[1997] 1 F.C. 131
T-2294-89
Olympia Janitorial Supplies (136971 Canada Ltd.) (Plaintiff)
v.
Her Majesty the Queen in Right of Canada as represented by the Minister of Public Works (Defendant)
Indexed as: Olympia Janitorial Supplies v. Canada (Minister of Public Works) (T.D.)
Trial Division, Wetston J.—Ottawa, May 27, 28 and July 24, 1996.
Crown — Torts — Pure economic loss — Third-party goods supplier seeking recovery against Crown for pure economic loss argues to have been suffered due to Crown’s negligence when failed to take into account plaintiff’s interests before paying contractor money owing under building maintenance contract as contractor had no capacity to satisfy any judgment — Insufficient proximity necessary to support duty of care — Loss not reasonably foreseeable — Risk of liability in indeterminate amount — Case not one in which new category of claim for pure economic loss should arise — Damage to plaintiff did not flow from conduct of defendant.
Torts — Negligence — Pure economic loss — Third-party goods supplier seeking recovery against Crown for pure economic loss argued as having been suffered due to Crown’s negligence when failed to take into account plaintiff’s interests before paying contractor money owing under building maintenance contract as contractor had no capacity to satisfy any judgment — Insufficient proximity necessary to support duty of care — Loss not reasonably foreseeable — Risk of liability in indeterminate amount — Case not one in which new category of claim for pure economic loss should arise — Damage to plaintiff did not flow from conduct of defendant.
The plaintiff supplied cleaning equipment and materials to J.N.M. Maintenance Limited (JNM) which provided maintenance services to certain federal government buildings pursuant to contracts (valued at approximately $2 million) with the Department of Public Works (DPW). The plaintiff was not a party to any of the contracts between JNM and DPW. As a result of performance and financial problems, JNM was sold to another company and JNM’s cleaning and maintenance contracts were assigned to the new company. DPW consented to the assignment.
The plaintiff claimed entitlement to JNM’s security deposits with DPW. The plaintiff requested that DPW withhold the funds that it intended to pay to JNM under the cleaning and maintenance contracts, to give it the opportunity to obtain a favourable judgment against JNM, and then execute the judgment by securing the withheld funds. DPW nevertheless made the final payment, in the amount of $73,733.56, for services rendered. A clause of the contract (26.3) provided that the contractor would not be entitled to progress payments until it had provided a statutory declaration testifying as to the payment for labour, material, tools and equipment supplied under the contract. The plaintiff concluded that this was intended to protect third-party suppliers such as Olympia.
The plaintiff sought recovery for pure economic loss suffered as a result of the alleged tortious acts of the defendant, asserting that the defendant was negligent when it failed to take into account the plaintiff’s interests before it paid out money owing under the building maintenance contract.
Held, the action should be dismissed.
To succeed with a negligence claim, the plaintiff must establish: (1) that the plaintiff was owed a duty of care by the defendant; (2) that the defendant should have observed a particular standard of care in order to perform or fulfil that duty; (3) that the defendant breached his duty of care by failing to fulfil or observe the relevant standard of care; (4) that this breach of duty caused damage or loss to the plaintiff; and (5) that such damage was not too remote a consequence of the breach.
It was established in Canadian National Railway Co. v. Norsk Pacific Steamship Co., that liability for economic loss will not be imposed in tort cases if there is no connection, or proximity, between the defendant’s negligent conduct and the plaintiff’s loss, as well as a reasonable foreseeability that the plaintiff would suffer harm as a result of the acts or omissions of the defendant.
An examination of the requirements of the Ontario Construction Lien Act (CLA), and other similar legislation, as well as the common law relating to legal and equitable liens lead to the conclusion that no lien was available to the plaintiff for supplying materials to JNM under the maintenance contracts. No liens were available under these circumstances, whether the property in question was owned by the Crown or a private party. Accordingly, clause 26.3 was not included in the contracts for the specific purpose of protecting subcontractors who would be unable to obtain a lien against the property. There was therefore insufficient proximity to give rise to a duty of care or vicarious liability under the Crown Liability and Proceedings Act. Furthermore, while the defendant was aware of the plaintiff’s claims, the communications between the parties did not result in such a proximate relationship that the defendant became subject to a duty to take into account the plaintiff’s interests when administering the contracts with JNM.
Although there was insufficient evidence to establish the proximity which was necessary to support a finding that a duty of care existed, the question of whether the alleged harm was reasonably foreseeable was nevertheless considered.
It is the postulate of a duty of care that it arises out of circumstances of reasonably foreseeable harm avoidable by reasonable care. In the instant case, the uncertain nature of the foreseeable loss, if any, that might have been suffered by the plaintiff as a result of the defendant’s failure to take certain steps was insufficient to satisfy the requirement of reasonably foreseeable harm in this action. It was not reasonably foreseeable that the defendant’s conduct could cause the plaintiff to suffer a loss above and beyond the financial loss sustained as a result of non-payment by JNM.
In the absence of the requisite elements of proximity and foreseeable loss, the defendant was under no duty, when completing the contracts with JNM, to take into account the plaintiff’s interests.
Nevertheless, the issue of whether, as a matter of policy, the plaintiff should be denied a right to recover from the defendant in the present case was determined.
For practical, policy reasons, limits are needed to prevent “liability in an indeterminate amount for an indeterminate time to an indeterminate class”. In this case, what was lost was an opportunity, rather than a sum of money. The plaintiff has not suffered harm to person or property, nor was its loss consequent upon such physical harm; furthermore, damage to person or property did not appear imminent as a result of the actions of the defendant. In addition, there was no issue of negligent misrepresentation. The plaintiff did not suffer a pecuniary loss, as between himself and the defendant, but an opportunity foregone. The defendant should not be held liable for a type of loss that cannot be characterized and quantified with any degree of certainty. The plaintiff’s case did not merit an expansion of the categories of recoverable economic loss.
Where a new category of claim for pure economic loss arises, the Court should consider the matter from the doctrinal point of view of duty and proximity, and from the pragmatic perspective of the purposes served and the dangers associated with the extension sought.
While the defendant could have paid into court the money owing to JNM, it was not established that damage or harm to the plaintiff flowed from the conduct of the defendant. Although the plaintiff suffered a loss, this clearly resulted from the actions of JNM. The defendant’s acts or omissions have not caused the plaintiff to lose money, or to suffer any type of pecuniary loss. On balance, the plaintiff’s lost opportunity to obtain a judgment for the monies was insufficient to support the element of causation.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Construction Lien Act, R.S.O. 1990, c. C.30, ss. 1(1) “improvement”, 14.
Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50 (as am. by S.C. 1990, c. 8, s. 21), ss. 3(a), 10.
CASES JUDICIALLY CONSIDERED
APPLIED:
Donoghue v. Stevenson, [1932] A.C. 562 (H.L.); Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.); Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; (1992), 91 D.L.R. (4th) 289; 11 C.C.L.T. (2d) 1; 137 N.R. 241; Nova Mink Ltd. v. Trans-Canada Airlines, [1951] 2 D.L.R. 241; (1951), 66 C.R.T.C. 316; 26 M.P.R. 389 (N.S.S.C.); Ultramares Corporation v. Touche, 174 N.E. 441 (N.Y. 1931).
DISTINGUISHED:
Edgeworth Construction Ltd. v. N. D. Lea & Associates Ltd., [1993] 3 S.C.R. 206; (1993), 107 D.L.R. (4th) 169; 32 B.C.A.C. 221; 83 B.C.L.R. (2d) 145; 157 N.R. 241; 53 W.A.C. 221; Queen v. Cognos Inc., [1993] 1 S.C.R. 87; (1993), 99 D.L.R. (4th) 626; 45 C.C.E.L. 153; 14 C.C.L.T. (2d) 113; 93 CLLC 14,019; 147 N.R. 169; 60 O.A.C. 1; Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85; (1995), 121 D.L.R. (4th) 193; [1995] 3 W.W.R. 85; 23 C.C.L.T. (2d) 1; 18 C.L.R. (2d) 1; 100 Man. R. (2d) 241; 176 N.R. 321; 43 R.P.R. (2d) 1; 91 W.A.C. 241; Caparo Industries plc v. Dickman, [1990] 1 All E.R. 568 (H.L.); Qit Fer Et Titane Inc. v. Upper Lakes Shipping Ltd. (1994), 21 C.L.R. (2d) 122 (Ont. C.A.); Kloeck v. Battenfelder (1985), 64 A.R. 98; [1986] 1 W.W.R. 641; 41 Alta. L.R. (2d) 85 (Q.B.); Union Construction et al., Re (1980), 42 N.S.R. (2d) 622; 111 D.L.R. (3d) 728; 77 A.P.R. 622 (S.C.A.C.).
CONSIDERED:
Olympia Janitorial Supplies v. Canada (Minister of Public Works), [1991] 3 F.C. 374 (1991), 47 F.T.R. 163 (T.D.).
AUTHORS CITED
Bernstein, R. Economic Loss. London: Longman, 1993.
Feldthusen, Bruce. “Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow” (1991), 17 Can. Bus. L.J. 356.
Fridman, G. H. L. The Law of Torts in Canada, Vol. 1. Toronto: Carswell, 1989.
Linden, A. Canadian Tort Law, 5th ed. Markham, Ont.: Butterworths, 1993.
Lordon, P. Crown Law. Toronto: Butterworths, 1991.
“Mechanics’ and Construction Liens” 20 C.E.D. (Ont. 3rd) Title 91.
ACTION by which plaintiff, supplier of materials, sought to recover from the Crown for pure economic loss argued as having been suffered due to the Crown’s negligence in failing to take into account the plaintiff’s interests prior to paying out money owing to plaintiff’s debtor, a maintenance contractor, under a building maintenance contract. Action dismissed.
COUNSEL:
Justin R. Fogarty for plaintiff.
Ian M. Donahoe for defendant.
SOLICITORS:
Beament Green Dust, Ottawa, for plaintiff.
Deputy Attorney General of Canada for defendant.
The following are the reasons for judgment rendered in English by
Wetston J.: The plaintiff, Olympia Janitorial Supplies (Olympia), seeks recovery for pure economic loss suffered as a result of the alleged tortious acts of the defendant. The plaintiff asserts that the defendant was negligent when it failed to take into account the plaintiff’s interests before it paid out money owing under a building maintenance contract.
FACTS
In 1987, the plaintiff began supplying cleaning equipment and materials to J.N.M. Maintenance Limited (JNM), which provided maintenance services to certain federal government buildings. In 1987 and thereafter, JNM contracted with the Department of Public Works (DPW) to clean and maintain a number of government buildings. By March 1989, there were fourteen such contracts, valued at approximately $2 million, in total. At this time, JNM accounted for about 20% of the plaintiff’s business. The plaintiff was not a party to any of the contracts between JNM and DPW.
Initially, JNM met its contractual obligations to the plaintiff; however, by June 30, 1989, JNM had incurred an account balance of $117,946.10. According to Mr. George Petrakos, who testified on behalf of Olympia, the plaintiff did not immediately act on the outstanding payments because payment delays under maintenance contracts are not uncommon. Furthermore, JNM was expanding, and the plaintiff did not wish to place any undue pressure on the growing company. In addition, unbeknownst to the plaintiff at this time, JNM had some performance problems with regard to its contracts with DPW. In fact, it now appears that DPW had reduced some of its payments to JNM due to non-performance.
At the end of June 1989, Mr. Petrakos contacted JNM regarding the outstanding payments. He then received three post-dated cheques, dated July 6, July 28 and August 6, 1989. The cheques were dishonoured, however, due to insufficient funds. In early July 1989, Mr. Petrakos heard rumours that JNM had been sold. In fact, on June 30, 1989, JNM was sold to Les Services d’Entretien d’Immeubles Staf 2000 Inc. (Staf 2000). JNM’s cleaning and maintenance contracts were assigned to Staf 2000 for the sum of $45,000. DPW consented to this assignment.
On July 12, 1989, through its counsel, the plaintiff contacted DPW and claimed entitlement to JNM’s security deposits with DPW. In addition, the plaintiff requested advice from DPW regarding procedures to protect Olympia’s financial interests. Plaintiff’s counsel wrote once again to DPW, on July 18, 1989, and attached a statement of claim in respect of a potential lawsuit against JNM and Staf 2000. The plaintiff also requested that DPW withhold any funds that it intended to pay to JNM under the cleaning and maintenance contracts. On July 21, 1989, DPW made a final payment to JNM, in the amount of $73,733.56, for services rendered to the end of June 1989. On July 24, 1989, defendant’s counsel wrote to the plaintiff, stating that DPW was legally unable to withhold funds that it owed to JNM.
Shortly thereafter, Mr. Petrakos obtained a standard-form cleaning and maintenance contract that was similar to the contracts between DPW and JNM (the contracts). Clause 26.3 of the contracts required security to be posted, and specifically provided for payment on the following terms:
26.3.1 The contractor shall not be entitled to any payment until he has provided contract security pursuant to clause 2.7 of the Tender and Acceptance.
26.3.2 The contractor shall not be entitled to the second or subsequent progress payments until he has provided a statutory declaration testifying as to the payment of labour, materials, tools and equipment supplied under the contract.
Upon reviewing the terms of the contracts, Mr. Petrakos concluded that clause 26.3 was intended to protect third-party suppliers such as Olympia.
Regardless of clause 26.3, it appears that it was DPW’s policy to request a statutory declaration only upon termination of the contracts. In the present case, no statutory declaration was obtained from JNM once it had fulfilled its obligations under the contracts. The plaintiff later decided not to pursue its action against JNM. It was of the view that JNM had no capacity to satisfy a judgment, since its only assets of any value, the maintenance contracts, had been assigned to Staf 2000.
ARGUMENTS OF THE PARTIES
Although it was not a party to the contracts between JNM and DPW, the plaintiff argues that the defendant was under a duty of care to consider the plaintiff’s interests when managing its contracts with JNM. It is contended that this duty arose due to clause 26.3 of the contracts, and as a result of notification of the plaintiff’s concerns. The plaintiff submits that this duty of care was breached because the defendant failed to obtain statutory declarations ensuring payment to subcontractors, as required under the contracts; the defendant paid the balance owing to JNM under the contracts, after it had been notified of the plaintiff’s concerns; and the defendant allowed JNM to assign the contracts to Staf 2000, even though it must have known that such assignment would impair the plaintiff’s chances of collecting any money owing to it. In addition, the plaintiff contends that the assignment agreement between JNM and Staf 2000 was completed with the approval of the defendant, without any notice to the subcontractors of JNM, particularly Olympia. Accordingly, the plaintiff submits that it has suffered damages in the form of pure economic loss. The plaintiff acknowledges that it is entitled not to $117,946.10, but only to $73,733.56, since this amount represents the final settlement of the cleaning and maintenance contracts between JNM and DPW.
The plaintiff asserts that it did not expect the defendant to pay over to Olympia the money that it owed to JNM; rather, the plaintiff wanted the defendant to withhold payment of the final instalment to JNM. This would have given the plaintiff an opportunity to obtain a favourable judgment against JNM, and then execute the judgment by securing the withheld funds. Alternatively, the plaintiff would have been satisfied if the defendant had imposed, in the assignment agreement, conditions regarding payment of the amount owing to JNM. In addition, the money could have been paid into court.
The defendant argues that clause 26.3 in the contracts between JNM and the defendant, pursuant to which the plaintiff seeks to derive some benefit, was not designed to protect subcontractors. The defendant also asserts that the plaintiff has failed to establish vicarious liability on the part of the Crown.
The defendant characterizes the alleged tort as a breach of the duty to administer a contract in the best interests of third parties. The defendant argues that this tort has not previously been found to exist. In the defendant’s opinion, there is no duty, when considering whether or not to assign a contract, to either consult with a third party, or to impose conditions for the purpose of protecting third parties. Alternatively, the defendant denies that the plaintiff has suffered damages at all as a result of the defendant’s activities.
ANALYSIS
The ingredients of liability for the tort of negligence are summarized by G. H. L. Fridman in The Law of Torts in Canada, Vol. 1 (Toronto: Carswell, 1989), at page 233. To succeed with a negligence claim, the plaintiff must establish (i) that he or she was owed a duty of care by the defendant; (ii) that the defendant should have observed a particular standard of care in order to perform or fulfil that duty; (iii) that the defendant broke his or her duty of care by failing to fulfil or observe the relevant standard of care; (iv) that this breach of duty caused damage or loss to the plaintiff; and (v) that such damage was not too remote a consequence of the breach. All of these elements must be satisfied, on a balance of probabilities, in order for the plaintiff to succeed in its action: see also, A. Linden, Canadian Tort Law, 5th ed. (Markham, Ont.: Butterworths, 1993).
1. Duty of Care
The case of Donoghue v. Stevenson, [1932] A.C. 562 (H.L.), first set out the test for determining whether the initial element of a negligence claim, a duty of care, has been established. Lord Atkin stated, at page 580, that one must take care to avoid acts or omissions which one can reasonably foresee would be likely to injure one’s neighbours. The House of Lords subsequently indicated, in Anns v. Merton London Borough Council, [1978] A.C. 728, that a court, in determining whether or not a duty of care was owed in the case before it, must first ask whether, as between the alleged tortfeasor and the plaintiff, there is a sufficient relationship of proximity such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter; if this question is answered affirmatively, the court must then determine if the extension of liability is desirable from a practical or policy point of view.
Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021, at page 1152, established that liability for economic loss will not be imposed in tort cases if there is no connection, or proximity, between the defendant’s negligent conduct and the plaintiff’s loss, which would make it just for the defendant to indemnify the plaintiff. In addition to the actual relationship between the parties, proximity may consist of various forms of closeness, including physical, circumstantial, causal or assumed. In this regard, pure economic loss is prima facie recoverable where, in addition to negligence and foreseeable loss, there is sufficient proximity between the negligent act and the loss. Accordingly, in order for a duty of care to exist, there must be proximity between the plaintiff’s loss and the negligent conduct of the defendant, as well as a reasonable foreseeability that the plaintiff will suffer harm as a result of the acts or omissions of the defendant.
The plaintiff submits that the defendant owed a duty of care for two reasons: clause 26.3 was included in the contracts in order to benefit subcontractors like the plaintiff, and the communications between the parties revealed, to the defendant, the plaintiff’s concerns. The plaintiff further submits that these incidents of reasonably foreseeable harm are indicative of the proximate relationship between the plaintiff and the defendant. In my opinion, however, evidence of reasonably foreseeable harm may not be sufficient to satisfy the additional requirement of proximity. As noted above, McLachlin J., in Norsk, supra, stated that recovery for pure economic loss is prima facie possible where, in addition to negligence and foreseeable loss, there is sufficient proximity between the negligent act and the loss. Similarly, as suggested by G. H. L. Fridman, supra, at page 235, foreseeability does not automatically lead to a finding of a duty of care. Proximity, then, may not necessarily flow from instances of reasonably foreseeable harm; rather, evidence of proximity may be required to establish a duty of care. In my opinion, I must determine, in this case, whether there was sufficient proximity between the plaintiff and defendant to give rise to a duty of care.
(a) Proximity
The plaintiff argues that subcontractors were clearly within the contemplation of the defendant, when it drafted clause 26.3 of the contracts, because no lien is available against Crown property. The plaintiff relies upon an interlocutory decision in the present matter, which dealt with the defendant’s application to strike out the statement of claim. In Olympia Janitorial Supplies v. Canada (Minister of Public Works), [1991] 3 F.C. 374 (T.D.), Reed J. noted that a supplier of materials cannot file a lien against Crown property. She then stated the following, at page 378: “If the clauses were placed in the contracts to benefit suppliers and sub-contractors, when no possibility of a lien being filed exists, then, there is a very good argument that the relationship between the plaintiff and the defendant is very proximate indeed”. Hence, Reed J. concluded that there is a potential argument in this case that clause 26.3 of the contracts was designed specifically for the benefit and protection of suppliers and subcontractors. In other words, she held that the matter should proceed to trial.
The defendant submits that clause 26.3 of the contracts gives the defendant the power to insist upon a statutory declaration; it does not impose a positive duty or obligation to do so. With respect to the specific terms of clause 26.3, the defendant notes that the word “shall” is binding on JNM, but not on DPW. According to the defendant, then, the clause merely ensures that JNM cannot demand payment, or sue DPW for its monthly draw, if it does not give a statutory declaration.
The defendant agrees that a construction lien cannot be filed against federal Crown property. However, in the defendant’s view, the contracts in question are maintenance contracts, to which the construction lien legislation does not apply, regardless of whether or not the property is owned by the Crown. In this respect, the defendant notes the definition of “improvement” in subsection 1(1) of the Ontario Construction Lien Act (the CLA), R.S.O. 1990, c. C.30, as amended, which refers to “any alteration, addition or repair to,” or “any construction, erection or installation on,” any land. This provision has been interpreted to require some lasting physical alteration to the land, building, or property in question: [Mechanics’ and Construction Liens] 20 C.E.D. (Ont. 3rd) Title 91, at page 27. Additionally, section 14 of the CLA provides that any person who supplies services or materials, for the purpose of making an improvement to the owner’s premises, has a lien upon the interest of the owner in the improved premises. In the defendant’s opinion, the provision of janitorial services under a maintenance contract does not constitute an improvement for the purposes of the CLA. Hence, the defendant argues that it is incorrect to suggest that clause 26.3 was included in the contracts because the federal Crown is immune from liens against property; a statutory lien cannot be filed with respect to a maintenance contract in any event.
During argument, the plaintiff noted that an equitable or other lien might have been available, even if a construction lien could not be obtained under the maintenance contracts. However, counsel for the plaintiff did not provide any further argument or support for this assertion.
In essence, I agree with the decision of Reed J. to the effect that a lien cannot be secured against Crown property. However, in the present case, we are concerned with a lien under maintenance contracts. After considering the requirements of the CLA, and other similar legislation, as well as the common law relating to legal and equitable liens, I am unable to conclude that a lien is available to the plaintiff for supplying materials to JNM under maintenance contracts with DPW. Indeed, no lien is available under these circumstances, whether the property in question is owned by the Crown or a private party. Accordingly, I am not satisfied that clause 26.3 was included in the contracts for the specific purpose of protecting subcontractors who would be unable to obtain a lien against the property.
In addition, the discovery evidence of Mr. Robert Matte, Regional Manager for Contracting and Material Management for Public Works Canada, National Capital Region, also suggests that, while clause 26.3 does contemplate subcontractors, it was included in the contracts for the purpose of giving DPW a “comfort feeling” that the general contractors were meeting their lawful obligations to subcontractors. The clause also provides a means to inhibit contractors from suing DPW when payments to subcontractors are outstanding. It appears, then, that clause 26.3 was not included in the contracts for the purpose of protecting third-party suppliers in the manner advanced by the plaintiff. Accordingly, I am unable to find sufficient proximity to establish a duty of care, as argued by the plaintiff.
Furthermore, paragraph 3(a) of the Crown Liability and Proceedings Act (the CLPA), R.S.C., 1985, c. C-50, as amended [by S.C. 1990, c. 8, s. 21], provides that the Crown may be vicariously liable in tort for the harmful acts and omissions of its servants. According to section 10 of the CLPA, the Crown will not be vicariously liable for its servant’s conduct unless such conduct could have given rise to a cause of action in tort against the servant personally. Crown liability in tort is therefore statutory in origin; it is also vicarious, not direct. Consequently, in order to impose liability under paragraph 3(a) of the CLPA, it generally must be shown that a servant of the Crown, acting within the scope of employment, violated a duty owed to the plaintiff. The plaintiff must also establish that injury was caused by the Crown servant, in a manner sufficient to draw personal liability: P. Lordon, Crown Law (Toronto: Butterworths, 1991), at pages 327, 335 and 340.
The defendant submits that there must be a duty owed to the plaintiff by a Crown servant, in order to ground recovery in tort against the Crown. In the defendant’s view, such a person, in an economic loss case, would have to be in a sufficiently proximate relationship with the plaintiff, as there is no direct cause of action in tort available against the Crown. The defendant asserts, however, that there was no proximity between the plaintiff and any Crown servant; therefore, there was no public servant who owed the plaintiff a duty of care in the manner which has been alleged. Consequently, the defendant submits that the Crown cannot be held vicariously liable for the conduct of its employees in the present case.
The plaintiff must show, on a balance of probabilities, that a particular Crown servant, or a number of servants together, committed a tort while acting within the scope of employment: P. Lordon, supra, at page 341. Vicarious liability can only be established in this case if Crown servants were negligent in the administration of the contracts between DPW and JNM, particularly in relation to clause 26.3. However, given my interpretation above, I am not satisfied that this clause can establish sufficient proximity, and therefore vicarious liability, in this case. Moreover, the events which occurred after June 30, 1989, when DPW was informed of the accounts owing to the plaintiff, are, in my opinion, also insufficient to ground vicarious liability in this case.
The plaintiff further submits that a duty of care arose out of the communications which took place between the plaintiff and the defendant. The plaintiff asserts that the defendant was clearly aware of the plaintiff’s concerns regarding payment to JNM under the cleaning and maintenance contracts, before it paid out the final instalment which it owed to JNM. The defendant submitted, however, that it did not have a legal right to withhold the funds which it owed to JNM for services rendered. As a result, the defendant made no statements or representations to the plaintiff which would suggest a sufficiently close relationship with the plaintiff. Furthermore, no information or advice was conveyed by the defendant, upon which the plaintiff relied. Accordingly, while the defendant was aware of the plaintiff’s claims, the communications between the parties did not result in such a proximate relationship that the defendant became subject to a duty to take into account the plaintiff’s interests when administering the contracts with JNM.
Although there is insufficient evidence to establish the proximity which is necessary to support a finding that a duty of care existed, I will nevertheless consider whether the alleged harm was reasonably foreseeable.
(b) Reasonable Foreseeability of Harm
According to G. H. L. Fridman, supra, at pages 237-238, a duty of care arises out of circumstances where reasonably foreseeable harm is avoidable by the exercise of reasonable care. The probability, and not the possibility, of damage must be shown before the defendant will be placed under an obligation to act with care. Similarly, as MacDonald J. stated, in Nova Mink Ltd. v. Trans-Canada Airlines, [1951] 2 D.L.R. 241 (N.S.S.C.), at page 265, it is the postulate of a duty of care that it arises out of circumstances of reasonably foreseeable harm avoidable by reasonable care.
The plaintiff submits that there are two reasons why the defendant must have reasonably foreseen that its conduct could cause harm to the plaintiff. Firstly, the plaintiff argues that clause 26.3 would not have been included in the contracts if the defendant had not foreseen that acts or omissions on its part might be likely to cause damage to subcontractors. Secondly, even if it was not reasonably foreseeable, prior to July 1989, that the defendant’s conduct could potentially cause harm to Olympia, such harm was clearly foreseeable as a consequence of the correspondence between the plaintiff and the defendant, including the notice letter of July 12, 1989. With respect to the nature of the foreseeable loss, the plaintiff asserts that it “would have had a pool of monies available to satisfy a judgment”, if the defendant had not assigned the contracts, or if it had withheld payment to JNM. In this regard, the plaintiff notes that no evidence has been tendered by the defendant to cast doubt on the plaintiff’s ability to successfully recover the full amount owing to it by JNM. Thus, the plaintiff concludes that the defendant must have foreseen that the plaintiff could have attempted to obtain the final progress payment owed to JNM, if the defendant had held back those funds.
The defendant asserts that it was not clear what would have happened if DPW had acted differently. For example, it was unknown whether the plaintiff would have recovered none, or some, or all, of the $73,733.56 which JNM received from DPW. In addition, according to the defendant, if DPW had carried out any of the options suggested by the plaintiff, such as withholding JNM’s final instalment, or insisting upon the statutory declarations, the plaintiff’s position would not have been improved. The plaintiff, in fact, recognizes that JNM needed the money from the defendant, and could not have paid the plaintiff in order to obtain a statutory declaration and receive its final instalment from the defendant.
In my opinion, the uncertain nature of the foreseeable loss, if any, that might have been suffered by the plaintiff as a result of the defendant’s failure to take certain steps is insufficient to satisfy the requirement of reasonably foreseeable harm in this action. From the defendant’s point of view, it was clear that the plaintiff believed that the defendant had the capacity to intervene on the plaintiff’s behalf. However, despite the plaintiff’s expressed concerns, and its communications with the defendant, there is insufficient evidence as to the particular harm which the plaintiff could foreseeably have suffered as a result of the defendant’s conduct. Although it might have been more appropriate for the money to be paid into court, I cannot say, on a balance of probabilities, that the plaintiff would have been successful in obtaining any or all of that money. It was not reasonably foreseeable that the defendant’s conduct could cause the plaintiff to suffer a loss above and beyond the financial loss sustained as a result of non-payment by JNM. The plaintiff may have lost an opportunity to access certain funds, but this falls short of reasonably foreseeable harm as a requirement of a duty of care.
Accordingly, in the absence of the requisite elements of proximity and foreseeable loss, I am unable to conclude that the defendant was under a duty, when completing the contracts with JNM, to take into account the plaintiff’s interests.
(c) Pragmatic Considerations
The plaintiff contends that the damage that has flowed from the negligent conduct of the defendant is the lost opportunity to obtain the $73,733.56 which the defendant paid over to JNM. The plaintiff therefore argues that this is a clear case of economic loss. In the absence of a duty of care, I need not fully consider whether the facts of this case satisfy all of the criteria of the tort of economic loss, as established in Norsk, supra. Nevertheless, I will further determine whether, as a matter of policy, the plaintiff should be denied a right to recover from the defendant in the present case.
According to McLachlin J., in Norsk, supra, at page 1137, the reasonable foreseeability of harm is not the only limit placed on liability in economic loss cases. It is also necessary to limit recovery for practical, policy reasons. In this regard, McLachlin J. relied upon the oft-quoted comments of Cardozo J., in Ultramares Corporation v. Touche, 174 N.E. 441 (N.Y. 1931), who stated, at page 444, that limits are needed to prevent “liability in an indeterminate amount for an indeterminate time to an indeterminate class”. McLachlin J. went on to state, at page 1139, that restrictions on the potentially unlimited liability which can theoretically flow from negligence are necessary, as potential defendants must be able to gauge the extent of the risk they incur. Furthermore, at page 1154, McLachlin J. held that distant losses which arise from collateral relationships do not qualify for recovery. In a separate, but concurring, decision, Stevenson J. noted, at page 1176, that it is indeterminate liability, not infinite liability, which is the concern in recognizing new categories of economic loss. In his view, it would be oppressive to expose defendants to indeterminate liability.
There have been numerous attempts over the years to classify the various types of economic loss for which recovery may be possible: see, e.g., Canadian National Railway Co. v. Norsk Pacific Steamship Co., supra, at page 1054, per La Forest J. (dissenting); R. Bernstein, Economic Loss (London: Longman, 1993), at pages 2-9; and B. Feldthusen, “Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow” (1991), 17 Can. Bus. L.J. 356, at pages 357-358. While it is clear that there are many ways to classify the situations in which compensable economic loss may arise, the categories of economic loss continue to expand. In the recent case of Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85, for example, the Supreme Court of Canada departed from the long-standing rule that there can be no recovery in tort for economic loss where there is not, in addition to financial loss, damage to person or property.
Nevertheless, it is very difficult to identify any particular category which would encompass the fact situation in the present case. In my view, what was lost in this case was an opportunity, rather than a sum of money. In examining the categories of economic loss, as set out in Norsk, supra, and Winnipeg Condominium, supra, it is not obvious that the case advanced by the plaintiff fits within, or even resembles, any of the previous categories of economic loss cases. The plaintiff has not suffered harm to person or property, nor was its loss consequent upon such physical harm; furthermore, damage to person or property does not appear imminent as a result of the actions of the defendant, as was the case in Winnipeg Condominium. In addition, there is no issue of negligent misrepresentation. What the plaintiff has suffered is not a pecuniary loss, as between itself and the defendant, but an opportunity foregone. In my opinion, in these circumstances, there is a risk of liability in an indeterminate amount. Therefore, the defendant should not be held liable for a type of loss that cannot be characterized and quantified with any degree of certainty. While I do not suggest that there is a finite class of economic loss cases, I am not satisfied that the plaintiff’s case merits an expansion of the categories of recoverable economic loss.
A number of cases were cited to me as examples where a plaintiff has been compensated for economic loss suffered by the acts or omissions of the defendant. In my opinion, the cases of Edgeworth Construction Ltd. v. N. D. Lea & Associates Ltd., [1993] 3 S.C.R. 206; Queen v. Cognos Inc., [1993] 1 S.C.R. 87; and Caparo Industries plc v. Dickman, [1990] 1 All E.R. 568 (H.L.), are inapplicable, as they dealt with negligent misrepresentations. The cases of Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., supra, Qit Fer Et Titane Inc. v. Upper Lakes Shipping Ltd. (1994), 21 C.L.R. (2d) 122 (Ont. C.A.); and Kloeck v. Battenfelder (1985), 64 A.R. 98 (Q.B.), are distinguishable, as they all dealt with a property owner suing a subcontractor who did repair work. In the present case, we have the reverse situation, where a subcontractor is suing a property owner. The case of Union Construction et al., Re (1980), 42 N.S.R. (2d) 622 (S.C.A.D.), is also distinguishable in that it dealt with a claim by sub-subcontractors for monies held back by a contractor pursuant to a statutory hold-back provision.
Where a new category of claim for pure economic loss arises, the Court should consider the matter from the doctrinal point of view of duty and proximity, and from the pragmatic perspective of the purposes served and the dangers associated with the extension sought: per McLachlin J., in Norsk, supra, at page 1150. Having concluded that there is no proximate relationship between the defendant’s conduct and the plaintiff’s lost opportunity, that it was not reasonably foreseeable that harm would come to the plaintiff as a result of the defendant’s conduct, and that the loss which the plaintiff claims to have suffered is uncertain, I am of the opinion that the present case is not one in which a new category of claim for pure economic loss should arise.
2. Causation
The defendant further submits that the plaintiff has not established that the defendant’s alleged failure to administer the contracts in the plaintiff’s best interests caused an actual loss. The defendant notes that it was not practical for JNM to pay off the $117,946.10 debt owed to the plaintiff, and then obtain a statutory declaration, in order to receive only $73,733.56 from DPW. The defendant, therefore, could not have insisted upon the presentation of a statutory declaration, before fulfilling its own contractual obligation to JNM, so as to avoid liability for non-payment under the contracts. If the defendant had chosen to withhold JNM’s final payment, the money still would not have been received by the plaintiff. Hence, the defendant argues that its failure to demand the submission of a statutory declaration, or its failure to withhold final payment to JNM, did not cause harm to the plaintiff.
The defendant asserts that the plaintiff extended credit to JNM on the basis of a belief that there was security in place to protect subcontractors such as Olympia. However, in reality, no such security was available. The defendant therefore submits that this mistaken belief on the part of the plaintiff contributed to the cause of the financial loss sustained by the plaintiff. Accordingly, the defendant contends that any loss which the plaintiff has suffered due to non-payment under the contract between JNM and the plaintiff was not caused by the conduct of the defendant. In the defendant’s view, the loss which was suffered by the plaintiff would have occurred regardless of the acts of the defendant. Thus, the defendant argues a lack of causation.
In response, the plaintiff noted at trial that it could only speculate as to the results which would have been produced, had the defendant acted in a different manner. However, the plaintiff did argue that there was no evidence from the defendant that Olympia would not have succeeded against the full amount of the final payment which JNM obtained from the defendant.
With regard to causation, the onus is on the plaintiff to prove, on the balance of probabilities, that the defendant’s breach of its duty of care caused the particular loss which the plaintiff has suffered. As noted by Ilsley C.J., in Nova Mink Ltd. v. Trans-Canada Airlines, supra, at page 244, the necessary causation is not made out where the plaintiff cannot meet its burden of showing that the defendant would have made some difference, or done some good, if it had acted in the manner which the plaintiff asserts would satisfy the requisite standard of care.
While the defendant could have paid into court the money owing to JNM, I am not satisfied that damage or harm to the plaintiff flowed from the conduct of the defendant. Although the plaintiff has suffered a loss, this clearly resulted from the actions of JNM. This loss flowed from routine risks associated with business transactions. The defendant’s acts or omissions have not caused the plaintiff to lose money, or to suffer any type of pecuniary loss. On balance, the plaintiff’s lost opportunity to obtain a judgment for the monies owing is insufficient to support the element of causation.
In conclusion, I am not satisfied that the plaintiff has established a claim for economic loss against the defendant in negligence. Accordingly, the action shall be dismissed. At trial, the defendant indicated that it would not be seeking costs, in the event that it is successful. Thus, there shall be no order as to costs.