, supra, at page 36, Lord Den- ning prefers to express the resolution of liability for economic loss in terms of a pure policy decision:

At bottom I think the question of recovering economic loss is one of policy. Whenever the courts draw a line to mark out the bounds of duty, they do it as matter of policy so as to limit the responsibility of the defendant. Whenever the courts set bounds to the damages recoverable—saying that they are, or are not, too remote—they do it as matter of policy so as to limit the liability of the defendant.

My own approach is to look to principle rather than to policy, and so to think of the judgment required for liability for pure economic loss, not as a pure policy decision, but as a perception of sufficient proximity, that is, in terms of a measur able determinacy. Mr. Justice Linden, Canadian Tort Law, 4th ed., at page 393, suggests that the issue may be resolved by identifying categories of loss:

... categories of economic loss cases will have to be identified just as the recurring situations have been isolated in the remoteness area generally. Specific limiting formulae may be adopted to meet the unique loss distribution and indeterminate class problems within each category. The need for compensa tion, deterrence, education and market deterrence will have to be assessed in each context, such as products liability, negligent statements, utilities, public authorities, etc.

Certainly the factual surroundings are critical in analyzing potential liability.

The best statement I have found of what I believe is the applicable principle, viz., the prox imity principle, is by Deane J. of the High Court of Australia in Sutherland Shire Council v Heyman (1985), 60 ALR 1, at pages 55-56:

The requirement of proximity is directed to the relationship between the parties in so far as it is relevant to the allegedly negligent act or omission of the defendant and the loss or injury sustained by the plaintiff. It involves the notion of nearness or closeness and embraces physical proximity (in the sense of space and time) between the person or property of the plaintiff and the person or property of the defendant, circumstantial proximity such as an overriding relationship of employer and employee or of a professional man and his client and what may (perhaps loosely) be referred to as causal proximity in the sense of the closeness or directness of the causal connection or relationship between the particular act or course of conduct and the loss or injury sustained. It may reflect an assumption by one party of a responsibility to take care to avoid or prevent injury, loss or damage to the person or property of another or reliance by one party upon such care being taken by the other in circumstances where the other party knew or ought to have known of that reliance. Both the identity and the relative importance of the factors which are determinative of an issue of proximity are likely to vary in different categories of case. That does not mean that there is scope for decision by reference to idiosyncratic notions of justice or morality or that it is a proper approach to treat the requirement of proximity as a question of fact to be resolved merely by reference to the relationship between the plaintiff and the defendant in the particular cir cumstances. The requirement of a relationship of proximity serves as a touchstone and control of the categories of case in which the common law will adjudge that a duty of care is owed. Given the general circumstances of a case in a new or develop ing area of the law of negligence, the question what (if any) combination or combinations of factors will satisfy the require ment of proximity is a question of law to be resolved by the processes of legal reasoning, induction and deduction. On the other hand, the identification of the content of that requirement in such an area should not be either ostensibly or actually divorced from notions of what is "fair and reasonable"... .

I would agree that the requisite proximity can

consist of various forms of closeness physical, circumstantial, causal, assumed—and that "The requirement of a relationship of proximity serves as a touchstone and control of the categories of case in which the common law will adjudge that a duty of care is owed."

In my observation, courts will always find suffi cient proximity where there is physical danger to the plaintiff's property. In fact, I believe that might be said to have the status of a presumption. But where there is no physical damage, there is in my view no presumption but rather neutrality as to possible conclusions. Still, other factors may give rise to a conclusion of proximity.

What is always to be avoided is liability in an indeterminate amount for an indeterminate time to an indeterminate class. As Michael A. Jones, Note

["Economic Loss A Return to Pragmation"] (1986), 102 L.Q. Rev. 13 at page 15, has put it, "The cases in which the courts have allowed recov ery for economic loss have all involved situations in which a conceptual control could be placed on the defendant's potential liability." Otherwise, as was said in the latest House of Lords trilogy, a fatal lack of certainty in the law could result. But certainty by itself, without the guiding vision of justice, would lead to a blind alley. The law demands some perception of justice for its life, even while it requires some channelling of justice for its survival.

I might add that the recent House of Lords' cases in particular would strongly suggest that, where tort liability appears to be a way of getting around the limitations of contract law, there may be said to be a presumption against any liability in tort. That view is, however, expressed in a more moderate fashion by the Supreme Court in Central Trust, and in any event is not relevant in the case at bar.

With this background of principle, I can now turn to the case at bar.

Addy J. rested his conclusion as to liability on three grounds: (1) the captain of the tugboat was specifically aware of the CNR as a party likely to suffer damage from any negligence to the point that he believed the bridge to belong to the CNR; (2) the precise nature of the economic loss to the CNR was actually known to the tortfeasor, since previous accidents to the bridge had caused pre cisely the same result; (3) the property of the CNR (the tracks on both sides of the Fraser River) is not only in close proximity to the bridge but this riverside property cannot be properly enjoyed without the essential link of the bridge, which is an integral part of its railway system. Linked with the third ground is the CNR's role in supplying materials and inspection and consulting services for the bridge, and the CNR's preponder ant usage of the bridge, recognized even in the periodic negotiations for routine maintenance clos- ings. The Trial Judge also concluded that the economic loss claimed was not disproportionate to the physical damage to the bridge.

To my mind the actual knowledge of the appel lants found by the Trial Judge was not necessary for liability; all that was required in this regard was reasonable foreseeability. As to the principle of sufficient proximity, I find it realized by the third ground in particular. In effect, the Trial Judge found that the CNR was so closely assimilated to the position of PWC that it was very much within the reasonable ambit of risk of the appellants at the time of the accident. That, it seems to me, is sufficient proximity: in Deane J.'s language, it is both physical and circumstantial closeness.

In the light of the law as I understand it, I can see no error in the learned Trial Judge's conclu sion. The situation is a unique one, unique even to the CNR among the three railways. I believe Addy J. has correctly interpreted and applied the law as it stands in Canada.

I would therefore dismiss the appeal with costs. HEALD J.A.: I concur.

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