Milton Verskin |
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barrister and solicitor practicing in Toronto, Ontario |
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2. DAMAGES |
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2.1 Negligence Causing Unforeseeable Damage
At the bank of a river I moor my ship. I do so negligently, with the result that it breaks loose. Frantic efforts to stop it do not succeed. It drifts downstream and crashes into a bridge, the bridge collapses, the river floods, the water fills your warehouse, your complete stock of pickled herring loses its flavour.
Although this is a complicated and surprising chain of events which causes your loss, I must compensate you for the value of your stock.
Now consider an even more complicated chain of events. On this same river there is another boat which has a cargo of pickled onions destined for your warehouse. Because of the flood, the cargo must be offloaded downstream and transported to you by road at great cost. The extra cost of transport is a direct result of my negligence. Nevertheless, this second chain of events is too complicated to allow you to claim it from me.
Why are the two cases different?
There is no clear rule. As a matter of policy, the courts do not want to saddle a negligent but otherwise virtuous person with too much liability. They draw a line between damages which are recoverable and damages which are too remote.
In drawing this line, judges consider whether the wrongdoer, while failing to take proper care, should have foreseen that such damage could come about. They consider whether my negligence was a major factor in causing the damage and whether there are other causes as well. They consider the seriousness of my negligence as compared to the extent of the damage. They can consider almost any factor which strikes them as fair. One judge recently said that it was a matter of “instinctive feeling.”
It is not surprising, therefore, that different judges may reach different conclusions in similar cases.
What if I deliberately let the ship loose? In that case different considerations govern. Almost no damage would be regarded as too remote and I would have to compensate you not only for your pickled herring but also for the extra cost of transporting your pickled onions.
2.2 Liability for Negligent Statements
There are many circumstances where people who make false statements must pay damages for the loss they have caused. Consider these examples.
I give my accountants a falsely glowing picture of my business. Using my figures, they prepare falsely glowing financial statements. Elated by the false glow, you buy my business. I must pay you damages and there is a good chance that, if you want to, you can get completely out of the deal.
But what about my accountants?
If they know that the figures are false but put them in because of their longstanding fondness for me, they are guilty of fraud and a court will order them to pay damages.
Often in this kind of case the accountants do not know that the figures are false, but, as competent professional people, they really should have known. In other words, they prepared the financial statements negligently.
The legal principal here is clear. If, when they are negligent, the accountants should have foreseen that a particular kind of loss might occur, they must pay damages. If they could not have foreseen it, they are not liable.
Apply this to our situation.
Assume that I told the accountants that I would use the financial statements to sell my business. They should have foreseen that any mistake by them could harm a buyer. They must therefore compensate you for the loss which their negligent work has caused you.
By contrast, if I told the accountants that I would give the financial statement to a bank to raise the loan, they could have foreseen damage to a bank, but probably not to a buyer, and they would not be liable to you.
The same applies to any number of other situations. I sell a machine and my engineer gives a flattering report about it. I apply for a job and my friend says nice things about me. I apply for credit and my bank says that I have massive assets. If they negligently failed to tell the truth, my engineer, my friend, and my bank are liable for the foreseeable consequences of their negligence.
The case of Haig v Bamford went all the way to the Supreme Court of Canada.
A firm of accountants prepared a financial statement for a client, knowing that the client intended to use it to persuade investors to invest in its business.
Through sheer professional negligence, the financial statement contained a serious error. It showed as income some money that was actually a prepayment on work yet to be done. And, as things turned out, the work was not done, with the result that the money had to be repaid and financial statement was unduly glowing.
Relying on the financial statement, Haig invested money in the company and the firm of accountants had to pay compensation for whatever loss their negligence had caused.
Hedley Byrne and Co v Heller and Partners is an English case which went to the House of Lords, which is the highest court of appeal in the United Kingdom.
A firm of advertising agents intended to pay for newspaper advertisements for a client on the understanding that they would be reimbursed. Because a substantial sum of money was involved, they did a credit check with their client's bank. The bank said that the client's credit was good and the advertising agents therefore went ahead with the advertisements.
It turned out, however, that the bank gave its advice negligently. The client's credit was not good, the advertising agents were not reimbursed, and they sued the bank for damages.
The House of Lords held that in these circumstances the bank would ordinarily be liable.
However, there was a special feature in this case. When giving their advice, which they did in writing, the bank added these important words: "For your private use and without responsibility on the part of the bank or its officials." Since the bank gave the advice on the clear understanding that it would not accept responsibility, it was excused from liability.
In both these cases, it was the liability of the corporate entity or partnership which was considered. In each case, however, it was an individual person, an employee or agent, who was actually giving the advice. What is the position of the employee?
The case of Hall-Chem v Vulcan Packaging, an Ontario case, gives an answer.
Vulcan sold goods to a corporation called Qualilab. Because a large sum of money was involved, Vulcan needed reassurance regarding payment. Qualilab gave that assurance. They said that they had resold the goods to someone in Western Canada who would be paying for them shortly.
However, that sale had not been finalised and Qualilab's statement was made negligently.
In these circumstances, Qualilab was obviously liable to Vulcan for whatever loss these misstatement had caused.
Now the person who actually made the misstatement on behalf of Qualilab was the president, a Mr. Belec. It was he who spoke to representatives of Vulcan and who wrote the letter to them.
To understand the approach adopted by the court, three points of law must be understood:
- When an employee enters into an agreement on behalf of his employer, it is only the employer who has the duty to carry out its terms. The employee has no duty at all flowing from the agreement.
- When an employee breaches his employer's agreement, it is usually only the employer who must pay damages.
- however, when an employee, acting on behalf of his employer, commits a tort, both the employee and the employer must pay damages. Each is liable to the victim for the full amount, and once the one pays, the other, of course, is excused.
A tort is in many ways like a crime. It is a wrong committed by one person against another. If I crash into your car, negligently or on purpose, I commit a tort. If I defame you, I commit a tort. A breach of contract by itself is not a tort, although it sometimes happens that a person commits a breach of contract which is also a tort.
If there is an agreement which requires a person to give information, and he gives wrong information, so misrepresenting the facts, his misrepresentation is a breach of contract. But if he made that misrepresentation negligently, his breach of contract is also a tort, the tort of negligent misrepresentation.
In this case, it was Belec who misled Vulcan by making a misrepresentation. That was a breach of Hall-Chem's agreement and Belec could not be held liable for that. However, because his breach of contract was also the tort of negligent misrepresentation, the court held him personally liable, together with Hall-Chem, to pay damages.
Exactly when employees must bear personal responsibility for the wrongs they commit in the course of their employment can often be difficult to determine and legal opinion should be sought in the light of all the relevant circumstances.
2.4 Negligent Manufacturers and Repairers
These were the facts in the very famous case of Donaghue v Stevenson, a decision of the House of Lords, the highest court of appeal in the United Kingdom. Mrs. Donaghue and her friend visited Minchella's Restaurant in a pretty little village in Scotland, where they ordered two slabs of ice-cream and a bottle of ginger beer. You could not see the ginger beer itself, because it came in an attractively designed bottle made of dark, non-transparent glass. The sharpness of the ginger and the gentle sweetness of the vanilla combined to give the two women a pleasant quarter of an hour's relaxation.
When Mrs. Donaghue had finished share of the ginger beer, she stretched her hand across the table, lifted up the bottle, brought it to her glass, and poured out a second helping - and with it came an aerated, partially decomposed snail, which floated, bit by bit, to the top of her glass. Shock and nausea immediately overcame her, followed by days of severe gastro-entiritis.
When these unpleasant symptoms subsided, Mrs. Donaghue established that it was Mr. Stevenson who had manufactured the ginger beer and she sued him for damages.
This was the argument which Mr. Stevenson raised in his defence. He had sold the ginger beer to Mr. Minchella of Minchella's Restaurant and had sold nothing at all to Mrs. Donaghue. Therefore, he said, he owed a duty of care only to Mr. Minchella and it was only Mr. Minchella who owed a duty of care to Mrs. Donaghue. Therefore, he said, if any damages had to be paid to her, it was Mr. Minchella who was liable to do so. This may seem like a very strange defence, but at the time it was generally regarded as valid.
However, the House of Lords felt that it was time to develop the law to give members of the public the protection which fairness seems to require. Lord Macmillan said: "He manufactures his commodities for human consumption; he intends and contemplates that they shall be consumed. By reason of that very fact he places himself in a relationship with all the potential consumers of his commodities, and that relationship imposes upon him a duty to take care to avoid injuring them."
So this is the position. Until then, it was clear that, if Mr. Stevenson negligently allowed a snail to decompose in the ginger beer which he manufactured, he had to pay damages only to the person to whom he sold the ginger beer, that is, to Mr. Minchella. But Lord Macmillan changed the law. Now, if Mr. Stevenson knows that Mr. Minchella will sell the ginger beer to his customers, Mr. Stevenson must also pay damages to those customers. Donaghue v Stevenson is therefore an important landmark in the development of this branch of the law.
Mr. Stevenson knew that members of the public would consume his product, he owed these consumers a duty to be careful in the way he manufactured his product, and therefore he was obliged to compensate Mrs. Donaghue.
This case has generally been followed in commonwealth countries. Lord Macmillan dealt with a food product, but, since then, cases have come up dealing with any number of other types of products.
Furthermore, it is not only the manufacturer who is liable for his negligence. Any person who takes a part in getting a product to the consumer must carry out his duties with care and, if he fails to do so, he will be liable for whatever loss his negligence causes the consumer. The person who bottles the ginger beer, the person who assembles a machine or a piece of furniture, the person who installs a machine, the person who manufactures a component which is then inserted into a product by a main manufacturer, the person who writes the instruction manual explaining how a piece of equipment is to be used, the person who repairs a machine or even a house, all of these are liable if they fail to perform their jobs with proper care.
In an English case, a woman, the tenant in a house, hurt herself when her high-heeled shoe went through a hole in the floor and she recovered damages from the careless person who built the house.
Furthermore, a wholesaler or distributor will usually be liable together with the manufacturer if he puts his label on the product.
From the point of view of the injured consumer, the legal position seems to be very fair. There is, however, a problem for the person who strives to make a living manufacturing or repairing goods. Mr. Justice Lebel put the matter thus in an Ontario case in 1956 with regard to a motor mechanic. "His responsibility may extend to an indefinite number of persons for indefinite amounts of money over indefinite periods of time. The person who repairs the brake of a motor vehicle, for instance, must be assumed to know that, if his work is done carelessly, that vehicle may cause injury and damage not only to his customer, but also to others who may be passengers in the vehicle or lawfully on the highway. "
The practical answer is threefold. First, be as careful as you can. Second, insure. Third, consult your lawyer in advance to make certain that you limit your potential liability as much as possible. There are reasonable ways to do that.
2.5 The Amount of Damages
If I race at a hundred miles an hour through a busy downtown street and crash into your car, you can sue me for damages. You will get compensation for the loss which I have caused you.
But if, by some miracle, your car was undamaged, you may bemoan my misconduct, but I need pay you no money.
Take this more realistic example.
You want to buy a property for ten million dollars to build a small shopping plaza. A surveyor assures you that it is zoned “commercial” and you buy it. Later you learn that this was negligent advice. The zoning is “agricultural”, you cannot build your shopping plaza, and you can resell for no more than one tenth of what you paid for it.
Your surveyor has caused you to loose nine million dollars and that is the amount of damages which he must pay.
But what if you go to the planning authorities and tell them your story? They look at the property and come to the conclusion that that is exactly where the public needs to shop. They allow you to continue building and pass a new zoning by-law.
The situation is the same as with your miraculously unscratched car. The surveyor has seriously wronged you, but, because you have suffered no loss, you cannot get damages from him.
Say I crash into your car and the next day you must take it to the garage. But the mechanic has only to replace a worn fan-belt which you should have replaced last year. Obviously you have no claim against me because the repair had nothing to do with the crash.
Now consider the surveyor again. He gives you wrong advice, you pay ten million for the property and then you learn something which you ought to have investigated before. The soil is waterlogged, it is impossible to build anything on it, it can be used only for grazing pigs, no normal person would pay more than half a million dollars for it, irrespective of its zoning.
The situation is the same as with your worn fan-belt. The surveyor has seriously wronged you and you really have suffered loss, but your loss has nothing to do with his wrong advice. |
