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Torts - Negligence - Duty of Care (Post-Livent) (2)

. Hoang v. Mann Engineering Ltd.

In Hoang v. Mann Engineering Ltd. (Ont CA, 2020) the Court of Appeal countenances a novel duty of care in negligence advanced by an appellant, who was a judgment debtor of the respondent (and a prior employer). The respondent creditor had mistakenly obtained a garnishee's enforcement order against the appellant's present employer [which makes the garnishee (here the present employer) directly responsible for the debt under R60.08(17)], and subsequent to that the respondent was fired. The appellant sued the respondent, not in wrongful dismissal, but in negligence:

[33] The appellant submits, because his job was “an asset” to Mann Engineering, in that it was a potential source of the payment of the appellant’s debt, Mann Engineering owed the appellant a duty of care in respect of that “asset”. In effect, the appellant contends, a judgment creditor, who is seeking to realize on a judgment through garnishment proceedings, owes a duty of care to the debtor to take all reasonable steps to avoid causing harm to the debtor’s ongoing employment. The appellant acknowledges the duty of care he describes is an entirely novel one. Neither the specific duty, nor any analogous one has ever been recognized in the Canadian law of negligence.

[34] When a plaintiff advances a negligence claim based on a novel duty of care, the courts determine whether that duty exists using a two-step process. The first step looks to the nature of the relationship between the plaintiff and the defendant and the foreseeability of the harm caused. These two factors, both of which address proximity, taken together determine whether a prima facie duty of care is established: 168872 Ont. Inc. v. Maple Leaf Foods Inc., 2020 SCC 36, at paras. 30-31; Cooper v. Hobart, 2001 SCC 79, at paras. 22, 30-32.

[35] At the second step, the court looks to residual policy considerations existing outside of the relationship between the defendant and plaintiff, which warrant negativing the prima facie duty of care established at the first step: Cooper v. Hobart, at paras. 37-39.

[36] We are satisfied there is no prima facie duty of care. The evidence does not establish the requisite proximity between the appellant and Mann Engineering. There is no relationship between them other than the relationship of a judgment creditor using the garnishment proceeding in an effort to realize on the debt owed by a judgment debtor. That relationship has played out in the context of ongoing litigation initiated by Mann Engineering in an effort to recover the debt owed to it by the appellant. The adversarial relationship inherent in the litigation process is antithetical to the kind of relationship that gives rise to a duty on one party to take reasonable care not to interfere with the legitimate interests of the other party. There is nothing in the relationship that could justify placing an obligation on Mann Engineering to take reasonable steps to protect the appellant’s ongoing employment from any possible negative consequences flowing from Mann Engineering’s conduct of the garnishment proceedings.

[37] The appellant’s description of his ongoing employment as “an asset” to which Mann Engineering looked for recovery of its debt does not advance the proximity analysis. However one chooses to describe the appellant’s employment, the nature of the relationship engaged on this evidence remains exactly the same. Mann Engineering, the judgment creditor, is trying to collect its debt from the appellant, the judgment debtor, through garnishment proceedings. Nor does the fact Mann Engineering improperly obtained an enforcement order against the employer alter the nature of the relationship between Mann Engineering and the appellant. Mann Engineering’s misstep in the course of the garnishment proceedings cannot create a duty of care owed to the appellant. Mann Engineering’s error would be significant in determining whether Mann Engineering fell below the standard of care, if in fact a duty of care had existed.

[38] While we are satisfied the nature of the relationship between Mann Engineering and the appellant in the context of the garnishment proceedings precludes the existence of any duty of care, we also see no basis in the evidence for a finding the type of harm allegedly caused to the appellant was reasonably foreseeable to someone in the position of Mann Engineering: Rankin v. J.J., 2018 SCC 19, at paras. 24, 26, 53. On the evidence, there was no basis upon which Mann Engineering knew, or ought to have known, its actions would cause the employer to believe the appellant had misled the employer throughout the garnishment proceedings. Without that knowledge, it was not reasonably foreseeable the employer would fire the appellant after Mann Engineering obtained the enforcement order. Consequently, the kind of damage alleged by the appellant was not a reasonably foreseeable consequence of obtaining the enforcement order.

[39] We add one additional comment. Although we do not reach the second step of the duty of care analysis, policy considerations point strongly away from recognizing the duty of care advanced by the appellant. Access to the civil courts to assert claims and enforce judgments is fundamental to the operation of our justice system. Potential liability in negligence, based on a duty of care owed by a plaintiff to a defendant, must surely discourage plaintiffs from using the court process to advance claims and enforce judgments. Tort law, and specifically the tort of abuse of process, protects against the improper use of the civil justice process. Policy considerations do not favour extending that protection to negligence-based claims.

. Wright v. Horizons ETFS Management (Canada) Inc.

In Wright v. Horizons ETFS Management (Canada) Inc. (Ont CA, 2020) the Court of Appeal made these comments regarding pure economic loss in negligence and the role of establishing a negligence duty of care:

[74] Canadian courts have limited tort recovery for cases involving pure economic loss where there is no physical harm or damage to property: Arora v. Whirlpool Canada LP, 2013 ONCA 657, 118 O.R. (3d) 113, at para. 52, leave to appeal refused, [2013] S.C.C.A. No. 498. While there is no automatic bar to recovery for pure economic loss, “such claims warrant more rigorous examination than other claims for negligence”: Lavender v. Miller Bernstein LLP, 2018 ONCA 729, 142 O.R. (3d) 401, at para. 72, leave to appeal refused, [2018] S.C.C.A. No. 488, citing Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, at para. 35; and Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417, 120 O.R. (3d) 81, at paras. 148-50, leave to appeal refused, [2014] S.C.C.A. No. 390.

[75] As noted by the late Honourable Allen M. Linden et. al. in Canadian Tort Law, 11th ed. (Toronto: LexisNexis Canada, 2018), at p. 408:

[R]ights-based torts theorists … take the position that negligence duties exist to protect correlative legal rights. The law recognizes a person's right to personal security and it recognizes property rights. These are protected by negligence law. However, neither the law nor acknowledged philosophical thinkers have ever recognized a primary right related to purely economic interests.

The rights-based theorists do support recovery for economic loss in misrepresentation cases by either grounding the claim in the right to personal integrity or by treating the misrepresentation action as equivalent to contract. However, they hold that other types of pure economic loss ought not to be recoverable at all in negligence.

[76] Some of the reasons for the refusal to recognize claims for pure economic loss include the possibility of indeterminate liability, the difference between social loss (such as physical harm) and the transfer of wealth from one person or group to another, the relevance of existing and potential contractual allocation of loss, and the fact that negligently-caused purely financial injury does not constitute a violation of a recognized legal right. When looking at a claim for pure economic loss, it is therefore important to consider whether the plaintiff had an opportunity to protect itself by contract from the risk of economic loss and declined to do so.

[77] The Supreme Court recently reviewed the approach to determining the existence and extent of a duty of care in a claim for economic loss. The two-step process is:

a. whether the parties are in a sufficiently close and direct (or proximate) relationship and whether the harm suffered is reasonably foreseeable such that a prima facie duty of care exists; and if so,

b. whether there are residual policy considerations that should insulate the defendant from liability.

See Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, at paras. 23-45 and Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789, 148 O.R. (3d) 115, at para. 54, leave to appeal to S.C.C. requested, 38915.

[78] The first issue to be determined is whether the claim fits within or is analogous to a recognized duty of care. If a relationship falls within a previously established duty of care or is analogous to one, then the requisite close and direct relationship is shown: Livent, at para. 26.

(a) The Duty of Care Analysis Where There Is a Previously Established Duty of Care

[79] Determining whether a proposed duty of care fits within an existing or analogous duty is a matter of precedent:

[W]here a case is like another case where a duty has been recognized, one may usually infer that sufficient proximity is present and that if the risk of injury was foreseeable, a prima facie duty of care will arise.

Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 15.

[80] When a court relies on an established duty of care, “there are no overriding policy considerations that would [negate] the duty of care”: Livent, at para. 28, citing Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, at para. 39. The majority in Livent further instructed, at para. 28, that:

A consequence of this approach however, is that a finding of proximity based upon a previously established or analogous category must be grounded not merely upon the identity of the parties, but upon examination of the particular relationship at issue in each case. Otherwise, courts risk recognizing prima facie duties of care without any examination of pertinent second-stage residual policy considerations.

[81] The Supreme Court has recognized five categories of cases in which plaintiffs may recover in negligence for economic loss not causally connected to physical or property harm. These categories were first discussed in Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021, at p. 1049, per La Forest J., citing Bruce Feldthusen, “Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow” (1990-91) 17 Can. Bus. L.J. 356, at pp. 357-58, and were later adopted by the full court: see, for instance, Martel, at paras. 38, 45. The five categories are:

1. the independent liability of statutory public authorities;

2. negligent misrepresentation;

3. negligent performance of a service;

4. negligent supply of shoddy goods or structures; and

5. relational economic loss.

[82] Mr. Wright asserts that this claim falls under the category of negligent supply of shoddy goods and/or negligent performance of a service.

[83] Professor Feldthusen points out that these categories are helpful when analyzing liability for pure economic loss to the extent that the cases within each category rely on a common justification for imposing liability. Categorization focuses the policy analysis and avoids a case-by-case approach, which risks inconsistent results. Categories will evolve as the jurisprudence evolves: Bruce Feldthusen, Economic Negligence, 6th ed. (Toronto: Carswell, 2012), at pp. 16-17, 22.

[84] Within the five categories, courts have recognized specific duties of care such as an auditor’s duty to a corporation when performing a statutory audit and a solicitor’s duty to a potential beneficiary when preparing a will: Livent, at paras. 58-66; Whittingham v. Crease & Co. (1978), 1978 CanLII 1930 (BC SC), 88 D.L.R. (3d) 353, at p. 373 (B.C.S.C.).

[85] When determining whether a proposed duty of care fits within an existing or analogous duty, a court should avoid construing existing duties of care “in an overly broad manner” and “be attentive to the particular factors which justified recognizing that prior [duty]”: Livent, at para. 28. These factors include (in the case of negligent misrepresentation and negligent provision of services) (a) the defendant’s undertaking to provide a representation or a service and (b) the plaintiff’s reasonable reliance on that undertaking such that the risk of injury was reasonably foreseeable: Livent, at paras. 30-31.

(b) The Duty of Care Analysis Where There is No Established Duty of Care

[86] The Supreme Court has left open the possibility that new categories of recovery for pure economic loss or duties of care might emerge.

[87] Where the case does not fall within an established duty or a duty analogous thereto, the court must (just as in the case of an established duty of care) satisfy itself that (a) there is a proximate relationship and (b) that the risk of injury is foreseeable: Livent, at paras. 29-32. If so, a prima facie duty of care will be established.

[88] To determine whether a close and direct relationship exists, the court must examine all relevant factors arising from the relationship between the plaintiff and defendant. While the factors are diverse and depend on the circumstances of each case, they include factors such as expectations, representations, and the property or other interests involved as well as any statutory obligations. In the case of a duty of care falling within the category of negligent misrepresentation or negligent performance of a service, two factors are determinative in the proximity analysis: the defendant’s undertaking and the plaintiff’s reasonable reliance: Livent, at paras. 29-30.

[89] Once a prima facie duty of care is established, the court must go on to consider whether there are residual policy reasons that would negate the imposition of a duty of care: Livent, at paras. 37-45; Cooper, at para. 30.

[90] The question is whether, despite the proximate relationship and the reasonable foreseeability of the plaintiff’s injury, the defendant should nonetheless be insulated from liability. This inquiry is concerned with the effect of recognizing a duty of care on other legal obligations, the legal system, and society more generally. The court will consider policy objectives that suggest that this duty of care ought not to be recognized, including the existence of other remedies and concerns about creating unlimited liability to an unlimited class: Livent, at paras. 37-41.

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[94] The Supreme Court first allowed a claim for pure economic loss for the negligent supply of shoddy goods/structures in Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., 1995 CanLII 146 (SCC), [1995] 1 S.C.R. 85. It approved a subsequent purchaser’s claim against a building contractor for economic loss resulting from the negligent supply of dangerous and shoddy structures. When a portion of the building’s stone cladding fell off, the plaintiff determined that there was a risk that other portions of the cladding could fall off and injure someone. The plaintiff incurred substantial costs to replace the cladding, which the Supreme Court held were, in principle, recoverable if they were the foreseeable result of the defendant’s negligence.

[95] However, Winnipeg Condominium did not address whether pure economic loss arising from the negligent supply of a shoddy good is recoverable absent a dangerous physical defect.

[96] In the later decision of Arora, Hoy A.C.J.O. held, at para. 83, that “the Supreme Court carefully left the issue of whether there should be no recovery for pure economic loss where goods are shoddy, but not dangerous, for another day.” See also Feldthusen, Economic Negligence, at p. 195.

[97] The court in Arora rejected the claim for pure economic loss resulting from the provision of alleged shoddy but non-dangerous washing machines. Hoy A.C.J.O. observed that “the appellants’ economic loss claim is for diminution in value – that is, the difference in value between the product they thought they were getting and the one they actually received”: Arora, at para. 96. She held that the claim had no reasonable prospect of success and dismissed the appeal from the certification judge’s decision to deny certification of the proposed class action on the basis that the pleadings did not disclose a cause of action.

[98] In light of this case law, I agree with the certification judge that this case does not fall within the established category of recovery for pure economic loss for the negligent supply of shoddy goods or any established duty within that category.

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[102] In Cannon, at paras. 155-60, and 169-77, Strathy J. (as he then was) held that there was a reasonable cause of action against the creators and promoters of a tax avoidance program that the participants alleged was “negligently designed and … did not work” when they were told that it would. In particular, he held, at para. 177, that:

Accepting these allegations as true for the purposes of the s. 5(1)(a) test, Appleby as a creator of the Gift Program arguably owed a duty of care to a prospective donor to ensure that the program would work and that the donor would receive a valid charitable donation receipt in return for his or her gift. I conclude that there is a properly pleaded cause of action against Appleby for negligence.

[103] The claim was allowed to proceed against one of the creators of the scheme even though the creator had no direct contractual relationship with investors: Cannon, at paras. 173-77, 245.

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(b) Is there a Novel Claim for Breach of the Duty of Care?

[108] In the event I am wrong and this claim for negligent performance of a service does not fall within a recognized duty of care, I will consider whether on the facts pleaded, a novel claim for economic loss resulting from the negligent performance of a service should be allowed to proceed.

[109] Where there is no recognized duty, the first step is to determine whether there is a proximate relationship between the parties resulting from the defendant’s undertaking that invites the plaintiff’s reasonable reliance. If so, the defendant becomes obligated to take reasonable care: Livent, at para. 30. The proximity analysis includes an examination of “‘expectations, representations, reliance, and the property or other interests involved’ as well as any statutory obligations”: Livent, at para. 29 (citations omitted).