A-160-90
Her Majesty the Queen in Right of Canada as
represented by the Attorney General (Appellant)
(Defendant)
v.
Brewer Bros., Howard Copeland, Elie Dorge,
Donald Duffy, Gisli Eirikson, Alex Gorr & Sons,
Allan Hauser, Franklin Heck, Hutterian Brethren
of Erskine, Hutterian Brethren of Pleasant Valley,
Thomas J. Lund, Tyrone Lund, Dan MacFadyen,
Jack MacFadyen, 7M Acres Ltd., Ronald
Metzger, Moran Farm Ltd., George Paul, Dale
and Robert Peterson, Hazel Peterson, G. W.
Pogmore, Walter Riehl and Larry Weimer
(Respondents) (Plaintiffs)
INDEXED AS: BREWER BROS. V. CANADA (ATTORNEY
GENERAL) (CA.)
Court of Appeal, Heald, Stone and Décary
JJ.A.—Winnipeg, January 14-18; Ottawa, May 21,
1991.
Crown — Torts — Negligence — Appeal and cross-appeal
from decision Canadian Grain Commission liable in damages
— Producers delivering grain for which not paid — Elevator
operator's financial situation rated poor — Security posted
insufficient to meet grain producers' claims — Commission not
taking timely action despite information received on licensed
operator's financial difficulties — Commission must be satis
fied as to sufficiency of security, licensee's financial ability to
carry on business under Canada Grain Act, s. 36(/)(c) — Duty
of care not met — Case law reviewed — Act, s. 36(/)(c) inter
preted — Policy and operational decisions distinguished —
Breach of standard of care causing losses claimed — Purely
economic loss recoverable — No contributory negligence
Damages properly assessed.
Agriculture — Canadian Grain Commission held liable to
producers for negligence in failing to take timely action when
aware licensed elevator operator in financial difficulties —
Security posted insufficient to satisfy claims — Producers not
guilty of contributory negligence in entering into deferred pric
ing arrangements with operator.
Collier J. found the Crown liable in negligence and awarded
damages to the respondents over and above their share in the
proceeds of a bond posted as security with the Canadian Grain
Commission, a government agency, by Memco Limited, a
licensed operator of a producer elevator. The respondents were
grain producers who, from October 3, 1979 to March 25, 1982,
delivered truckloads of grain to Memco for which they had not
been paid. After the Commission had realized that the self-re
porting system of licensees' outstanding liabilities was ineffec
tive, it decided in April 1981 to change its licensing and
reporting program and to review the financial situation of a
number of licensees on the basis of information contained in
the Commission's files. The reviewing officer rated Memco's
financial condition as poor, pointing out certain danger signals
and suggesting that a $600,000 security would be adequate.
Despite these warning signals, neither an audit nor an inspec
tion of Memco was carried out between August 1981 and
March 1982. And even though the Commission received infor
mation in May 1982 that Memco had not disclosed a number
of large grain producers' claims and that the company's liabili
ties stood at approximately $1,300,000, it did not ask for an
increase of the security already posted. When Memco had its
licence cancelled by the Commission in June 1982 and was
placed in receivership the following month, it was discovered
that its total liability to grain producers stood at $1,430,000.
The Commission had to realize on the existing security of
$600,000.
Some 8 issues were raised upon this appeal: (1) whether the
Trial Judge misconstrued the Act; (2) whether there was a duty
of care owed to the respondents; (3) what was the standard of
care; (4) whether there was a breach of the standard of care; (5)
whether the breach caused the losses claimed; (6) whether a
government agency can be held liable in negligence for purely
economic loss; (7) whether the plaintiffs were contributorily
negligent; and (8) whether the damages were properly
assessed.
Held, the appeal should be dismissed; the cross-appeal
should be allowed.
(1) Under paragraph 36(1)(c) of the Act, the Commission
had an obligation to be satisfied not only as to the sufficiency
of security but also as to the licensee's financial ability to carry
on the business to which the licence related.
(2) Paragraph 36(1)(c) was enacted for the protection of
those grain producers who are holders of documents by requir
ing the posting of security sufficient to meet a licensee's `obli-
gations" to them. As to the existence of a duty of care, which is
essential to a cause of action in negligence, the test for deter
mining whether a government agency owes a private law duty
of care formulated by the House of Lords was recently applied
by the Supreme Court in Just v. British Columbia. According
to that test, there must be a sufficient relationship of proximity
or neighbourhood between the alleged wrongdoer and the vic
tim such that carelessness by the former may be likely to cause
damage to the latter. Since Parliament has expressly provided
for the protection of interests of members of a defined group
(the holders of documents) by requiring the posting of security
to the satisfaction of the Commission, there was, in the case at
bar, a relationship of proximity between the Commission and
the respondents sufficient to give rise to a duty of care.
Although the existence of a duty of care does not necessarily
mean that a government agency such as the Commission will
be found liable for negligence, the Act imposes an obligation
upon the Commission to ensure that licensees maintain an ade
quate level of security and there is no statutory exemption from
liability for failure to meet that obligation. In Just v. British
Columbia, the Supreme Court has made a distinction between
policy and operational decisions, pointing out that policy deci
sions should be exempt from tortious claims whereas the
implementation of those decisions would be subject to claims
in tort. Here, the implementation of the Commission's policy
of replacing the former self-reporting system with a verifica
tion system involved a number of operational decisions and
liability, if any, arose from these decisions. The appellant
could not therefore be exempt from liability on the ground that
the decisions made, were policy decisions.
(3) The appropriate standard of care to be applied was
whether the Commission acted reasonably in the light of all the
surrounding circumstances.
(4) The Commission could not rely on a lack of available
personnel to explain the delay in carrying out the Memco
audit. The Trial Judge found as a fact that Memco had been
"bumped" on lists of priority and that the Commission did not
audit, inspect, visit or even contact Memco between August
1981 and mid-February 1982 despite its poor financial condi
tion. Contrary to the Regulations, Memco's total liabilities
were never verified by statutory declarations. Moreover, the
Commission did nothing to induce an increase in the level of
the posted security over a six-month period after the licensee's
weak financial position was brought to its attention. Therefore,
the Crown's negligence did not consist of a single act or omis
sion which occurred at a precise moment-but was in fact cumu
lative.
(5) A plaintiff is required to prove, on a balance of
probabilities, that but for the defendant's negligence he would
not have suffered the injury of which he complains. In the case
at bar, the Trial Judge was justified in inferring that, had it not
been for the negligence of the appellant in failing to require
sufficient security, the respondents' losses would have been
avoided. Their damages were reasonably foreseeable and
flowed directly from that negligence.
(6) Although courts have traditionally considered economic
loss as not recoverable unless the negligence also caused phys
ical loss or damage, purely economic loss is recoverable if "as
a matter of statutory interpretation it is a type of loss the statute
intended to guard against". In the present case, the purpose of
paragraph 36(1)(c) of the Canada Grain Act is the protection
of persons in the position of the respondents as "holders of
documents"; thus the "obligations" which Parliament sought to
protect could only be "the payment of money or delivery of
grain" or, in other words, in respect of a loss that is financial
or purely economic in nature. The respondents' losses were
recoverable although purely economic.
(7) The appellant's contention, that the respondents were
guilty of contributory negligence by entering into deferred
pricing arrangements with Memco and thereby delaying the
time at which grain was sold and its price actually paid, was
ill-founded. The respondents were the beneficiaries of the
security scheme and not its debtors. The practice of deferring
the payment of prices was well established and well known to
the Commission itself. The respondents were reasonably enti
tled to rely on the security held by the Commission; they did
not contribute to their losses.
(8) As to assessment of damages, appellant contended that
the difference between the price of the grain as initially agreed
to and the price subsequently enhanced by agreement between
the vendor and the purchaser was not compensable. The
answer to that question is provided by paragraph 36(1)(c) of
the Act. Debts are recoverable only if they fall within the term
"obligations". The damages claimed should not exclude this
portion of the sale price.
The cross-appeal had to be allowed, the Trial Judge having
erred in deducting from the claim of each respondent the inter
est earned on his pro rata share of the principal amount of the
security proceeds between the realization thereof and the date
of distribution. The cross-appellants were the only persons
having a proprietary interest in the fund and the interest
thereon. Proceeds of the bond were for their exclusive benefit.
The Commission had no share in the proceeds and would
receive a windfall if the interest were applied so as to reduce
its liability in damages. His Lordship did not, however err in
failing to consider one of the claims for negligent misstatement
based on Hedley Byrne. The weight to be accorded the evi
dence in that regard was for the Trial Judge to decide.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Canada Grain Act, S.C. 1970-71-72, c. 7, ss. 2(19),(38),
5(1), 6(2), 8, 10(c), 11, 35(1),(2), 36(1), 38(1),(2),
65(2), 69(1), 77( 1 )(c),(2),(3).
Canada Grain Regulations, C.R.C., c. 889, ss. 18(a),(6),
20(c), 26(a).
CASES JUDICIALLY CONSIDERED
FOLLOWED:
Just v. British Columbia, [1989] 2 S.C.R. 1228; (1989);
64 D.L.R. (4th) 689; [1990] 1 W.W.R. 385; 103 N.R. 1;
Anns v. Merton London Borough Council, [1978] A.C.
728 [H.L.]; Murphy v. Brentwood District Council, [1991]
1 A.C. 398 (H.L.); Snell v. Farrell, [1990] 2 S.C.R. 311;
(1990), 110 N.R. 200; 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.
APPLIED:
Stein et al. v. The Ship "Kathy K" et al., [1976] 2 S.C.R.
802; (1975), 62 D.L.R. (3d) 1; 6 N.R. 359; N.V. Bocimar
S.A. v. Century Insurance Co. of Canada, [1987] 1 S.C.R.
1247; (1987), 39 D.L.R. (4th) 465; 27 C.C.L.I. 51; 17
C.P.C. (2d) 204; 76 N.R. 212; R. in right of Canada v.
Saskatchewan Wheat Pool, [1983] 1 S.C.R. 205; (1983),
143 D.L.R. (3d) 9; [1983] 3 W.W.R. 97; 23 CCLT 121;
45 N.R. 425; Le Lievre v. Gould, [1893] 1 Q.B. 491
(C.A.); Donoghue v. Stevenson, [1932] A.C. 562 (H.L.);
Munday (J.R.) Ld. v. London County Council, [1916] 2
K.B. 331 (C.A.); R. v. CAE Industries Ltd., [1986] 1 F.C.
129; (1985), 20 D.L.R. (4th) 347; [1985] 5 W.W.R. 481;
30 B.L.R. 236; 61 N.R. 19 (C.A.).
AFFIRMED:
Brewer Bros. v. Canada (Attorney General) (1990), 66
D.L.R. (4th) 71; 31 F.T.R. 190 (F.C.T.D.).
DISTINGUISHED:
Canadian National Railway Co. v. Norsk Pacific Steam
ship Co., [1990] 3 F.C. 114; (1990), 65 D.L.R. (4th) 321;
3 C.C.L.T. 229; 104 N.R. 321 (C.A.).
CONSIDERED:
Saskatchewan Wheat Pool v. R., [1981] 2 F.C. 212;
(1980), 117 D.L.R. (3d) 70; 34 N.R. 74 (C.A.); Caparo
Industries Plc. v. Dickman, [1990] 2 A.C. 605 (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; 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;
Davie Shipbuilding Limited v. The Queen, [1984] 1 F.C.
461; 4 D.L.R. (4th) 546; 53 N.R. 50 (C.A.).
REFERRED TO:
Rothfield v. Manolakos, [1989] 2 S.C.R. 1259; (1989), 63
D.L.R. (4th) 449; [1990] 1 W.W.R. 408; 102 N.R. 249;
Yuen Kun Yeu v. Attorney-General of Hong Kong, [1988]
A.C. 175 (P.C.); Davis v. Radcliffe, [1990] 2 All ER 536
(P.C.); Sutherland Shire Council v Heyman (1985), 60
A.L.R. 1 (H.Ct.); Wilsher v. Essex Area Health Authority,
[1988] A.C. 1074 (H.L.); Hedley Byrne & Co. Ltd. v. Hel-
ler & Partners Ltd., [1964] A.C. 465 (H.L.); D. & F.
Estates Ltd. v. Church Comrs. for England, [1989] 1 A.C.
177 (H.L.); Curran v. Northern Ireland Co-ownership
Housing Association Ltd., [1987] A.C. 718 (H.L.);
Peabody Donation Fund (Governors of) v. Sir Lindsay
Parkinson & Co. Ltd., [1985] A.C. 210 (H.L.); Junior
Books Ltd. v. Veitchi Co. Ltd., [1983] A.C. 520 (H.L.);
Bowen v Paramount Builders (Hamilton) Ltd, [1977] 1
NZLR 394 (C.A.); Candlewood Navigation Corp. Ltd. v.
Mitsui O.S.K. Lines Ltd., [1986] A.C. 1; [1985] 2 All ER
935 (P.C.); Leigh and Sillavan Ltd. v. Aliakmon Shipping
Co. Ltd., [1986] A.C. 785 (H.L.); 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; 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; Morrison Steamship Co.,
Ld. v. Greystoke Castle (Cargo Owners), [1947] A.C. 265
(H.L.); Ross v. Caunters, [1980] Ch. 297 (Ch.D.).
AUTHORS CITED
Cooke, Robin "An Impossible Distinction" (1991), 107
LQ. Rev. 46.
Fleming, John G. "Requiem for Anns" (1990), 106 L.Q.
Rev. 525.
Negligence after Murphy v. Brentwood DC, Legal
Research Foundation, University of Auckland (March
7, 1991).
Symposium on Recent Developments on Liability For
Economic Negligence, sponsored by Canadian Busi
ness Law Journal and Faculty of Law, University of
Toronto (April 19, 1991).
COUNSEL:
Brian H. Hay and Karen Molle for appellant
(defendant).
Roland K Laing for respondents (plaintiffs).
SOLICITORS:
Deputy Attorney General of Canada for appel
lant (defendant).
Bennett, Jones, Verchere, Calgary, for respon
dents (plaintiffs).
The following are the reasons for judgment ren
dered in English by
STONE J.A.: This appeal and cross-appeal are from
a judgment of Mr. Justice Collier of the Trial Divi
sion rendered January 31, 1990 (Court File No.
T-1453-84). By virtue of that judgment the appellant
was found liable in negligence and was ordered to
pay damages to the respondents over and above their
pro rata share in the proceeds of a bond which had
been posted as security with the Canadian Grain
Commission (the "Commission") by Memco Limited
("Memco") of Red Deer, Alberta. The bond was
required to be posted in connection with the issuance
to Memco of a licence to operate a producer elevator
pursuant to the provisions of the Canada Grain Act,
S.C. 1970-71-72, c. 7 (the "Act"), 1 and the Regula
tions made thereunder. As the Commission was
found to be liable only after a lengthy trial, we have
the advantage of a very full record and findings of
the Trial Judge to which I shall soon refer.
The respondents cross-appeal against the judgment
below by attacking the Trial Judge's treatment, in his
assessment of damages, of interest earned on the pro
ceeds of the security between the date of realization
and the date of distribution. Two of the respondents
attack the failure of the Trial Judge to consider and
dispose of their claims for damages based on negli
gent misstatement.
In the Trial Division, the action herein was tried
together with a second action (T-1169-84) in which
similar claims were made against the appellant. The
plaintiffs in the two actions numbered 27 in total, but
by agreement of the parties 16 of these were "sev-
ered". In this appeal the remaining plaintiffs are the
respondents Brewer Bros., Dorge, Duffy, Alex Gorr
& Sons, Hutterian Brethren of Pleasant Valley, Dale
and Robert Peterson, Hazel Peterson, Riehl and Wei-
mer. In the other appeal (Court File No. A-161-90),
the remaining plaintiffs (respondents) are Spring Val
ley Farms and Rainbow Farms. As these two appeals
were heard together, the reasons for judgment in this
appeal will be filed in Court File No. A-161-90 and
will constitute reasons for judgment in the appeal
therein except as may otherwise be indicated.
By the terms of the severance agreement, the sev
ered plaintiffs are deemed to have commenced a sep
arate action or actions without prejudice to their posi
tions in the actions out of which this and the other
appeal are brought. It was also agreed that the liabil-
1 Now R.S.C., 1985, c. G-10.
ity issues determined in respect of the remaining
plaintiffs are to bind the severed plaintiffs and the
defendant in both actions, and that in the event of a
finding of liability the severed plaintiffs are to be at
liberty to pursue their action(s) to have their damages
assessed. By the same agreement, the issues of negli
gent misstatement alleged on behalf of the severed
plaintiffs Wayne Layden and Bona Vista Farm Ltd. in
the other action are not to be determined by findings
made, and the right of those plaintiffs to pursue those
allegations are specifically reserved.
NATURE OF THE CASE
This appeal and cross-appeal raise the issue of lia
bility in negligence of a government agency for
purely economic loss. The respondents claim individ
ually for losses resulting from the failure of Memco,
whose licence was cancelled by the Commission in
June 1982 and which was placed in receivership on
July 30, 1982, to pay amounts it had contractually
bound itself to pay for grain it had purchased from
the respondents. The broad spectrum of issues before
us include statutory construction, existence of a duty
of care, breach of that duty and damages caused
thereby. Included in these issues are whether the
Commission may be exempted from liability in negli
gence either because of its nature or because of the
nature of the acts and omissions complained of and,
if not, whether the respondents are guilty of contribu
tory negligence and whether the damages awarded
were in all respects properly assessed.
THE RESPONDENTS
The respondents are grain producers all of whom
reside in the province of Alberta, except the respon
dent Dorge who resides in the province of Manitoba.
Within the period of October 3, 1979, to March 25,
1982, each of the respondents delivered various
truckloads of a grain called rapeseed (or canola) to
Memco for which they received no payment. At the
time of these deliveries, each of them, with the
exception of the respondent Duffy, was issued a writ-
ten receipt acknowledging the amount of grain deliv
ered and the amount of money payable in respect
thereof. Mr. Duffy delivered four railway car loads of
grain to Memco for which no written receipts were
issued and, in May of 1982, he discovered that rail
way car bills of lading had been issued and retained
by the carrier. The deliveries made by the respondent
Dorge were of fire-burnt grain. Certain of the respon
dents agreed to be paid increased amounts in
exchange for delays in payments while others were
content with payment deferral for reasons personal to
them.
STATUTORY FRAMEWORK
A brief description of the statutory framework will
be helpful at this juncture. I shall refer to certain
material provisions of the Parts into which the Act is
divided.
Part I deals with the constitution of the Commis
sion and with certain powers conferred upon it. The
Commission is to consist of three commissioners
appointed by the Governor in Council (section 3);
each commissioner is to be paid a salary fixed by the
Governor in Council (subsection 5(1)), and is
required to devote the whole of his time to the per
formance of his duties under the Act (subsection
6(2)); six officers, known as assistant commissioners,
may be appointed by the Governor in Council (sub-
section 7(1)); the Commission is empowered to
appoint "Such other officers and employees as are
necessary for the proper conduct of the business of
the Commission" in the manner authorized by law
(section 8); by-laws may be made by the Commission
pursuant to section 10 of the Act on a variety of sub
jects including that of "specifying the duties of
officers, managers and employees appointed pursuant
to section 7 or as required by section 8" (paragraph
10(c)).
The Commission is an organization of significant
size in terms of employees, revenues and expendi
tures. At its March 31, 1982, fiscal year end, for
example, its total number of employees at its Winni-
peg headquarters and at 18 centres across Canada
stood at over 800 people, while its revenue and
expenditure accounts in that fiscal year were in
excess of $27,000,000 and $31,000,000 respectively. 2
The objects of the Commission are set forth in sec
tion 11 of the Act, which reads:
11. Subject to this Act and any directions to the Commission
issued from time to time under this Act by the Governor in
Council or the Minister, the Commission shall, in the interests
of the grain producers, establish and maintain standards of
quality for Canadian grain and regulate grain handling in
Canada, to ensure a dependable commodity for domestic and
export markets.
Part III of the Act, and sections 35 and 36 in par
ticular, deal with the licensing of grain dealers and
elevator operators. The basic authority to issue a
licence is contained in subsection 35(1) which reads:
35. (1) The Commission may, upon application in writing
for a licence by a person who proposes to operate an elevator
or to carry on business as a grain dealer and upon being satis
fied that the applicant and the elevator, if any, meet the
requirements of this Act,
(a) issue to the applicant a licence of a class or subclass
determined by the Commission to be appropriate to the type
of operation of that elevator or the business of that grain
dealer; and
(b) subject to the regulations, fix the security to be given, by
way of bond, insurance or otherwise, by the applicant or
licensee.
Subsection 35(2) provides for the term of a licence
and empowers the Commission to impose "such con
ditions, in addition to any prescribed conditions, as
the Commission deems appropriate in the public
interest for facilitating trade in grain".
The "regulations" referred to in paragraph 35(1)(b)
of the Act are the Canada Grain Regulations, C.R.C.,
c. 889, as amended (the "Regulations"), approved by
the Governor in Council on July 3, 1975. Part III
thereof provides for the form of a licence application
and for the fees payable. Section 18 pertains to gen
eral terms and conditions of licences and provides,
inter alfa, that:
18. It is a term and condition of every licence that the licen
see will
2 Canadian Grain Commission, 1982 Annual Report, Appeal
Book, Common Appendix, Vol. 4, at pp. 561, 568.
(a) have security to the satisfaction of the Commission while
he holds the licence;
(b) comply with the Act, these Regulations and all orders that
apply to the licensee;
Paragraph 26(a) of the Regulations lays down cer
tain reporting requirements for process elevator
licensees. It reads:
26. Each licensee of a process elevator shall submit to the
Commission
(a) monthly, a report in Form 2 of Schedule VI respecting
his operations during the previous month;
Form 2 in Schedule VI required the licensee to report
as of the end of the previous month, inter alia, the
"Total gross value of all truck loads of grains
unloaded for date for which settlement in full has not
yet been made", the "Amount owing on account of
grain purchased ..." and the "Total Liability". The
form was to include a statement by way of a statutory
declaration that the information in the report was
"true and correct".
Subsection 36(1) of the Act provides for the Com
mission to be satisfied in respect of certain pre-condi
tions to the issuance of a licence. It reads:
36. (I) No licence to operate an elevator shall be issued
unless the applicant for the licence establishes to the satisfac
tion of the Commission that
(a) the premises the applicant proposes to use are appropri
ate for the storage and handling of grain;
(b) the elevator is or will be of such type and in such condi
tion and the equipment of the elevator is or will be of such
type and size and in such condition as to enable the appli
cant to provide at the location where he proposes to operate
the elevator the services required by or pursuant to this Act
to be provided at that location by a licensee holding a
licence of the class for which the applicant has applied; and
(c) he is financially able to carry on the proposed elevator
operation and has given security by bond, insurance or oth
erwise sufficient to ensure that all obligations to holders of
documents for the payment of money or delivery of grain
issued by the applicant pursuant to this Act will be met.
Before refusing a licence, the Commission is required
by subsection 36(4) to "afford the applicant ... or his
representative a full and ample opportunity to be
heard in relation to the application". Subsection 36(5)
requires that a refusal to issue a licence "be by order
of the Commission", and provision is made in section
78 (Part VI) for review by the Minister of Agriculture
of such refusal.
Subsection 38(1) empowers the Commission to
require a licensee to give additional security in the
following circumstances:
38. (1) Where, at any time during the term of a licence, the
Commission has reason to believe and is of opinion that any
security given by the licensee pursuant to this Act is not suffi
cient to ensure that all obligations to holders of documents for
the payment of money or delivery of grain issued by the licen
see will be met, the Commission may, by order, require the
licensee to give, within such period as the Commission consid
ers reasonable, such additional security by bond, insurance or
otherwise as, in the opinion of the Commission, is sufficient to
ensure that those obligations will be met.
Subsection 38(2) provides certain methods whereby
the security given may be realized or enforced by or
for the benefit of "holders of documents". It reads:
38....
(2) Any security given by a licensee as a condition of a
licence may be realized or enforced by
(a) the Commission; or
(b) any person who has suffered loss or damage by reason of
the refusal or failure of the licensee to
(i) comply with this Act or any regulation or order made
thereunder, or
(ii) pay any money or deliver any grain to the holder of a
cash purchase ticket or elevator receipt issued by the
licensee pursuant to this Act on presentation of the ticket
or elevator receipt for payment or delivery.
The word "holder", appearing in paragraph
36(1)(c) and in subparagraph 38(2)(b)(ii) of the Act,
is defined in subsection 2(19) as follows:
2. In this Act,
(19) "holder", when used in relation to any document that
entitles the person to whom it is delivered to the payment of
money or the delivery of grain, means the person who, from
time to time, is so entitled by virtue of
(a) the issue or endorsement to him of the document, or
(b) the delivery to him of the document after it has been
endorsed in blank;
Finally, the following additional provisions of the
Act are relevant. Subsection 65(2) in Part IV provides
for acknowledging the receipt of grain by an elevator
in a form "prescribed" and which, for our purposes,
is the form "prescribed" in paragraph 20(c) of the
Regulations. It reads:
20. It is a term and condition of every licence to operate a
process elevator that the licensee will
(c) purchase all grain received into the elevator and issue a
grain receipt in Form 1 of Schedule V or a cash ticket in
Form 2 of that Schedule, or both, in respect of that grain;
At the material times, only a licensee was entitled to
buy western grain from persons in the position of the
respondents. This is laid down in subsection 69(1)
which provides:
69. (1) No person in the Western Division shall, for reward,
by way of a commission or otherwise,
(a) act on behalf of any other person in buying, selling or
arranging for the weighing, inspection or grading of western
grain, or
(b) make any contract for the purchase of western grain,
unless he is a licensee or is employed by a licensee and acts
only on behalf of his employer.
Provisions for the revocation of licences appear in
section 77, in Part VI of the Act. Paragraph (1)(c) and
subsections 2 and 3 of section 77 read:
77. (1) Where
(c) a licensee has failed to give additional security as
required by any order made under subsection (1) of section
38,
the Commission may, by order, revoke the licence to operate
the elevator to which the order or conviction relates or the
licence to carry on business as a grain dealer, as the case may
be.
(2) Subject to subsection (3), except with the consent of the
licensee, no licence shall be revoked pursuant to subsection (I)
unless the licensee or his representative has been afforded a
full and ample opportunity to be heard in the matter in relation
to which the licence may be revoked.
(3) Where the Commission has, pursuant to section 76,
afforded a licensee or his representative an opportunity to be
heard in relation to any matter, the Commission may, in accor
dance with this section, revoke the licence to operate the eleva
tor or to operate as a grain dealer without affording the licen
see a further opportunity to be heard in relation thereto.
LICENSING RESPONSIBILITIES
Responsibility for licensing and bonding fell under
the Programs and Administration section of the Com
mission's Economics and Statistics Division which
was headed by a Director. The Director reported to
the Commission's Executive Director who was the
principal contact for licensing and bonding matters
and who possessed authority to refer such matters to
the commissioners. Overall administrative control
over the program of the Programs and Administration
section fell to the Deputy Director of the Economics
and Statistics Division. However, due to the impor
tance of the licensing and bonding program, the
Director of that Division worked with senior officials
thereof in reviewing policy, procedures and problem
areas. The direction and control of licensing was the
responsibility of the Licensing Officer who was also
the Registrar and who was assisted by a Deputy
Licensing Officer. A senior clerk and supporting
clerks rounded out the licensing section.
The office of Executive Director was held by Mr.
Earl Baxter until late 1981 when he was succeeded
by Mr. John O'Connor. Mr. D. N. Kennedy occupied
the office of Acting Director of the Economics and
Statistics Division from January of 1981 until he
became the Director in July of 1982. The Deputy
Director (Licensing and Documentation) was Mr. H.
D. Swalwell. He became Deputy Director (Programs
and Administration) on March 1, 1982. Mr. Regis
Gosselin was the Registrar and Licensing Officer,
while the position of Deputy Licensing Officer was
held by Mr. Grant Bolen. Mr. Gosselin was first
employed by the Commission in 1974 and became
interim Licensing Officer in 1979, a position he held
until his appointment as Registrar and Licensing
Officer in March 1981. Mr. Bolen was first employed
by the Commission in 1954, and became its Deputy
Licensing Officer in 1975.
THE LICENSEE
Memco was incorporated in 1973, and was first
licensed by the Commission as a "primary elevator"
operator in 1977. In 1978, it was licensed to operate a
"process elevator", that is to say, an elevator of a
kind which is defined in subsection 2(38) of the Act:
2. In this Act,
(38) "process elevator" means an elevator the principal
use of which is the receiving and storing of grain for
direct manufacture or processing into other products;
The corporation continued to be so licensed annually
for subsequent "crop years" running from August 1
in any year to July 31 of the following year. As of
August 1, 1981, the Commission renewed Memco's
licence for the 1981/82 crop year on the basis of
information Memco had provided and which was
accepted as true by the Commission though not inde
pendently verified. Before the end of that crop year,
Memco's licence was cancelled and it was placed in
receivership.
LIABILITY REPORTING BY PROCESS
ELEVATORS
Initially, as is mentioned above, licensees were
required to report outstanding liabilities monthly on a
form prescribed in the Regulations. This policy was
modified after the Commission decided in April 1981
to implement certain recommendations made to it by
Mr. J. C. Blackwell in a draft report of March 1981.
He had been engaged by the commissioners in Sep-
tember 1980 to recommend changes which might be
made in the reporting requirements for licensees and
to establish more effective management of the licens
ing and security provisions of the Act and Regula
tions. Under the then existing system, each licensee
was required to calculate his outstanding liabilities at
month end and to report them to the Commission
soon thereafter. The report form which Memco uti
lized varied over the years, and at no time contained a
statutory declaration. Its practice was simply for one
of its representatives to certify that the information
contained in the report was "true and correct to the
best of my knowledge and belief'. Only one figure
was inserted in the monthly reports, that being
Memco's "Total Liability" for the period terminating
at the end of the previous month in respect of grain
purchased on open sales contracts. While that system
was in effect, the Commission had no regular pro
gram for the inspection of a licensee's business
records although its licensing section might inspect
such records on an ad hoc basis if a complaint was
received about a particular licensee or there were any
obvious signs that a licensee was not reporting prop
erly.
There seems little doubt that concerns with respect
to the effectiveness of the self-reporting system and
the financial viability of licensees were foremost in
the minds of the commissioners when they decided to
engage Mr. Blackwell in late 1980. The picture
presented in his draft report was not a happy one. Mr.
Blackwell found two principal problems in the
existing reporting arrangements, or as he put it at
page 13 of his report, 3 which became final on May 5,
1981:
The first is the number of reports that are consistently late
despite telephone calls and/or follow-up letters from licensing
officials. The second, and most serious problem, is inaccura
cies and omissions in reports. Some of these are obvious but
others are only suspect although frequently the fears are con
firmed. In any event one gains the impression that reports from
a number of licensees are not reliable and there is considerable
doubt their liabilities are adequately secured.
Soon after this report was received in draft form,
those primarily responsible for licensing and bonding
within the Commission decided, in consultation with
Mr. Blackwell, upon the steps to be taken to effect
improvements in the system and, especially, in ren
dering financial data of licensees more reliable. The
Commission would soon be faced with license
renewal applications for the 1981/82 crop year com
mencing August 1, 1981, in addition to fresh license
applications. It sought to develop a means of deter
mining the financial viability of applicants and the
adequacy of security being posted through a process
of financial review to be done by an independent per
son. In fact, Mr. Blackwell himself was engaged to
carry out these reviews. It also addressed itself to the
3 Appeal Book, Common Appendix, Vol. 1, at p. 167 (Exhi-
bit 69).
ongoing problem of developing a procedure by which
its staff could internally analyze financial data and
determined that Mr. Blackwell would develop a
financial procedure which the Commission's staff
could readily apply. Further, a plan would be devel
oped whereby some members of the staff (the Licens
ing Officer and his deputy) could upgrade their abil
ity to analyze financial data submitted from time to
time. With this training and procedural changes staff
members would be better able to carry out field
inspections of licensees and thereby determine their
financial health as well as the extent of their reported
liabilities as compared with the level of security they
had posted.
FINANCIAL REVIEW OF MEMCO
I should, for a moment, dwell on the financial
reviews which Mr. Blackwell was engaged to con
duct and which he did conduct during the summer of
1981. He had agreed to look into about 50% of all
licensees on the basis of information contained in the
Commission's files, namely, applications for new
licenses or renewals, monthly liability reports and, in
some instances, unaudited financial statements. He
reported the results of his work in two batches, the
first being of 33 licensees on July 22, 1981. In this
batch he found a high percentage of weak
accounts-13 of the 33. While he was making these
reviews, but as part of his engagement, Mr.
Blackwell was asked to review specific accounts
about which the Commission had some concern and
on which it wanted him to do his own analysis. This
second batch, 14 in number, included Memco. These
reviews were to commence immediately following
completion of the first batch. Mr. Blackwell had
already come to regard Memco as somewhat different
from the other licensees he had reviewed in that it
was "diversified", that is to say, it held other proper
ties and interests in addition to its process elevator
plant at Red Deer, Alberta.
By August 7, 1981, Mr. Blackwell had reviewed
these additional licensees by assessing their financial
strength and security requirements and had made his
findings known to the Commission's licensing and
bonding staff. He rated Memco's financial condition
as "poor" or "D". In his written assessment, Mr.
Blackwell remarked as follows: 4
Remarks—There are a number of danger signals in this com-
pany's financial position that should be kept prominently in
mind if they are going to continue to be licensed.
The danger signals are:
1. Heavy debt
2. Deficit working capital
3. Substantial investment in subsidiaries with loss operations
4. Heavy investment in motel and rental properties (book
value $3,269,000 with 1st and 2nd & 3rd mortgages of
$3,220,000)
5. Unfavourable profit picture—processing plant $47,000
profit without depreciation on $5 million turnover; $237,000
loss on motel operation with $480,000 turnover and
$312,000 loss on rental properties
In face of all this, company declared $108,000 dividend. How
long they can last with these problems facing them is question
able but an "ill wind" could be dangerous. It is therefore
important in licensing them for another year to ensure that a
good level of good security is maintained ($600,000 would
seem to be adequate). However, it might be advisable to
inform the company that licensed operators are expected to
maintain a better financial position than they have and that if
they do not effect a significant improvement, further renewals
might not be granted.
Mr. Blackwell clearly regarded Memco as "on the
border line", and he believed it should be put on
notice that its affairs would have to improve if it
wanted to continue to be a licensed operator. Indeed,
he used the terms "danger signals" and "dangerous"
in his remarks with a view to bringing his concern
markedly to the attention of the Commission. As
appears from the following testimony in his cross-ex
amination, he was not content to see timely action
delayed: 5
Q. And are you testifying, today, sir, that you would have
been content had somebody asked you in August of
a Appeal Book, Common Appendix, Vol. 2, at pp. 261-262
(Exhibit 89).
5 Trial Proceedings, Vol. 7, from p. 1093, line 26, to p. 1094,
line 23.
1981 to say that you could leave these things unattended
until the end of December of this year?
A. No, my feeling on that would have been that one would
have licensed them and one would have contacted them
and said, Mr. Memco, we want a meeting with you, I am
coming out or you are coming in and we want to have a
meeting with you to talk about your financial affairs.
And so you would sit down, this is only theoretical, this
is how I would have proposed, so you would have had a
meeting with them and sat down with them and talked
frankly about their financial position and expressed con
cern about these things and put them on notice and say
ing, you know, if you don't correct these things, we
might not be able to license you another year, and we
would be following your affairs closely. And during the
course of the next several months, sometime after that
meeting, you would have had an auditor or one of your
in-house auditors go out and inspect their liabilities to
make sure that they were on track.
Despite his concerns, but on the assumption that
the monthly liability reports were accurate, Mr.
Blackwell recommended renewing Memco's licence
and leaving its security level of $600,000 unchanged.
AUDITING OF MEMCO
In the meantime, the Commission was busily
engaged in preparing for an outside auditing of
Memco and other licensees which Mr. Blackwell had
found to be either in "poor" or "very poor" financial
shape, that is to say, as having a ranking of "D",
"Poor Financial Position—With some concerns about
operations and/or security level", or of "E", "Very
Poor Financial Position—With serious concern about
licensees". Memco's "D" ranking surprised the Com
mission for, while there were "danger signals", Mr.
Blackwell had not expressed any dissatisfaction with
its level of security or with the accuracy of monthly
liability reporting.
During the summer of 1981, it was decided that
there should be full outside audit of all "Cs" and
"Ds" (nine) and the "Es" (two) by the Audit Services
Bureau in the current fiscal year ending on March 31,
1982. Funds to carry out the first three audits were
soon sought and quickly approved, after the licensing
personnel expressed concern that many licensees
might not be reporting liabilities correctly. Priority
was to be given to two licensees which had been
ranked "E" and one which had been ranked "D".
Although Memco had been ranked "D" it was not
among the three licensees to be audited in the fall of
1981.
The first of these three audits, which was com
pleted before the end of November 1981, revealed a
dramatic underreporting of total liability, to the
extent of $250,000. Mr. Swalwell was worried that
this state of affairs represented "the tip of the ice
berg" and that it was "imperative we take action
quickly to review the remainder of the licensees"
which Mr. Blackwell had identified as "being in poor
or very poor financial shape" in order to judge "the
overall validity of liability reporting". 6 The second
audit also revealed underreporting of liabilities. 7
By late November 1981, when the three audits
were nearing completion, the Economics and Statis
tics Division requested additional funds for further
audits and these were soon approved. In December,
Audit Services Bureau prepared a "priorized" list of
audits on which it placed Memco second in order.
Shortly thereafter, another audit was added and some
change was made in the order of priority shown on
that list.
By February 18, 1982, the Audit Services Bureau
had completed four of the assigned audits. Also, as
part of the audit program, Mr. Blackwell had com
pleted a further four inspections, and an additional
ten inspections had been carried out by the Licensing
and Bonding section. As allocated audit funds were
running out, the commissioners were now asked to
authorize a further $5,000 for the audit of Memco,
and that amount was allocated by February 22, 1982.
About this time, Audit Services Bureau advised that
it could not conduct any more audits before the end
of the Commission's current fiscal year, on March
31, 1982.
6 Appeal Book, Common Appendix, Vol. 2, at p. 357 (Exhi-
bit 117).
7 Evidence, D. N. Kennedy, Transcript, Vol. 6, at p. 963,
lines 8-25.
Shortly beforehand, on February 12, 1982, one of
the Commission's licensed grain dealers, Econ Con
sulting Limited, whose licence had been revoked on
February 8, went into bankruptcy. Memco itself had
reported total liability of $586,000 as of December
31, 1981, just marginally below the level of its posted
security of $600,000. On February 18, 1982, Mr.
Regis Gosselin, the Registrar and Licensing Officer,
wrote to Memco demanding an increase in the level
of security to $800,000. His letter mirrored precisely
the concerns which Mr. Blackwell had expressed in
August 1981. It read:
We have carefully considered your liability reports for the last
year and the level of grain handled by your company during
the period.
As well, we have asked our financial consultant to review your
most recent financial statements. He has been somewhat
alarmed by the heavy debt load, deficit working capital and
unfavourable profit picture.
With all of those facts in mind, it is our view that the current
security level is inadequate and should be increased by an
additional $200,000. This increase should be obtained in the
near future, irrespective of any information which may be
brought to light by the forthcoming audit. We will also con
sider the information disclosed by the audit and may again
require additional security if it is disclosed that liabilities have
not been correctly reported.
The additional security should be put into place in the next
several weeks. Failure to do so, may result in the Commission
issuing an order for additional security providing for revoca
tion if the terms of the order are not satisfied.K
A few days later, the Commission received a
rumour from a British Columbia licensee that Memco
was in trouble.
The Commission decided to carry out a "rudimen-
tary audit" or inspection of Memco in early March
1982, and assigned this task to Mr. Grant Bolen, the
Deputy Licensing Officer, who did it between March
8 and March 11, 1982. He found that as of January
31, 1982, Memco's outstanding liabilities stood at
$791,877 as compared with the total liability reported
8 Appeal Book, Common Appendix, Vol. 3, at p. 407 (Exhi-
bit 145).
as of that date of $360,750 and estimated Memco's
liabilities as of March 5 at $801,538. A bank over
draft of some $500,000 proved of no significance to
him. He also reported that: 9
Memco have a good accounting system and I could not advise
them on how to improve it, when asked, other than making a
few more cross references. It was easily followed and I am
positive that there [sic] records reflect their liability position
accurately. I was most pleased with their system and the co-op
eration received by all. However, I am of the opinion that a
follow-up inspection should be made in 3-6 months time.
Memco had yet to meet the Commission's demand
of February 18, 1981, for an increase in its level of
security, although Mr. Bolen advised the company
during his inspection that the Commission was
expecting an immediate increase of $200,000.
Despite the fact the security was never increased, no
formal order was made against Memco pursuant to
subsection 38(2) of the Act. After the completion of
Mr. Bolen's inspection, the Commission abandoned
its decision to do an outside audit of Memco.
As a result of Mr. Bolen's inspection, the Commis
sion discovered that some of Memco's real estate was
for sale. In April 1981, it learned that certain grain
producers had been paid with the result that Memco's
liabilities were reduced by over $100,000. However,
by early May 1982, the Commission received infor
mation that a number of large grain producers' claims
had not been disclosed by Memco and, on June 4,
1982, that Memco's liabilities stood at approximately
$1,300,000. It decided not to press the demand for
increase of security. At that time, Memco's bankers
were still honouring cheques with the result that each
cheque cashed by a grain producer meant a corre
sponding reduction in the total liability figure. On
June 10, 1982, when the licensee's bank refused fur
ther to honour cheques, the Commission decided to
cancel Memco's licence and realize on the existing
security of $600,000. It was soon afterward discov
ered that Memco's total liability to grain producers
stood at $1,430,000.
9 Appeal Book, Common Appendix, Vol. 3, at p. 451 (Exhi-
bit 159).
THE JUDGMENT BELOW
The following findings of the Trial Judge bear
importantly upon the issues which arise for decision
in these proceedings:
1. Prior to 1981, the Commission's policy was to
require licensees to report monthly their total liability
as at the end of the previous month. The accuracy of
these monthly reports was relied upon as no audits
were performed and inspections were carried out
only if problems appeared.
2. In 1981, this policy was replaced as a result of the
Blackwell study which was submitted to the Com
mission in March of that year and the financial
reviews which he conducted during the summer of
that year.
3. When these reviews revealed that a high propor
tion of the licensees were in varying degrees of finan
cial difficulty, the Commission decided that all
twelve of them, ranked by Mr. Blackwell as "poor"
or "very poor", should be audited before the end of
the current fiscal year on March 31, 1982.
4. Neither an audit nor an inspection of Memco was
carried out between August 1981 and March 1982
despite many warning signs and a general recogni
tion by Commission officials of Memco's tenuous
financial strength. Although Memco was first placed
as high priority on lists for auditing, it was later
passed over or "bumped" in favour of other licensees
and in fact was never audited.
5. Though the Deputy Licensing Officer's inspection
of Memco in March 1982 revealed significant under-
reporting, it failed to uncover even more underreport-
ing and a critical lack of adequate security. In fact,
this person was not qualified to do audits of this kind.
6. The Commission could have properly inspected
Memco at an earlier date and without incurring sig
nificant financial disbursements.
7. The evidence at trial was unequivocal that the
plaintiffs relied upon security posted by Memco to
protect themselves in the event of that company's
demise.
8. The evidence also showed that the Commission
had exposed the plaintiffs and other grain producers
to the financially irresponsible practices of Memco.
9. There was no evidence that the deferred pricing
transactions were formally disapproved of by the
Commission or that the Commission considered them
to be outside the scope of the security arrangements
in the Act.
An examination of the record satisfies me that
there was some evidence to support each of these
findings. They were made after a trial which took up
11 hearing days and at which many witnesses were
called by both sides, several of whom testified as to
the contents of documents which they had prepared a
number of years earlier. It is apparent that the Trial
Judge was faced with several inconsistencies in the
testimony of some of the witnesses called on behalf
of the appellant and with having to evaluate explana
tions of things done or omitted to be done many years
after the events occurred. The task was not an easy
one, in my view. It is a well-known rule that the abil
ity of an appellate court to interfere in a finding of
fact is limited to palpable and overriding error which
affected a Trial Judge's assessment of the facts, as
was pointed out by Ritchie J. in Stein et al. v. The
Ship "Kathy K" et al., [1976] 2 S.C.R. 802, at page
808:
These authorities are not to be taken as meaning that the find
ings of fact made at trial are immutable, but rather that they are
not to be reversed unless it can be established that the learned
trial judge made some palpable and overriding error which
affected his assessment of the facts. While the Court of Appeal
is seized with the duty of re-examining the evidence in order to
be satisfied that no such error occurred, it is not, in my view, a
part of its function to substitute its assessment of the balance of
probability for the findings of the judge who presided at the
trial.
See also N.V. Bocimar S.A. v. Century Insurance Co.
of Canada, [1987] 1 S.C.R. 1247. A successful attack
upon a finding of fact, while possible, is not easily
made out in an appellate court.
On the basis of these findings and of the law, the
learned Trial Judge concluded that the Commission
had failed to act with reasonable care in the execution
of its policy or discretionary decisions for ascertain
ing the financial strength of Memco and the adequacy
of the posted security. There was, in his view, a duty
of care owed by the Commission to the respondents
who had relied upon the security arrangements pro
vided for in the Act as sufficient to secure Memco's
contractual obligations to each of them. In his view,
this breach of duty caused the respondents' damages
and these damages were compensable though purely
economic. Finally, he rejected the appellant's conten
tion that certain of the respondents were contribu-
torily negligent by agreeing to enter into deferred
pricing arrangements or that others were also negli
gent by agreeing to accept a delay in the payment of
the purchase price of grain in exchange for an
increase in the price initially agreed to.
SPECIFIC ISSUES
The specific issues raised by the appellant may be
summarized as follows:
1. Did the Trial Judge misconstrue the Act?
2. Was there a duty of care owed to the respondents?
3. What was the standard of care in the circum
stances?
4. Was there a breach of the standard?
5. Did the breach cause the losses claimed?
6. Can the plaintiffs recover for purely economic
loss?
7. Were the plaintiffs contributorily negligent?
8. Were the damages properly assessed?
The above-mentioned treatment of interest by the
Trial Judge in his assessment of damages in both
actions, and his alleged failure to consider and dis
pose of claims for damages for negligent misstate
ment, are raised by the cross-appeals.
I shall now deal with these issues seriatim.
DISCUSSION AND ANALYSIS
Statutory construction
The appellant attacks the construction which the
Trial Judge placed upon paragraph 36(1)(c) of the
Act. The learned Judge was of the view that this para
graph, and especially so when read with subsection
36(2), placed a duty on the Commission to be satis
fied that an applicant for a licence under subsection
35(1) is financially able to carry on the intended busi
ness and has posted "security ... sufficient to ensure
that all obligations to holders of documents for the
payment of money ... issued by the applicant pursu
ant to this Act will be met". The appellant submits
that no such duty is created and that if any duty is
created, it requires an applicant for a licence to pro
vide a sufficiency of security "to the satisfaction of
the Commission".
I do not read paragraph 36(1)(c) in that way. The
intention to cast upon the Commission an obligation
to be satisfied as to the sufficiency of security is man
ifest. To put the matter shortly, while Memco was
obliged to post the security, it was the Commission's
obligation to be satisfied as to its sufficiency. I might
add that the Commission also had an obligation to be
satisfied as to the licensee's financial ability to carry
on the business to which the licence related. I leave
for later discussion the contention that the Commis
sion acted properly within its discretion in fixing the
amount of security posted by Memco and the ade
quacy thereof throughout the period in issue.
The appellant asserts that by holding that an insuf
ficiency of security "was capable of being remedied
by the Commission" in a timely fashion and also that
there had been a negligent failure on the part of the
Commission's officers "in fulfilling their statutory
mandate as well as their common law duty of care to
grain producers" the Trial Judge neglected to read the
statute as a whole. If that had been done, it would
have been seen that the Commission's ability to
require the posting of additional security pursuant to
subsection 38(1) is subject to the procedural safe
guards contained in paragraph 77(1)(c).
I am not satisfied that the Trial Judge erred. While
these safeguards are no doubt designed to protect a
licensee against a wrongful revocation of his licence,
their existence did not diminish the duty cast upon
the Commission under paragraph 36(1)(c). The Com
mission was free, of course, to adopt measures for the
fulfilment of that duty but, having done so, it was
required to act with reasonable care in their imple
mentation.
The appellant submits that the Act was not passed
for the benefit or protection of a particular class but
in the interest of the country as a whole, and relies in
this regard on Saskatchewan Wheat Pool v. R., [1981]
2 F.C. 212 (C.A.), at pages 219-220. I take this argu
ment to be aimed at establishing the proposition that,
if there be no special protection for holders, then the
Act does not support any private law liability. Even if
that proposition be true, I cannot accept the appel
lant's reading of Saskatchewan Wheat Pool. Para
graph 36(1)(c) was not in issue, and the Court was
there primarily concerned with the construction of
section 11 of the Act. The Supreme Court of Canada
made no comment on the point in dismissing a final
appeal (R. in right of Canada v. Saskatchewan Wheat
Pool, [1983] 1 S.C.R. 205).
Duty of care
It is, of course, axiomatic that the existence of a
duty of care is essential to a good cause of action in
negligence. As Lord Esher M. R. stated almost a cen
tury ago in Le Lievre v. Gould, [1893] 1 Q.B. 491
(C.A.), at page 497:
A man is entitled to be as negligent as he pleases towards the
whole world if he owes no duty to them.
The duty concept is a device which the courts have
developed to control the extent to which defendants
would otherwise be liable in negligence. In its mod
ern manifestation as a basic principle of negligence,
it owes its origin to the following words of Lord
Atkin in Donoghue v. Stevenson, [1932] A.C. 562
(H.L.), at pages 580-581:
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 contemplation as being
so affected when I am directing my mind to the acts or omis
sions which are called in question ... I think that this suffi
ciently states the truth if proximity be not confined to mere
physical proximity, but be used, as 1 think it was intended, to
extend to such close and direct relations that the act com
plained of directly affects a person whom the person alleged to
be bound to take care would know would be directly affected
by his careless act.
That case was not concerned with a duty of care
owed by a government agency. Subsequent cases
have seen the specific application of the principle
enunciated by Lord Atkin.
In Just v. British Columbia, [1989] 2 S.C.R. 1228,
a majority of the Supreme Court applied the more
recent formulation of Lord Wilberforce in Anns v.
Merton London Borough Council, [1978] A.C. 728
(H.L.), for determining whether a government
agency owes a private law duty of care. That formu
lation was departed from in England in Murphy v.
Brentwood District Council, [1991] 1 A.C. 398
(H.L.), which also involved a claim for purely eco
nomic loss. In Murphy, the House of Lords decided
that foreseeability of the damages was an unsatisfac
tory test of proximity even though it would be appli
cable in most cases of physical loss or damage. That
judgment, although not binding on us, is of high per
suasive authority. It is not, of course, for this Court to
resolve the apparent conflict between that case and
the decisions of the Supreme Court of Canada which
have applied the Anns formulation. While Just,
supra, involved an action in negligence against a
government agency for physical injury, I understand
the judgment of the majority as setting forth a set of
the basic principles by which the liability of a gov
ernment agency in negligence is to be determined,
whether the nature of the losses be physical or eco
nomic or a combination of both.
As I have said, Cory J. gave as the test for deter
mining the existence of a duty of care the two-stage
approach enunciated by Lord Wilberforce in Anns,
when he stated at page 1235:
In cases such as this where allegations of negligence are
brought against a government agency, it is appropriate for
courts to consider and apply the test laid down by Lord Wilber-
force in Anns v. Merton London Borough Council, [1978] A.C.
728. At pages 751-752 he set out his position in these words:
Through the trilogy of cases in this House—Donoghue v.
Stevenson [1932] A.C. 562, Hedley Byrne & Co. Ltd. v. Hel-
ler & 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 ques
tion 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 neighbourhood 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. [Emphasis added.]
That test received the approval of the majority of this Court in
City of Kamloops v. Nielsen, [1984] 2 S.C.R. 2. As well it was
specifically referred to by both Beetz and L'Heureux-Dubé JJ.
in Laurentide Motels Ltd. v. Beauport (City), [1989] 1 S.C.R.
705. It may be that the two-step approach as suggested by Lord
Wilberforce should not always be slavishly followed. See Yuen
Kun Yeu v. Attorney-General of Hong Kong, [1988] A.C. 175
(P.C.), at pp. 190, 191 and 194. Nevertheless it is a sound
approach to first determine if there is a duty of care owed by a
defendant to the plaintiff in any case where negligent miscon
duct has been alleged against a government agency.
The Anns approach was also applied in Rothfield v.
Manolakos, [1989] 2 S.C.R. 1259.
In Just, supra, a duty of care reasonably to main
tain a highway was found to exist in the invitation of
the defendant to use certain skiing facilities and the
highway leading to them. As Cory J. stated, at page
1236, the "appellant as a user of the highway was
certainly in sufficient proximity to the respondent to
come within the purview of that duty of care".
It is evident that paragraph 36(1)(c) of the Act was
enacted with a view to protecting those grain produc
ers who are holders of documents by requiring the
posting of security by a "bond, insurance or other
wise" sufficient to meet a licensee's "obligations" to
them and cast upon the Commission an obligation to
be satisfied as to the sufficiency of that security.
It was not contended, and I do not suggest, that
these provisions of themselves created liability in
favour of the respondents. The learned Trial Judge
pointed out that, in the words of Dickson J. (as he
then was) in R. in right of Canada v. Saskatchewan
Wheat Pool, supra, a "nominate tort of statutory
breach giving a right to recovery merely on proof of
breach and damages should be rejected" although
"[P]roof of statutory breach, causative of damages,
may be evidence of negligence". In the same judg
ment, at page 225, Dickson J. stated: "Breach of stat
ute, where it has an effect upon civil liability, should
be considered in the context of the general law of
negligence". It would seem, therefore, permissible to
have regard to the foregoing provisions of the Act in
considering whether one of the major elements of
negligence—duty of care—exists.
The statute provides strong evidence of a private
law duty of care. I think it is sufficient for me to add
that there is nothing in the set of Commis-
sion-producer relations that would cause me to think
that the purpose of the duty concept (to control tort
liability within the bounds of reason and good com
mercial sense) would suffer a disservice if I were to
find a duty of care in this case. To the contrary, the
evidence was that the Commission's role in duly
administering the licensing and bonding provisions
of the Act and Regulations was a cardinal component
of the Canadian grain trade. The policy it adopted for
the purpose is beyond attack, there being no evidence
that it did not constitute a reasonable exercise of bona
fide discretion. I am satisfied that a relationship of
proximity, such as gave rise to a private law duty of
care, came into existence.
Because the nature of the losses claimed are eco
nomic rather than physical, the appellant urges that
consideration be given to additional factors as valid
bases for excluding a duty of care. The recent deci
sions of the Privy Council in Yuen Kun Yeu v.
Attorney-General of Hong Kong, [1988] A.C. 175
(referred to in Just, supra) and Davis v. Radcliffe,
[1990] 2 All ER 536 (P.C.), are relied on in support.
The factors raised are the following. First, the
respondents belonged to a wide and ever-changing
class of persons as producers of grain having deal
ings with a licensee. Secondly, the Commission had
no ability to control the day-to-day business opera
tions of the third-party licensee. Thirdly, the Com
mission's ability to discover the licensee's financial
weaknesses and shortage of security was limited by
the nature of the problem, which was fluid and sub
ject to change. Finally, the Commission's power to
require a financially weak licensee to increase its
level of security was quasi-judicial. The contention is
that these factors should lead the Court to find that
the relationship between the Commission and the
respondents was not sufficiently proximate as to give
rise to a duty of care.
Moreover, the appellant submits that, as the func
tions delegated to the Commission under the statu
tory scheme were to be exercised in the general pub
lic interest as a whole, as this Court stated in
Saskatchewan Wheat Pool, supra, the decisions fac
ing the Commission with respect to the sufficiency of
the security were, to use a term employed by Lord
Keith in Yuen Kun Yeu and by Lord Goff in Davis,
"delicate". As I have already stated, Saskatchewan
Wheat Pool does not support the premise upon which
this submission is based.
It may well be that factors such as the appellant
suggests may have to be considered and weighed in
an appropriate case. However, I am not persuaded
that they can assist in determining the existence of a
duty of care in the circumstances of the present case.
Both Yuen Kun Yeu and Davis involved the loss of
money by depositors upon the collapse of a regulated
financial institution and, particularly, from the
alleged negligent failure of the regulatory authority to
discover the problem and to take timely action to cor
rect it by revocation of a licence or by deregistration.
The statutory framework in the case at bar is materi
ally different from that which obtained in either of
those cases. There, it is apparent that both enactments
conferred broad general authority to regulate in the
public interest and without any requirement to protect
the interests of members of any particular group in
their dealings with a regulated institution. This differs
from the case at bar. Parliament has expressly pro
vided for the protection of interests of members of a
defined group—the holders of documents—and in a
particular manner, viz. by requiring the posting of
security to the satisfaction of the Commission and by
ensuring the availability of a remedy to the holders of
documents either indirectly or by direct action pursu
ant to subsection 38(2) of the Act.
The appellant makes a final argument, based upon
the fact that this case involves a claim for purely eco
nomic loss rather than physical loss, for denying the
existence of a duty of care. The recoverability of such
a loss will be addressed separately. While it may well
be necessary to consider the nature of the loss
claimed as a factor at this stage in some circum
stances, I am not persuaded that we should do so in
the present case. As we have seen, the existence of a
duty of care does not automatically lead to the impo
sition of liability on a government agency. In the
recent case of Caparo Industries Plc. v. Dickman,
[1990] 2 A.C. 605 (H.L.), Lord Bridge observed, at
page 627:
It is never sufficient to ask simply whether A owes B a duty of
care. It is always necessary to determine the scope of the duty
by reference to the kind of damage from which A must take
care to save B harmless.
It is apparent that a plaintiff in an action of this
kind will have a number of hurdles to overcome if he
is to finally succeed. Bearing in mind what I have
already said about the protection afforded by the Act
to "holders of documents", a duty of care should not
be denied only because the losses claimed are purely
economic and especially so where the losses sought
to be protected under the Act are precisely of that
nature.
I move to the next consideration. The circumstance
that a duty of care may be found to exist does not
mean the inexorable imposition of liability for negli
gence upon a government agency such as the Com
mission. This was explained by Cory J. in Just,
supra, at page 1236:
Even with the duty of care established, it is necessary to
explore two aspects in order to determine whether liability
may be imposed upon the respondent. First, the applicable leg
islation must be reviewed to see if it imposes any obligation
upon the respondent to maintain its highways or, alternatively,
if it provides an exemption from liability for failure to so main
tain them. Secondly, it must be determined whether the prov
ince is exempted from liability on the grounds that the system
of inspections, including their quantity and quality, constituted
a "policy" decision of a government agency and was thus
exempt from liability.
I have already indicated that the Act imposes an obli
gation upon the Commission to ensure an adequate
level of security is maintained by licensees. There is
no statutory exemption from liability for failure to
meet that obligation.
Do other grounds exist for exempting the Commis
sion from the duty of care? The "policy" grounds
upon which a government agency will be exempted
are developed by Cory J. at some length in Just,
supra, at pages 1237-1244. He explored the distinc
tion between a "policy" decision and one that is
"operational", giving as the underlying rationale the
following, at page 1239:
The functions of government and government agencies have
multiplied enormously in this century. Often government agen
cies were and continue to be the best suited entities and indeed
the only organizations which could protect the public in the
diverse and difficult situations arising in so many fields. They
may encompass such matters as the manufacture and distribu
tion of food and drug products, energy production, environ
mental protection, transportation and tourism, fire prevention
and building developments. The increasing complexities of life
involve agencies of government in almost every aspect of daily
living. Over the passage of time the increased government
activities gave rise to incidents that would have led to tortious
liability if they had occurred between private citizens. The
early governmental immunity from tortious liability became
intolerable. This led to the enactment of legislation which in
general imposed liability on the Crown for its acts as though it
were a person. However, the Crown is not a person and must
be free to govern and make true policy decisions without
becoming subject to tort liability as a result of those decisions.
On the other hand, complete Crown immunity should not be
restored by having every government decision designated as
one of "policy". Thus the dilemma giving rise to the continu
ing judicial struggle to differentiate between "policy" and
"operation". Particularly difficult decisions will arise in situa
tions where governmental inspections may be expected.
The importance of fixing the dividing line between
"policy" and "operation" was emphasized by Cory J.,
in Just, supra, when he added at pages 1240-1241:
The need for distinguishing between a governmental policy
decision and its operational implementation is thus clear. True
policy decisions should be exempt from tortious claims so that
governments are not restricted in making decisions based upon
social, political or economic factors. However, the imple
mentation of those decisions may well be subject to claims in
tort. What guidelines are there to assist courts in differentiating
between policy and operation?
After quoting extensively from the judgment of
Mason J. of the High Court of Australia in Suther-
land Shire Council y Heyman (1985), 60 A.L.R. 1, as
illustrative of the manner in which this distinction is
to be made, Cory J. summed up the current overall
position in Canada for determining the liability of a
government agency in negligence, at pages
1244-1245. In the course of so doing, he had this to
say as to what will constitute a "policy" decision:
In determining what constitutes such a policy decision, it
should be borne in mind that such decisions are generally
made by persons of a high level of authority in the agency, but
may also properly be made by persons of a lower level of
authority. The characterization of such a decision rests on the
nature of the decision and not on the identity of the actors. As a
general rule, decisions concerning budgetary allotments for
departments or government agencies will be classified as pol
icy decisions. Further, it must be recalled that a policy decision
is open to challenge on the basis that it is not made in the bona
fide exercise of discretion. If after due consideration it is found
that a duty of care is owed by the government agency and no
exemption by way of statute or policy decision-making is
found to exist, a traditional torts analysis ensues and the issue
of standard of care required of the government agency must
next be considered.
The manner and quality of an inspection system is clearly part
of the operational aspect of a governmental activity and falls to
be assessed in the consideration of the standard of care issue.
At this stage, the requisite standard of care to be applied to the
particular operation must be assessed in light of all the sur
rounding circumstances including, for example, budgetary
restraints and the availability of qualified personnel and equip
ment.
I share the view of the learned Trial Judge that the
Commission's policy on how it should be satisfied as
to the sufficiency of security posted by Memco at the
date its licence was renewed had changed in 1981
with the replacement of the former self-reporting sys
tem by a kind of verification system. The new policy
called for more frequent and effective inspections by
the Commission's staff and the upgrading of the
staff's ability to carry out financial reviews and
inspections. A specific program of audits, including
one of Memco, during the then-current fiscal year of
the Commission was also adopted. The implementa
tion of this new policy, as the Trial Judge held,
involved a number of operational decisions. I agree
with him that liability, if any, arose from these latter
decisions. There is thus no basis for exempting the
appellant from the imposition of liability on the
ground that the decisions made were "policy" deci
sions. It remains, however, to consider whether the
appellant met the standard of care expected in imple
menting the new policy.
Finally, I do not accept the appellant's arguments
that it was exempt from private law liability because
its functions were quasi-judicial or analogous to
police functions. While it is arguable that certain of
the Commission's powers might be so characterized,
the acts and omissions of which the respondents com
plain are not among them.
I now turn to a consideration of whether the Com
mission met the standard of care expected in imple
menting the new policy.
Standard of care
It seems to me that the appropriate standard of care
to be applied is whether the Commission acted rea
sonably in the light of all of the surrounding circum
stances. This would appear to be in accord with the
views expressed by Cory J. in Just, supra, where he
stated, at page 1244:
Let us assume a case where a duty of care is clearly owed by a
governmental agency to an individual that is not exempted
either by a statutory provision or because it was a true policy
decision. In those circumstances the duty of care owed by the
government agency would be the same as that owed by one
person to another. Nevertheless the standard of care imposed
upon the Crown may not be the same as that owed by an indi
vidual. An individual is expected to maintain his or her side
walk or driveway reasonably, while a government agency such
as the respondent may be responsible for the maintenance of
hundreds of miles of highway. The frequency and the nature of
inspection required of the individual may well be different
from that required of the Crown. In each case the frequency
and method must be reasonable in light of all the surrounding
circumstances. The governmental agency should be entitled to
demonstrate that balanced against the nature and quantity of
the risk involved, its system of inspection was reasonable in
light of all the circumstances including budgetary limits, the
personnel and equipment available to it and that it had met the
standard duty of care imposed upon it.
And, at page 1247, he added:
To proceed in this way is fair to both the government agency
and the litigant. Once a duty of care that is not exempted has
been established the trial will determine whether the govern
ment agency has met the requisite standard of care. At that
stage the system and manner of inspection may be reviewed.
However, the review will be undertaken bearing in mind the
budgetary restraints imposed and the availability of personnel
and equipment to carry out such an inspection.
Breach of the standard
Did the Commission act reasonably in the light of
all the surrounding circumstances? The appellant
contends that a scarcity of resources, both monetary
and human, hampered the Commission in the imple
mentation of its new audit program and, specifically,
delayed the Memco audit. The Trial Judge disagreed.
After a close examination of the evidence and the
findings, I am able to share his view. It was decided
at the outset that, of the twelve licensees which were
to be audited, priority would be given to the two Mr.
Blackwell had ranked "E" and to one he had ranked
"D" because these three audits were deemed more
urgent and would provide the Commission with a
means of testing the value of the new program.
Requests from the licensing and bonding section for
auditing funds in September 1981 were met with a
positive and prompt response. In November 1981,
after a decision was made to proceed with additional
audits, a request for the necessary funds was again
promptly approved by the commissioners. This was
also the case when funds were requested in February
1982 for the audit of Memco. Indeed, as the Chief
Commissioner himself testified in answer to a ques
tion from the Bench, whenever the Commission's
Executive Director made it known that money was
needed, "as far as hiring auditors was con
cerned ... that would be approved".' 0
That a lack of available personnel was not a factor
would appear also to be the case. The evidence indi
cates that the delay in carrying out the Memco audit
resulted from decisions of the licensing and bonding
staff to give priority to the auditing and inspection of
other licensees following the completion of the audits
done by the Audit Services Bureau in the fall of
1981. The Trial Judge found as a fact that Memco
10 Trial Proceedings, Vol. 9, at p. 1553, lines 9-14.
had been "bumped" on lists of priority. That was a
matter for him to determine in the light of the evi
dence and I can see no reason for interfering with his
finding. After a period of negotiations, the Commis
sion and Audit Services Bureau entered into a letter
of agreement dated December 16, 1981, which "sets
out the priorized lists of licensees your Commission
wishes to be audited" 11 and upon which Memco was
listed in second place. Another licensee, Weyburn
Inland Terminals Ltd., was shown in eighth place.
However, on December 21, 1981, the Commission
informed the auditors of its decision to
"assign ... number one priority" to Weyburn and
another licensee. 12 By February 18, 1982, the audi
tors had completed the audits of Weyburn and four
other licensees. Memco, on the other hand, had yet to
be audited although it was considered that the audit
should proceed "without further delay".' Further,
many inspections were carried out by members of the
Commission's licensing and bonding staff under the
new audit program, and Mr. Blackwell was himself
assigned to do four inspections at an approximate
cost of $2,500. All the while, the Commission did not
audit, inspect, visit or even contact Memco between
August 1981 and mid-February 1982 despite its poor
financial condition revealed by Mr. Blackwell's
review. The result was that when finally an inspec
tion of Memco was done by Mr. Bolen in March
1982, Memco's early demise and consequent losses
to the respondents were inevitable.
I do not find it necessary to examine in detail the
evidence which led the Trial Judge to decide that the
standard of care had not been met by the appellant.
One point stands out as illustrative. It may seem
small in isolation but in the larger picture its signifi
cance becomes more apparent. Memco's total liabili
ties, by the Regulations to be reported monthly, were
not, as those Regulations also required, verified by
11 Appeal Book, Common Appendix, Vol. 3, at pp. 375-376
(Exhibit 126).
12 Ibid., at p. 379 (Exhibit 127).
13 Ibid., at p. 405 (Exhibit 144).
statutory declarations. Month after month and year
after year this requirement was ignored. The Com
mission seemed content to accept "certified" reports
which, the appellant now complains, painted a mis
leading picture. That, indeed, was the case. Possibly,
insistence upon full compliance with this important
requirement might have resulted in accurate informa
tion being reported, and so enabled the Commission
in a timely fashion to gain a clearer picture of
Memco's financial condition and need for increase of
its posted security.
The negligence alleged is primarily that the Com
mission did nothing in furtherance of its policy to
induce an increase in the level of the posted security
over a six-month period after the licensee's weak
financial position was brought markedly to its atten
tion in the summer of 1981. I agree with the learned
Trial Judge that such action as was finally taken in
March 1982 was too little and too late. It is also
apparent from his findings that the negligence he
found did not consist of a single act or omission
which occurred at a precise moment in time but was
in fact cumulative. I have no doubt of the correctness
of his view that Memco's financial state was beyond
redemption by the time Mr. Bolen carried out his
inspection in March 1982 and that there was little or
nothing to be accomplished thereafter by insisting
upon the fulfilment of demands for increase of secur
ity or in making a formal order pursuant to subsec
tion 38(1) of the Act. The die was already cast. The
same may not be said, however, of the failure to take
earlier action and especially so before and after
Memco's licence for the 1981/82 crop year was
issued on August 7, 1981.
I am satisfied that the appellant failed to meet the
applicable standard of care.
Causation
I turn next to the issue of causation. In any case of
damages for negligence, as was observed by Lord
Reading C.J. in Munday (J.R.) Ld. v. London County
Council, [1916] 2 K.B. 331 (C.A.), at page 334:
Negligence alone does not give a cause of action, damage
alone does not give a cause of action; the two must co-exist.
The appellant asserts that the Trial Judge erred in
concluding that the appellant's negligence was causa
tive of the respondents' losses. In so finding, the
learned Judge applied the "but for" test, or, as he put
it at page 36 "the defendant will be liable ... if the
damage would not have occurred without (but for)
the defendant's breach of duty".
The Trial Judge then had this to say, at page 37 of
his reasons for judgment:
In my view, the evidence at trial was clear that the Commis
sion's breach of duty (i.e. ensuring the existence of sufficient
security and/or taking steps to increase the security at an ear
lier date), negligently exposed the plaintiffs and other grain
producers to the financially irresponsible practices of Memco.
It is also clear that such an imminent threat was capable of
being remedied by the Commission (i.e. conducting a profes
sional audit immediately upon becoming aware of Memco's
poor financial situation and a demand for an increase in the
security level), but for the negligence of the Commission's
officers in fulfilling their statutory mandate as well as their
common law duty of care to grain producers.
It seems fair to say that this conclusion was based
upon an inference which the Trial Judge drew from
the very considerable body of evidence he had before
him.
The submission made by the appellant is that there
was no evidence or an insufficiency of evidence led
by the respondents to show what level of liability to
grain producers would have been discovered had an
audit of the licensee been performed earlier or that a
better inspection in March 1982 would have avoided
the losses, or that an earlier demand or order for
additional security would have been complied with,
and that such evidence as was led did not permit a
finding or the drawing of an inference that the Com
mission's negligence was causative of the respon
dent's loss.
The principles of causation in an action for negli
gence were very recently reviewed and explained by
the Supreme Court of Canada in Snell v. Farrell,
[ 1990] 2 S.C.R. 311. As that case reaffirms at page
320, a plaintiff is required to prove on a balance of
probabilities that but for a defendant's negligence he
would not have suffered the injury of which he com
plains. Sopinka J. for the Court, at page 326, defined
the concept of causation in these words:
Causation is an expression of the relationship that must be
found to exist between the tortious act of the wrongdoer and
the injury to the victim in order to justify compensation of the
latter out of the pocket of the former.
Snell was a case of physical injury and the diffi
culty was whether the negligence of a medical practi
tioner had caused that injury or there was some other
cause. The case reflects the flexibility that has been
attained under principles of causation, not by altering
the incidence of the ultimate burden of proof, but by
taking a "robust and pragmatic approach to the undis
puted primary facts of the case" (per Lord Bridge in
Wilsher v. Essex Area Health Authority, [1988] A.C.
1074 (H.L.), at page 1090). It was held that proof of
causation, although not shown on positive medical
evidence, could be inferred from the circumstances
and by the application of common sense where the
defendant had not adduced evidence to rebut it. It
would seem that these principles are applicable as
well to cases other than that of medical malpractice
provided it is appropriate to do so in a particular case.
Do they assist in proving causation in the present
case?
The appellant asserts that causation was not proved
by the respondents on a balance of probabilities and
therefore that the Trial Judge erred in finding that the
appellant's negligence caused the loss, a finding
counsel characterized as mere "speculation and con
jecture". It seems to me, however, that this is a case
in which the Trial Judge was justified in inferring
causation from the circumstances proven that, had it
not been for the negligence of the appellant in failing
to require sufficient security, the respondents' losses
would have been avoided. The appellant adduced no
evidence to the contrary—despite its superior knowl
edge of the licensee's operations—to the effect that
an increase in the required security would not have
resulted had it been earlier requested or ordered.
Further, I should refer to Kamloops (City of) v.
Nielsen et al., [1984] 2 S.C.R. 2, in which the issue
of causation in an action for negligence against a
public authority was discussed. The plaintiff sued the
City as well as the builder and vendor of a dwelling
house which had been built on defective foundations.
The City had failed to discharge its duty of timely
inspection with the result that construction pro
ceeded. It was contended that the cause of the plain
tiff's loss was the negligence of the builder and
accordingly that the City's negligence was not causa
tive. Wilson J. disagreed, stating on behalf of the
majority, at page 15:
This is not the case of a power which the City decided to exer
cise but exercised in a negligent manner. This is the case of a
duty owed by the City to the plaintiff, a person who met Lord
Wilberforce's test of proximity in Anns. The City's responsi
bility as set out in the By-law was to vet the work of the
builder and protect the plaintiff against the consequences of
any negligence in the performance of it. In those circumstances
it cannot, in my view, be argued that the City's breach of duty
was not causative. The builder's negligence, it is true, was pri
mary. He laid the defective foundations. But the City, whose
duty it was to see that they were remedied, permitted the build
ing to be constructed on top of them. The City's negligence in
this case was its breach of duty in failing to protect the plaintiff
against the builder's negligence.
Similarly, it may be said here that the appellant
could have prevented the respondents' losses but for
its negligence in the performance of its duty as to the
level of security. I do not mean to suggest that the
appellant was under a duty to ensure such a level of
security as would enable a person in the position of
the respondents, in all circumstances, to recover
100% of outstanding obligations of a licensee, for the
standard of care was to act with reasonable care in
the circumstances. Had that standard been met but the
level of security posted at a particular point in time
proved insufficient, the holders of documents could
not expect to recover any deficiency from the appel
lant. On the other hand, as the respondents are unable
to recover from the primary debtor and the appel
lant's negligence stands in their way of recovering
the full losses from the security, they will have to
absorb the deficiency if the appellant is found not to
be liable notwithstanding that the very contingency in
respect of which they were intended to be protected
by way of that security has occurred. In my view,
their damages were reasonably foreseeable and
flowed directly from that negligence or, to put it
another way, that negligence was causative of the
respondents' losses.
I would not interfere with the Trial Judge's finding
as to causation.
Purely economic loss
It now becomes necessary to consider whether the
respondents' losses are recoverable notwithstanding
that they are purely economic. I have already alluded
to the nature of the losses as a possible factor to be
considered in determining the existence of a duty of
care. The analysis in recent English cases is generally
to treat this factor as going to the existence of a duty
of care or of its scope. However, according to Just,
supra, a prima facie duty of care must first be found
to exist. As I have found one to exist, I must move to
the second stage of the Anns test in determining
whether "there are any considerations which ought to
negative ... the damages to which a breach of it may
give rise". The end result would appear to be the
same whether the issue is framed in terms of duty or
remoteness.
In Canadian National Railway Co. v. Norsk
Pacific Steamship Co., [1990] 3 F.C. 114 (C.A.), now
on appeal to the Supreme Court of Canada, the
recoverability of purely economic loss was explored
by this Court at some length and many of the decided
cases discussed there are relevant to the present dis
cussion. The two cases are not the same, however.
That case involved a claim in negligence by a party
to a contract for the use of a bridge against a third
party whose ship had damaged that bridge in a colli
sion and rendered it unusable to the plaintiff for a
period of time. This case is nothing of the sort. It is
more akin to City of Kamloops, supra, wherein a
municipal authority was found liable in negligence
for purely economic loss after failing, for want of
inspection, to discover that a private dwelling place
was not being built on sound foundations (as required
by the authority's by-laws), and to enforce its stop
work order against the builder. A majority of the
Supreme Court of Canada held that purely economic
loss was recoverable on the ground that, as Wilson J.
put it at page 35, "as a matter of statutory interpreta
tion it is a type of loss the statute intended to guard
against".
The recoverability of purely economic loss in an
action of this kind continues to be a matter of much
controversy in the courts and has yet to be defini
tively settled in this country. Traditionally, with few
exceptions, economic loss has been seen by the
courts as not recoverable unless the negligence caus
ing it also causes physical loss or damage.
Over the past decade or more, the issue has
received the attention of the Supreme Court of
Canada in particular cases. In Rivtow Marine Ltd. v.
Washington Iron Works et al., [1974] S.C.R. 1189,
recovery of purely economic loss was allowed upon
the principle of Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd., [1964] A.C. 465 (H.L.); and in City of
Kamloops, supra, as I have indicated it was also
allowed. However, in B.D.C. Ltd. v. Hofstrand Farms
Ltd., [1986] 1 S.C.R. 228, recovery of such a loss
was denied. 14
The issue has arisen in a variety of cases both
before the House of Lords and the Privy Council and
in courts of highest authority in Australia and New
Zealand: see e.g. Murphy, supra; Davis, supra;
Caparo, supra; D. & F. Estates Ltd. v. Church
Comrs. for England, [1989] A.C. 177 (H.L.); Yuen
Kun Yeu, supra; Curran v. Northern Ireland Co-own
ership Housing Association Ltd., [1987] A.C. 718
(H.L.); Peabody Donation Fund (Governors of) v. Sir
Lindsay Parkinson & Co. Ltd., [1985] A.C. 210
(H.L.); Sutherland Shire Council, supra; Junior
Books Ltd. v. Veitchi Co. Ltd., [1983] A.C. 520
(H.L.); Bowen v Paramount Builders (Hamilton) Ltd,
[1977] 1 NZLR 394 (C.A.). See also Candlewood
Navigation Corp. Ltd. v. Mitsui O.S.K. Lines Ltd.
["The Mineral Transporter"], [1986] A.C. 1 (P.C.);
Leigh and Sillavan Ltd. v. Aliakmon Shipping Co.
Ltd., [1986] A.C. 785 (H.L.).
In Murphy, supra, the House of Lords rejected a
claim for purely economic loss against a municipal
authority in an action for negligence on the ground
that it did not come within the scope of any duty of
care. The judgment has given rise to much debate in
legal circles. 15 The plaintiff was the occupant of a
house whose foundation walls cracked after the
building plans were negligently approved by an inde
pendent expert whose advice was acted upon by a
municipal authority in passing the plans. To allow
recovery, said Lord Keith at page 469, "would open
on an exceedingly wide field of claims". While of the
same view, Lord Oliver acknowledged in the course
of his speech, at page 485, that it did not "at all fol
low as a matter of necessity from the mere fact that
the only damage suffered by a plaintiff in an action
14 See also Agnew-Surpass Shoe Stores Ltd. v. Cummer-
Yonge Investments Ltd., [1976] 2 S.C.R. 221, per Pigeon J., at
p. 252; Haig v. Bamford et al., [1977] 1 S.C.R. 466; Central
Trust Co. v. Rafuse, [1986] 2 S.C.R. 147.
15 See e.g. Fleming, "Requiem for Anns" (1990), 106 L.Q.
Rev. 525; Cooke, "An Impossible Distinction" (1991), 107
L.Q. Rev. 46; Negligence after Murphy v. Brentwood DC.,
Legal Research Foundation, University of Auckland (March 7,
1991); Symposium on Recent Developments on Liability For
Economic Negligence, sponsored by Canadian Business Law
Journal and Faculty of Law, University of Toronto (April 19,
1991).
for the tort of negligence is pecuniary or `economic'
that his claim is bound to fail." Adhering to the incre
mental approach which Murphy reflects, he took the
view that recovery of purely economic loss would be
possible only if reliance in the sense of Hedley Byrne,
supra, brought it within the scope of a duty of care.
However, Lord Oliver also acknowledged, at page
486, that it was not "necessarily to be assumed that
the reliance cases form the only possible category of
cases in which a duty to take reasonable care to avoid
or prevent pecuniary loss can arise" and gave as illus
trations Morrison Steamship Co., Ld. v. Greystoke
Castle (Cargo Owners), [1947] A.C. 265 (H.L.), and
Ross v. Caunters, [1980] Ch. 297 (Ch.D.). He went
on to point out, at page 487, that if economic loss
was to be categorized as wrongful then,
... it is necessary to find some factor beyond the mere occur
rence of the loss and the fact that its occurrence could be fore
seen. Thus the categorisation of damage as economic serves at
least the useful purpose of indicating that something more is
required .... [Emphasis added.]
In searching for this "something more", at page 490,
Lord Oliver could see nothing in the particular statute
that "even suggest[s] that the purpose of the statute
was to protect owners of buildings from economic
loss."
That one of the purposes of the Canada Grain Act
is the protection of persons in the position of the
respondents as "holders of documents", is the distin
guishing feature of the present case. Ensuring the
quality of a building constructed for human habita
tion by successive purchasers or possessors is very
different, in my view, from ensuring the posting of
adequate security pursuant to a specific statutory
obligation. Paragraph 36(1)(c) sets out this clear and
manifest purpose. The "obligations" which Parlia
ment thus intended should be protected could only be
for "the payment of money or delivery of grain" or,
in other words, for a loss that is financial or pecuni
ary or purely economic in nature. I am satisfied the
respondents' losses are recoverable notwithstanding
that they are purely economic.
Contributory negligence
The Trial Judge rejected the appellant's contention
that the losses claimed were caused or contributed to
by the respondents' own negligence by entering into
deferred pricing arrangements with Memco and
thereby delaying the time at which grain was sold
and its price actually paid. When the sales were
finally "priced out", Memco was not in a position to
pay.
The reasons given by the Trial Judge for rejecting
the appellant's contention appear at pages 37-38 of
his reasons for judgment:
The evidence does not support the defendant's contentions.
There is no evidence that deferred pricing transactions were
formally disapproved of by the Commission nor that the Com
mission considered those transactions to be outside the scope
of the security provisions. As far as the plaintiffs were con
cerned, these transactions represented part of Memco's liabili
ties which, in the event of Memco's financial failure, would be
covered by the security held by the Commission. The Commis
sion gave no indication that this was not so and in fact, when
asked by Donald Bradly, a former employee of Memco, Mr.
Grant Bolen, of the Commission, stated that there was suffi
cient security in place to meet outstanding liabilities.
The appellant submits that there was here a failure
on the part of the Trial Judge to examine the conduct
of the individual respondents in the matter. These
respondents, it is said, ought to have demanded pay
ment of the purchase price at the time of delivery or
within a reasonable period thereafter. By failing to do
so, they were guilty of contributory negligence at the
very least. Moreover, they should not be able to reap
the benefits of the statutory scheme when their
actions would have been such as to release a surety.
I am unable to accept these contentions. The
respondents were the beneficiaries of the security
scheme and not its debtors. The evidence supports
the Trial Judge's finding that the practice of deferring
the payment of prices was well established and was
well known to the Commission itself. As primary
producers whose position was recognized by Parlia-
ment in a special way and as persons having no voice
in the licensing of elevator producers, the respon
dents were reasonably entitled to rely on that secur
ity. Further, as the Trial Judge put it in the passage I
have just recited: "As far as the plaintiffs were con
cerned, these transactions represented part of
Memco's liabilities which, in the event of Memco's
financial failure, would be covered by the security
held by the Commission".
I can see no reason for limiting the broad protec
tion afforded "holders of documents" for the unpaid
"obligations" of Memco under paragraph 36(1)(c) of
the Act. In my view, the respondents did not cause or
contribute to their losses.
Damages
I come finally to consider a portion of the losses
that the appellant contends is not compensable in any
event. That portion consists of the difference between
the price of the grain as initially agreed to when it
was delivered to the licensee and the price as subse
quently enhanced by agreement between the vendor
and purchaser.
As I observed for a majority of this Court in R. v.
CAE Industries Ltd., [1986] 1 F.C. 129, at pages
173-174:
It is not, of course, for this Court sitting in appeal to assess the
damages, for to do so would be to remove the function from
the hands of the Trial Judge where it properly belongs. It has
been stated many times over that an appellate court ought not
to reverse a finding of a Trial Judge as to the amount of dam
ages merely because it thinks that, had it tried the case in the
first instance, it would have awarded a lesser or greater sum. In
order to justify reversing a Trial Judge on his assessment of
damages it must be demonstrated that he acted on a wrong
principle. (See e.g. Guerin et al. v. The Queen et al., [1984] 2
S.C.R. 335; (1985), 55 N.R. 161, per Dickson J. at pages
390-391 S.C.R.; 178 N.R.; and per Wilson J. at page 364
S.C.R.; 191 N.R.; Nance v. British Columbia Electric Ry. Co.
Ltd., [1951] A.C. 601 (P.C.), at page 613; Flint v. Lovell,
[1935] 1 K.B. 354 (C.A.), per Greer L.J. at page 360.)
The problem raised by the appellant was not
explicitly dealt with below. In my view, however, the
solution must be found in the language of the Act
itself and particularly in that of paragraph 36(1)(c).
Although it may be possible to give the words "all
obligations to holders of documents for the payment
of money or delivery of grain" a narrow construction
to embrace only obligations as originally created, I
can see no justification for taking that approach.
Debts are recoverable only if they fall within the term
"obligations". I think those in issue do so. Whether
the price be as originally set or as eventually agreed
upon should make no difference. I agree with the
Trial Judge's finding that the Commission itself was
fully aware that these enhanced pricing transactions
were sometimes entered into. In my opinion, as the
damages claimed should not exclude this portion of
the sale price, the Trial Judge did not err in principle
in his assessment.
In the result, I would dismiss the appeal.
CROSS-APPEAL
I turn to the issues raised on the cross-appeal. The
first is whether the Trial Judge erred by deducting
from the claim of each of the respondents the interest
earned on his pro rata share of the principal amount
of the security proceeds between the realization
thereof and the date of distribution. In deciding as he
did, the learned Trial Judge stated, at page 38 of his
reasons for judgment:
These plaintiffs received pro rata payments from the proceeds
of the $600,000 Memco bond. At the time of distribution,
interest had increased the amount available to around 704 or
705 thousand dollars. In calculating the damages of the plain
tiffs, the pro rata interest received was not deducted to arrive at
the net claim advanced against the defendant. I see no justifica
tion for excluding the interest portion from the proceeds of the
security bond. Here, in this case, what is to be determined is
the net loss the plaintiffs have suffered because of non-pay
ment by Memco, and the resultant liability on the defendant.
With respect, I cannot agree that the interest should
be so treated. The submission of the cross-appellants
is that, to the extent of their pro rata share, each
became a beneficial owner of the bond proceeds from
the date the security was realized. The effect in law,
they contend, was that each of them received interest
on their own money and that it was wrong, therefore,
to reduce the principal debt by the share of interest. I
accept the purport of the cross-appellants' submis
sions. However ownership of the fund might be
characterized—something I need not decide—it is
clear that the only persons with any possible proprie
tary interest in it, and the interest thereon, were the
cross-appellants. If it had been possible to distribute
the proceeds of the bond on the date of realization,
each cross-appellant would have received his share
and begun to earn interest on his own account. If any
of the cross-appellants had realized on the bond in his
own right, as each had the statutory right to do, again
interest accruing on that cross-appellant's share
would have begun to accrue to his account. One way
or another, the proceeds of the bond were for the
exclusive benefit of the cross-appellants. Why, then,
considering that the Commission could never hope to
share in the proceeds, should the interest on the fund
be applied in such a way as to reduce the Commis
sion's net liability to the cross-appellants in dam
ages? Such a result would be, in my view, a windfall
to the Commission and inequitable.
The second issue is whether the Trial Judge erred
in failing to consider and dispose of the claim of
Robert and Hazel Peterson in the alternative for dam
ages for negligent misstatement based on the princi
ple of reliance in Hedley Byrne, supra. It was con
tended that our jurisdiction to do that which it is said
the Trial Judge failed to do is to be found in Davie
Shipbuilding Limited v. The Queen, [1984] 1 F.C.
461 (C.A.), where Mr. Justice Urie stated, at page
464:
It should not require reference to any authority to state that the
failure of a trial judge to deal with an important matter raised
by any party at trial, whether or not it involves the exercise of
his discretion, ought not to preclude an appeal court from deal
ing with the matter, when, as here, the evidence and the rea
sons provide the Court with all information necessary to make
a decision thereon.
The difficulty I see in dealing with this issue is
considerable. The cross-appellant Robert Peterson
and a former employee of Memco testified at the trial
of conversations which took place between them in
March 1982. Mr. Peterson testified as to receiving an
undertaking from the Memco employee to contact
Mr. Bolen in order to ascertain if there would be any
problem in receiving payment for grain delivered in
the future. The Memco employee, in turn, testified of
having taken the matter up with Mr. Bolen and of
being told that sufficient security was in place to
meet outstanding liabilities. According to this
employee, the information was then passed on to Mr.
Peterson. The Petersons say they relied on the cor
rectness of that information. Mr. Bolen did not testify
on the point and there was no evidence of any direct
communication between either of these cross-appel
lants and Mr. Bolen.
The value to be accorded to this evidence is obvi
ously one of weight, something that is peculiarly
within the domain of a trial judge and not an appel
late court. Such an assessment has importance for
both sides and not just for the cross-appellants, for
upon it will depend the question of liability. Accord
ingly, I would reject this ground of attack on the
judgment below. It was not suggested in argument
that this question should be returned to the Trial Divi
sion.
In the result, I would allow the cross-appeal in
respect of the Trial Judge's treatment of interest
earned on the security.
DISPOSITION
I would dismiss the appeal and allow the cross-ap
peal, both with costs. I would add to the damages
ordered to be paid to each of the respondents pursu
ant to the judgment of the Trial Division, an amount
equal to the interest which accrued on his pro rata
share of the proceeds of the security after its realiza
tion and prior to its distribution, by varying para
graph 1 of that judgment so that the same will read as
follows:
1. The following plaintiffs shall recover from the defendant
damages as follows:
Brewer Bros. $92,503.11
Elie Dorge $34,590.21
Donald Duffy $108,889.78
Alex Gorr & Sons $10,166.77
Hutterian Brethren of Pleasant Valley $83,192.23
Dale, Robert and Hazel Peterson $56,780.28
Walter Riehl $57,539.45
Larry Weimer $48,411.32
In all other respects I would confirm the said judg
ment.
HEALD J.A.: I concur.
DÉCARY J.A.: I concur.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.