Contents
Big v Small Ideas ........................................................................................................................................ 4
Harrison v. Carswell (1975), 62 D.L.R. (3d) 68 (S.C.C.) ...................................................................... 4
Neal Gabler, “The Elusive Big Idea” 2011 ............................................................................................. 5
Private Law and Public Interest .................................................................................................................. 6
K.L.B. v British Columbia [2003] 2 SCR 403 ........................................................................................ 6
Bazley v. Curry [1999] 2 SCR 534 ....................................................................................................... 10
Dobson v Dobson [1999] 2 SCR 753.................................................................................................... 12
Daniel A. Farber and Philip P. Frickey ‘In the Shadow of the Legislature: The Common Law in the
Age of the New Public Law’ ................................................................................................................ 13
The Common Law Moment (Contracts) ................................................................................................... 16
Hadley v. Baxendale 9 Exch. 341, 156 Eng.Rep. 145 (1854) .................................................................. 16
Transfield Shipping Inc v. Mercator Shipping Inc [2009] 1 AC 61 ..................................................... 16
L.L. Fuller and William R. Perdue, Jr., “The Reliance Interest in Contract Damages: 1” (1936) 46
Yale L.J. 52 ........................................................................................................................................... 18
The Common Law Moment (Tort) ........................................................................................................... 22
Donoghue v. Stevenson [1932] AC 562 ................................................................................................... 22
Percy Winfield, ‘Chapter 3: Tort Defined’ in The Province of the Law of Tort (Cambridge: University
Press, 1931) pp. 32-39 .......................................................................................................................... 25
McPherson v Buick Motor Co. (1916) 217 NY 382, 111 N.E. 1050 .................................................... 25
The Common Law Moment (Tort) Lost ................................................................................................... 26
Chester v. The Council of the Municipality of Waverley (1939) 62 CLR 1 ............................................ 26
Karl N. Llewellyn The Bramble Bush; on our law and its study (New York, Oceana
Publications, 1951) pp. 58-69 ............................................................................................................... 28
David J. Ibbetson A Historical Introduction to the Law of Obligations (Oxford: Oxford University
Press, 1999) pp.188-196 ....................................................................................................................... 30
Interpreting Donoghue .............................................................................................................................. 32
Candler v. Crane Christmas & Co [1951] 1 All ER 426 (C.A.) ........................................................... 32
Hedley Byrne v. Heller [1964] AC 465 ................................................................................................ 33
Home Office v. Dorset Yacht Co. Ltd. [1970] AC 1004 ...................................................................... 35
Cass R. Sunstein, ‘On Analogical Reasoning’ (1993) 106 Harv. L. Rev. 741 ..................................... 38
Proximity and the problem of pure economic loss ................................................................................... 42
Rivtow Marine Limited v. Washington Iron Works [1974] SCR 1189................................................ 42
Kamloops v. Nielsen [1984] 2 SCR 2................................................................................................... 43
1
John P. S. McLaren: ‘The Dickson Approach to Liability in Tort’ in DeLloyd J Guth (ed.) Brian
Dickson at The Supreme Court of Canada 1973-1990 (Winnipeg: Canadian Legal History Project,
1998) ..................................................................................................................................................... 45
Proximity and the problem of pure economic loss ................................................................................... 46
Winnipeg Condominium Corp no 36 v. Bird Construction Co. [1995] 1 SCR 85, 121 DLR (4th) 193 46
Hercules Management v. Ernst & Young [1997] 2 SCR 165 ............................................................... 49
Desmond Manderson, Proximity, Torts and the Soul of Law (Montreal: McGill-Queen’s University
Press, 2006) Chapter 5 Parts II and III .................................................................................................. 51
Proximity and Pure Economic Loss: Setting Limits ................................................................................. 52
D. & F. Estates v. Church Commissioners [1989] 1 AC 177 ............................................................... 52
Murphy v. Brentwood [1991] 1 AC 398............................................................................................... 54
Carl F. Stychin ‘Dangerous Liaisons: New Developments in the Law of Defective Premises’ (1996)
16 Legal Studies 387 ............................................................................................................................. 55
Proximity and Relational Economic Loss................................................................................................. 58
Canadian National Railway v. Norsk Pacific Steamship Co. [1992] 1 SCR 1021 ............................... 58
Bow Valley Husky (Bermuda) Ltd v. Saint John Shipbuilding Ltd [1997] 3 SCR 1210 ..................... 61
Cooper v. Hobart (2001) 3 SCR 537 .................................................................................................... 63
Beverly M. McLachlin ‘Evolution of the law of private obligation: The Influence of Justice La Forest’
in R. Johnson et. Al. (eds) Gérald V La Forest at the Supreme Court of Canada, 1985-1997
(Winnipeg: Canadian Legal History Project, Faculty of Law, University of Manitoba, 2000) ........... 65
Conflict, Choice and Convergence: The Tort and Contract Nexus .......................................................... 67
BG Checo International v. BC Hydro and Power Authority [1993] 1 SCR 12 .................................... 67
Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145 ....................................................................... 70
John G. Fleming ‘Tort in a Contractual Matrix’ (1995) 33 Osgoode Hall L.J. 661 ............................. 72
Who is a Fiduciary? .................................................................................................................................. 74
Canadian Aero Service Ltd. v. O'Malley [1974] S.C.R. 592 ................................................................ 74
Galambos v. Perez, [2009] 3 S.C.R. 247 .............................................................................................. 75
Paul B. Miller, “A Theory of Fiduciary Liability” (2011) 56:2 McGill LJ 235 ................................... 77
How close? Fiduciary obligations in the Commercial Context ............................................................... 80
Lac Minerals Ltd v. International Corona Resources Ltd [1989] 2 SCR 574, 61 DLR (4th) 14........... 80
Cossman and Hoffstein ‘Disputes Involving Trusts: The Canadian Experience’ in (ed) Nedim Peter
Vogt Disputes Involving Trusts (Basel: Helbing & Lichtenhahn, 1999) pp 45-50, 74-78 ................... 83
Unjust Enrichment .................................................................................................................................... 84
Deglman v. Guaranty Trust Co. of Canada, [1954] S.C.R. 725, [1954] 3 D.L.R. 785. ........................ 84
Peel (Regional Municipality) v. Canada; Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762
............................................................................................................................................................... 85
2
Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629 ......................................................................... 87
Lionel Smith, “Demystifying Juristic Reasons” (2007) Can Bus. L.J. 281 .......................................... 88
Constructive Trusts ................................................................................................................................... 90
Pettkus v. Becker, [1980]2 S.C.R. 834.................................................................................................. 90
Soulos v. Korkontzilas, [1997] 2 S.C.R. 217 ........................................................................................ 91
Tracy v. Instaloans Financial Solution Centres (B.C.) Ltd. [2010] 9 W.W.R. 11, 320 D.L.R. (4th) 577
(BCCA) ................................................................................................................................................. 93
Robert Chambers, 'Constructive Trusts in Canada' (1999) 37 Alta.L.Rev. 173 ................................... 94
Expert evidence ......................................................................................................................................... 97
Frye v. United States (1923) 293 F. 1013 (CA, D.C.) .......................................................................... 97
Daubert v. Merrell Dow Pharmaceuticals, Inc. (1993), 509 U.S. 579 .................................................. 97
R v. J [2000] 2 S.C.R. 600 .................................................................................................................... 99
Stephen Breyer, “The Interdependence of Science and Law” (1998) 82 Judicature 24 ....................... 99
Proximity and Relational Personal Loss ................................................................................................. 100
Rhodes v Canadian National Railway (1990) 75 DLR (4th) ............................................................... 100
Shauna Van Praagh, “Who Lost What?: Relationship and Relational Loss” (2002) 17 Sup. Ct. L. Rev.
(2d) 269 ............................................................................................................................................... 102
Judicial style and the extension of principle ........................................................................................... 103
Miller v. Jackson (1977) Q.B. 966 ...................................................................................................... 103
Desmond Manderson, Proximity, Torts and the Soul of Law (Montreal: McGill-Queen’s University
Press, 2006) Chapter 4 Parts III and IV .............................................................................................. 105
Dennis R. Klinck ‘This Other Eden: Lord Denning's Pastoral Vision’ (1994) 14 Oxford Journal of
Legal Studies 25-55 ............................................................................................................................ 105
Richard Posner ‘Cardozo’s Judicial Technique’ in Cardozo: A Study in Reputation (Chicago: Chicago
University Press, 1990) ....................................................................................................................... 107
Benjamin N. Cardozo ‘Lecture III: The Method of Sociology. The Judge as Legislator’ in The Nature
of the Judicial Process (New Haven: Yale University Press, 1921) pp. 102-115 .............................. 108
Creativity and change ............................................................................................................................. 108
Lord Devlin, ‘Judges and Lawmakers’ [1976] Modern Law Review 1 ............................................. 108
Lord Goff, ‘The Future of the Common Law’ (1997) 46 Int’l & Comp. L.Q. 745 ............................ 110
3
Big v Small Ideas
Harrison v. Carswell (1975), 62 D.L.R. (3d) 68 (S.C.C.)
Facts
 Employee of a tenant in a shopping centre participated in a lawful strike
 Picketed peacefully on the sidewalk in front of the tenant’s premises
 Employer took no action to prohibit the picketing
 Shopping centre owner told the picketer that picketing was not permitted in any area
 Owner charged her under the Petty Trespasses Act
Issue
 Whether a shopping centre owner can have sufficient of a sidewalk to support a charge of trespass
o Did the owner divest itself of possession so as to make the shopping centre sidewalk a public way
upon which there could be no trespass
 Discussion about the eternal tension in common law courts between deference to stare decisis and whether the
court can adapt and evolve judge-made law in the face of changing realities and potent policy reasons
Reasoning
Laskin’s dissent
 A similar case is Peters
o Picketing in a shopping centre
o Picketing caused by a boycott, not a labour dispute
 Laskin hopes to free himself from the shackles of precedence by narrowing the precedence set in the Peters
case
o “The Peters case is neither in law nor in fact a controlling authority for the present case, but it will
enable the Court to consider both law and fact as it deals with the specific case at hand; the position of
a shopping centre owner and of the lawful picket in a legal strike
 Statement against blind adherence to precedence
o “This Court cannot be simply mechanistic about previous decisions…If we were to say that the Peters
case decides this case, we would be to take merely one side of a debatable issue and say that it
concludes the debate without the need to hear the other side.”
 The Court is free to depart from previous decisions in order to support the pressing need to re-examine current
cases
o “This Court has not shown itself to be timorous in tackling important where it could be said that an
important consideration was absent from an earlier judgment, upon which reliance was placed to
foreclose examination of a similar issue in a subsequent case
 This case turns upon the ancient legal principle of trespass
o “To say in such circumstances that the shopping centre owner may, at his whim, order any member of
the public out of the shopping centre on penalty or liability for trespass if he refuses to leave, does not
make sense if there is no proper reason in that members conduct or activity to justify the order to
leave.”
o The considerations which underlie the protection of private residences cannot apply to the same
degree to a shopping centre in respect of its parking areas, roads and sidewalks
o Those amenities are closer in character to public roads and sidewalks than to a private dwelling
o To assimilate them to private dwellings is to urge that if property is privately owned, no matter the use
to which it is put, trespass is as appropriate in the one case as in the other and it does not matter that
possession is present or not
 This is a use of theory which does not square with economic or social fact under the
circumstances of the present case
 Why does the shopping centre owner invoke trespass?
4
o
o
o


There is no challenge to title nor possession
No challenge to privacy when members of the public use those amenities
Should he be allowed to choose what members of the public come into those areas when they have
been opened to all without discrimination?
o Shopping owner contends that it is unnecessary that there be a reason that can stand rational
assessment for him to invoke the right of trespass
 “Can the common law be so devoid of reason as to tolerate this kind of whimsy where public
areas of a shopping centre are concerned?”
The present case involves a search for an appropriate legal framework for new social facts which up the
inaptness of an old doctrine developed upon a completely different social foundation
The Court will draw lines here as it does in other branches of the law as may be appropriate in the light of the
legal principle and particular facts
Dickson for the Majority
 “I find it difficult, indeed impossible, to make any well-founded distinction between case and Peters.”
o “This case and the present came to us on much the same facts, picketing within a shopping centre in
connection with a labour dispute
o “There has been no suggestion that Peters was wrongly decided; therefore, I would think it must be
regarded as controlling unless it can properly be distinguished from this case.
 What is the role of the Court when dealing with important and difficult political and socio-economic issues?
o The resolution of these issues, by their nature, will be arbitrary and embody personal economic and
social beliefs.
o The duty of the Court is to proceed in the discharge of its adjudicative function in a reasoned way
from principled decisions and concepts
 “I recognize without hesitation that judges do and must legislate, but they can do it only
interstitially; they are confined from molar to molecular actions.”
 “The judge, even when he is free, is still not wholly free. He is not to innovate at pleasure. He
is not a knight-errant, roaming at will in pursuit of his own ideal of beauty or of goodness. He
is to draw his inspiration from consecrated principles.
o “It is one thing for a court to seek to extend the application of accepted principles to new cases or to
reason from the…settled legal principles to new conclusions…”
 It is an entirely different thing for a judge who is discontented with a result held to flow from
a long accepted legal principle deliberately to abandon the principle in the name of justice or
of social necessity or of social convenience.”
 “If there is to be any change in this statute law, it would seem to me that such a change must be made by the
Legislature, which is representative of the people and designed to manifest the political will, and not by this
Court.”
Ratio
 Two common themes that we will continue to see this year
o Role of the court v role of the legislator
o Adherence to precedence v distinguishing from precedence
Neal Gabler, “The Elusive Big Idea” 2011



“We are living in an increasingly post-idea world
o A world in which big, thought-provoking ideas that can’t instantly be monetized are of so little
intrinsic value that fewer people are generating them and few outlets are disseminating them”
Many reasons for this retreat from ideas:
o “There is the retreat in universities from the real world, and an encouragement of and reward for the
narrowest specialization rather than for daring – tending plotted plants rather than planting forests”
The real cause may be information itself:
5
“In the past, we collected information not simply to know things. That was only the beginning. We
also collected information to convert it into something larger than facts and ultimately more usefulinto ideas that made sense of the information.
o “We should not just to apprehend the world but to truly comprehend it, which is the primary function
of ideas.”
But now, we are inundated with so much information that we wouldn’t have time to process it even if we
wanted to.”
o Trivial information is pushing out significant information
o Information, trivial or not, is pushing out ideas
 We prefer knowing to thinking because knowing has more immediate value
 It keeps us in the loop, keeps us connected to our friends
o We have become information narcissists
o We are reducing our arguments, theories and dissertations to 140-character tweets
 The gab of social networking tends to shrink one’s universe to oneself and friends
There is a vast difference between profit-making inventions and intellectually changing thoughts
o While these ideas may change the way we live, they rarely transform the way we think
o


Private Law and Public Interest
K.L.B. v British Columbia [2003] 2 SCR 403
Facts
 Children suffered abuse in both foster homes; humiliated and felt worthless
 Prior to foster home placement, government ministers had interviewed the first foster parent
o Her report stated that she was dishonest and insincere about what went on in her home
o Report had warning that placements should only be made in her home on a short-term basis
o Social workers disregarded the reports as they felt it was more important to keep the children together
and this was the only home where this could happen
 Children’s unhappiness was not probed by social workers during their infrequent visits
 Children eventually permanently moved to another foster home
o As there were no record exchanges between provinces, social workers did not know that foster parent
had been denied placements in Alberta as he had drugged a kid
o Social workers were not aware that foster parent had their foster children removed after they had hit a
foster child with a knife
o Social workers did not read the little file information they had on foster parents
o They did not ask the foster parents about their history as foster parents
 Children were sexually abused and assaulted
 After six weeks, social workers assumed all was well and stopped regular visits
 Children removed after one of them told mother that they had welts from being whipped
Issue
 Is there any legal basis on which the government could be held liable for the harm that the appellants suffered
in foster care?
 Issues of negligence, vicarious liability, non-delegable duty and fiduciary duty arise here
Reasoning
 4 possible scenarios of liability on the government
o Direct negligence
o Vicarious liability for the tortious conduct of the foster parents
o Breach of non-delegable duty
o Breach of fiduciary duty
6


Direct negligence
o Direct negligence, when applied to legal persons such as bodies created by statute, turns on the
wrongful actions of those who can treated as principal organs of that legal person
o Causation should be assessed under a robust and pragmatic approach
 Causation need not be determined with scientific precision
 Common sense approach sensitive to the realities of the situation
o Government had a duty under the Protection of Children Act to make such arrangements for the
placement of a child in a foster home “as will best meet the needs of a child”
 Imposes a high standard of care
 “Careful parent test” imposes the standard of a prudent parent solicitous for the welfare of his
or her child
 Holds government responsible for harm sustained by children in foster care, if it was
reasonably foreseeable that the government’s conduct would expose these children to harm
of the sort that they sustained, judged by the standards of the day
o Reasonable foreseeable for some people, if left in charge of children in difficult or overcrowded
circumstances, will use excessive physical and verbal discipline
 Reasonably foreseeable that some people will take advantage of the complete dependence of
children in their care, and will sexually abuse them 
o Government negligently failed to meet this standard and the negligence was causally linked to the
physical and sexual abuse
 No proper screening and monitoring procedures to lessen the likelihood of abuse
Vicarious Liability
o Does not require tortious conduct by the person held liable
o Liability imposed on the theory that the person may properly be held responsible where the risks
inherent in his enterprise materialize and cause harm, provided that liability is both fair and useful
o Plaintiffs must demonstrate two things:
1. Relationship between tortfeasor and the person against whom liability is sought is sufficiently
close as to make a claim for vicarious liability appropriate
2. Tort is sufficiently connected to the tortfeasor’s assigned tasks that the tort can be regarded as
a materialization of the risks created by the enterprise
o Was the government’s relationship with the foster parent sufficiently close?
 Most common vicarious liability relationship is that of employer/employee
 Serve policy purpose of fair and effective compensation and deterrence of future
harm
 “It is fair that the person or organization that creates the enterprise and risk should
bear the loss.”
 Vicarious liability will have no deterrent effect where the tortfeasor is too independent for the
organization to be able to take any measures to prevent such conduct
 Functional inquiry: “Whether the person how has been engaged to perform the
services is performing them as a person in business on his own account.”
 Relevant factors: level of control the employer has over the worker’s
activities
o Unjust to impose vicarious liability for a tort committed in pursuit of
the tortfeasor’s own private purposes
o Unjust to impose vicarious liability for conduct that could not have
been influenced or prevented by vicarious person
o Government is not vicariously liable!
 Foster families serve a public goal
 Discharge this public goal in a highly independent manner, free from close
government control
7



Foster parents have complete control over the organization and management of their
household
 They alone are responsible for running their home
 Government does not supervise or interfere, except to ensure that the child and foster
parents meet regularly with their social workers, and to remove the child if his or her
needs aren’t met
 Independence of the foster family is essential to the government’s goal of providing
family care
 In their daily work, foster parents are not acting on behalf of the government, nor are they
perceived to be
 Parents do not hold themselves out as government agents in daily activities
 Government liability is unlikely to result in heightened deterrence
 Imposition of vicarious liability can do little to deter what direct liability does not
already deter
Breach of a non-delegable duty
o Idea that a person who delegates work to another person may be held responsible for torts committed
by that person in executing the work
 “Where a person is himself under a duty to use care, he cannot get rid of his responsibility by
delegating the performance of it to someone else
o No general, guiding principles, but there are instead special situations recognized as such
o Lewis v British Columbia
 Highways Act found to place non-delegable duty on government to ensure that maintenance
work on the highways was performed with reasonable care
 Statute gave Ministry paramount authority over highway maintenance and required
it personally to manage and direct maintenance projects
 Rendered Ministry ultimately responsible for ensuring reasonable care taken
 Minister held liable for the negligence of its independent contractors, and could not raise the
defence that it had delegated the responsibility for taking due care to them
o In the case at hand, the Act does not suggest that the Ministry is responsible for directing day-to-day
care and for ensuring that no harm comes to the children in the course of this care
 No personal responsibility set out after placement of child
Breach of Fiduciary Duty
o Relationship between the government and foster children is fiduciary in nature
 Parents also owe a fiduciary duty to children in their care
 Guardians owe a fiduciary duty to their wards
o Foster children are doubly vulnerable
 Children
 Difficult pasts and the trauma of being removed from their birth families
o Superintendent has considerable power over vulnerable children, and his placement decisions and
monitoring may affect their lives and well-being in fundamental ways
o A fiduciary obligation to promote the best interests of foster children while in foster care cannot be
implied from the statute
 Statute has a clear intent for the children to be nurtured in a private home environment
 Eliminates government’s capacity to exercise close supervision
o At common law, parental fiduciary duty has been described in narrow terms, as a duty to avoid
certain harmful actions which find their origin in parents abandoning and abusing the position of trust
they hold with respect to their children
 Parents should try to act in the best interests of their children, however failure to meet this
goal has become an independent ground of liability
 This would create a form of results-based liability, rather than liability based on
8
faulty actions and omissions
Obligation would be breached whether the result was that the best interests of the
child were not promoted
 Does not provide parents with a workable standard to regulate their conduct
 Goal of promoting child’s best interests is larger than the concerns of trust and loyalty
central to fiduciary law
Central tenant of fiduciary duty is breach of trust, emphasis on disloyalty and promotion of one’s own
or other’s interest at the expense of the beneficiary’s interest
 One party exercises power on behalf of another and pledges himself or herself to act in the
best interests of the other
 Negligence will not ground fiduciary liability unless associated with breach of trust
No bread of fiduciary duty by the government
 No evidence government put its own interests ahead of the foster children
 No acts committed that harmed children in a way that amounted to betrayal of trust
 Superintendent’s misconduct was negligence, not disloyalty or breach of trust

o
o
Arbour’s dissent on vicarious liability
 Vicarious liability is promoted by the policy of fair compensation and deterrence of harm
o Facilitates compensation to the victim, who can seek indemnification from the potentially deeper
pockets of the defendant
 Vicarious liability is fair only where risks inherent in his or her enterprise materialize & cause harm
 Liability imposed where there is a real possibility for the defendant to take effective measures to deter harm
 Categories of relationships that can attract vicarious liability are not exhaustively defined or closed
o Existence of a contract referring to the parties as employer/employee is not determinative
o Must engage in a functional inquiry into the nature of the relationship
 Where Arbour dissents is that she would not ask whether the tortfeasor was acting ‘on his own account’ as this
suggests a chance of profit
o Should ask whether the tortfeasor was acting on behalf of the defendant
o Most important factor is the level of control that the defendant has over the tortfeasor’s acts
o Should only look at profit-generating factors if it was a profit-generating relationship
 Government had sufficient power of control over the foster parent’s activities to warrant liability
o Important to emphasize the right of control, rather than actual exercise of it
o Statute, contract, foster parent manual indicate that the care of children in foster homes is very much a
joint exercise shared by both parties
o There is ongoing control
o Children’s relationship with the government is much more permanent than their transient relationship
with foster parents
 Government is the only steady authority figure
 A finding of vicarious liability would promote the policy of deterrence
o Foster parents do not, and need not, operate so independently that the government can do nothing to
control the risk of abuse to which the enterprise of foster care gives rise
o Governments can retain ongoing control to limit cases of abuse
 Second requirement to finding vicarious liability:
o There must be a strong connection between what the employer was asking the employee to do and the
wrongful act
o The employer significantly increased the risk of the harm by putting the employee in his or her
position and requiring him to perform the assigned tasks
o Factors applied to determine whether an employer materially increased the risk:
 Opportunity that the enterprise afforded the employee to abuse his or her power
 Extent to which the wrongful act may have furthered the employer’s am
9

o
Extent to which the wrongful act was related to friction, confrontation or intimacy inherent in
the employer’s enterprise
 Extent of power conferred on the employee in relation to the victim
 Vulnerability of potential victims to wrongful exercise of the employee’s power
Clear that the foster care arrangement reflects the highest possible degrees of power, trust and
intimacy
 Materially increases the risk that foster parents will abuse
 Foster children are required to remain in the physical custody of their foster parents
 “The ore an enterprise requires the exercise of power or authority for its successful operation,
the more materially likely it is that an abuse of that power relationship can be fairly ascribed
to the employer
Holding
 Government held liable for direct liability only
Ratio
 Test and policy reasons for vicarious liability
Bazley v. Curry [1999] 2 SCR 534
Facts
 Children’s Foundation is a non-profit organization
 As substitute parents, it practised “total intervention” in all aspects of the lives of the children it cared for
 Foundation authorized its employees to act as parent figures for the children
 It charged them to care for the children physically, mentally and emotionally
 The Foundation hired Mr. Curry, a pedophile, although they did not know he was
 After someone complained about Curry, the Foundation inquired and verified that Curry had abused a child.
Curry was immediately discharged
Issue
 Is there vicarious liability where an employee sexually abuses a child in their care
Reasoning
 Vicarious liability has always been a policy choice as to who should bear the loss of wrongdoing and how best
to deter it; policy should continue to form and shape vicarious liability
o Two fundamental concerns are:
 Provision of a just and practical remedy for the harm
 Deterrence of future harm
 Vicarious liability rests on two considerations
o That the employee’s act are regarded in law as being authorized by the employer and hence as being
the employer’s act
o That the employer was the employee’s superior in charge of command of the employee
 Just and practical remedy
o “A person who employs others to advance his own economic interest should in fairness be placed
under a corresponding liability for losses incurred in the course of the enterprise
o Palsgraf v Long Island: the risk reasonably to be perceived defines the duty to be obeyed, and risk
imports relation; it is risk to another or to others within the range of apprehension
o When those risks materialize and cause injury despite the employer’s reasonable efforts, it is fair that
the person/organization that creates the enterprise and risk should bear the loss
 It is right and just that the person who creates a risk bear the loss when the risk ripens into
harm
 Just in some cases to hold charitable enterprises liable
o Policy goal of effective compensation
 Vicarious liability improves the chances that the victim can recover from a solvent defendant
 Second major policy consideration is deterrence of future harm
10
o
Employers in a position to reduce accidents and intentional wrongs by efficient organization and
supervision
o “If the scourge of sexual predation is to be stamped out, there must be powerful motivation acting
upon those who control institutions engaged in the care of children.”
o A wrong that is only coincidentally linked to the activity of the employer and duties of the employee
cannot justify the imposition of vicarious liability on the employer
 Servants may commit acts, even on working premises and during working hours, which are so
unconnected with the employment that it would seem unreasonable to fix an employer with
responsibility for them
 Because the wrong is essentially independent of the employment situation, there is little the
employer could have done to prevent it
 No deterrent purpose and relegates employer to status of insurer
o Where the risk is closely associated with the wrong that occurred, it seems just that the entity that
engages in the enterprise should internalize the full cost of operation
 Corporation best placed to internalize and absorb the costs
 The connection between the tort and the employment is broad
o To say the employer’s enterprise created or materially enhanced the risk of tortious act is different
from saying that a reasonable employer should have foreseen the harm in the traditional negligence
sense
o The inquiry is directed not at foreseeability of risks from specific conduct, but at foreseeability of the
broad risks incident to a whole enterprise
 Mere opportunity to commit a tort does not suffice
 The enterprise and employment must not only provide the locale or the bare opportunity for
the employee to commit his wrong, it must materially enhance the risk, in the sense of
significantly contributing to it
Ratio
 Courts should be guided by the following principles:
1) Courts should open confront the question of whether liability should lie against the employer, rather
than obscuring the decision beneath semantic discussion
2) The fundamental question is whether the wrongful act is sufficiently related to conduct authorized
by the employer to justify the imposition of vicarious liability.
 Appropriate where there is a significant connection between the creation or enhancement of a
risk and the wrong that accrues therefrom, even if unrelated to the employer’s desires.
 This serves the policy considerations of provision of an adequate and just remedy and
deterrence.
 Incidental connections to the employment enterprise, like time and place will not suffice.
Once engaged in a particular business, it is fair that an employer be made to pay the generally
foreseeable costs of that business.
 In contrast, to impose liability for costs unrelated to the risk would effectively make the
employer an involuntary insurer.
3) In determining the sufficiency of the connection between the employer’s creation or enhancement
of the risk and the wrong complained of, the relevant factors may include:
a) the opportunity that the enterprise afforded the employee to abuse his or her power;
b) the extent to which the wrongful act may have furthered the employer’s aims;
c) the extent to which the wrongful act was related to friction, confrontation or intimacy inherent
in the employer’s enterprise;
d) the extent of power conferred on the employee in relation to the victim;
e) The vulnerability of potential victims to wrongful exercise of the employee’s power.
 It must be possible to say that the employer significantly increased the risk of harm by putting the
employee in his or her position and requiring him to perform the assigned tasks.
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o
o
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As the opportunity for abuse becomes greater, so the risk of harm increases
The more an enterprise requires the exercise of power or authority for its successful operation, the
more materially likely it is that an abuse of that power relationship can be fairly ascribed to the
employer
 Employment that puts the employee in a position of intimacy and power over the child may
enhance the risk of the employee feeling that he or she is able to take advantage of the child
and the child submitting without effective complaint
In the case at hand, did the employer’s enterprise and empowerment of the employee materially increased the
risk of the sexual assault
o This requires an investigation of the employee’s specific duties and determine whether they gave rise
to special opportunities for wrongdoing
Dobson v Dobson [1999] 2 SCR 753
Facts
 Cynthia Dobson was driving when she lost control of her vehicle and struck an oncoming vehicle
 The accident was caused by her negligent driving
 The infant respondent, Ryan Dobson, was allegedly injured while in utero
 He had to be delivered by Caesarean section and suffers from permanent mental & physical impairment
Issue
 Does Ryan have the legal capacity to bring a tort action against his mother for her allegedly negligent act
which occurred while he was in utero?
Reasoning
 For reasons of public policy, the Court will not impose a duty of care upon a pregnant woman towards her
foetus or subsequently born child.
o To do so would result in extensive and unacceptable intrusions into the bodily integrity, privacy and
autonomy rights of women
o This is due to the unique relationship that exists between a pregnant woman and her foetus
 The inseparable unity between an expectant woman and her foetus distinguishes the situation
of the mother-to-be from that of a negligent 3rd party
o It should not be forgotten that the pregnant woman, in addition to carrying the foetus, is also an
individual whose bodily integrity, privacy and autonomy rights must be protected
 Strongest argument for imposing a duty of care upon 3rd parties towards unborn children is that tort law is
designed to provide compensation for harm caused by negligence and to deter tortfeasors
o This argument fails to consider the unique relationship at play
 Everything the pregnant woman does or fails to do may have a potentially detrimental impact
on her foetus
 The foetus is entirely dependent upon its mother-to-be
 If a mother were to be held liable, this could render the most mundane decision of a pregnant
woman subject to the scrutiny of the courts
 There is no rational and principled limit to the types of claims which may be brought
if such a tortious duty of care were imposed upon pregnant women
 In Winnipeg, court rejected forced confinement of a pregnant woman with a glue-sniffing addiction
o Any intervention may create a conflict between the woman as an autonomous decision-maker and the
foetus she carries
o A judicial definition of an appropriate standard of care is fraught with insoluble problems due to the
difficulty of distinguishing tortious and non-tortious behaviour in the daily life of a expectant woman
o Addictions may be beyond the control of the pregnant woman, hence the deterrent value may be nonexistent
o A duty of care may increase, to an unwarranted degree, the level of external scrutiny focussed upon
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her
Ratio was that lifestyle choices of a pregnant woman should not be regulated because to do so would
result in an unacceptably high degree of intrusion into her privacy and autonomy rights
 The one distinguishing feature between Winnipeg and the case is that we are dealing with a child born alive
as opposed to a foetus still in utero
o Distinction is irrelevant as both situations involve the imposition of a duty of care upon a pregnant
woman
o Policy concerns in Winnipeg are equally pertinent in this case
 Role of the courts
o To impose tort liability on mothers for prenatal negligence would have consequences which are
impossible for the courts to assess adequately
o These types of decisions are matters best left to the legislator
 The imposition of a duty of care upon a pregnant woman towards her foetus could render that woman liable
for tort, even in situations where her conduct could not possibly affect a 3rd party
o For example, this could include the careless performance of household activities
o Imposition of tort liability in those circumstances would significantly undermine the privacy and
autonomy rights of women
o Imposition of liability would restrict a woman’s activities, reduce her autonomy, and have a negative
impact upon her employment opportunities
 Imposition of tort liability could carry psychological and emotional repercussions for a mother to be sued by
her child; may cause devastating consequences to their future relationships
o Family harmony will be particularly important for the creation of a caring and nurturing environment
for the injured child
Holding
 Imposition of tort liability on a mother for prenatal negligence would provide neither compensation nor
deterrence
 Lack of financial support currently available for the care of children with special needs is the true pressing
societal issue at the heart of this appeal
o If, as a society, Canadians believe that children who sustain damages as a result of maternal prenatal
negligence should be financially compensated, then the solution should be formulated, after careful
study and debate, by the legislature
o
Daniel A. Farber and Philip P. Frickey ‘In the Shadow of the Legislature: The
Common Law in the Age of the New Public Law’
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Legislatures are now the primary source of law, however the common law still holds great importance.
o For example, the law of products liability has grown considerably.
o Common law has also retained its ability to respond to changes in societal values
Role of the common law in formulating social policy has become problematic.
o The legislature is the proper forum in which to argue for reform
New Public Law
Dominant American political philosophy was philosophical liberalism
o the notion which begins with the individual rather than the community
o individuals have basic human rights that exist independent of any particular political system
Liberalism assumes that individuals have interests that they seek to advance
o government is meant to provide fair procedures for determining who prevails when individual rights
conflict
Modern reconstructions of republicanism are based on the allure of civic virtue
o political life is not merely a tool used to pursue individual rights
o politics is a distinct, superior sphere where individual rise above individual concerns to join in a
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public dialogue to define the common good
Courts are positioned to be strong forums for public deliberation; courts can identify and promote the
acceptance of public values
Public choice theory is a hybrid; it applies the economist’s methods to the political scientist’s subject
o Public choice is largely concerned with abstract, axiomatic modeling of political processes
o The legislative process is a microeconomic system in which actual political choices are determined by
the efforts of individuals and groups to further their own interests; these efforts are called rent seeking
o Political activity will be dominated by small groups of individuals seeking to benefit themselves; the
most easily organized groups presumably consist of a few individuals or firms seeking government
benefits for themselves, benefits which will be financed by the general public; special-interest groups
dominate politics
o This leads to arbitrary and incoherent political decisions
o Taking an agnostic view, public choice theory suggests that the outcomes of collective decisions are
meaningless because it is impossible to be certain that they are not simply an artifact or the decision
process that has been used
o Government functions as a mechanism for combining private preferences into a social decision
In republican theory, private preferences are secondary; governments involves an intellectual search for the
morally correct answer
Republicanism serves to eliminate the normative possibilities of democratic government and public choice
highlights its potential pitfalls
There is very little vitality remaining in distinguishing private law from public law
o 19th century legal theory created the public/private distinction on the idea of an autonomous private
order; private law protected the private ordering, while public law consisted of government
compulsions restricting private freedom
o Modern legal theorists point out that the common law is based on choices of public policy
o However, there is still some value in maintaining the distinction, even though most fields of law
contain some rules of both types
What determines the relevance of the New Public Law is not the substance of the legal issue, but whether an
understanding of political institutions seems necessary; this most often occurs when the legal issue is
formulated from the outset as relating to the proper role of government
o In the market for legal ordering, the legislature is always a ‘potential entrant’. When the court is asked
to make rules to govern a private transaction, it is often relevant that the legislature is a possible
alternate decision maker
o New public law is a misnomer; it is potentially useful in analyzing a wide variety of legal problems
outside the domain of public law
The interest of the essay is in situations where the existence of a statute may affect judicial policymaking
outside of the statute’s domain
o Courts have now begun considering statutes as potential sources of worthwhile principles, rather than
simply reflections of brute political power; this development conceptualized the legislature as a
potential player in any common-law policymaking dispute; courts act in the shadow of the legislature
o Conceptualizing the legislature as a source of public policy has republican connotations, and public
choice is implicated when viewing the legislature as a potential entrant into any dispute about public
policy
Common law and statutes may interact in two distinct ways.
o For example, in tort law, judicial policymaking takes place at the microlevel, when the common-law
rule of reasonableness or balancing is applied.
o If the legislature adopts a statute regulating conduct of the particular tort/activity, the question
becomes whether such microlevel judicial policy decisions have become inappropriate
o Suppose that the legislature adopts statutes inconsistent with the policies underlying the common-law
rules but not directly abrogating it. Should the courts administer the coup de grace to what remains of
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the common-law rule?
The Moragne case is an example where there was legislation aimed at eliminating an absurd common law
rule. Unfortunately for the plaintiff, a hole in the legislation was left in which she fell in, and there was,
consequently, no cause of action for her in either the common law or statute
o To remedy this, the Supreme Court changed the common law to reflect the spirit of the statute.
Drawing from the consistent pattern of state statutes, the Justice found a well-established public value
in favor of recovery for wrongful death. This decision combined high judicial craftsmanship with
republican attention to the legislature’s role in articulating public values
o This statute, with the hole in coverage, also reflects the public choice implications which results in
legislation aimed at fixing specific problems and not system-wide deficiencies
o The decision noted that legislation sometimes embodies general public policies that courts should
apply beyond the statute’s domain (republican insight) and at other times reflects hard-fought
compromises between conflicting interests that should not be undone by judicial elaboration (public
choice)
o The Justice presumed the appropriateness of the republican outcome absent a clear statement by
Congress; this tactic places the heavy burden of legislative silence on the non-republican side
According to public choice theory, the industry is well positioned to obtain congressional relief from any
harshness resulting from Moragne to future injuries
o the Ms. Moragnes of the world are unlikely to obtain legislative relief before their respective losses
occur; it is difficult to predict the losses beforehand
o the Ms. Moragnes are too large, diffuse and unorganized of a group to effectively lobby Congress
Post-Moragne cases limit the cause of action to maritime death only
Moragne and Gaudaut saw our ‘general law’ as promoting a case-by-case search for solutions that best
effectuate the humanitarian policies of the maritime law
In contrast, Higginbotham treated statue as a bill of lading. The authors believe the case should have turned
on a republican evaluation of the policies at issue and a public choice inquiry into the deal struck in Congress
o The Miles decision is a complete retreat from Moragne’s creative judicial role; “It would be
inconsistent with our place in the constitutional scheme were we to sanction more expansive remedies
in a judicially created cause of action in which liability without fault than Congress has allowed in
causes of death resulting from negligence
o The Act in question had no limitations, but was read in the same manner as a 1913 decision; the Court
states the legislature is assumed to have accepted the court’s decision through its silence. “The current
Court would be exceeding its constitutional role were it to adopt a different rule under the federal
common law created by Moragne, which neither the 1913 decision nor the legislation foresaw.
o The only actual decision was made by the Court itself in 1913; everything else is presumed from
congressional silence. The Miles exercise in deference is little more than an excuse to avoid
responsibility for its own decision
This is not to say that courts should always be in the forefront of law reform; there may be good reason to
decline
We view the legislature as the senior partner in the joint venture of making public policy, but the courts can
do a great deal to further the enterprise, and republicanism and public choice are useful tools in defining the
border between judicial and legislative prerogatives
In summary, republicanism’s emphasize on the legislature’s capacity to define public values strongly
reinforces the borrowing of statutory analogies for common-law purposes
In many instances, the legislature is both more legitimate and capable in defining public values, however the
deliberative qualities of republicanism will sometimes empower the common law judge to promote legal
change in the pursuit of public values
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The Common Law Moment (Contracts)
Hadley v. Baxendale 9 Exch. 341, 156 Eng.Rep. 145 (1854)
Facts
 Plaintiffs carried on an extensive business as millers
 Their mill was stopped by a breakage of the crank shaft
 It was necessary to send the shaft as a pattern for a new one to the suppliers
 When asked how long a replacement would take, the courrier responded that one would arrive the next day
 Plaintiff made a special entry to hasten the shaft’s delivery
 The shaft’s delivery was delayed by some neglect
 Plaintiff received the shaft several days later
 Plaintiffs lost profits they would have otherwise received due to delay of the shaft’s delivery
 Defendants claim that the damages are too remote to be liable for them
Reasoning
 Where two parties have made a contract which one of them has broken, the damages which the other party
ought to receive in respect of such breach of contract should be such as may fairly and reasonably be
considered either arising naturally from such breach of contract itself, or such as may be reasonably be
supposed to have been in the contemplation of the both parties, at the time they made the contract, as the
probable result of the breach of it
 If special circumstances under which the contract was actually made were communicated by the plaintiffs to
the defendants, and thus known to both parties, the damages resulting from the breach of such a contract,
which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from
a breach of contract under these special circumstances so known and communicated
 The only circumstances communicated by the plaintiffs to the defendants was the article to be delivered was
the broken shaft of a mill and that the plaintiffs were the millers of the mill
o How do these circumstances show reasonably that the profits of the mill must be stopped by an
unreasonable delay in the delivery of the broken shaft?
o Many examples where an unreasonable delay with the same circumstances communicated would not
bring about a loss of profits
 Therefore, for such loss would neither have flowed naturally from the breach of this contract in the great
multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which
perhaps, would have made it a reasonable and natural consequence fo such breach of contract, communicated
to or known by the defendants
Transfield Shipping Inc v. Mercator Shipping Inc [2009] 1 AC 61
Facts
 The parties entered into an agreement for a vessel to deliver goods by May 2nd
 With 14 days remaining, the vessel resupplied at a Chinese port for the May 2nd delivery to a Japanese port
o If this voyage could not reasonably have been expected to allow delivery by May 2nd, the owners
could probably have refused to perform it. But they made no objection
o The boat was unfortunately delayed and delivery occurred on May 11
 In return for an extension of the cancellation date to May 11th, the owners agreed to reduce the rate of hire on
May 5th.
 The owners claimed damages for the loss of the difference between the original rate and the reduced rate over
the period of the agreement, which came to $1.5 Million
 Charterers claim that the owners are only entitled to the difference between the market rate on May 5th and the
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reduced rate
Issue
 Is the rule that a party may recover losses which were foreseeable an external rule of law, imposed upon the
parties to every contract in default of express provision to the contrary?
 Or is it a prima facie assumption about what the parties may be taken to have intended, no doubt applicable in
the great majority of cases but capable of rebuttal in cases in which the context, surrounding circumstances or
general understanding in the relevant market shows that a party would not reasonably have been regarded as
assuming responsibility for such losses?
Reasoning
 It seems logical to find liability for damages upon the intention of the parties (objectively ascertained) because
all contractual liability is voluntarily undertaken.
o It must be in principle wrong to hold someone liable for risks for which the people entering into such
a contract in their particular market, would not reasonably be considered to have undertaken
 One must first decide whether the loss for which compensation is sought is of a ‘kind’ or ‘type’ for which the
contract-breaker ought fairly to be taken to have accepted responsibility
o In the case of an implied contractual duty, the nature and extent of the liability is defined by the term
which the law implies.
o The process is one of construction of the agreement as a whole in its commercial setting
o Same process with express contractual duty
 Contracting parties are liable for consequences which the law regards as best giving effect to the express
obligations assumed and not extending them so as to impose on the contracting party a liability greater than he
could reasonably have thought he was undertaking
 Reasonable foreseeability is not a complete guide to the circumstances in which damages are recoverable
o Even if the loss was reasonably foreseeable, it may regarded as too remote a consequence or as not a
consequence at all
o Whether the loss was a type of loss for which the party can reasonably be assumed to have assumed
responsibility
 “It is not enough that in fact the plaintiff's loss was directly caused by the defendant's breach of contract. It
clearly was so caused in both.
o The crucial question is whether, on the information available to the defendant when the contract was
made, he should, or the reasonable man in his position would, have realised that such loss was
sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed
naturally from the breach or that loss of that kind should have been within his contemplation."
 In the case at hand, the proposed liability creates a risk that is completely unquantifiable because the owners
had entered into new, future arrangements with other charterers
o Impossible to conclude that charters would or should have understood that they were assuming
responsibility for such risk
o Furthermore, the 20% drop in market prices required an extremely volatile condition
o Charterers could not be expected to know of the subsequent circumstances which made the plaintiff’s
losses that much more substantive!
o Unreasonable for charterers to have assumed the risk of the owner’s loss of profit
 Rule that applies in tort is quite different and imposes a much wider liability than that which applies in
contract
o “In contract, if one party wishes to protect himself against a risk which to the other party would
appear unusual, he can direct the other party’s attention to it before the contract is made.” The Heron
II
 Victoria Laundry
o For the plaintiffs should recover specifically and as such the profits expected on these contracts, the
defendants would have had to know, at the time of their agreement with the plaintiffs, of the prospect
and terms of such contracts. We also agree that they did not in fact know these things. It does not
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o
however, follow that the plaintiffs are precluded from recovering some general sum for loss of
business in respect of dyeing contracts to be reasonably expected, any more than in respect of
laundering contracts to be reasonably expected."
The loss of unusually profitable contracts, unknown to the vendor of specialised equipment at the time
of the sale contract, will often be a "serious possibility" or "real danger"; but it was held not to be
within the reasonable contemplation of the parties to the sale contract.
Holding
 It can be presumed that the party in breach has assumed responsibility for any loss caused by delay which can
be measured by comparing the charter rate with the market rate during that period
 There can be no such presumption where the loss claimed is not the product of the market itself, which can be
contemplated, but results from arrangements entered into between the owners and the new charterers, which
cannot.
Ratio
 Have the facts in question come to the defendant’s knowledge in such circumstances that a reasonable person
in the shoes of the defendant would, if he had considered the matter at the time of making the contract, have
contemplated that, in the event of a breach by him, such facts were to be taken into account when considering
his responsibility for loss suffered by the plaintiff as a result of such breach
 that is why the damages that are recoverable for breach of contract are limited to what happens in ordinary
circumstances - in the great multitude of cases, as Alderson B put it in Hadley v Baxendale - where an
assumption of responsibility can be presumed, or what arises from special circumstances known to or
communicated to the party who is in breach at the time of entering into the contract which because he knew
about he can be expected to provide for.
L.L. Fuller and William R. Perdue, Jr., “The Reliance Interest in Contract Damages: 1”
(1936) 46 Yale L.J. 52
The purposes pursued in awarding contract damages
 The plaintiff has in reliance on the promise of the defendant conferred some value on the defendant.
o The defendant fails to perform his promise.
o The court may force the defendant to disgorge the value he received from the plaintiff.
o The object here may be termed the prevention of gain by the defaulting promisor at the expense of the
promisee; the prevention of unjust enrichment.
o The interest protected may be called the restitution interest.
 The plaintiff has in reliance on the promise of the defendant changed his position.
o For example, the buyer under a contract for the sale of land has incurred expense in the investigation
of the seller's title, or has neglected the opportunity to enter other contracts.
o We may award damages to the plaintiff for the purpose of undoing the harm which his reliance on the
defendant's promise has caused him.
o Our object is to put him in as good a position as he was in before the promise was made.
o The interest protected in this case may be called the reliance interest.
 We may seek to give the promisee the value of the expectancy which the promise created.
o In a suit for specific performance actually compel the defendant to render the promised performance
to the plaintiff,
o In a suit for damages, we may make the defendant pay the money value of this performance.
o Our object is to put the plaintiff in as good a position as he would have occupied had the defendant
performed his promise.
o The interest protected in this case we may call the expectation interest.
 Restitution interest unites two elements
o 1) reliance by the promisee
o 2) resultant gain to the promisor
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If the gain involved in the restitution interest results from and is identical with the plaintiff's loss through
reliance, then the restitution interest is merely a special case of the reliance interest
o All of the cases coming under the restitution interest will be covered by the reliance interest
o Reliance interest will be broader than the restitution interest only to the extent that it includes cases
where the plaintiff has relied on the defendant's promise without enriching the defendant
 Though reliance ordinarily results in "losses" of an affirmative nature, it is also true that opportunities for gain
may be foregone in reliance on a promise.
o Hence the reliance interest must be interpreted as at least potentially covering "gains prevented" as
well as "losses caused".
o Not possible to make the expectation interest entirely synonymous with "gains prevented". The
disappointment of an expectancy often entails losses of a positive character
 Justice would regard the need for judicial intervention as decreasing from restitution, reliance and expectation
o "Restitution interest," involving a combination of unjust impoverishment with unjust gain, presents
the strongest case for relief.
 If, following Aristotle, we regard the purpose of justice as the maintenance of an equilibrium
of goods among members of society, the restitution interest presents twice as strong a claim
to judicial intervention as the reliance interest
 If A not only causes B to lose one unit but appropriates that unit to himself, the resulting
discrepancy between A and B is not one unit but two.
o The promisee who has actually relied on the promise presents a more pressing case for relief than the
promisee who merely demands satisfaction for his disappointment in not getting what was promised
him.
 In passing from compensation for change of position to compensation for loss of expectancy
we pass from corrective justice to that of distributive justice
 It ceases to act defensively or restoratively, and assumes a more active role
 With the transition, the justification for legal relief loses its self-evident quality
Why should the law ever protect the expectation interest?
 The breach of a promise arouses in the promisee a sense of injury
o the promisee has formed an attitude of expectancy such that a breach of the promise causes him to
feel that he has been "deprived" of something which was "his"
 Problem with explaining this interest is that law does not enforce all promises, only promises
deemed important enough to society
 Let’s tackle this issue by using an economic or institutional approach
o The essence of a credit economy lies in the fact that it tends to eliminate the distinction between
present and future (promised) goods.
o Expectations of future values become, for purposes of trade, present values.
o Where credit has become significant, it is inevitable that the expectancy created by an enforceable
promise should be regarded as a kind of property, and breach of the promise as an injury to that
property.
o The breach of a promise works an "actual" diminution of the promisee's assets
 Obvious objection to this is the egg and chicken, circular thinking, problem
o A promise has present value because the law enforces it.
o "The expectancy," regarded as a present value, is not the cause of legal intervention but the
consequence of it.
o Historically, promises were enforced long before there was anything corresponding to a general
system of "credit", and recovery was from the beginning measured by the value of the promised
performance, the "agreed price".
o Arguable that the "credit system" was in large part built on the foundations of a juristic development
which preceded it.
 This view asserts the primacy of law over economics; it sees law not as the creature but as the creator of
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social institutions
o This suggests a juristic explanation for the expectation interest
 Justification found in some policy consciously pursued by courts and lawmakers
What is this policy?
o We can justify the rule both as a cure and as a prophylaxis against losses
 Cure in the sense that it offers the measure of recovery most likely to reimburse the plaintiff
for the individual acts and forbearances which make up this total reliance on the contract
 Also must take into account "gains prevented" by reliance, that is, losses, involved in
foregoing the opportunity to enter other contracts,
 This foregoing of other opportunities is involved to some extent in entering most contracts,
and the impossibility of subjecting this type of reliance to any kind of measurement may
justify a categorical rule granting the value of the expectancy as the most effective way of
compensating or such losses.
The rule that the plaintiff must after the defendant's breach take steps to mitigate damages demonstrates a
concern to compensate the plaintiff for the loss of the opportunity to enter other contracts.
o Where after the defendant's breach, the plaintiff can still sell his services elsewhere he is bound to
embrace that opportunity.
o Rule of "avoidable harms" is a qualification on the protection accorded the expectancy,
o Plaintiff is protected only to the extent that he has in reliance on the contract foregone other equally
advantageous opportunities for accomplishing the same end.
The rule can also be regarded as a prophylaxis against the losses resulting from detrimental reliance
o Since the expectation interest is a more easily-administered measure of recovery than the reliance
interest, it will in practice offer a more effective sanction against contract breach
o Possible to view the rule in a quasi-criminal aspect, its purpose being not so much to compensate the
promisee as to penalize breach of promise by the promisor
This rule can also be a policy in favor of promoting and facilitating reliance on business agreements
o When business agreements are not only made but are also acted on, the division of labor is facilitated,
and economic activity is generally stimulated.
o These advantages would be threatened by any rule which limited legal protection to the reliance
interest.
o To encourage reliance we must therefore dispense with its proof.
 Wise to make recovery on a promise independent of reliance, both in the sense that in some
cases the promise is enforced though not relied on and in the sense that recovery is not
limited to the detriment incurred in reliance.
No incompatibility between it and the economic or institutional explanation.
o The essence of both of them lies in the word "credit."
o The economic explanation views credit from its institutional side; an accepted way of living
o the juristic explanation views it from its rational side; the considerations of utility which underlie this
way of living
He who by entering one contract passes by the opportunity elsewhere will not be inclined to regard contract
breach lightly
o Reinforces the notion that the contract creates a "right"; the contract claim is itself property.
The relation between the reliance interest and the other contract interests
 Reliance interest is broad enough to cover all restitutionary interests
o It’s relation will hinge on defining the surplus area of the reliance interest
 The extent of this area will depend upon the scope given the concept "benefit."
o Defined narrowly by insisting on an "actual" increase in the promisor's "assets" then the field
excluded from the restitution interest will be relatively large.
o If we view "benefit" as anything for which the promisor bargained and was willing to pay a price,
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only a relatively narrow field would be left for the reliance interest.
The inescapable flexibility of the concept "benefit" means that drawing the line between the reliance and
restitution interests is a rather arbitrary affair
o In distinguishing between the reliance and the expectation interests we encounter not so much a
shifting line of division as a miscellaneous group of cases
o These two interests will furnish identical, or nearly identical, measures of recovery in at least three
kinds of cases.
1. Where the plaintiff's reliance takes the form of acts essential to the enforcement of the contract by him (i.e.
partial performance) and the defendant breaks or repudiates the contract before complete performance has
taken place
a. Reimbursement for what has been done, and a profit in addition.
b. This broader expectancy we may call the gross expectation interest.
2. Loss of the opportunity to enter similar contracts with other persons, the reliance and expectation interests
will approach one another, their correspondence depending upon the extent which other opportunities of a
similar nature were open to plaintiff
3. Cases where the breach of a contract results not simply in the loss of the promised value but in some direct
harm
a. This loss would not have occurred either if the defendant had not broken his contract, or if the
plaintiff had not entered and relied on the contract.

The reliance interest and Hadley v Baxendale
 The case may be said to stand for two propositions:
o (1) It is not always wise to make the defaulting promisor pay for all the damage which follows as a
consequence of his breach
o (2) The proper test for determining whether particular items of damage should be compensable is to
inquire whether they should have been foreseen by the promisor at the time of the contract.
 The test of foreseeability is less a definite test itself than a cover for a developing set of tests.
o As in the case of all "reasonable man" standards there is an element of circularity about the test of
foreseeability. "
o The test of foreseeability is subject to manipulation by the simple device of defining the
characteristics of the hypothetical man who is doing the foreseeing.
o Stating the problem in terms of the reasonable man creates a bias in favor of normal or average
conduct from legal penalties.
 Are there cases in which the reliance interest may be substituted for the expectation interest as a measure of
damages in order to reduce recovery?
o In this aspect the question is whether the reliance interest may not serve as a kind of substitute for the
test of Hadley v. Baxendale.
o Suggested that the reliance ought to be the proper measure of recovery in a series of situations which
we may call "not-quite" contracts
 For example, in cases where there is a misunderstanding concerning the terms of the contract
and where, accordingly, applying a "subjective" theory of mutual assent, we would arrive at
the conclusion that no perfect or complete contract existed,
 It may be found that the misunderstanding or risk of was due predominantly to the fault of
one party
 it may be just to impose on the party who was at fault a liability to compensate the "innocent"
party for any actual change of position in reliance on the apparently perfect contract.
o In this aspect the reliance interest bears a resemblance to Hadley v. Baxendale as a compromise
between no enforcement and complete but too onerous enforcement of the promise.
 What of the problem of Hadley v. Baxendale as it arises inside the reliance interest itself? Should we refuse to
grant compensation for acts of reliance where they are not "proximately caused" by the contract, or were not
21
"reasonably foreseeable" by the promisor?
o The limitation of recovery by the full contract price is generally inappropriate.
o Here as elsewhere the talk is primarily of foreseeability and notice
o Much reason to suspect that courts are influenced by factors which have nothing to do with
foreseeability.
 items commonly refused tend to fall into fairly definite classes.
The Common Law Moment (Tort)
Donoghue v. Stevenson [1932] AC 562
Facts
 Donaghue drank a bottle of ginger-beer manufactured by Stevenson
 The beer was bought by a friend from a retailer and given to her
 The bottle contained the decomposed remains of a snail which were not, and could not be, detected until the
greater part of the contents of the bottle had been consumed
 Donaghue suffered from shock and severe gastro-enteritis
Issue
 Did the manufacturer of an article intended for consumption and contained in a receptacle which prevented
inspection, owed a duty to her as consumer of the article to take care that there was no noxious elements in the
goods?
 If he neglected such duty, is he consequently liable for any damaged caused by such neglect?
Reasoning
Lord Buckmaster
 Blacker v Lake Elliot
o “The breach of the defendant’s contract with A to use care and skill in and about the manufacture or
repair of an article does not of itself give any cause of action to B when he is injured by reason of the
article proving to be defective
o Two Exceptions:
 In the case of an article dangerous in itself
 Where the article is dangerous, by reason of some defect or other reason, which is known to
the manufacturer
 Concealment is in the nature of fraud
 Keep duty of care attached to contract: There can be no special duty attaching to the manufacture of food
apart from that implied by contract or imposed by statute.
o Slippery slope argument: If such a duty exists, it seems to me it must cover the construction of every
article, and I cannot see any reason why it should not apply to the construction of a house. If one step,
why not fifty?
Lord Tomlin
 “If the appellant is to succeed it must be upon the proposition that every manufacturer or repairer of any
article is under a duty to everyone who may thereafter legitimately use the article to exercise due care in the
manufacture or repair. It is logically impossible to stop short of this point.”
 Policy reason: "By permitting this action, we should be working this injustice, that after the defendant had
done everything to the satisfaction of his employer, and after all matters between them had been adjusted and
all accounts settled on the footing of their contract, we should subject them to be ripped open by this action of
tort being brought against him."
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Lord Atkin
 Did the defendant, in the circumstances provided, owe any duty of care to the plaintiff?
 Argues that the duty of care has yet to find a unifying principle, but instead we operate with separate heads of
tort
 The rule that you are to love your neighbour becomes in law, you must not injure your neighbour;
o Who is my neighbour?
 You must take reasonable care to avoid acts or omissions which you can reasonably foresee
would be likely to injure your neighbour.
o Who, then, in law is my neighbour?
 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
omissions which are called in question.
 Proximity: Not confined to mere physical proximity, but to extend to such close and direct relations that the
act complained 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.
 Heaven v Pender
o "This includes the case of goods supplied to be used immediately by a person where it would be
obvious to the person supplying, if he thought, that the goods would in all probability be used at once
by such persons before a reasonable opportunity for discovering any defect which might exist, and
where the thing supplied would be of such a nature that a neglect of ordinary care or skill as to its
condition or the manner of supplying it would probably cause danger to the person or property of the
person
 Referring to past precedence denying such a duty of care:
o judgments in the case err by seeking to confine the law to rigid and exclusive categories, and by not
giving sufficient attention to the general principle which governs the whole law of negligence in the
duty owed
 The duty may exist independently of the contract
 Whether it exists or not depends upon the subject-matter involved
o Not only the degree of care but the range of persons to whom a duty is owed may be extended
Lord Thankerton (states that the category strategy sucks)
 “The English cases demonstrate how impossible it is to catalogue finally, amid the ever varying types of
human relationships, those relationships in which a duty to exercise care arises apart from contract, and each
of these cases relates to its own set of circumstances, out of which it was claimed that the duty had arisen.”
Lord MacMillan
 Can we impose a duty absent a contractual obligation?
 “Evidence shows that the greatest care is taken by the manufacturers to ensure that the ginger-beer should
pass, as it were, from the supplier to the ultimate user uninterfered with by the retailer- who has little interest
in, and no opportunity of, examining the contents of the containers.
o Accordingly it would appear to be reasonable and equitable to hold that, in the circumstances and
apart altogether from contract, there exists a relationship of duty as between the maker and the
consumer of the beer
 Highlights the two conflicting principles in this case: Contract-tort nexus
o “On the one hand, there is the well established principle that no one other than a party to a contract
can complain of a breach of that contract.
o On the other hand, there is the equally well established doctrine that negligence apart from contract
gives a right of action to the party injured by that negligence.
o The fact that there is a contractual relationship between the parties which may give rise to an action
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for breach of contract, does not exclude the co-existence of a right of action founded on negligence as
between the same parties, independently of the contract, though arising out of the relationship in fact
brought about by the contract.
 Heaven v Pender
o "Whenever one person supplies goods for the purpose of their being used by another person under
such circumstances that everyone of ordinary sense would, if he thought, recognize at once that,
unless he used ordinary care and skill with regard to the condition of the thing supplied or the mode of
supplying it, there will be danger of injury to the person or property of him for whose use the thing is
supplied, and who is to use it, a duty arises to use ordinary care and skill as to the condition or manner
of supplying such thing.
 And for a neglect of such ordinary care or skill whereby injury happens a legal liability arises
to be enforced by an action for negligence."
 “In a true case of negligence, knowledge of the existence of the defect causing damage is not an essential
element at all.”
 The criterion of judgment must adjust and adapt itself to the changing circumstances of life.
o The categories of negligence are never closed.
o The cardinal principle of liability is that the party complained of should owe to the party complaining
a duty to take care, and that the party complaining should be able to prove that he has suffered damage
in consequence of a breach of that duty.
 Application to case at hand
 The respondent has exhibited carelessness in the conduct of his business by allowing snails to infiltrate his
empty bottles and not taking necessary precautions to prevent such things from occurring
o However, we must show negligence AND that a duty of care existed!
 This must always be a question of circumstances whether the carelessness amounts to negligence, and whether
the injury is not too remote from the carelessness
 The burden of proof must always be upon the injured party to establish:
o that the defect which caused the injury was present in the article when it left the hands of the party
whom he sues
o that the defect was occasioned by the carelessness of that party
o That the circumstances are such as to cast upon the defender a duty to take care not to injure the
pursuer.
o There is no presumption of negligence
 It may be a good general rule to regard responsibility as ceasing when control ceases.
o Where between the manufacturer and the user there is interposed a party who has the means and
opportunity of examining the manufacturer’s product before he re-issues it to the user.
Holding
 “A person who for gain engages in the business of manufacturing articles of food and drink intended for
consumption by members of the public in the form in which he issues them is under a duty to take care in the
manufacture of these articles.
o He owes this duty to those whom he intends to consume his products.
o By this very fact he places himself in a relationship with all the potential consumers of his
commodities, and that relationship which he assumes and desires for his own ends imposes upon him
a duty to take care to avoid injuring them.
o He owes them a duty not to convert by his own carelessness an article which he issues to them as
wholesome and innocent into an article which is dangerous to life and health.
 The possibility of injury so arising seems to me in no sense so remote as to excuse him from
foreseeing it.
Ratio
 Duty of Care! Proximity! Reasonable care! Neighbour principle!
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Percy Winfield, ‘Chapter 3: Tort Defined’ in The Province of the Law of Tort
(Cambridge: University Press, 1931) pp. 32-39
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This is before Donaghue v Stevenson
Tortious liability arises from the breach of a duty primarily fixed by the law
o Such duty is towards persons generally and its breach is redressible by an action for unliquidated
damages
Principle of tort liability founded on:
o All injuries done to another person are torts, unless there be some justification recognized by law
(universal); OR
 If I injure my neighbour, he can sue me in tort whether the wrongs happens to have a
particular name
 Court has full power to create new torts or extend existing torts
o There is a definite number of torts outside which liability in tort does not exist (categories)
 I can inure my neighbour without fear of tort, provided the conduct does not fall under some
category
 A row of pigeon holes in which a successful claim must itself into
Argues that, contrary to popular view, England follows the first principle
o Some evidence that tort is based upon a general principle that al harm to another person is
presumptively unlawful
o “law of tort” indicates the existence of unoccupied territory which is bit by bit and from time to time
being recognized as the source fresh liabilities; sometimes by legislatures, more frequently by judges
Fallacy in the second principle lies in the inference that because the law will not give a remedy in every case,
it will therefore never give a remedy in a new case
o To say that all unjustifiable harm is actionable is a totally different thing from saying that all harm is
actionable
Logic, history, public policy will all weigh in on a case where the court is asked to use judicial discretion to
recognize a remedy
This type of liability follows the general principles found in civil law jurisdictions
McPherson v Buick Motor Co. (1916) 217 NY 382, 111 N.E. 1050
Facts
 The defendant is a manufacturer of automobiles
 It sold a car to a retail dealer
 The retail dealer resold to the plaintiff
 While the plaintiff was in the car it suddenly collapsed, and he was injured
 The faulty wheel was not made by the defendant, however its defects could have been discovered by
reasonable inspection. That inspection was omitted
Issue
 Did the defendant owe a duty of care to anyone but the immediate purchaser?
Reasoning
 Thomas v Winchester
o A poison was falsely labelled
o The sale was made to a druggist, who in turn sold to a customer
o The customer recovered damages from the seller who affixed the label
 “A poison, falsely labeled, is likely to injure anyone who gets it.
 Because the danger is foreseeable, there is a duty to avoid the injury
 Devlin v Smith
o Defendant built a scaffold for a painter
o Painter’s servants were injured, and the defendant was held liable
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 He knew that the scaffold, if improperly constructed, was very dangerous
 He knew it was to be used by the painter’s servants
 He owed them a duty of care
o This extended the Thomas v Winchester ratio from the ‘dangerous object’
 A scaffold is not inherently a dangerous instrument. It only becomes destructive if imperfectly
constructed
Takes the same Heaven v Pender citation used by Macmillan in Donaghue v Stevenson
o For a neglect of such ordinary care or skill whereby injury happens, the appropriate remedy is an
action for negligence
o The right extends to the persons or class of persons for whose use the thing is supplied
 “It is enough that the goods would in all probability be used at once before a reasonable
opportunity for discovering any defect which might exist
“If the nature of a thing is such that it is reasonably certain to place life and limb in peril when
negligently made, it is then a thing of danger”.
o If there is added knowledge that the thing will be used by persons other than the purchaser, and used
without new tests, then, irrespective of contract, the manufacturer of this thing of danger is under a
duty to make it carefully” tort-contract nexus
o There must be knowledge of a danger, not merely possible, but probable
o The proximity of remoteness of the relation is a factor to be considered
 Knowledge that in the usual course of events the danger will be shared by others than the
buyer
Not required to say in this case whether the original manufacturer is also liable
o It may be in those circumstances that the duty of care is too remote
 We will deal with that case when we have to
Dissent
o There is privity of contract, therefore we cannot impose a duty of care
Holding
 The nature of an automobile gives warning of probable danger if its construction is defective
o the defendant knew the danger
o defendant knew the car would be used by persons other than the buyer
o Defendant not absolved from inspection because it bought the wheels from a reputable manufacturer
 Defendant ultimately responsible for the car
 Not at liberty to put the finished product on the market without subjecting the component
parts to ordinary and simple tests
Ratio
 Duty of care can extend pass privity of contract
The Common Law Moment (Tort) Lost
Chester v. The Council of the Municipality of Waverley (1939) 62 CLR 1
Facts
 Defendants excavated a trench which later became filled with water
 Railing was deficient, which allowed children to easily get underneath the railing
 Plaintiff’s son climbed under the railing, fell into the trench and drowned
 The body was not found until some hours later after he had been missed by his parents
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 Plaintiff, his mother, searched and became distressed when she couldn’t find him
 She saw her son’s dead body as it was taken out of the trench
 She received a severe nervous shock and is now suing the defendants for negligence
Issue

Reasoning
 There must be a duty of care
o If there is a breach of such duty, then the defendant is liable for the direct consequences of that
breach, even though such consequences may have been unexpected
 Polemis case:
o “To determine whether an act is negligent, it is relevant to determine whether any reasonable person
would foresee that the act would cause damage; if he would not, the act is not negligent
 Donaghue v Stevenson
o The person in respect of whom the duty exists are “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 omissions which are called in question
 Court finds the Council negligent for creating the conditions that allowed the kid to drown
 Defendants claim that the duty owed was a duty not to injure her child so as to cause her a nervous shock
when she saw, not the happening of the injury, but the result of the injury, namely, the dead body of the child
o Who is this duty owed to? Slippery slope argument
o We cannot stop at mothers, it must extend to some wider class
o “There appears to be no reason why it should not extend to all other persons
o Would mothers and others who actually, though mistakenly, suffered shock by reason of apprehension
of injury to haves have a remedy against the defendant?
 We must determine the scope and extent of any relevant duty
o If there is no negligence, the happening of a consequence cannot be relied upon to establish the
existence of any duty (circular logic problem)
Holding
 “The circumstances that the plaintiff suffered a shock does not establish the existence of any duty or breach
thereof by the defendant
o Should the defendant have foreseen that a mother would suffer from nervous shock amounting to
illness if she saw the dead body of her child where the death of the child had been brought about by
the negligence of the defendant towards the child?
 Courts find that such damage cannot be regarded as within the reasonable anticipation of the
defendant
 A reasonable person would not foresee that the defendant’s negligence would so affect a
mother
 Death is not an infrequent event
 Reasonable person would only be distressed temporarily
 “The failure to guard the trench was but indirectly connected with the shock to the appellant and the act or
omission of the defendant was not so closely and directly connected with the shock sustained by the plaintiff.
The shock sustained is too remote from human experience.
STRONG DISSENT
 Puts another spin on the facts
 Emotional connection with the child and the mother; gives us their names
 Adds more drama, suspension and tension to the unfolding events; makes it personal
 Brings into play socio-economic issues
 Uses literature and other narrative pieces to describe the pain of a mother losing her child
 The heartache, desperation and distress of being fearful for her child’s life as she searched for him
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She was not looking for the body of the child; hope still prevailed that he was alive
Mocks the distinction between physical and emotional/mental suffering
o If the plaintiff had injured herself while desperately searching for the child in the trench, she could
recover in damages
Criticises the slippery slope argument
o Only ‘a few people (susceptible and emotional mothers) would have suffered nervous shock after
undergoing a similar experience
 This is reasonably foreseeable
o Only persons in such exceptional category would have suffered
o Defendant’s duty only belonged to people in this category
o To deny that a reasonable mother would have been pained by this is contradicted by all human
experience. Only the most indurate heart could have gone through the experience without serious
physical consequences
“Although it may not be probable that any particular man have the thin-skull, nevertheless it is a fact which is
easily foreseeable. A man who strikes another ought to foresee that his victim may be suffering from some
weakness. We all know that the average man in the street is not necessarily the average man”
Karl N. Llewellyn The Bramble Bush; on our law and its study (New York, Oceana
Publications, 1951) pp. 58-69
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The facts assumed or adopted by an appellate court have gone through straining and distortion
o There will always be bias, omission, distortion
If court follows precedence, this decision shapes not only the further growth of the law, but the further action
of the community
o This is the power of courts over society
o The power of society over the courts.
 It is society and not the courts which give rise to, which shapes in the first instance the
emerging institution; which kicks the courts into action.
 It is only from observation of society that the courts can pick their notions of what needs the
new institution serves,
 Partly courts look directly at society. Partly they look at the deposit of their own work made
in the past on similar occasions, that is, at the existing "ways" of law.
 In any event, if the needs press and recur, sooner or later recognition of them will work into
the law. Either they will induce the courts to break through and depart from earlier molds, or
the bar will find some way to put new wine into old bottles
 If the courts stand fast, then, if the need resurges long and hard enough, the change
will be made by way of legislation
As lawyers, we must be able to visualize the initial transaction between the parties
o Did the court read the facts as did the parties
o Did the courts see what the parties were driving at
Courts interpret facts first
o They give meaning to statements; you decide precisely what the mean
o Application of a rule of law bears on what you have already decided to be the meaning of the facts
Sometimes the opposite is true when courts want to get around precedence: rule and decision may dictate
the interpretation of the facts.
o If a court, in pondering a case substantially equivalent, does not like the results achieved by the earlier
court, then it may reach a contrary decision in either of two ways.
 Either it may reject the rule laid down by court number one; this is not likely.
 Or it may accept that rule as a verbal formula, may cite the prior case as authority, and yet
interpret the raw evidence before it differently, saying that due to the difference in the facts,
the rule does not apply.
28
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To do this, some courts delve deeply into the facts/situation of the case, whereas other times, the courts sit
back in sublime indifference, simply laying down the rules of law and applying them
o We find in the interpretation of the evidence divergencies in attitude among the courts
For example, we turn up two cases which the two courts have put upon two inconsistent grounds: upon two
different, two conflicting rules.
o Judges can reconcile the cases—a rule perhaps which differs from that laid down in either case, but
which would warrant and, indeed, require, both results.
 Achieved by taking a distinction, by picking out some feature which differentiates the cases,
but which neither court has stressed, and by insisting that this differentiating feature is what
accounts for the results.
 What’s striking is that the distinction taken occupied no great amount of the attention of the
two courts under discussion.
 If a court desires, it will find the distinction sufficient to harmonize the cases—
granted, that is to say, that the distinction makes technically possible our proposed
solution, remains the question, will a court do this?
Logic and science can tell us, and tell us with some certainty, what the doctrinal possibilities are.
o Yet they give us no certainty as to whether the possibility embodied in the argument will be adopted
by the given court
With dissents, the statement of facts often differ, and will differ peculiarly in their emphasis and their
arrangement
o The lines of legal argument which seem persuasive to the different judges also differ
o When there is a dissent, it gives us a second point of observation from which to predict the action of
that court in the future
o a dissenting opinion proves that a fight has been had and is settled
o Rare exceptions to this rule are cases in which the dissent in the words of Cardozo "was the voice of a
new day", too unfamiliar to have found as yet the acceptance that awaited it.
o Yet the very fact of a dissent proves peculiarly careful consideration, and should therefore strengthen
rather than weaken the case as an authority.
Ethical argument for precedence that courts should continue what they have been doing
o What one has been doing becomes the "right" thing to do; not only the expected thing but the thing
whose happening will be welcomed and whose failure to happen will be resented.
o In social matters in the large, there develops distinct group pressure to force' conformity with the
existing and expected social ways.
o To continue past practices is to provide a new official with the accumulated experience of his
predecessors
o Precedence gives a basis from which men may predict the action of the courts; a basis to which they
can adjust their expectations and their affairs in advance. To know the law is helpful, even when the
law is bad.
o Understandable that in our system there has grown up first the habit of following precedent, and then
the legal norm that precedent is to be followed.
 This is essentially the canon that each case must be decided as one instance under
a general rule
There are objections to precedence
o It may be the ignorance or folly, or idleness, or bias of the predecessor
o Conditions may have changed, and that the precedent has since become outworn.
o Our society is changing, and law, if it is to fit society, must also change. But our society is
stable, else it would not be a society,
 The stability is needed most greatly in large things, that the change is needed most in matters
of detail.
Orthodox doctrine of precedent
29
o
o
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Every case lays down a rule, the ratio decidendi
A later court can re-examine the case and can invoke the canon that no judge has power to decide
what is not before him, can, through examination of the facts or of the procedural issue, narrow the
picture of what was actually before the court and can hold that the ruling made requires to be
understood as thus restricted.
 When this is said of a past case, it has essentially been overruled.
 Only a convention prevents flat overruling in such instances.
 It seems to be felt as definitely improper to state that the court in a prior case was wrong, that
this would undermine the dogma of the infallibility of courts.
o This is the strict view which is applied to unwelcome precedents
o The recognized and legitimate technique for whittling precedents away. A surgeon’s knife
Loose view of precedent
o The view that a court has decided, and decided authoritatively, any point or all points
o No matter how broad the statement, no matter how unnecessary on the facts or the procedural issues,
if that was the rule the court laid down, then that the court has held
o In its extreme form, this results in arguing exclusively from language that is found in past opinions,
without reference to the facts of the prior case
o This is recognized and legitimately used as a springboard when they are found convenient. This is a
device for capitalizing welcome precedents
Precedence is two-headed, Janus-faced.
o There are two doctrine, which are contradictory of each other.
o There is one doctrine for getting rid of precedents deemed troublesome and one doctrine for making
use of precedents that seem helpful.
o It is possible for law to change and to develop, and yet to stand on the past. You do not see how it is
possible to avoid the past mistakes of courts, and yet to make use of every happy
insight for which a judge in writing may have found expression.
o The strict view is hard to use. An ignorant, an unskilful judge will find it hard to use: the past will
bind him. But the skilful judge has the knife in hand; and he can free himself.
Nor, can you predict out of the rules alone; how much you must turn, for purposes of prediction, to
the reactions of the judges to the facts and to the life around them.
Each precedent has not one value, but two, and that the two are wide apart, add that whichever value a later
court assigns to it, such assignment will be respectable, traditionally sound, dogmatically
correct.
o Read every case for both its maximum and minimum value on future cases
David J. Ibbetson A Historical Introduction to the Law of Obligations (Oxford: Oxford
University Press, 1999) pp.188-196
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19th century tort of negligence was thoroughly fragmented
In the 20th century, practice moved in the direction of theory as the tendency towards fragmentation was
reversed
o Detailed duties of care were superseded by a single duty of care
o The component parts of the tort increasingly merged into each other
The fragmented structure of tort was largely the result of the tension between judge and jury
o Disappearance of the civil jury resolved the tension and broke down tort’s fragmented nature
o Judicial control over the incidence of negligence liability no longer depended on the precise definition
of a multiplicity of duties of care
Donaghue v Stevenson was the turning point
o It reversed precedence set by Winterbottom v Wright
o Three explanations for how this happened
1)Winterbottom had simply been overruled, and that there always had been a duty of care owned by the
30
manufacturer to the ultimate consumer
 This would go against the traditionally conservative ‘incremental’ approach
 Went against the tradition ‘pigeon-hole’ approach
 2) Donaghue could be treated as accepting an approach based upon a multiplicity of duty situations,
o This was Lord MacMillan’s approach: “The categories of negligence are never closed.”
 3) Donaghue could have been the wholesale rejection of the analysis dependent upon a multiplicity duties of
care in favour of a single requirement of taking reasonable care
o This was Lord Atkin’s approach
o “Who then, in law is my neighbor? 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 omissions which are called in question.”
o Atkin’s approach was valuable as it provided ready support for any conclusion a judge wished to
reach: Judicial discretion
 MacMillan’s more careful approach has been adopted
o Two types of cases barred Atkin’s approach from wholesale recognition
 1) Where a trespasser had been injured, previously no such duty owed by the occupier
 Donaghue allowed for the line of argumentation that so long as it was foreseeable
that someone might trespass and foreseeable that they might be injured, there was a
duty of care imposed on the occupier
 2) Where financial loss had been suffered by reliance upon a negligent representation
 This was previously found to have no remedy
 In 1963, Court laid down there was no relevant difference between causing loss by
negligent statement and causing loss in some other way
o Hedley Byrne v Heller led the way for the law of negligence to be conceptualized in terms of an
ocean of liability for carelessly causing foreseeable harm, dotted with islands of non-liability, rather
than as a crowded archipelago of individual duty situations
 This approach was finalized by Wilberforce with the creation of the Anns test
o This approach was heavily criticized for its excessive generality
 As a response, the law shifted to a much more conservative approach and adopted
Macmillan’s approach
 “Courts should not recognize whole new areas of liability at a single stroke rather
they should proceed incrementally from previously recognized duty situations.
Thesis time
 The generalization of liability after Donoghue changed the conceptualization of negligence
o Whereas 19th century analysed liability in terms of the way in which the plaintiff’s loss had occurred,
the 20th century analysed the type of loss suffered
o Particularly pertinent to the areas of pure economic loss (PEL) and psychiatric injury
 In PEL, Hedley Byrne was concerned with whether liability could lie for negligent
misstatement, not whether there could be liability for PEL
 For nervous shock, the focus was initially on the way in which it was caused
 We now recognize it as ‘post-traumatic stress disorder’, a type of harm rather than a
mode of causation of harm
 This generalization also reintegrated the separate elements of duty, breach and remoteness
o This is readily apparent in Donoghue and Atkin’s general principle
o With no jury, judge did not need to separate the various elements of negligence when explaining how
to find a verdict
o By the 1970’s, judges readily admitted that duty, breach and remoteness were essentially
interchangeable
31
Interpreting Donoghue
Candler v. Crane Christmas & Co [1951] 1 All ER 426 (C.A.)
Facts
 Director of a company instructed the defendants, a firm of accountants and auditors, to prepare the company’s
accounts and balance sheets.
 Company wanted these accounts to induce the plaintiff to invest in their company
 Relying on the defendants, the plaintiffs subscribed $$$ for share in the company
 The accounts had been prepared negligently, but without any fraud on the part of the defendants
 The company went bankrupt, and the plaintiff lost the money which they had invested
Issue
 Did the accountants owe the plaintiff a duty of care?
Reasoning
Majority
 Past precedence shows that a merely negligent misrepresentation made by a director to a potential investor, on
which some of them act to their detriment, affords the latter no remedy
 The notion that Donoghue’s case was intended to sweep away this substratum of precedence seems to be
quite unconvincing
o Donoghue should be restricted to the acts of a manufacturer launching into circulation negligently
manufactured chattel which could injure the ultimate consumer, and there was no reasonable
opportunity of examining it
o Donoghue has never been applied where the damage complained of was not physical (PEL)
o Donoghue’s case has not abolished the differences between negligent misstatement and negligently
manufactured chattel
 “I am not concerned with defending the existing state of the law or contending that it is strictly logical- it
clearly is not. I am merely recording what I think it is.” Role of the judges
Denning’s Strong Dissent!
 Describing the Donoghue judgments
o “On the one side there were the timorous souls who were fearful of allowing a new cause of action.
On the other side there were the bold spirits who were ready to allow it if justice so required.”
o “The criterion of judgment must adjust and adapt itself to the changing circumstances of life. The
categories of negligence are never closed.” Lord Macmillan
 Defendants contention of the privity of contract and the tort-contract nexus is defeated by Donoghue
 Does a duty of care for a financial statement exist?
o What persons are under such duty?
 Accountants, surveyors, analysts, etc whose occupation is to examine books and to make
reports on which other people rely in the ordinary course of business
 They have a duty to use care in their work which results in their reports
 This is the difference between professionals and other persons; the other persons do
not bring, and are not expected to bring any professional knowledge or skill into the
preparation of their statement
o To whom do these professionals owe this duty?
 Any 3rd person to whom they themselves show the accounts, or to whom they know their
employer is going to show the accounts, so as to induce them
o To what transactions does the duty of care extend?
 Only to those transactions for which the accountants knew their accounts were required
 The duty only extends to the very transaction in mind at the time
o Duty is confined to cases where the accountant prepares his accounts for the guidance of the very
32
person in the very transaction in question.
 This avoids the ‘liability in an indeterminate amount for an indeterminate time to an
indeterminate class’ maxim
 This does not create a dangerous precedent where it is limited to the persons in the transaction!
 “I think that the law would fail to serve the best interests of the community if it should hold that accountants
and auditors owe a duty to no one but their client” Policy considerations
o Accountants will never have to verify statements made by a person
o Persons who are misled cannot complain because the accountants owe no duty to them
Ratio
 This case showed the limited effect of Donoghue in some areas of law
Hedley Byrne v. Heller [1964] AC 465
Facts
 Plaintiffs are a firm of advertising agents. The defendants are merchant bankers.
 In a business deal, plaintiffs could become personally liable for a 3rd party company
 They asked the defendants what the creditworthiness of the company was
 The references that the defendant gave turned out to be unjustified
 The plaintiffs claim that in reliance on the references, which they had no reason to question, they refrained
from cancelling the orders so as to relieve themselves of their current liabilities
Issue
 Whether and in what circumstances a person can recover damages for loss suffered by reason of his having
relied on an innocent but negligent misrepresentation?
Reasoning
Lord Reid:
 They find that there sufficient proximity here to impose any such duty that is claimed to exist
 “Donoghue may encourage us to develop existing lines of authority, but it cannot entitle us to disregard
them.”
 There are several distinctions between Donoghue and the present case
o There is a difference between negligent words and negligent acts
 “Quite careful people often express definite opinions on social occasions even when they see
that others are likely to be influenced by them; and they often do that without taking that care
which they would take if asked for their opinion professionally or in a business connection.”
o A negligently made article will only cause one accident, but words can be broadcast with or without
the consent or the foresight of the speaker or writer. Floodgates
 Something more is needed to make negligent misrepresentation liable:
o Expressly or by implication from the circumstances the speaker has undertaken some responsibility
o Relationships where it is plain that the party seeking information or advice was trusting the other to
exercise such a degree of care as the circumstances required,
 where it was reasonable for him to do that
 where the other gave the information or advice when he knew or ought to have known that the
inquirer was relying on him.
 “The plaintiffs began by saying that "they wanted to know in confidence and without responsibility on our
part," that is, on the part of the respondents. So I cannot see how the plaintiffs can now be entitled to disregard
that and maintain that the respondents did incur a responsibility to them.”
o Respondents never undertook any duty to exercise care in giving their replies
 Tort and Contract nexus
o In the case of a contract it is necessary to exclude liability for negligence, but in this case the question
is whether an undertaking to assume a duty to take care can be inferred
o even in cases of contract general words may be sufficient if there was no other kind of liability to be
excluded except liability for negligence: the general rule is that a party is not exempted from liability
33
for negligence "unless adequate words are used"
Lord Morris
 Irrespective of any contractual or fiduciary relationship and irrespective of any direct dealing, a duty may be
owed by one person to another
 Cannot see any distinction between injury from words and injury from relying on chattel (Donoghue
 The general rule is that if A claims that he has suffered injury or loss as a result of acting upon some
misstatement made by B who is not in any contractual or fiduciary relationship with him, the inquiry that is
first raised is whether B owed any duty to A
o if he did the further inquiry is raised as to the nature of the duty
 Professional skill
o If someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for
the assistance of another person who relies upon such skill, a duty of care will arise.
 The fact that the service is to be given by means of or by the instrumentality of words can
make no difference.
 If in a sphere in which a person is so placed that others could reasonably rely upon his
judgment or his skill, a person takes it upon himself to give information or advice to, or
allows his information or advice to be passed on to, another person who, as he knows or
should know, will place reliance upon it, then a duty of care will arise.
 A further analysis into this duty of care is not needed though based on the evidence of this case
o The bank, by the words which they employed, effectively disclaimed any assumption of a duty of
care.
o They stated that they only responded to the inquiry on the basis that their reply was without
responsibility
Lord Devlin
 A promise given without consideration to perform a service cannot be enforced as a contract
o But if the service is performed negligently, the promisee can recover in an action of tort
 Doesn’t matter whether the information consists of fact or of opinion or is a mixture of both, nor whether it
was obtained as a result of special inquiries or comes direct from facts already in the defendant's possession or
from his general store of professional knowledge
 relationships which may give rise to a duty to take care in word as well as in deed are not limited to
contractual relationships or to relationships of fiduciary duty,
o It will also include relationships where there is an assumption of responsibility in circumstances in
which, but for the absence of consideration, there would be a contract.
o Payment for information or advice is very good evidence that it is being relied upon and that the
informer or adviser knows that it is.
o Where there is no consideration, it will be necessary to exercise greater care in distinguishing between
social and professional relationships and between those which are of a contractual character and those
which are not.
o Material to consider whether the adviser is acting purely out of good nature or whether he is getting
his reward in some indirect form.
 It would discourage the customers of the bank if their deals fell through because the bank had
refused to testify to their credit when it was good.
 Duty of care relationships arise where a responsibility is voluntarily accepted or undertaken, either generally
where a general relationship, or specifically in relation to a particular transaction.
o Responsibility can attach only to the single act, that is, the giving of the reference, and only if the
doing of that act implied a voluntary undertaking to assume responsibility
 Wherever there is a relationship equivalent to contract, there is a duty of care. Such a relationship may
be either general or particular
o Where there is a general relationship of this sort, it is unnecessary to do more than prove its existence
34
o
and the duty follows.
Where there is a particular relationship created ad hoc, it will be necessary to examine the particular
facts to see whether there is an express or implied undertaking of responsibility.
This proposition as an application of the general conception of proximity.
o
Holding
 There is no duty of care as there was a general disclaimer of responsibility
Ratio
 Morris and Devlin are the authority
Home Office v. Dorset Yacht Co. Ltd. [1970] AC 1004
Facts
 ten borstal trainees were working on Brownsea Island in the harbour
 The trainees were in lawful custody of the Home Office
 They were under the control of three officers employed by the Home Office.
 Seven trainees escaped one night, at the time the officers had retired to bed leaving the trainees to their own
devices.
o The officers were in breach of their instructions by doing so
 The trainees who escaped boarded a yacht and collided with another yacht, the property of the respondents,
and damaged it.
 The owners of the yacht sued the Home Office in negligence for damages.
Issue
 Did Home Office owe a duty of care to the yacht owner for their yacht not to be damaged by escapees under
their control?
Reasoning
 The three officers knew or ought to have known that these trainees would probably try to escape during the
night, would take some vessel to make good their escape, and would probably cause damage to it
 the ground of liability is not responsibility for the acts of the escaping trainees
o it is liability for damage caused by the carelessness of these officers in the knowledge that their
carelessness would probably result in the trainees causing damage of this kind.
So the question is one of remoteness of damage.
 must consider to what extent the acts of another person as breaking the chain of causation
between the defendants' carelessness and the damage to the plaintiff
 There is no liability unless the damage was of a kind which was foreseeable
 In terms of causation, the intervention of human action does not necessarily always prevent the ultimate
damage from being regarded as having been caused by the original carelessness.
 Proximity as per Hadley v Baxendale: Question is whether or not, the accident can be said to be the natural
and probable result of the breach of duty
o the taking of a boat by the escaping trainees and their unskilful navigation leading to damage to
another vessel were the very kind of thing that these officers ought to have seen as likely
 Statutory power: if a person performs a statutory duty carelessly so that he causes damage to a member of
the public which would not have happened if he had performed his duty properly he may be liable.
o in the public interest that things otherwise unjustifiable should be done, and that those who do such
things with due care should be immune from liability to persons who may suffer thereby.
o Parliament cannot reasonably be supposed to have licensed those who do such things to act
negligently in disregard of the interests of others so as to cause them needless damage.
 General rule is that there can be no liability for discretion that is exercised with due care.
o Liability only if the person entrusted with discretion either unreasonably failed to carry out his duty or
reached a conclusion so unreasonable as again to show failure to do his duty
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o
Present case does not raise the issue raised where Parliament grants discretionary power
 No discretion was given to the officers in the case at hand
Lord Morris
 Finds a duty of care due to the reasonable foreseeability of damage caused by the escapees to the yacht (duty
of care = reasonable foreseeability)
o it was incumbent on the officers to avoid acts or omissions which they could reasonably foresee
would be likely damage yachts.
o The yacht owners were persons so closely and directly affected by what the officers did or failed to
do that they ought reasonably to have been in the contemplation of the officers.
 It was a duty owed to the Company to take such care as in all the circumstances was reasonable in the hope of
preventing the occurrence of events likely to cause damage to the Company.
o It was not a duty to prevent the boys from escaping or from doing damage
Viscount Dilhorne (DISSENT)
 This judge interprets precedence very strictly in that because no sufficiently similar duty exists, the case at
hand must fail = pigeon-hole approach
 For a successful cause of action, one needs negligence, damage, and a duty of care
 In the case at hand, we are searching for a new duty of care never previously recognized
o Donoghue was not about the existence of a duty, but as to whom it was owed
o “Lord Atkin cannot have intended his words to mean that in every case failure to take reasonable care
to avoid acts/omissions which could reasonably be foreseen as likely to inure one’s neighbour as
defined by him was actionable
o Lord Atkin's answer to the question " Who, then, in law is my neighbour? " while very relevant to
determine to whom a duty of care is owed, cannot determine, in my opinion, the question whether a
duty of care exists.
 “The absence of authority shows that no such duty now exists. If there should be one, that is, in my view, a
matter for the legislature and not for the courts.” LOL, negligence is never closed?
 The general rule is that one man is under no duty of controlling another man to prevent his doing damage to a
third.
o There are special relations which are the source of a duty of this nature.
 Recognised that a parent who maintains control over a young child must take reasonable care,
so to exercise that control as to avoid conduct on his part exposing the person or property of
others to unreasonable dangers.
o This is no authority for the relationship between a custodian and those under their custody
 A finding of liability may bring about an inhibiting effect on public authorities to creatively fix these pressing
social issues. Public policy argument
Lord Pearson
 “To some extent the decision in this case must be a matter of impression and instinctive judgment as to what is
fair and just”
Lord Diplock
 Recognizes in times where novel cases are being tried, there is a sense of judicial law-making and the
imposition of a quasi-policy decision
o "How wide the sphere of the duty of care in negligence is to be laid depends ultimately upon the
courts' assessment of the demands of society for protection from the carelessness of others
o Justification of the courts' role in giving to the judges' conception of the public interest in the field of
negligence the effect of law is based upon the cumulative experience of the judiciary of the actual
consequence of lack of care in particular instances
 The choice to extend legal principles is given effect to by redefining the characteristics in more general terms
36
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so as to exclude the necessity to conform to limitations imposed by the former definition which are considered
to be inessential.
Two distinctions between this case and Donoghue
o Damage sustained by the Plaintiff was the direct consequence of a tortious act done
with conscious volition by a third party responsible in law for his own acts and this act was interposed
between the defendant’s act and the plaintiff’s damage.
o There are two separate " neighbour relationships " of the defendant involved, a relationship
with the plaintiff and a relationship with the third party.
The general rule is that one man is under no duty of controlling another man to prevent his doing damage to a
third. There are however special relations which are the source of a duty of this nature.
Special relations: A is responsible for damage caused to the person or property of B by
the tortious act of C (a person responsible in law for his own acts) where the relationship between A and C has
the characteristics
o (1) that A has the legal right to detain C in penal custody and to control his acts while in
custody
o (2) that A is actually exercising his legal right of custody of C at the time of C's tortious act
o (3) that A if he had taken reasonable care in the exercise of his right of custody could have prevented
C from doing the tortious act which caused damage to the person or property of B ;
And where also the relationship between A and B has the characteristics;
o (4) that at the time of C's tortious act A has the legal right to control the situation of B or his property
as respects physical proximity to C
o (5) that A can reasonably foresee that B is likely to sustain damage to his person or property if A does
not take reasonable care to prevent C from doing tortious acts of the kind which he did.
Applying to the case at hand, we have satisfied (1), (3) and (5) ONLY
o The policy decision is whether the missing characteristic is essential to the existence of the duty; OR
o whether the disclose some other characteristic which if substituted for that which is missing would
produce a new proposition of law which ought to be true.
Looking at the Statute which granted the Home Office power to detain and have custody, it can be presumed
that parliament did not intend to authorise the undertakers to exercise the powers in such a way as to cause
damage to the proprietary rights of private citizens that could be avoided by reasonable care without
prejudicing the achievement of the contemplated result
Even if the acts and omissions of the Borstal officer alleged in the particulars of negligence were done in
breach of their instructions and so were ultra vires in public law it does not follow that they were also done in
breach of any duty of care owed by the officers to the plaintiff in civil law.
It would seem arbitrary and therefore unjust to single out for the special privilege of being able to recover
compensation from the authorities responsible for the prevention of crime a person whose property was
damaged by the tortious act of a criminal, merely because the damage to him happened to be caused by a
criminal who had escaped from custody before completion of his sentence instead
of by one who had been lawfully released or who had been put on probation or given a suspended sentence or
who had never been previously apprehended at all.
To give rise to a duty on the part of the custodian owed to a member of the public to take reasonable care to
prevent a Borstal trainee from escaping from his custody before completion of the trainee's sentence there
should be some relationship between the custodian and the person to whom the duty is owed which exposes
that person to a particular risk of damage in consequence of that escape which is different in its incidence
from the general risk of damage from criminal acts of others which he shares with all members of the public.
What distinguishes a Borstal trainee who has escaped from one who has been duly released from custody, is
his liability to recapture, and the distinctive added risk which is a reasonably foreseeable consequence of a
failure to exercise due care in preventing him from escaping is the likelihood that in order to elude pursuit
immediately upon the discovery of his absence the escaping trainee may steal or appropriate and damage
property which is situated in the vicinity of the place of detention from which he has escaped.
37
Holding
 any duty of a Borstal officer to use reasonable care to prevent a Borstal trainee from escaping from his
custody was owed only to persons whom he could reasonably foresee had property situate in the vicinity of
the place of detention of the detainee which the detainee was likely to steel or to appropriate and damage in
the course of eluding immediate pursuit and recapture.
o Whether or not any person fell within this category would depend upon the facts of the particular case
including the previous criminal and escaping record of the individual trainee concerned and the nature
of the place from which he escaped.
 In the present appeal the place from which the trainees escaped was an island from which the only means of
escape would presumably be a boat accessible from the shore of the island.
o The plaintiff, as the owner of a boat moored off the island, fell within the category of persons to
whom a duty of care was owed by the officers responsible for the trainees custody.
 If it can be established (1) that the Borstal officers in failing to take precautions to prevent the trainees from
escaping were acting in breach of their instructions and not in bona fide exercise of a discretion delegated to
them by the Home Office as to the degree of control to be adopted and
 (2) that it was reasonably foreseeable by the officers that if these particular trainees did escape they would be
likely to appropriate a boat moored in the vicinity of Brownsea Island for the purpose of eluding immediate
pursuit and to cause damage to it, the Borstal officers would be in breach of a duty of care owed to the
plaintiff
Cass R. Sunstein, ‘On Analogical Reasoning’ (1993) 106 Harv. L. Rev. 741
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Analogical thinking has the following structure:
o (I) A has characteristic X;
o (2) B shares that characteristic;
o (3) A also has characteristic Y;
o (4) Because A and B share characteristic X, we conclude what is not yet known, that B shares
characteristic Y as well
This does not guarantee truth; the existence of a shared characteristic does not mean that all characteristics are
shared
o For analogical reasoning to operate properly, we have to know that A and B are "relevantly" similar,
and that there are not "relevant" differences between them.
When lawyers say there are no relevant differences, they mean that any differences between the two cases
either
o (a) do not make a difference in light of the relevant precedents, which foreclose certain possible
grounds for distinction, or
o (b) Cannot be fashioned into the basis for a distinction that is genuinely principled.
In law, analogical reasoning has four different but overlapping features: principled consistency; a focus on
particulars; incompletely theorized judgments; and principles operating at a low or intermediate level of
abstraction.
o 1) Judgments about specific cases must be made consistent with one another. A requirement of
coherence, or principled consistency
o 2) Analogical reasoning focuses on particulars, and it develops from concrete controversies. Holmes
put it this way: a common law court "decides the case first and determines the principle afterwards.”
Ideas are developed from the details, rather than imposed on them from above. In this sense,
analogical reasoning, is a version of "bottom-up" thinking
o 3) Analogical reasoning operates without a comprehensive theory that accounts for the particular
outcomes it yields.
o 4) analogical reasoning produces principles that operate at a low or intermediate level of abstraction.
It does involve a degree of abstraction from the particular case; but it does not entail any high level
theory. Analogical reasoning usually operates without express reliance on any general principles
38
Other forms of Legal Reasoning
 Top-down general theories: A general theory is simple and unitary, operates at a high level of abstraction,
has a distinctive "top down" character, brings the general theory to bear on particular cases,
o Disregards counterintuitive answers that have been compelled by the general theory.
o Top-down general theories operate deductively. Analogy plays no role.
o Usually found in codification, the opposite to the common law
 Search for Reflective Equilibrium
o an effort to produce both general theories and judgments in individual cases by close engagement with a
range of general theories and a range of considered judgments about particular disputes.
o In searching for reflective equilibrium, what we think tentatively to be the general theory is adjusted to
conform to what we think to be our considered views about particular cases.
o commonality between analogical reasoning and the search for reflective equilibrium, in that both
approaches depend heavily on judgments about particular cases.
o Criticism that that theories should be adjusted if they lead to unacceptable particular outcomes
 If judgments by human beings are inevitably a product of what human beings think, nothing need
be wrong with changing one's general theory when that theory brings about results that seem to
be an unacceptable part of one's approach to the subject.
o The search for reflective equilibrium places a high premium on the capacity to develop a complete
understanding of the basis for particular judgments, and the development of abstract and general
principles to account for those judgments.
o When reflective equilibrium is obtained, both horizontal and vertical consistencies among cases are
achieved. Every particular judgment becomes fully theorized, and at a highly general level.
 Analogical reasoning is far less ambitious as it does not require anything like horizontal and
vertical consistency.
 But because analogical reasoning requires at least a degree of generality, the difference between
the two is of degree rather than of kind
 Analogical reasoning can be understood as a sharply truncated form
 Reasoning by Analogy – Incompletely Theorized Practices
o The common law has often been understood as a result of social custom rather than an imposition of
judicial will.
 The common law implements the customs of the people; it does not impose the judgment of any
sovereign body
o Reasoning from incompletely theorized practices is founded on the assumption that those practices have a
kind of legitimacy and sense that ought to be brought to bear on current dilemmas
 Classification
o Classification plays a large role in analogical reasoning and the application of general theories
o the effort to resolve a case solely by reference to purely semantic principles.
 By semantic principles, basic rules of grammar and diction.
 Substantive principles, by contrast, require an argument rather than a language lesson
o Often reasoning by classification is a sham; a value judgment is being made but not disclosed.
 Analogy has similar problems to classification where it can go wrong
o When one case is said to be analogous to another on the basis of a unifying principle that is accepted
without having been tested against other possibilities, OR
o when some similarities between two cases are deemed decisive with insufficient investigation of relevant
differences.
 Means-Ends Rationality
o This should play a large role as judges should anticipate the effects of their decisions
o Used for pressing social issues and policies
 Analogical reasoning usually unhelpful in these cases
o Conventional legal tools are ill-suited to this task
39

To the extent that courts do attempt to consider consequences, they will not be engaging in
distinctively legal reasoning
Objections and Alternatives to Analogical Reasoning
 There are three principal objections, in ascending order of persuasiveness:
o 1) Absence of scientific, external, or critical perspectives
 Unduly tied to current intuitions, causing it to be static or celebratory of existing social practices
 As analogical reasoning starts from existing convictions or holds, it does have a backwardslooking, conservative, incremental character
 Efforts to reason from analogies are stuck in existing convictions
 This criticism is overdrawn as analogical reasoning does tend to reveal mistakes
o Testing of initial judgments will draw out this mistakes
o 2) Indeterminacy: Dependence on Consensus
 Analogical reasoning indeterminate in the absence of social consensus or a degree of
homogeneity that will exist in no properly inclusive legal system
 Criticism states that we can only reason this way if we already agree on fundamental matters.
Otherwise people will simply differ, and there will be no way to reason through their differences.
 If so, reasoning by analogy merely uncovers agreement where it already exists
 it is correct to think that analogy depends on a degree of commonality among participants
 it has a tendency toward bias or excessive complacency
 The need for consensus is a problem that applies to all forms of reasoning
 Law imposes greater constraints on the analogical process. Existing legal holdings sometimes
provide the necessary commonality and the necessary consensus.
 People who disagree with those holdings usually agree that they must be respected; the
principle of stare decisis so requires.
 Within the legal culture, analogical reasoning imposes a certain discipline, and a widespread
moral or political consensus is therefore unnecessary.
 Things are different outside of law as there is an absence of precedents that can help
generate an overlapping consensus
o This could produce different correct legal and moral outcomes
o Analogies operate as fixed points in legal reasoning, whereas in morality
they are revisable and entirely open-ended
 In order to counteract parochialism and bias, it is important to ensure that people with different
perspectives and experiences are permitted to participate.
 This suggests the weakness in the view that analogical reasoning depends on a deep social
consensus. Even without such a consensus, there is usually sufficient agreement, with respect to
some matters of importance, to allow the process of reasoning to begin. Sometimes they really do
disagree. But analogical reasoning can at least help to discover where they do, and why.
 Advantage of analogical reasoning is that in cases in which there are major differences in
starting points, people can often think far better about particular problems than about largescale approaches to the world.
 3) The Search for Relevant Differences – The inevitable need for criteria never supplied by analogical
reasoning
o the process has yet to be adequately specified, and that when it is, it will emerge as a primitive and
failed substitute either for a more general theory or for the effort to reach reflective equilibrium
o For example: Is case A relevantly similar to case B, or not?
 To answer such questions, one needs a theory of relevant similarities and differences.
 By itself, analogical reasoning supplies no such theory.
 It is dependent on an apparatus that it is unable to produce
o One needs a set of criteria to engage in analogical reasoning, otherwise one has no idea what is
analogous to what
40
o
o
We say something is like something else only because we have a principle that tells us so
On this view, analogical reasoning is ONLY necessary because we have been too lazy to develop
general principles
 A defence of analogical reasoning is that there is a certain value in decided case
o Because of the distinctive requirements of a legal system, correct answers in law might consist
precisely of those particular judgments, once they have been made to cohere.
o Clear that general principles and general theories are sometimes inadequate for legal reasoning.
 Often too many factors are relevant, and too many variations are possible, to allow a general
formulation adequately to capture the range of right results
 The judgments are then not just deductions from general theory, BUT coherent convictions
about particular cases
o Sometimes analogical reasoning might be preferred to a general theory, which can be too vague
o At a minimum, considered judgments include the judgments that serve as fixed points for moral or
legal analysis
 These are cases that have survived a degree scrutiny through comparison and low-level
principles
 Coherence in law might be defined as consistency among particular judgments and low-level
principles
 In a sense, this suggests some version of reflective equilibrium
o Full-on reflective equilibrium is not possible due to the sheer number of judgments & judges
 This is not necessarily a bad thing because there is the need for predictability and stability in law
 Analogies are not just a ‘thing’ used as tools to resolve arguments
o Their meaning lies in their use
o They are not simply unanalyzed fact patterns; they are used to help people think through contested
cases and to generate low-level principles.
o They have a constitutive dimension, for the patterns we see are a product not simply of pre-existing
reality, but of our cognitive structures and our principles as well
 in hard cases in law, any "choice," is founded on policies or principles that usually play a part
in legal reasoning as it currently stands
Alternative Accounts and the Comparative Advantage of Analogical Thinking
 Reasoning by analogy has 4 distinct advantages
1. the best approach available for people of limited time and capacities
2. allows people who are unable to reach anything like an accord on general principles to agree on
particular outcomes
3. Desirable in contexts in which we seek moral evolution over time. If the legal culture really did attain
reflective equilibrium, it might become too rigid and calcified
4. It operates with precedents that have the status of fixed points; it helps one to limit/frame the debate
 Lawyers could not try to reach reflective equilibrium without severely compromising the system of
precedence
 Would eliminate the fixed points created by stare decisis
 Sometimes participants in law do not have the time or capacities to think everything fully through, and hence
analogical reasoning is the best that we can expect in the real world of law. Sometimes it may be best to have
analogical reasoning, precisely because of the greater flexibility that it permits over time, and because of its
distinctive contribution to moral evolution in society.
General Theories and Economic Analysis of Law
 In its normative form, economic analysis depends on too thing a repertoire for inquiry – that is, the notion that
legal rules should be designed so as to maximize wealth
 Advantage of analogical reasoning over economic analysis is that the former, unlike the latter, need not insist
that plural and diverse social goods should be assessed according to the same metric
o How does one make choices in cases in which incommensurable social goods are at stake, and in
41
o
o
which some of these goods must be sacrificed?
The analogical thinker is alert to the manifold dimensions of social situations and to multiple relevant
similarities and differences
The comparative advantage of analogical reasoning is that it provides a deep and broad resource for
legal thought
Conclusion
 Analogical reasoning has some disadvantages
o Compared with reflective equilibrium, it is insufficiently theoretical; it does not account for its own
low-level principles in sufficient depth or detail.
o Compared with economics and empirical social science, it is at best primitive on the important issue
of likely social consequences
 It also has some advantages!
o Does not require people to develop full theories to account for their convictions;
o it promotes moral evolution over time;
o it fits uniquely well with a system based on principles of stare decisis;
o it allows people who diverge on abstract principles to converge on particular outcomes.
o people engaged in this type of reasoning are peculiarly alert to the abhorrent result, and they take
strong convictions about particular cases to provide reasons for re-evaluating their views about other
cases or even about apparently guiding general principles
Proximity and the problem of pure economic loss
Rivtow Marine Limited v. Washington Iron Works [1974] SCR 1189
Facts
 Washington manufactures and Walkem distributes crane used on log barges
 Both aware of defects but did not provide warning
 Rivtow a charterer of a log barge, Rivtow Carrier, equipped with defective crane
 Busiest season of year, Rivtow Carrier called back to port because virtually identical crane had collapsed and
killed operator
 Inspection led to withdrawing Rivtow Carrier from service to carry out extensive repairs
 Rivtow claims for cost of repair and lost profits
Issue
 Whether recovery may be had in a negligence action for economic loss which stands alone and is not
consequent upon physical injury
Reasoning
 Washington was under a duty to prevent injury which foreseeably would result from its negligence in the
design and manufacture of the crane
o “If physical harm had resulted, whether personal injury or damage to property, Washington's liability
to the person affected would not be open to question.
 Should it then be any less liable for the direct economic loss to the appellant resulting from
the faulty crane merely because the likelihood of physical harm was averted by the
withdrawal of the crane from service so that it could be repaired?
 Hedley Byrne shows that economic or pecuniary loss is not outside the scope of liability for negligence
o Rationale for manufacturer’s liability for negligence should also support recovery for economic loss
where there is a threat of physical harm and the plaintiff is in the class of those who are foreseeably
threatened
 Concern for liability in an indeterminate amount for an indeterminate time to an indeterminate class is
unfounded:
42
o
liability here will not mean that it must also be imposed in the case of any negligent conduct where
there is foreseeable economic loss
o Present case is concerned with direct economic loss by a person whose use of the defendant’s
product was a contemplated one; not with indirect economic loss by 3rd parties
 Limits on the kind or range of harm for which liability will be imposed in the case of a manufacturer who is
under a duty not to expose consumers or users of its products to an unreasonable risk of harm:
o Remoteness, which may relate to physical harm no less than to economic loss
 Donoghue has been used deny manufacturer’s liability unless physical harm has resulted from the breach of
the duty
o Restriction on liability has in it more of a concern to avoid limitless claims for economic loss from
any kind of negligence than a concern for the particular basis upon which manufacturers’ liability for
negligence rests
 This is based upon a conviction that manufacturers should bear the risks of injury to
consumers or users of their products when such products are carelessly manufactured because
they create the risk and will be more likely to safeguard the public if they must stand behind
their products as safe ones
 This rationale can embrace threatened physical harm from a negligently designed AND manufactured product
resulting in economic loss
o Foreseeable injury to person or property supports recovery for economic loss suffered by
consumer/user who is fortunate enough to avert such injury
 The case is not one where a manufactured product proves to be merely defective but rather one where by
reason of the defect there is a foreseeable risk of physical harm from its use and where the alert avoidance of
such harm gives rise to economic loss
o Prevention of threatened injury resulting in economic loss should not be treated differently from postinjury cure
 A plaintiff injured by another's negligence is required to act reasonably to mitigate his damages.
o If his damages are economic damages only, mitigation may involve him in repairing the defect which
brought them about.
o Where the defective product which threatened injury has been in use by the plaintiff, it may be
reasonable for him to expend money for its repair to make it fit for service.
o Such an expenditure becomes part of the economic loss for which Washington must respond
Ratio
 Rationale for manufacturer’s liability for negligence should also support recovery for economic loss where
there is a threat of physical harm and the plaintiff is in the class of those who are foreseeably threatened
Kamloops v. Nielsen [1984] 2 SCR 2
Facts
 Contractor builds house for father H. (alderman)
 Contractor fails to comply with bylaw requirements
 Building inspector places stop work order, but contractor continues work according to original plans
 H. purchases house and asks city not to pursue stop work order
 Strike by city employees - no further action taken on stop work order
 H. sells to plaintiff without notice of defects or stop work order
 Foundation subsides one year later - action against city
Issue
 Whether a municipality can be held liable for negligence in failing to prevent the construction of a house with
defective foundations
Reasoning
43
Anns v Merton London Borough Council
 Counter-argument that where the local authority is under no duty to inspect but merely has a power to inspect,
it can avoid liability for negligent inspection by simply deciding not to inspect at all.
o This overlooks the fact that local authorities are public bodies operating under statute with a clear
responsibility for public health in their area.
o They must make their discretionary decisions responsibly and for reasons that accord with the
statutory purpose.
o They must give due consideration to the question whether they should inspect or not
 Having decided to inspect, they must then be under a duty to exercise reasonable care in
conducting that inspection.
 Anns test: private law duty can be imposed alongside public law powers and duties enabling individuals to
sue the authority for damages in a civil suit
o To decide whether or not a private law duty of care [exists] ask
 1) If there a sufficiently close relationship between the parties (so that, in the reasonable
contemplation of the authority, carelessness on its part might cause damage to that person?
 If so, 2) Are there any considerations which ought to negative or limit (a) the scope of the
duty and (b) the class of persons to whom it is owed or (c) the damages to which a breach of it
may give rise?
o Answer these questions by looking at legislation
 Two kinds of legislation
 Statutes conferring powers to interfere with the rights of individuals
o Only have a claim where the local authority has done what the legislature
authorized but has done it negligently
 Statutes conferring powers but leaving the scale on which they are to be exercised to
the discretion of the authority
o If the local authority opts to do the thing authorized (policy), then there is a
duty at the operational level to use due care in giving effect to it
 Applying to the case at hand, City of Kamloops had a statutory power to regulate construction by by-law.
The regulation was a policy decision. Having made the policy decision to regulate construction by by-law, it
imposed on the inspector to enforce the provisions of the by-law, an operational duty.
 Floodgates argument: recognizing Anns would create an “open season” on municipalities
o Rebuttal:
 Anns has built in barriers
 Legislation must impose a private law duty before Anns applies
 Anns will not apply to purely policy decisions; this prevents the courts from usurping
the proper authority of elected representatives and their officials
o The principle ensure that in the operational area public officials will be exposed to the same liability
as other people if they fail in discharging their duty to take reasonable care to avoid injury to their
neighbours
 Useful protection to the citizen who has to rely on public officials
 Recovery for pure economic loss: Brings up the famous Cardozo line again
o Rebuttal is that Purely economic loss is only compensable if:
 Statute has to create a private law duty alongside the public law duty
 Operational negligence
 If implementation of policy decisions involved policy considerations and the discretion
authorized by the public authority is not exercised in good faith
 It is a type of loss the statute intended to guard against
 Pros of recovery for purely economic loss:
o Avoids undue interference by courts in affairs of public authorities
o Gives a remedy where legislature has impliedly sanctioned it
44
o
Imposes a large enough burden on public authorities to act as a check on the arbitrary and negligent
discharge of statutory duties
Ratio
 To determine if there is a private law duty of care, ask:
 1) If there a sufficiently close relationship between the parties (the local authority and the person who has
suffered the damage) so that, in the reasonable contemplation of the authority, carelessness on its part
might cause damage to that person?
 If so, 2) Are there any considerations which ought to negative or limit (a) the scope of the duty and (b) the
class of persons to whom it is owed or (c) the damages to which a breach of it may give rise?
John P. S. McLaren: ‘The Dickson Approach to Liability in Tort’ in DeLloyd J Guth
(ed.) Brian Dickson at The Supreme Court of Canada 1973-1990 (Winnipeg: Canadian
Legal History Project, 1998)







Law of torts reflects most clearly the tension with any legal system between the desire for certainty in stating
rules and the need for flexibility in responding to changing social realities
Dickson felt that the law of negligence has a legitimate and more extensive role to play in imposing legal
responsibility on those who exercise control over property or operations
o A duty should be recognized whether the perils were external to or generated by the victim
o In cases with children injured by dangerous operations, despite the fact that the children had acted in
an irresponsible fashion, his view was that the corporate defendants had fallen down in their
obligations to see that their operations did not present special risks to children
In cases in which defendants had created situations of danger for or ignored clear risks to others, which the
latter were incapable of fully appreciating, he imposed liability wherever defendants had it in their power to
take uncomplicated protective or remedial measures
Dickson also extended the duty of affirmative action to those in control of dangerous operations in
appropriate circumstances, even to plaintiffs who arguably were old and experienced enough to take care of
themselves
Anns v Merton London Borough Council had a huge impact in Canada
o This case both created a broad theory of duty in negligence law and suggested that public authorities
and municipalities could be liable in negligence to those injured by the exercise of their powers at an
operational level
o The Court accepted both principles in the City of Kamloops v Nielson case
o Dickson has argued that public authorities, like private corporations, should be prepared to internalize
the cost of any damage which they cause to land occupiers
The SCC has now expanded the liability of public authorities for negligent exercise of their powers farther
than any other court in the Commonwealth
o The attractiveness of this in philosophical and equitable terms, has proven problematic in terms of
rationalization
o The further the Court moved away from confining liability to individualized situations, the greater the
temptation has been to manipulate concepts and facts
 This has removed any sense of predictability
 This has brought many dissenting judgments in post-Dickson courts
 This lack of agreement may bring about judicial retrenchment in the future, like we have seen
in England with Murphy v Brentwood District Council
 Ultimate impact of expanded judicial thinking during the Dickson years may be serious
limitations on actionability at common law
As an ex-corporate lawyer, Dickson also imposed a wider tort-based duty of care on the part of professionals
rendering service
o He held that Hedley Byrne was good law in Canada
45




Delineated the elements of that duty to professional advice provided to parties not in
contractual relationships with the advisor, expanding it to embrace members of groups known
to that professional advisor who he might reasonably have anticipated influencing
Dickson also recognized that there is significant overlap in the tort-contract nexus
Dickson went against the Holmes “hands-off” approach and was more concerned with compensability rather
than moralistic notions of responsibility
Dickson was unafraid to say that his decisions were also based in policy considerations, in particular
o A strong commitment to basic individual rights
o A clear recognition that rights may come into conflict and therefore require mediation and ranking by
courts
o A firm belief in the legitimacy of state intervention and pre-emptive initiative to create conditions in
which individual rights can be effectively exercised
 By being up front with his policy considerations, tort law benefitted from open policy
discussion and lucid explanation
 Dickson was committed to the idea of, in a democratic scheme, open debate
Proximity and the problem of pure economic loss
Winnipeg Condominium Corp no 36 v. Bird Construction Co. [1995] 1 SCR 85, 121
DLR (4th) 193
Facts
 Developer contracts with general contractor to build apartment building
 general contractor sub-contracts masonry
 Building later converted into condominium and sold to plaintiff corporation
 Corporate directors concerned with masonry work; original architects and engineers indicate structurally
sound
 Cladding falls from building; no one injured
 Further inspection reveals structural defects in masonry; masonry removed at plaintiff’s expense
Issue
 Whether a general contractor responsible for the construction of a building may be held tortuously liable for
negligence to a subsequent purchaser of the building, who is not in contractual privity with the contractor, for
the cost of repairing defect in the building arising out of negligence of construction
Reasoning
 The claim is one of economic loss: asking for the cost of repairing the defective masonry
o No one was injured by the collapsing exterior
 5 different categories where the question of recoverability for economic loss has arisen:
1. Independent liability of statutory public authorities
2. Negligent misrepresentation
3. Negligent performance of a service
4. Negligent supply of shoddy goods or structures
5. Relational economic loss
 The question of recoverability for economic loss must be approached with reference to the unique and distinct
policy issues raised in each of these categories
o In cases involving the recoverability of economic loss in tort it is preferable for the courts to weigh the
relevant policy issues openly
 The question in hand falls into the 4th category with the one distinction that it was a dangerous good, not
merely a shoddy good
 D & F Estates should not be seen as having strong persuasive authority in Canadian tort law
46
o
It rests on the assumption that liability in tort for the cost of repair of defective houses represents an
unjustifiable intrusion of tort into the contractual sphere
o Inconsistent with Canada recognizing the possibility of concurrent contractual and tortious duties
o Leads to UK`s rejection of Anns, which is inconsistent with Canada`s acceptance of it (Kamloops,
Norsk)
 Central Trust co v Rafuse: duty of care in tort may arise coextensively with a contractual duty
o It is not confined to relationships that arise apart from contract
o The question is simply whether there is a relationship of sufficient proximity, not how it arose
o The principle of tortious liability is for reasons of public policy a general one
o Duty in tort must arise independently of the contractual duty
 Contract will indicate the nature of the relationship that gives rise to the duty of care
 The duty of care that is asserted as the foundation of the tortious liability must not depend on
specific obligations or duties created by the express terms of the contract
 A contractor`s duty to take reasonable care arises independently of any duty in contract between the contractor
and the original property owner
o Duty of contract flows from the terms of the contract
o Duty of tort flows from the contractor’s duty to ensure that the building meets a reasonable and safe
standard of construction
 The bounds of this duty are not defined by reference to the original contract
 The unfortunate result of D & F Estates is that it leaves subsequent purchasers with no remedy against a
contractor who constructs a building with substandard materials/ workmanship, putting them at considerable
risk
o The fact that Bird negotiated a contract with Tuxedo, the original owner of the building, does not
insulate Bird from a separate duty to the current owners of the building
 Divergence in approach and UK is due to the question as to whether courts should impose a “broad
exclusionary rule” against recovery for economic loss in tort
o Anns rejects the broad exclusionary rule and instead proposed the general/universal approach
o Wilberforce took a lot out of Laskin’s dissent in Rivtow
 In Murphy, UK rejected the two part Anns test and restored the traditional broad exclusionary rule against
recovery in the absence of special relationship of reliance for pure economic loss in tort
 In Rivtow, Laskin’s dissent which expresses concern with safety and the prevention of further damage is
justified
o Where products are unsafe, prevention of threatened harm resulting directly in economic loss should
not be treated differently from post injury treatment
Time to apply the Anns test!!
Step 1) Was there a sufficiently close relationship between the parties so that, in the reasonable
contemplation of Bird, carelessness on its part might case damage to a subsequent purchaser of the
building?
 A lack of contractual privity between the contractor and the inhabitants at the time the defects manifest
themselves does not make the potential for injury less foreseeable
o The reasonable likelihood that a defect in a building will cause injury to its inhabitants is also
sufficient to ground a contractor's duty in tort to subsequent purchasers of the building for the cost of
repairing the defect if that defect is discovered prior to any injury and if it poses a real and substantial
danger to the inhabitants of the building
 If a contractor can be held liable in tort where he or she constructs a building negligently and, as a result of
that negligence, the building causes damage to persons or property, it follows that the contractor should
also be held liable in cases where the dangerous defect is discovered and the owner of the building wishes
to mitigate the danger by fixing the defect and putting the building back into a non-dangerous state
 In D & F Estates and Murphy, the plaintiff who moves quickly and responsibly to fix a defect before it
causes injury to persons or damage to property must do so at his or her own expense
47
o
Maintaining a bar against recoverability for the cost or repair of dangerous defects provides no
incentive for plaintiffs to mitigate potential losses and tends to encourage economically inefficient
behaviour
o The Condominium Corporation behaved responsibly and as a reasonable home owner should, in
having the building inspected and repaired immediately
 A distinction can be drawn on a policy level between dangerous defects in buildings and merely shoddy
construction
o With dangerous defects, tort law serves to encourage the repair of dangerous defects and thereby to
protect the bodily integrity of inhabitants of buildings
o Shoddy defects are questions of quality of workmanship and fitness for purpose  not recoverable
 Contractors who take part in the construction and design of a building will owe a duty in tort to subsequent
purchasers of the building if it can be shown that it was foreseeable that a failure to take reasonable care in
constructing the building would result in defects that pose a substantial danger to the health and safety of the
occupants
Anns test Step 2
Are There Any Considerations that Ought to Negate (a) the Scope of the Duty and (b) the Class of Persons
to Whom it is Owed or (c) the Damages to which a Breach of it May Give Rise?
 Concerns:
o 1)Warranties respecting quality of construction are primarily contractual in nature and cannot be
easily defined or limited in tort
o 2)Recognition of the duty interferes with the doctrine of caveat emptor which dictates that in the
absence of an express warranty there is no implied warranty of fitness
 Rebuttal:
o These concerns are version of the Cardozo floodgate argument: liability in an indeterminate amount
for an indeterminate time to an indeterminate class
o Addressing 1)
 A tort duty can arise concurrently with a contractual duty, so long as that tort duty arises
independently of the contractual duty
 The duty to construct a building according to reasonable standards and without
dangerous defect arises independently of contractual stipulations , because it arises
from a duty to create the building safely, free from dangerous defects, and not merely
according to contractual standards of quality
 No possibility of liability to an indeterminate class: the claimant is restricted to the inhabitants
of the building
 no risk of liability for indeterminate amount: limited by the reasonable cost of repairing the
dangerous defect in the building and restoring the building to non-dangerous state
 Any danger of indeterminacy in damages is averted by the requirement that the defect
for which the costs of repair are claimed must constitute a real and substantial danger
to the inhabitants of the building
 no risk of indeterminate time: contractor will only be liable for the cost of repair of dangerous
defects during the useful time of the building; not liable for dangerous defects arising from
normal wear and tear
o Addressing 2)
 the assumption underlying the doctrine is that the purchaser of a building is better placed than
the seller or builder to inspect the building and bear the risk that latent defects will emerge
necessitating repair costs
 this concern is not responsive to the realities of the modern housing market
 imposition of liability on builders provides incentive for care in the construction of
buildings and a deterrent against poor workmanship
Holding
48

no adequate policy considerations exist to negate a contractor's duty in tort to subsequent purchasers of a
building to take reasonable care in constructing the building, and to ensure that the building does not contain
defects that pose foreseeable and substantial danger to the health and safety of the occupants
Ratio
 Application of Anns test!
Hercules Management v. Ernst & Young [1997] 2 SCR 165
Facts
 GF corp. sole shareholder of NGH; GF and others shareholders of NGA
 Defendants audited financial statements; plaintiffs claim reliance on financial statements from 1980 - 82
 NGH and NGA go into receivership in 1984
 Plaintiffs claim financial loss - funds advanced to corporation as well as value of initial investment
Issue
 Whether and when accountants who perform an audit of a corporation’s financial statements owe a duty of
care in tort to shareholders of the corporation who claim to have suffered losses in reliance on the audited
statements?
Reasoning
 Duty of care in tort is to be determined through an application of the two part Anns test as re-iterated in
Kamloops
o Step 1: is there as sufficiently close relationship between the parties so that, in the reasonable
contemplation of the defendant, carelessness on its part might cause damage ot that person? If so,
o Step 2: are there any considerations which ought to negative
 a) the scope of a duty;
 b) the class of persons to whom it is owed
 c) the damages to which a breach of it may give rise
 To create a pocket of negligent misrepresentation cases in which the existence of a duty of care is determined
differently from other negligence cases would be incorrect
o the same general framework ought to be used in approaching the duty of care question in both types of
cases
The prima facie duty of care (Step 1)
 The first branch is an inquiry into whether there is a sufficiently close relationship between the plaintiff and
the defendant that in the reasonable contemplation of the latter, carelessness on its part may cause damage to
the former
 The relationship of neighbourhood/proximity distinguishes those circumstances in which the defendant owes a
prima facie duty of care to the plaintiff from those where no such duty exists
o What constitutes a relationship of proximity in the context of negligent misrepresentation actions?
 Norsk: proximity itself is nothing more than a label expressing a result, in and of itself it does
not provide a principled basis on which to make a legal determination
 Must sent out the basis upon which one may properly reach the conclusion that proximity
inheres between a representor and a representee
 In Anns, proximity is used to describe the circumstances of the relationship where the defendant is under an
obligation to be mindful of the plaintiff’s legitimate interests in conducting his affairs
 In cases of negligent misrepresentation the relationship between the defendant and the plaintiff arises through
reliance by the plaintiff on the defendant’s words. Two criteria needed:
o The defendant ought reasonably to foresee that the plaintiff will rely on his or her representation
o AND reliance by the plaintiff is reasonable of the facts of the case
 Purpose behind the Anns/Kamloops test is simply to ensure that enquiries into the existence of a duty of care
in negligence cases is conducted in two parts:
o Discerning whether, in a given situation, a duty of care would be imposed by law
49
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



o whether the legal duty, if found, ought to be negatived or ousted by policy considerations.
In physical damage cases determining whether harm to the plaintiff was reasonably foreseeable to the
defendant is alone a sufficient criterion for deciding proximity, because absent a voluntary assumption of risk
by the plaintiff, it is always reasonable for him to expect that a defendant will take reasonable care of the
plaintiff’s property
In negligent misrepresentation actions the plaintiff’s claim stems from his detrimental reliance on the
defendant’s negligent statement; reliance will not always be reasonable, the assumption that inheres in
physical damage cases does not apply to negligent misrepresentation cases
Policy consideration (Always worried about the Cardozo maxim)
o Serve a limiting function with respect to the ambit of the duty of care; a means by which liability is
curtailed
o Fundamental consideration in negligent misrepresentation actions centres around the possibility that
the defendant might be exposed to liability in an indeterminate amount for an indeterminate time to an
indeterminate class
o in the general run of auditors’ cases, concerns over indeterminate liability will serve to negate a prima
facie duty of care
 exceptions:
 defendant knows the identity of the plaintiff/class of plaintiff
 AND the defendant’s statements are used for the specific purpose or transaction for
which they were made
o Use of these considerations to circumscribe the scope of liability will allow for the positive finding of
a duty of care not to be overridden.
Argument that indeterminate liability is overstated and will largely be covered by the difficulty of proving
both negligence and reliance
o More sense to circumscribe the ambit of the duty of care than to assume that difficulties in proving
negligence and reliance will afford sufficient protection to auditors, since this approach avoids both
“indeterminate liability” and “indeterminate litigation”
Feldthusen’s indicia of reliance:
o The defendant had a direct or indirect financial interest in thetransaction in respect of which the
representation was made
o The defendant was a professional or someone who possessed special skill judgement or knowledge
o The advice or information was provided in the course of the defendant’s business
o The information or advice was given deliberately and not on a social occasion
o The information or advice was given in response to a specific enquiry or request
Ratio
 A prima facie duty of care will arise on the part of a defendant in a negligent misrepresentation action when it
can be said
o (a) that the defendant ought reasonably to have foreseen that the plaintiff would rely on his
representation and
o (b) that reliance by the plaintiff, in the circumstances, would be reasonable.
 Even though, in the context of auditors’ liability cases, such a duty will often be found to exist, the problem of
indeterminate liability will frequently result in the duty being negated by policy considerations
 Where, however, indeterminate liability can be shown not to be a concern, a duty of care will be found to exist
Application to the case at hand
 The defendant owed a prima facie duty of care to the plaintiffs: the possibility that the appellants would rely
on the audited financial statement in conducting their affairs and that they may suffer harm if the reports were
negligently prepared must have been reasonably foreseeable to the respondents
 The plaintiffs were known to the defendant
 The purpose of the reports was to assist the collectivity of shareholders of the audited companies in their task
50
of overseeing management
o Reports were not prepared to assist the appellants in making personal investment decisions
o The only purpose for which the reports could have been used in such a manner as to give rise to a duty
of care on the part of the respondents is as a guide for the shareholders as a group in supervising or
overseeing management
 If a duty of care were owed with respect to these investment transactions, there would no
logical reason to preclude a duty of care from arising where the statements were used for any
other purpose of which the auditors were equally unaware of
Holding
 There is no shared purpose! The action must fail!
Desmond Manderson, Proximity, Torts and the Soul of Law (Montreal: McGill-Queen’s
University Press, 2006) Chapter 5 Parts II and III

The entire reading is about how we conflate all the steps of the duty of care test, morphing it into a policy
beast trying to deny liability
 Proximity is distinct from the two limits upon responsibility in negligence: policy considerations and
reasonable foreseeability
 Policy considerations limits responsibility by reference to we
o Imports the social outcome of legal judgments as a relevant constraining factor
 Proximity orients responsibility by reference to you
 Proximity is the element that creates the legal relationship
o Core element of negligence that recognizes a connection between the parties
 Proximity involves a one-to-one relationship where policy imports a one-to-many relationship
o Proximity is world-making, when compared to the world-maintaining ‘policy considerations’
 Courts have mistakenly enlarged proximity to the point where it acts as a limiting factor on liability
o It becomes simply the description attached to the outcome of the court’s deliberation
Proximity and foreseeability
 Fault is found where a responsible person would have behave differently in the circumstances
o Did the person live up to our reasonable expectations of their responsibility?
 Whether they HAD such responsibility is a prior question
o Responsibility is determined by a relational contiguity, not our perception of it
o Responsibility is not a choice but a predicament
 I do not take responsibility, I am encumbered by it
 The emphasis on reasonable foreseeability insists on individualism and autonomy, which is not what
responsibility is about!
o The question to whom we are responsible is not our choice or our judgment
o Our neighbours are not defined by our perceptions of them
o This emphasis on autonomy pulls us away from the issue of the plaintiff’s vulnerability, which is the
heart of responsibility
 The definition of reasonable foreseeability, as proposed by Atkin, is circular and vapid
o We conceivable should foresee everyone as someone we owe a duty to
o Because the courts have focused on proximity and policy considerations more, reasonable
foreseeability remains unclear and is rarely a consideration in cases
o Because of this, the reasonable foreseeable step rarely limits liability
 Consequently, the courts use other ways to limit liability
 Reasonable foreseeability should be used as a test of breach, not a test of duty
 Proximity on the other hand, is not an intentionality, it is not a question of choice or knowledge
o It is a question of contact and experience
51
o





We must focus on the nature of the relationship between the parties, the power and the passivity of
their dynamic, and not the knowledge that one ‘reasonably ought’ to possess of the other
Proximity is the necessary determine, whereas reasonable foreseeability is the red herring
o Palsgraf v Long Island is generally proposed as showing the limiting factor of reasonable
foreseeability
o Cardozo argues that the injury was not reasonably foreseeable
o But surely it was foreseeable that the guards owed a responsibility to all persons on the platform of
their train station?
 Cardozo describes the plaintiff as ‘standing far away’
 This does not reflect reasonable foreseeability but instead is a prior judgment that the two
parties were not in fact closely related enough to each other (proximity
 Cardozo also justifies by describing the kind of damage suffered by Palsgraf
 The judgment therefore does not conclude that this particular person could not have
been foresee to have been affected by the defendants’’ action, but rather that this
particular damage could not have been foreseen
 This is a conflation of the two issues!
This conflation makes the question posed completely artificial and disingenuous
o To ask what a reasonable person would have foreseen as the class of persons affected by their actions
at the moment when they are in a stressful situations
o The conclusion is that we do actually owe a duty to many persons whom we could not foresee!
 Reasonable foreseeability is not important
The experience of proximity precedes the concepts that come to govern it
o I do not foresee responsibility
o Responsibility comes to you, not the other way around
o Negligence is about the unexpected; it is a judgment passed on our responses when respons-ability
suddenly approaches to us
This conflation also necessarily privileges the defendant. For example, see the Chester case
o The dissent in that case is highly unusual in the way in which the evidence is presented
o Speaks of the experience and pain of mothers, and uses literature to sustain argument
o This helps the reader feel the gravity of the tragedy that befell her
o The majority starts from the misdeeds of the council, making it feel as though the mother’s response
to the death is a distant consequence
o The court’s reasoning becomes comprehensible once we realize that it is the council’s experience that
forms the starting point
 A question of perspective
 When he talks about what a reasonable person would foresee, he means what a reasonable
person in the position of the defendant council would foresee
o The dissent begins by thinking about what a reasonable person in the position of the plaintiff would
foresee
The very essence of responsibility is the actual relationship of the parties to each other
o Reasonable foreseeability privileges the perception of one of them over the experience of both of
them
Proximity and Pure Economic Loss: Setting Limits
D. & F. Estates v. Church Commissioners [1989] 1 AC 177
Facts
 Between 1963-1965, Wates main contractor employed by company to build block of flats
52
 Wates sub-contracted plaster work that proved to be defective
 Plaintiffs occupying flat were not injured, but claim for cost of repairs and rent while repairs carried out
 At trial, court finds Wates has non-delegable duty of care and is liable for repairs and rent
 On appeal, court considers question of whether plaintiffs can recover for economic loss
Issue
 Does the builder owe a duty of care to the plaintiff for defective premises, such that the plaintiff may recover
for economic loss
Reasoning
Donoghue
 Case related only to the duty owed by a manufacturer of goods to the ultimate user or consumer
o A person who manufactures goods which he intends to be used or consumed by others, is under a duty
to exercise such reasonable care in their manufacture as to ensure that they can be used or consumed
in the manner intended without causing physical damage to persons or their property
o Based on the existence of a danger of physical injury to persons or their property
 The property in question was property other than the very property which gave rise to the
danger of physical damage
 If the hidden defect in the chattel is the cause of personal injury or of damage to property other than the chattel
itself, the manufacturer is liable.
o But if the hidden defect is discovered before any such damage is caused, there is no longer any room
for the application of the Donoghue principle.
o The chattel is now defective in quality but no longer dangerous. The economic loss is recoverable in
contract by a buyer or hirer of the chattel entitled to the benefit of a relevant warranty of quality, but it
is no recoverable in tort by a remote buyer or hirer of the chattel
o One cannot be held liable for such damages unless there is a contractual relationship
 In the case of complex chattels, one element of the structure should be regarded for the purpose of the
application of the principles under discussion as distinct from another element, so that damage to one part of
the structure caused by a hidden defect in another part may qualify to be treated as damage to other property
 The only damage to other property caused by the defective plaster would be the loss of value of the existing
decorations occasioned by the necessity to remove loos plaster which was in danger of falling
o This would result in the recovery for a trivial sum
 If Wates are to be held liable for the negligent workmanship of their sub-contractors which resulted in
dangerously defective work, it must first be shown that in the circumstance they had assumed a personal duty
to all the world that the block of flats would be free of dangerous defects
o If in the course of supervision the main contractor comes to know that the sub-contractor’s work is
being done in a defective and foreseeably dangerous way, and if he condones that negligence on the
part of the sub-contract, he will make himself potentially liable
 It is, a dangerous course for the common law to embark upon the adoption of novel policies which it sees as
instruments of social justice but to which, unlike the legislature, it is unable to set carefully defined limitations
Holding
 Wates is not liable to the plaintiffs for the damage attributable to the negligence of their plastering subcontractor
Ratio
 If the hidden defect in the chattel is the cause of personal injury or of damage to property other than the chattel
itself, the manufacturer is labile. But if the hidden defect is discovered before any such damage is caused,
there is no longer any room for the application of the Donoghue principle. The chattel is now defective in
quality but no longer dangerous. The economic loss is recoverable in contract by a buyer or hirer of the chattel
entitled to the benefit of a relevant warranty of quality, but it is no recoverable in tort by a remote buyer or
hirer of the chattel
 This case was not accepted in Canada
 This is the rolling back of Donoghue, which will result in the overturn of Anns
53
Murphy v. Brentwood [1991] 1 AC 398
Facts
 The defendant Local Authority failed to inspect the foundations of a building adequately, with the result that
building became dangerously unstable. The claimant, being unable to raise any money for repairs had to sell
the house at a considerable loss, which he sought to recover from the L.A
Issue
 Should we overturn the Anns test? Is pure economic loss compensable?
Reasoning
 Australia rejected the Anns test
o "It is preferable that the law should develop novel categories of negligence incrementally and by
analogy with established categories, rather than by a massive extension of a prima facie duty of care
restrained only by indefinable 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.'"
 Redefining Donoghue
o Donoghue does apply so as to place the builder of premises under a duty to take reasonable care to
avoid injury through defects in the premises to the person or property of those whom
he should have in contemplation as likely to suffer such injury if care is not taken.
 But it is against injury through latent defects that the duty exists to guard
 This case is concerned with the scope of the duty.
o Whether the appellant council owed the respondent a duty to take reasonable care to safeguard him
against the particular kind of damage which he has in fact suffered, which was not injury to person or
health nor damage to anything other than the defective house itself
 Unacceptable jump from the Donoghue principle for damage to person or property caused by a
latent defect in a carelessly manufactured article to liability for the cost of rectifying a defect in such an article
which is no longer latent
 Donoghue does not compensate plaintiffs who are injured when they are aware of the defective nature
 Dorset Yacht can be distinguished from Anns as there was physical injury to the yachts
o Anns damages were purely economic loss
o Only property which could be said to have been damaged in such a case is the building.
o The building could not have been damaged by the inadequacy of its foundations since the building
never existed otherwise than with its foundations in that state.
o Even if the inadequate foundations could be seen as physical damage, it would be damage to
property in which a future purchaser or tenant had no interest at all at the time when it occurred.
o Any loss or injury involved in the foundations inadequacies is sustained only at the time when that
inadequacy is first known or manifest.
o Only then is there actual diminution in the market value of the premises.
 Any loss involved by a person who acquires an interest in the premises after the building has
been completed is solely economic
 Should pure economic loss have been compensable in Anns? What was the duty in Anns?
o The duty was to take reasonable care to avoid putting a future inhabitant owner of a house in a
position in which he is threatened, by reason of a defect in the house, with avoidable
physical injury to person or health and is obliged, in order to continue to occupy the house without
suffering such injury, to expend money for the purpose of rectifying the defect.
o If such a duty is owed by the local authority, a similar duty must necessarily
be incumbent also upon the builder of the house.
 That would necessarily have to extend to the chattel’s manufacturer as well
 This would bring about Cardozo’s indeterminate class problem
 This would also bring into question whether there should be a right to recovery where the
54
defect renders the article not dangerous but merely useless.
States that Laskin was wrong in his Rivtow minority dissent
D & F Estates had to artificially get around Anns by saying that the parts of a building were separate,
thus there was physical damage to other parts of the building
 This complex structure theory should not be taken (It was rejected in Canada
o Liability under Anns decision is postulated upon the existence of a present or imminent danger to
health or safety.
 Considering that the damage was pure economic loss, there would seem to be no
logic in confining the remedy to cases where such danger exists.
 For example, danger discovered through a routine survey
 Anns did not proceed upon any basis of established principle, but introduced a new species of
liability governed by a principle indeterminate in character but having the potentiality of covering a wide
range of situations in which negligence had never applied to
o It was a remarkable example of judicial legislation
 Anns imposed liability going far beyond that which Parliament saw fit
 The precise extent of liability should be left to the legislature
 Policy considerations: Anns-type liability will tend to encourage owners of buildings found
to be dangerous to repair rather than run the risk of injury.
o However, it will also encourage owners to sell their land at a loss and seek undue compensation in
court
Lord Bridge of Harwich
 If a dangerous defect is discovered before it causes personal injury, because the danger now known and the
property cannot be safely used unless the defect is repaired, the defect becomes merely a defect in quality
o This type of damage is only recoverable through contract
 Two scenarios where the imminent danger to health or safety requirement is problematic
o Where we find out that the defect is not imminent, therefore we must wait for it to deteriorate before
we can be compensated
o Where the defect was so imminent that the unoccupied building collapses causing no damage except
to the building itself; no compensation would be found
 Public authorities having the deep pockets for compensation:
o “ the shoulders of a public authority are only "broad enough to bear the loss" because they are
financed by the public at large. It is pre-eminently for the legislature to decide whether these policy
reasons should be accepted as sufficient for imposing on the public the burden of providing
compensation for private financial losses.”
Ratio
 Anns rejected! Pure economic loss not compensable in tort!
o
o
Carl F. Stychin ‘Dangerous Liaisons: New Developments in the Law of Defective
Premises’ (1996) 16 Legal Studies 387


Argues in favour of LaForest’s approach in Winnipeg Condominium, where recovery was limited to the cost
of repairing dangerous defects, rather than those which represent quality defects
o Preferable to the approach taken in Murphy v Brentwood where dangerous defects have be taken to
be analogous to defects of quality, both beyond the scope of general liability in tort
o Danger is a suitable control mechanism which limits recovery to those defects for which there are
compelling reasons of principle and policy for imposing a duty of care
Canadian approach and Winnipeg Condominium
o Issue was recovery for the economic loss caused by a negligently produced good which had proven
dangerous and which was repaired by the owner
o Rivtow majority had stated that repair costs were not recoverable, although other losses were subject
55
to negligence based upon the breach of an independent duty to warn of the dangerous defect
SCC validated the Laskin dissent in Winnipeg Condominium
 LaForest categorized the issue as ‘one involving the negligent supply of shoddy goods which
are dangerous
 the danger being central to the analysis
 Using the Anns test, the first step found that there was a sufficiently close relationship
between the parties so that, the contractors had the requisite foreseeability, such that if they
negligently constructed a building which resulted in latent defects, subsequent purchasers
might suffer personal injury or damage to other property
 Lack of contractual privity irrelevant to foreseeability of injury
 Law should provide incentives for the plaintiff to mitigate the danger of the defect in
order to further the goals of accident prevention and economic efficiency
 On the second Anns step, LaForest addressed:
 1) tortious liability would amount to a warranty as to quality of construction
o Duty to create the building safely arises independently of a contract
o No indeterminate class: only those for whom the building is constructed for
o No indeterminate amount: only to the reasonable costs of repair
o No indeterminate time: only for the useful life of the building, deterioration
as per usage will weaken plaintiff’s claim
 2) undermine doctrine of caveat emptor
o Contractors and builders are best able to ensure that buildings are free from
dangerous defects
Australian approach: Bryan v Maloney
o Proximity is used as the device through which indeterminate liability is controlled (i.e. Manderson)
o Proximity means physical proximity, circumstantial proximity, causal proximity
 Essentially, in Australia, proximity = policy
o In a somewhat similar case, the major distinction being that the defective product was not inherently
dangerous, proximity was used to find liability
 Reliance and assumption of responsibility
 While the only connection between the parties was the house itself, that was a ‘substantial’
investment for which it was foreseeable that inadequate foundations would lead to economic
loss suffered by a subsequent purchaser
 Nothing in the original contract between purchaser and contractor limited tortious liability
 This initial contractual relationship help define liability for future purchasers
o Strong dissent with Brennan J
 “Absent any risk of damage to person or property, why should the law impose a duty to
protect the purchaser’s financial interests
 The financial interests of a huse purchaser are not protected against the immediate vendor
except by such terms as are agreed between them in striking the bargain : caveat emptor
 “The logic of Winnipeg Condominium was not available to the plaintiff for there was no
evidence of any risk of danger to person or other property.”
 Criticised the use of proximity to cloud the reasoning and judgments and their subsequent
predictability
 Proximity is no longer a control mechanism, but a conclusion of law
o

The decline of a ‘Uniform Common Law’
 At its most narrow, Donoghue stands simply for the liability of manufacturers of products when those
products were intended to reach the consumer without the prospect of intermediate examination.
o Once the dangerous defect is discovered, that examination has occurred, and Donoghue cannot apply
 The major issue that all the Commonwealth courts have grappled with is the true scope of Donoghue
56
o
England was able to reject the Anns test as a blatant misapplication of Donoghue as Wilberforce
characterized the damage as property damage, when it was pure economic loss
 Was there another way to characterize Donoghue to reach the same conclusion in Anns?
 Flexible use of proximity as a control mechanism is an application of the general theory of negligence
o proximity resembles ‘incrementalism’, which is employed in Norsk to expand the scope of liability
for economic loss, but which also has been used to justify a conservative approach to liability based
on the need for gradualism
Impossible Distinctions
 The impossible distinction between the situation where the dangerous defect causes physical harm; and the
case where the owner, upon discovery of the dangerous defect, averts the danger through repairs.
o Once the defect has been repaired, it is no longer dangerous nor is there any physical injury
o In the absence of such injury, the conservative reading of Donoghue denies recovery for repair costs
 The ‘Laskin dissent’ held that recovery must follow logically where ‘there is a threat of physical harm and
the plaintiff is in the class of those who are foreseeably so threatened’
o The economic loss which results directly from the avoidance of threatened physical harm demands
recovery no less than when the physical harm materialises.
o Policy considerations to encourage vigilance and have the owner repair the defect so as to avoid
danger materialising
o Illogical that a negligent party can be ‘insulated from liability’ because the owner of the good has
acted by repairing the dangerous defect.
o Policy of internalising risks within the industry responsible for creating them (vicarious liability)
 Rebuttal to Laskin seen in Murphy was the issue of gradual deterioration until the property becomes an
imminent danger
o Counter-argument is that this is not what Winnipeg was concerned with
o Only situations where the owner is subject to severe constraints in that there is no realistic option but
to take immediate action to repair as soon as the seriousness of the defect becomes known
 There is no choice to repair or not
Loss Bearing Capacity
 Use of insurance as a basis for determining rules of liability leads to indeterminate outcomes
o “leaving the loss with the plaintiff based upon the likelihood of first party insurance cover radically
undermines policy considerations of deterrence, full compensation of plaintiffs injured by negligent
actors, and safety on the part of builders and inspectors.
o The purpose of tort law is to centre liability on those at fault
o Insurance is an inappropriate determinant of liability
Bridging the contract – tort divide
 Dangerousness implicates all of the policies underpinning tort
o deterring manufacturers from placing dangerous goods in the stream of commerce;
o encouraging improvements in safety levels;
o shifting the loss on to those who can best bear the cost;
o placing the loss on those parties at fault;
o ensuring that the cost of losses are spread widely throughout the population
 Winnipeg: “Tort and contract duties can coexist, provided that the duty in tort arises independently of the
contractual duty
o Duty of care cannot depend upon specific obligations or duties created by the express terms of the
contract
o Duty of care is to ensure a safe standard of construction and does not concern contractually
determined issues
 Limiting recovery to dangerous defects deals with this co-extensivity issue
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 Tort does not provide recovery for disappointed expectations pursuant to a contract
 Furthermore, we could only measure these defects with reference to the terms in the contract
 Important distinction to be made with dangerous defects
o Unrealistic to allow builders and the parties they contract with to bargain over dangerously defective
structures; use the price mechanism to reflect the price of a dangerous building
o As a matter of policy (deterrence, accident prevention, economic efficiency), this cannot be allowed!
o This will deter the creation of purposely dangerous buildings
o Limiting liability to dangerous defects deals with the issue of exclusion or limitation of liability
clauses
o With respect to remote purchasers, it is even more persuasive as the owner has had less opportunity
actively to consider the allocation of risk; a prime consideration in determining liability in tort
Measuring Damages and Liability of public authorities
 Damages will equal the cost of repairing the defect, such that it no longer constitutes a danger
 If courts move beyond liability for dangerous defects, the measure of damages becomes less certain
o We would be confounding tort-contract issues, and potentially creating warranties
 If the law is to adopt a liberal interventionist approach, then it is to designers and builders that it should turn
in imposing liability.
o liability acts as a deterrent to carelessness on those first responsible, increasing economically efficient
o That surveyors and public authorities subsequently intervene in the process might suggest that
liability is imposed in order to ensure that they approach their tasks with recognition of the reliance
placed on them by home buyers, and in furtherance of many of the same policy concerns.
o That does not appear in itself a good reason to relieve builders of central liability
Buildings v Chattels
 Underlying liability of dangerous defects is the notion of constraint on choice
o Owner has no choice but to repair; they cannot discard their house
o Extending liability to chattels should perhaps be limited to those at amount to a substantial investment
o This will limit the floodgates argument
Proximity and Relational Economic Loss
Canadian National Railway v. Norsk Pacific Steamship Co. [1992] 1 SCR 1021
Facts
 One of Norsk’s steamships ran into a bridge owned by PWS.
 The main user of the bridge was CN.
 The damage caused to the bridge prevented CN from fulfilling its contractual obligations to many third
parties, resulting in much contractual liability and lost profit.
 CN is suing Norsk for the damages incurred as result of these losses.
Issue
 Whether or not economic loss, and "contractual relational economic loss" in particular, is recoverable in tort
58
Majority Reasoning
 Why should a plaintiff who waits for a defective machine to break and cause physical injury or damage be
able to recover, while one who prudently repairs the machine before the physical damage or injury occurs be
left without remedy
 Limits on potentially unlimited liability are necessary for potential defendants to predict future claims
o These limits are necessarily one of policy
o Confirms that the incremental approach to limitations on pure economic loss used in Kamloops be
confirmed
 To impose liability there must be a connection between the defendant's conduct and plaintiff's loss which
makes it just for the defendant to indemnify the plaintiff.
o In contract, the contractual relationship provides this link.
o In trust, it is the fiduciary obligation which establishes the necessary connection.
o In tort, the equivalent notion is proximity.
 Proximity is an umbrella covering a number of disparate circumstances in which the parties’
relationship is so close that it is just and reasonable to permit recovery
 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.
o Proximity is the controlling concept which avoids the spectre of unlimited liability. Proximity may be
established by a variety of factors, depending on the nature of the case
o The categories for liability are not closed!
o This will result in a principled, yet flexible approach to PEL
 The problem with Murphy is that the court takes physical injury as the only indicator of proximity
 Proximity is a necessary but not sufficient condition for liability
o Proximity is itself concerned with policy,
o Kamloops requires the Court to consider the purposes served by permitting recovery as well as
whether there are any residual policy considerations which call for limiting liability
 Pragmatic considerations – Economic Theory
o 3 potential arguments for limiting liability in this case
 Insurance argument
 Loss spreading argument
 Contractual allocation of risk
o Insurance argument
 On the one hand, it is argued that the plaintiff is in a better position to predict economic loss
that will result from any accidents, and better able to obtain cheap insurance
 On the other hand, it is argued that it is more appropriate for the defendant to insure, because
if not, the defendants will have no incentive to take care, and more accidents will occur
(deterrence).
o Loss spreading argument
 Arguded that it is more appropriate to spread this kind of loss, rather than heaping it on
Norsk’s shoulders.
 Counter-argument that loss spreading will result in more accidents, because defendants will
have no incentive to take care, and because in many cases there is only one (or few) victim
(deterrence and contributory justice)
o Contractual allocation of risk
 Argued that denying recovery will encourage actors to plan their contractual affairs, and
allocate risk more efficiently. In this case, it will mean that CN will in the future make sure
that PWC promises to insure against any losses that the result from damage to the bridge.
 This fails to account for situations where there is no equality of bargaining power, and the
party is unable to obtain such insurance, or is only able to obtain it at an exorbitant price
 This also overlooks the role of personal fault in the realm of negligence, and its role in
59
deterring tortious conduct, thus limiting the harm done to innocent parties
Applying to the case at hand, the case does not fall within any of the categories where proximity and liability
have previously found to exist. Must apply the Anns test!
o Proximity: plaintiff’s activities are so closely aligned (common venture) to those of PWC that they
can be considered in a Joint Venture, and here recovery for economic loss is permitted. Said that in
effect PWC can be seen to have effectively damaged CN’s property.
o Liability in a joint venture between the plaintiff and the owner of the damaged property is not
confined to the formal terms of the contract.
 Need a flexible test which permits consideration of all factors relevant to their relationship
 This tests gives needed predictability while leaving the door open to future development
[Stephenson J.]:
- No problem of indeterminate liability when the defendant knows or ought to have known the specific
individual or individuals, as opposed to a general or unascertained class of public
LaForest – Dissent]:

Courts have established clear rule that persons cannot sue tortfeasor for suffering losses to their K’ual rights
with owner of property by reason of damages caused to that property by the tortfeasor  no reason to depart
from that rule here
1. Recentring the analysis on K’ual relational economic loss

Different factual situations may invite different approaches to economic loss  shouldn’t lump them all
together

Specific characteristics of K’ual relational economic loss:

(1) Right of action of property owner already puts pressure on defendants to act with care  further liability
can’t be justified through deterrence

(2) Firm exclusionary rule doesn’t exclude compensation to the plaintiff – but channels to the property owner
both potential liability to plaintiff and right of recovery against tortfeasor; must ask who is best able to absorb
risk at lowest cost

(3) perfect compensation for all K’ual relational economic loss is almost always impossible because of ripple
effects

(4) K’ual relational economic loss cases almost always involve accidents  need incentives to all parties to
act economically rationally

Direct test should not be whether liability would be indeterminate – but proposed rule must confront this issue

Liability should be determinate before the accident occurs; unless there is joint venture or possessory
interest, no recovery for damage to K’ual interests
2. Refined proximity analysis in K’ual relational economic loss cases

Proximity tests usually look from defendant’s perspective (if can prove indeterminate liability  excused) –
but situation of plaintiff (foreseeability and provision for damage in question) must be considered too
a. Legitimacy of policy considerations

Should consider which party is better loss bearer (better able to predict frequency and severity of losses –
to be distinguished from which party is better able to avoid accident) – particularly important in assessing
proximity

This approach is ill-suited to personal injury cases

Policy concerns are important for three reasons: (1) usually met by tortfeasor’s primary liability to property
owner; (2) current law denies recovery, so should articulate rationale for the rule; (3) must seek to limit
liability, and a higher threshold is justified

Here: CNRC better able to bear the loss than NPSC (information availability, estimation of potential costs,
access to protective options)
b. Contract

All parties were well aware of risk of bridge failure; K’ual allocation here is typical

CNRC’s ability to protect itself is not limited to its K with PWC; can also alter arrangements with
clients/suppliers/etc.

60

Denying recovery will incent all parties to minimise the impact of losses once they occur, while still providing
incentive to avoid accidents

CN is just trying to get around the exclusion clause it signed with PWC – this clause really just proves that
CN was aware of the possibility of this damage occurring

The loss should be spread out, CN is in a better position to spread this loss, because it does business with
many other parties. It can just raise its price by 1 dollar, Norsk on the other hand is a small company.

CN is in a better position to contractually allocate the risk. It may either bear the loss, or pay PWC a higher
price for the use of the bridge and secure a promise to insure against any losses caused by damage to the
bridge.

McLachlin’s rule will still require CNRC to protect itself, since it won’t know beforehand if it’ll be part of the
class  will have to insure itself anyways  inefficiencies and benefits only to insurance companies 
increase social costs
3. Conclusions

Reasons supporting exclusionary rule: (1) incents all parties to act so as to minimise loss; (2) allows only one
party (rather than both) to insure itself; (3) saves judicial resources; (4) eliminates difficult problems of
sharing impecunious defendant’s limited resources between relational claims and direct claims; (5) certainty
Ratio
 Confirmation of Anns via Kamloops
 Pure economic loss recovery is presumptively allowed
 Use the recognized categories then Anns test
 Policy limitations used to increase predictability of the law
Bow Valley Husky (Bermuda) Ltd v. Saint John Shipbuilding Ltd [1997] 3 SCR 1210
Facts
 HOOL and BVI contract with SJSL to construct rig
 HOOL and BVI incorporate BVHB and transfers construction contract
 HOOL and BVI contract with BVHB for use of rig; day rates apply even if out of service
 Raychem provides heat trace system to SJSL
 Proper electrical equipment not installed, rig damaged, out of commission for several months
 HOOL and BVI claim against both SJSL and Raychem for day rates paid to BVHB and expenses
Issue
 Is the “contractual relational economic loss” suffered by HOOL and BVI recoverable
Reasoning
 Common law traditionally regards many types of contractual relational economic loss as irrecoverable
o Economic interests seen as less worthy of protection that either bodily security or property
o Relational economic loss presents the spectre of “liability in an indeterminate amount for an
indeterminate time to an indeterminate class”
o More efficient to place the burden of economic loss on the victim, whom may be better placed to
anticipate and insure its risk
 In England: no relational economic loss can be recovered  Murphy
o Pure economic loss is recoverable only where there is actual physical damage to property of the
plaintiff, thus excluding recovery for relational economic loss
 In Canada: recovery in tort of contractual relational economic loss is exceptional, but it may be recovered
 Reflection on Norsk, McLachlin and La Forest agreed on:
o Relational economic loss is recoverable only in special circumstances where the appropriate
conditions are met
o These circumstances can be defined by reference to categories which will make the law generally
predictable
61
o The categories are not closed
Their difference is that LaForest uses a general exclusionary rule and uses exceptions to find liability
 McLachlin uses a universalist approach, and uses the Anns test to limit liability
 In Norsk La Forest identified recognized categories of recovery for relational economic loss
o Cases where the claimant has a possessory or proprietary interest in the damaged property
o General average cases
o Cases where the relationship between the claimant and property owner constitutes a joint venture
 Where a case does not fall within a recognized category the court may go on to consider whether the situation
is one where the right to recover contractual relational economic loss should nevertheless be recognized
 The first step is to inquire whether the relationship of neighbourhood or proximity necessary to found a prima
facie duty of care is present. If so, one moves to the second step of inquiring whether the policy concerns that
usually preclude recovery of contractual relational economic loss, such as indeterminacy, are overridden
 Courts have recognized transferred loss, but it has been confined to physical damage  Norsk
o The category therefore does not apply here in a case of relational economic loss
 Proximity exists on a given set of facts if the defendant may be said to be under an obligation to be mindful of
the plaintiff’s legitimate interests in conducting his or her affairs
 On the facts of the case a prima facie duty of care arises: the duty to warn raised against defendants is the
correlative of a duty to disclose financial facts raised against the auditors in Hercules
 Where a duty to warn is alleged the issue is not reliance, but whether the defendants ought reasonably to have
foreseen that the plaintiffs might suffer loss as a result of use of the product about which the warning should
have been made
 Proximity exists
 The defendants knew of the existence of the plaintiffs and others like them and knew or ought to have
known that they stood lose money if the drilling rig was shut down
 Should the duty to warn be negativated by policy considerations?
o Yes: indeterminate liability
o If the defendants owed a duty to warn to the plaintiff it is difficult to see why they would not owe a
similar duty to a host of other persons who would foreseeably lose money if the rig was shut down as
a result of being damaged
o No sound reason to permit the plaintiffs to recover while denying recovery to these other persons
emerges
 Rejection of the known plaintiff test (initially rejected in Norsk)
 Idea that liability is confined to persons whose identity was known to the defendant
 On such a test, the notorious would recover, the private would lose:
 The problem of indeterminate liability cannot be avoided by arbitrary distinctions for which there is no
legal or social justification
 The problem of indeterminate liability constitutes a policy consideration tending to negative a duty of care for
contractual relational economic loss
 Courts have recognized positive policy considerations tending to support the imposition of such a duty,
o need to provide additional deterrence against negligence
 The potential liability to the owner of the damaged property usually satisfies the goal of
encouraging persons to exercise due care not to damage property
o In some cases this is not the case, and therefore additional deterrent of liability to
others may be justified
 BVHB suffered property damage >5million, it is not apparent that increasing the defendant’s
potential liability would have led to different behaviour and avoidance of the loss
o The plaintiff’s ability to allocate the risk to the property owner by contract is slight, because of the
type of transaction or inequality of bargaining power
 BVI and HOOL did not suffer from inequality of bargaining power because they created
BVHB

62
Holding
 A prima facie duty to warn exists but it is negativated by the problem of indeterminate liability seeing as it is
not clear why the plaintiff should be warned, and granted a claim in liability whereas others should not
Ratio
 Duty of care for contractual relational economic loss may exist but can be negativated because of
indeterminate liability; unless the plaintiff does not have the ability to allocate risk through contract, or
additional deterrence would be provided by imposing liability onto the defendant.
Notes
 There is a great summary of Hercules Management here if it is needed
Cooper v. Hobart (2001) 3 SCR 537
Facts
 Registrar aware in August, 1996, that registered mortgage broker committed serious violations of Mortgage
Brokers Act (funds use for unauthorized purposes)
 Registrar did not suspend registration and freeze assets until October, 1997
 Individual investors claim for economic loss that could have been avoided or diminished if Registrar had acted
promptly
Issue
 Does registrar owe a private law duty of care to members of the investing public giving rise to liability in
negligence for economic losses that the investors sustained?
Reasoning
 Donoghue revolutionized the common law by replacing the old categories of tort recovery with a single
comprehensive principle the negligence principle
o Liability for negligence in circumstances where a reasonable person would have viewed the harm
as foreseeable
 Foreseeability not enough, there must be a close and direct relationship of proximity or
neighborhood
 Anns: duty of care requires a finding of proximity sufficient to create a prima facie duty of care, followed
by consideration of whether there are any factors negativing that duty of care
o Importance of Anns lies in its recognition that policy considerations play an important role in
determining proximity in new situations
 Anns left doubt in the precise content of the first and second branches of the new formulation of the
negligence principle
o Is the first branch concerned with foreseeability only or foreseeability and proximity? If the latter,
was there duplication between policy considerations relevant to proximity at the first stage and the
second stage of the test?
 Anns does not involve duplication because different types of policy considerations are involved at the two
stages (Goes against Manderson’s claim that policy and proximity cannot be conflated!)
o Anns continues to provide a useful framework in which to approach the question of whether a
duty of care should be imposed in a new situation
 At the first stage of the Anns test two questions arise:
o Was the harm that occurred the reasonably foreseeable consequence of the defendant’s act?
o Are there reasons, notwithstanding proximity between the parties established, that tort liability
should not be recognized here?
 Focus on factors arising from the relationship between the plaintiff and the defendant
 Proximity is used to characterize the type of relationship in which a duty of care may arise; sufficiently
proximate relationships are identified through the use of categories
o Provides certainty to the law of negligence while still permitting it to evolve to meet the needs of
new circumstances
63
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






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o The categories are never closed
Proximity Donoghue: used to describe the close and direct relationship that is necessary to ground a duty
of care
Proximity Hercules: relationship inhering between the plaintiff and the defendant that is of such a nature
that the defendant may be said to be under an obligation to be mindful of the plaintiff’s legitimate interests
in conducting his/her affairs
Defining the relationship may involve looking at expectations, representations, reliance and the property
or other interests involved; factors to evaluate closeness of relationship
Norsk: proximity may be usefully viewed not so much as a test in itself, but as a broad concept which is
capable of subsuming different categories of cases involving different factors
Categories in which proximity has been recognized; when a case falls within one of these situations or an
analogous one and reasonable foreseeability is established, a prima facie duty of care may be posited
o Where the defendant’s act foreseeably casues physical harm to the plaintiff/ plaintiff’s property
o Nervous shock
o Liability for negligent misstatement  Hedley Byrne
o Misefeasance in public office
o Duty to warn of the risk of danger  Rivtow
o Municipality owes duty to prosective purchasers of real estate to inspect housing developments
without negligence  Anns, Kamloops
o Governmental authorities who have undertaken a policy of road maintenance have been held to
owe a duty of care to execute the maintenance in a non-negligent manner
o Relational economic loss may give rise to a tort duty of care when
 The claimant has a possessory or proprietary interest in the property
 The general average cases
 Cases where the relationship between the claimant and the property owner constitutes a
joint venture  Norsk
Second step of Anns: residual policy considerations; concerned with the effect of recognizing a duty of
care in other legal obligations, the legal system and society more generally
o Does the law already provide a remedy
o Would recognition of the duty of care create the spectre of unlimited liability to an unlimited
class?
o Are there other reasons of broad policy that suggest that the duty of care should not be
recognized?
o Examples:
 Government actors are not liable in negligence for policy decisions, but only operational
decisions
 Policy is the prerogative of the legislatures, inappropriate for courts to impose
liability for the consequences of a particular policy decision
o Government actor may be liable in negligence for the manner in which it
executes or carries out the policy
The second step of Anns generally arises only in cases where the duty of care asserted does not fall within
a recognized category of recovery
Where a novel duty of care is alleged it is necessary to consider both steps of Anns
Applying this to the facts:
o Does the case fall within in or is analogous to a category of cases in which a duty of care has
previously been recognized? No
o Should a novel duty of care be recognized
 The factors giving rise to proximity must arise from the stature under which the Registrar
is appointed
 The statute does not impose a duty of care on the Registrar to investors within mortgage
64
brokers regulated by the Act; the registrar’s duty is rather to the public as a whole
Even though the Registrar might reasonably have foreseen that losses to investors would result if he was
careless in carrying out his duties under the act, there was insufficient proximity between the Registrar
and the investors to ground a prima facie duty of care
o No prima facie duty of care, no need to go to second step of Anns
 Policy reasons to negate duty of care, even if found:
o Registrar decisions are quasi-judicial; must act fairly or judicially in removing a broker’s
licence inconsistent with a duty if care to investors
o Distinction between government policy and the execution of policy: the decisions made by the
Registrar were made within the limits of the powers conferred upon him in the public interest
o Indeterminate liability
 Effect on tax payers: to impose a duty of care would be to effectively create a public insurance scheme for
investors at great cost to the taxpaying public
Holding
 May have been reasonably foreseeable that failure to act would harm plaintiffs, but no proximity
Ratio
 At the first stage of the Anns test two questions arise:
o Was the harm that occurred the reasonably foreseeable consequence of the defendant’s act?
o Are there reasons, notwithstanding proximity between the parties established, that tort liability should
not be recognized here?
 Focus on factors arising from the relationship between the plaintiff and the defendant
 Second step of Anns: residual policy considerations; concerned with the effect of recognizing a duty of care in
other legal obligations, the legal system and society more generally
o Does the law already provide a remedy
o Would recognition of the duty of care create the spectre of unlimited liability to an unlimited class?
o Are there other reasons of broad policy that suggest that the duty of care should not be recognized?

Beverly M. McLachlin ‘Evolution of the law of private obligation: The Influence of
Justice La Forest’ in R. Johnson et. Al. (eds) Gérald V La Forest at the Supreme Court of
Canada, 1985-1997 (Winnipeg: Canadian Legal History Project, Faculty of Law,
University of Manitoba, 2000)


Last few decades have led to two major evolutions
o Distinction between the branches of private obligations (contract, tort equity) have broken down
o An emphasis on policy and principle rather than rote adherence to precedent
Formalism v Universalism
o Formalism: rules, precedent, categories
 Broad policy considerations play no role
 No attempt to find consistency between the different but related branches
 Discover the law and apply it
 Clear and predictable
 Usefully conservative; protects the law against judicially-imposed changes that may have
unforeseen negative consequences
 Judges are not in the best position to evaluate complex socio-economic situations
o Universalism: broad general principles underlying the imposition of responsibility
 Rational, coherent development of the law
 The branches of law and the values within bear a strong relationship in principle and policy
 Permits judges to adjust the law to avoid an unjust result in particular cases
 Legislators rarely intervene to correct anomalies in the law private obligations
65
 Unpredictable, difficult to rationalize limitations
Concurrency of Causes of Action
 BG Checo: “the law should move towards the elimination of unjustified differences between the remedial
rules application to the two actions, thereby reducing the significance of the existence of the two different
forms of action and allowing a person who has suffered a wrong full access to all relevant legal remedies”
o In that case, BG sued Hydro for breach of contract, seeking compensation for clearing costs
o BG also sued in tort claiming loss of profits on the basis that ht it would never have entered the
contract but for Hydro’s negligent misrepresentation that the right of way had been cleared
 The contractual clause which purported to allocate the risk that the land would not be cleared
to BG did not obviate Hydro’s obligation to avoid a misrepresentation that the clearing had,
in fact, been done
o The law of negligence cannot be used to give a remedy to a person for a breach of a duty in tort when
he has otherwise absolved the defendant of that liability in contract
 “The tort duty must yield to the parties’ superior right to arrange their rights and duties. If the
tort duty is not contradicted by the contract, it remains intact and may be sued upon.”
 Norsk: Despite the lack of privity of contract between the plaintiff and defendant, the SCC considered the
contractual allocation of the risk to be relevant to assessing the tort liability
o A plaintiff suing in tort may have their right to recovery limited by contractual arrangements touching
the situation
o There must be a sensitivity to the reasonable expectations of the parties and a concern that the
movement to concurrency not override the law’s general respect for private ordering
o Policy considerations relating to the appropriate allocation of the risk may dictate placing full
responsibility on the contracting party who is in the best position to bear the risk
 Contractual obligations and commercial context may inform and limit the obligation in tort
o “Whenever there is a planned transaction there are foreseeable risks. Where the risk materializes, and
there is a tort claim for the loss that results, it is relevant to ask what expectations it is reasonable to
have about that risk, and what planning the victim and the negligent party could have done with
regard to their respective exposures to loss or liability.”
 Contract compensates for the loss of the bargain or profits, placing the plaintiff in the position that would
have existed that the contractual promise at issue been kept. Tort asks what loss was reasonable foreseeable.
o In practice, the test for remoteness and the test for reasonable foreseeability may have the same result


Tort and equity have also become much more similar
o Equity was traditionally only concerned with property and developed different remedies as a result
o With a fusioning of the courts, there is fewer discernible differences
o Under universalism, courts have recognized breach of fiduciary duty as a general cause of action
applying in circumstances of power imbalance and trust
o “Where a given claim can be framed in terms of either a common law action or an equitable remedy,
the same level of redress should follow. Where the wrong objected to is really the same, it should be
treated the same way.” Universalism
“Courts should not give blind allegiance to the doctrine of concurrency, but rather should develop it in a way
which befits the integrative, Universalist principles which gave it life.”
Tort Recovery of Pure Economic Loss
 Donoghue pronounced a general theory of tort negligence, thereby moving from constricting categories
towards a universalist approach with a single unifying principle.
o The problem is how to impose necessary and workable limits on the principle
o “The law requires a person to take reasonable care to avoid causing foreseeable personal injury or
physical property damage to those ‘so closely and directly affected by my act that I ought reasonably
to have them in contemplation as being so affected when directing my mind to acts or omissions
66
o
o
o
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
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which are called in question
Hedley Byrne allowed recovery in the domain of economic loss in circumstances of heightened
proximity in the sense of reasonable reliance by the plaintiff
 It loosed the limitation to physical loss by tightening the limitation on the class of persons
Dorset Yacht stated that Donoghue should always apply unless there was a valid reason for it not to
apply, which was usually economic loss
Anns was the culmination of the universalist approach to tort law with the creation of a broad general
rule of recovery, supplemented by an equally general and malleable rule of limitation; policy reasons
 Anns’ potentially great extension of liability in private obligations raised the Cardozo maxim
 Justice Stevenson saw the creation of a fully universally-applicable principle (Norsk)
 McLachlin took the middle ground: the possibility of recognizing new instances of recovery
of PEL, and as these new instances were recognized, they would serve as markers to add
predictability
 All claims are eligible, but must be vetted by the policy consideration test
 LaForest took the more formalistic approach; PEL is not recoverable except in certain limited
circumstances; contrary to the universalist approach
“A willingness to adjust the boundaries of categories to reflect emerging concepts of what constitutes
appropriate recovery is likely emblematic of a universalist approach to law
o Policy considerations are used to create this fluid, flexible, yet limiting approach to law
o “While the court has been prepared to look at established categories as indicative of situations of loss,
it has not used the list of categories as an exclusionary rule, to the detriment of the universal principle
in Anns
 “The door to general recovery of economic loss in tort is open, although in practice, policy
often still swings it in the plaintiff’s face
“Universalist principles remain alive in Canada. But they have been tempered severely by the pragmatic
considerations which for a century animated a more formalistic approach to legal development
Final observation of Canada: Did we ever have a choice of picking formalism or universalism?
o Common law of private obligations stands beside the broad principles of the Civil Code
o The Chater has profoundly affected the processes of legal reasoning and the tenor of legal discourse
 Courts increasingly strive to articulate principles instead of stating blind application
Conflict, Choice and Convergence: The Tort and Contract Nexus
BG Checo International v. BC Hydro and Power Authority [1993] 1 SCR 12
Facts
 Hydro calls for tenders to erect transmission towers and lines
 Tender documents state others responsible for clearing right-of-way
o Also state that Checo responsible for satisfying itself of all site conditions and the correctness and
sufficiency of the tender
 Checo inspects area - right-of-way partially cleared, evidence of ongoing clearing activity
 Tender document incorporated into contract between Checo and Hydro
 No further clearing took place, causing difficulties for Checo in completing work
Issue
 Whether claims lie in contract and in tort and if so, what is the measure of damages
Reasoning
La Forest + McLachlin + L’Hereux Dube + Gonthier
67

The law should move towards the elimination of unjustified differences between the remedial rules applicable
to the actions of contract and tort, thereby reduction the significance of the existence of the two different
forms of action and allowing a person who has suffered a wrong full access to all relevant legal remedies
The claim in contract
 Assessing the rights and obligations of the parties must commence with the contract
o What the parties themselves had to say about those rights and obligations
 The various parts of the contract are to be interpreted in the context of the intentions of the parties as evident
from the contract as a whole
 Where there are apparent inconsistencies between different terms of a contract, the court should attempt to
find an interpretation which can reasonably give meaning to each of the terms in question
o Only if an interpretation giving reasonable consistency to the terms in question cannot be found will
the court rule one clause or the other ineffective
o Where there is apparent conflict between a general term and a specific term, the terms may be
reconciled by taking the parties to have intended the scope of the general term not to extend to the
subject matter of the specific term
 The parties agreed that Hydro should bear the responsibility of clearing the right-of-way; the only exception
was as to the removal of trees and debris in certain valley and gully crossings
 the general obligation of Checo for misunderstandings and errors in the tender should not be intended as
negating the specific obligation for clearing which the contract allocated to Hydro
 Hydro did not properly clear the right- of way and was therefore in breach of contract
 The plaintiff suing for breach of contract is to be put in the position it would have been in had the contract
been performed as a greed
o The measure of damages Is what is required to put Checo in the position it would have been in had the
contract been performed as agreed
The claim in Tort
Concurrency
 The right to sue in tort is not taken away by the contract, although the contract, by limiting the scope of the
tort duty or waving the right to sue in tort, may limit or negate tort liability
 Central Trust v Rafuse: a given wrong prima facie supports an action in contract and in tort; the party may sue
in either or both, except where the contract indicates that the parties intended to limit or negative the right to
sue in tort
o This limitation arises because it is always open to parties to limit or waive the duties which the
common law would impose on them for their negligence
 Important in preserving a sphere of individual liberty and commercial flexibility
 The mere fact that the parties have dealt with a matter expressly in their contract does not mean that they
intended to exclude the right to sue in tort. It all depends on how they have dealt with it
 The rule is not that one cannot sue concurrently in contract and tort where the contract limits or contradicts the
tort duty. It is rather that the tort duty, a general duty imputed by the law in all circumstances, must yield to
the parties’ superior right to arrange their rights and duties in a different way.
o In so far as the tort duty is not contradicted by the contract, it remains intact and may be sued upon
 Three situations
o The contract stipulates a more stringent obligation than the general law of tort would impose
 Parties are not likely to sue in tort, since they would not recover in tort for the higher
contractual duty
 The right to sue in tort is not extinguished
o Contract stipulates a lower duty than that which would be presumed by the law of tort in similar
circumstances
 Parties stipulate that the usual liability imposed by the law of tort is not to bind them
 Ie: exemption clause or exclusion of liability in contract
 Duty imposed by tort can only be nullified by clear terms
68
o
Duty in contract and duty in tort are co-extensive
 Whether the action is styled in contract or tort, its source is an objective expectation defined
by the courts of the appropriate obligation and the correlative right
 This case falls in the third category
o The contract did not negate Hydro’s common law duty not to negligently misrepresent that it would
have the right-of –way cleared by others
o The duty is not excluded by contract which confirmed Hydro’s obligation to clear the right of way
 Iacobucci: where the parties deal with a matter expressly in contract, all right to sue in tort is lost (expressimplied distinction)
o Response: Law treats express and implied contracts in the same manner
o Intention for express clause may simply be a wish for clarity, rather than an exclusion of liability
o while the tort duty may be limited by the contractual terms so as to be no broader than the contract
duty, there is no reason to suppose that merely by stipulating a duty in the contract, the parties
intended to negate all possibility of suing in tort
 Iacobucci: whether a concurrent action in tort lies depends not solely on whether the contract expressly deals
with the matter, but also on the elastic distinction between commercial and non-commercial contracts, the
court’s perception of relative bargaining power, and whether the court sees the result as just or unjust
o Response:
 if there are particular commercial relationships in which the parties wish remedies for
disputes between them to be contract only, then they may be expected to indicate this
intention by including an express clause in the contract wave the right to sue in tort
 asking the courts to determining the bargaining power would introduce too great of a measure
of uncertainty;
 parties should be able to predict in advance whether their remedies are confined to
contract or whether they can sue concurrently in tort and contract
 the authorities do not support the conclusion that the express mention of a matter in the contract and only its
express mention oust any possibility of suing in torts
Damages
 contract: the plaintiff is to be put in the position it would have been in had the contract been performed as
agreed
 tort: the plaintiff is to be put in the position it would have been in had the misrepresentation not been made
 in the situation of concurrency the main reason to expect a difference between tort and contract damages is the
exclusion of the bargain elements in standard tort compensation
o contract is normally concerned with expectation damages, while tort is normally concerned with
reliance damages
o expectation damages would be denied when but for the misrepresentation no contract would have
been entered at all
 here Checo would have entered into the contract regardless
o quantum of damages in tort and contract would be the same because the elements of the bargain
unrelated to the misrepresentation are reintroduced
 in tort Checo is entitled to be compensated for all reasonably foreseeable loss caused by the tort
 in tort : Checo is to be put in the position it would be had the work site been cleared properly must be
reimbursed for the expenses incurred because of the breach of contract
Iacobucci +Sopinka
 while Hydro is liable in contract for the representation which Checo complains of, Hydro cannot be liable in
tort
 as a general rule the existence of a contract between two parties does not preclude the existence of a common
law duty of care
o both the duty of care and the liability may be concurrent in contract and tort
 it is for the plaintiff to select the cause of action most advantageous for him
69

Central Trust v Rafuse:
o Liability in tort can be limited or excluded by the terms of a contract. A plaintiff will not be permitted
to plead in tort to circumvent a contractual clause which excludes or limits the defendant’s liability
o if the duty of care alleged in tort is also defined by a specific term of the contract then the plaintiff
will be entitled only to those remedies which may be available pursuant to the contract
o any duty arising in tort will be concurrent with the duties arising under the contract unless the duty
which the plaintiff seeks to rely on in tort is also a duty defined by an express term of the contract
 if the duty is defined by an express term of the contract, the plaintiff will be confined to
whatever remedies are available in the law of contract
 inferred that the parties wish the law of the contract to govern with respect to that duty
 commercial contracts allocate risks and fix the mutual duties and obligations on the parties
o where there is an express term creating a contractual duty, it is appropriate that the parties be held to
the bargain which they have made
o commercial parties ought to be able to fix their respective right and obligations in a particular
transaction with certainty
o favour a contextual approach which takes into account the context in which the contract is made and
the position of the parties with respect to one another in assessing whether a claim in tort is foreclosed
by the terms of the contract
 where a duty arising in tort is co-extensive with a duty created by an express term of the contract, the plaintiff
will be limited to whatever remedies are available under contract, if the liability or duty of the defendant is
excluded or limited by the terms of the contract, the plaintiff may not allege a wider liability in tort in order to
circumvent the terms of the contract
 whatever duty is imposed in tort on Hydro by the clause in the tender documents is co-extensive with the duty
imposed in contract by the express clause in the contract
o consequently, subject to any overriding considerations arising from the context in which the
transaction occurred, Checo is limited to whatever remedies may be available to it in contract for
Hydro’s breach of the contract
 Checo cannot rely on a breach of any duty created in the tender document to found an action
in tort
 Context is important is assessing whether a claim in tort is foreclosed by the terms of the contract: this
transaction occurred in the commercial context, the parties are both large corporations and there is no
indication of any inequality of bargaining power or unconscionability
 There was an express term of the contract that the right of way would be cleared. The right of way was not
cleared. Hydro breached the contract
 There was no exclusion or limitation clause that would affect Hydro’s liability in contract
Holding
 Hydro is liable in contract and in tort
Ratio
 The rule is not that one cannot sue concurrently in contract and tort where the contract limits or contradicts
the tort duty. It is rather that the tort duty, a general duty imputed by the law in all circumstances, must yield
to the parties’ superior right to arrange their rights and duties in a different way.
 In so far as the tort duty is not contradicted by the contract, it remains intact and may be sued upon
Notes
Blue highlight on page 156 is a great example of the Donoghue, Dorset Yacht, Anns trilogy
Henderson v. Merrett Syndicates Ltd [1995] 2 AC 145
Facts
 The solicitor-agent relationship is similar to that in Hedley-Byrne, the exception being that there was a
contractual relationship
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Issue
 What is the state of the tort-contract nexus in England?
Reasoning
 Hedley-Byrne stood for many novel principles that have stood the test of time
o A duty of care may exist in respect of words as well as deeds
o Liability may arise in negligence in respect of PEL which is not dependent on physical damage
 “if someone possessed of a special skill undertakes, quite irrespective of contract, to apply
that skill for the assistance of another person who relies upon such skill, a duty of care will
arise.
 The fact that the service is to be given by means of or by the instrumentality of words can
make no difference.
 If in a sphere in which a person is so placed that others could reasonably rely upon his
judgment or his skill…, a person takes it upon himself to give information or advice to, or
allows his information or advice to be passed on to, another person who, as he knows or
should know, will place reliance upon it, then a duty of care will arise.”
 The relationship between Name and managing agent is the classic Hedley Byrne example.
o there is an assumption of responsibility in the relevant sense by the managing agents towards the
Names in their syndicates.
o The managing agents have accepted the Names as members of a syndicate under their management.
o They hold themselves out as possessing a special expertise to advise the Names on the suitability of
risks to be underwritten
o The Names, as the managing agents well knew, placed implicit reliance on that expertise
o in these circumstances, prima facie a duty of care is owed in tort by the managing agents
The contractual text (meat ‘n potatoes that talks about the tort-contract nexus)
 We can either allow the plaintiff to choose which remedy he prefers, or only allow a claim on contract
o The latter is founded on the respect for the will of the parties to contract
 Such policy does not necessarily require the total rejection of concurrence, but only so far as a
concurrent remedy in tort is inconsistent with the terms of the contract
 There are some practical implications
o Prescription and limitation of actions differ
o Remoteness of damages is assessed differently
 Hedley-Byrne’s fundamental importance is the principle upon which liability may arise in tortious negligence
in respect of services rendered for another, gratuitously or otherwise, but are negligently performed
o If it can be allowed where services are rendered gratuitously in a quasi-contract situation, illogical to
bar a remedy in an actual contractual relationship
 This is in the absence, of course, of contractual terms excluding or restring the general duties
which the law implies
o Candler Crane: The question should be ‘what is the relationship between the plaintiff and
defendant?’; not “how did the relationship, if any, arise?”
 “There is not and never has been any rule of law that a person having alternative claims must frame his action
in one or the other”
 Medical professions can be sued in tort and contract with the rationale that a breach of their duty results in
physical damage, whereas businessmen will result in pure economic loss
o This is illogical as we now recognize pure economic loss alone as compensable
 Midland Bank Trust
o “A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the
plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or
omission that would constitute the tort.
o Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the
right to assert the cause of action that appears to be the most advantageous to him in respect of any
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
particular legal consequence.”
It is also a matter of perspective and placement of fields of law
o The law of tort is the general law, out of which the parties can, if they wish, contract; and, the same
assumption of responsibility may, and frequently does, occur in a contractual context.
o Approached as a matter of principle, therefore, it is right to attribute to that assumption of
responsibility, together with its concomitant reliance, a tortious liability, and then to inquire whether
or not that liability is excluded by the contract because the latter is inconsistent with it.
Lord Browne-Wilkinson (concurrent judgment relating to the nature of fiduciary relationships)
 A fiduciary duty is but one example of a wider general principle that a man who has voluntarily assumed to
act on behalf of another assumes a duty to that other to act with care
 Liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability, but the
paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for
others
 The derivation of the general principle from fiduciary duties is instructive as to the impact of any contractual
relationship between the parties on the general duty of care which would otherwise apply
o The extent and nature of the fiduciary duties owed in any particular case fall to be determined by
reference to any underlying contractual relationship between the parties.
o In the case of an agent employed under a contract, the scope of his fiduciary duties is determined by
the terms of the underlying contract.
o The existence of a contract does not exclude the co-existence of concurrent fiduciary duties, but the
contract can and does modify the extent and nature of the general duty that would otherwise arise.
Ratio
 This case uses Hedley-Byrne to find that there is concurrent liability; you can have a successful claim in
both tort and contract
 This case is essentially an endorsement of the Midland Bank Trust case
John G. Fleming ‘Tort in a Contractual Matrix’ (1995) 33 Osgoode Hall L.J. 661



Preference for the contract solution in overcoming the privity gap
Example with Limitation Clauses and a Owner, contractor and subcontractor, and the subcontractor screws
up
o If one of the parties have a limitation clause in their contractual relationship, is it fair that the owner
sides-steps this issue due to privity of contract?
o Negating a tort duty can be squared with the principle of voluntary assumption of risk
 If the owner had agreed with the head contractor to assume the risk of defective performance,
the owner assumed the risk of loss from negligence on the part of the contractor and those
whom the latter deputed to perform the work.
 If, instead, the limitation clause was in the contract between the head and subcontractor, it
signified all the more the subcontractor’s unwillingness to do the job without a limitation.
o That we are drawn towards modifying the tort obligation in the context of a planned transaction
shows that tort law may not suitable
o Why not just impose a contractual solution?
See how the court dealt with the liability clause in London Drugs
o The plaintiff had delivered a transformer to a warehouse company for storage under a standard form
contract that stipulated a limitation of liability on any package to $40. The transformer was severely
damaged when two employees, while trying to move the transformer, caused it to fall.
 Could the plaintiff circumvent the limitation clause by suing the employees in tort?
o The SCC majority adopted the contract approach by facing down the privity rule and allowing a
limited jus tertii to the employees.
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o

They should be entitled to invoke a limitation clause in the contract between their employer and the
plaintiff if:
 (1) that clause expressly or impliedly extends its benefits to employees seeking to rely on it;
 (2) the employees acted in the course of their employment and in the performance of the very
services provided for in the contract when the loss occurred.
o McLachlin J. expressed her unease with the finding that the employees were implied beneficiaries of
the limitation clause, although they had not been so much as mentioned in the contract.
 She preferred the “duty” approach
 Based on voluntary assumption of risk, it recognized that a duty of care can be
waived or qualified in the light of the contractual matrix.
 By agreeing to the limitation clause, the customer had accepted that the risk of
damage above $40 was his risk alone
 LaForest viewed this as a case of vicarious liability and limited it a $40 duty breach
Final thoughts that England may have used tort to bridge the privity gap because privity retains an aura of
untouchable classicism, whereas Donoghue characterized tort as free-flowing
o Canada prefers the contract approach due to the perception that it is the more appropriate and
effective way of dealing with a matter that arises in a matrix of contract
Defensive Contracts
 A powerful argument purports to deny a duty of care, particularly a duty to avoid PEL if the claimant should
have exercised his ability to guard against the risk by self-protective measures, such as by contract with the
defendant or intermediary
o Negative form is that the plaintiff’s inability to plan against the contingency of loss favours
recognition of a duty of care by the defendant
o This consideration is especially true in the complex business environment
o This thesis however is not supported and directly incompatible with leading cases
 Norsk allowed the tort claim against the bargees, notwithstanding the availability of
contractual planning against that risk with their contractual partner, the owner of the bridge.
 La Forest’s dissent pointed out, the plaintiffs were in a much better position to assess
that risk than were the defendants, and could easily have shifted it to the bridge
owner in their contract with it.
 How can we reconcile this principle with the justification frequently voiced for recognizing a tort duty, that
the relation between the parties was “akin to contract?”
o Why did the parties not “go the extra mile,” and form a contract?
 In Hedley Byrne, the relationship between the defendant and the plaintiff was described as
“the equivalent of contract
 It is never suggested that the plaintiff could have taken the opportunity to protect herself by
contract.
 Two reasons against this attitude
o 1) the suggested sanction against free-riding seems not unduly harsh, and runs counter to the
historical progress of tort law, and the universal revulsion against the contributory negligence bar
o 2) The policy consideration that “to require the contractor to conduct a thorough professional review
of the engineering design would involve needless duplication of effort—a waste of economic
resources for the minor aim of encouraging self-discipline and thrift.”

Concluding thoughts
o The interaction between contract and tort has become reciprocal:
 if contract is being obliterated in some contexts, like concurrence, it has come to define the
incidence of tort duties in others.
 As tort has expanded its reach into planned transactions, it has learned to respect the
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important message of private ordering.
Who is a Fiduciary?
Canadian Aero Service Ltd. v. O'Malley [1974] S.C.R. 592
Facts
 Canadian Aero Service Limited ("Canaero") was a company whose main business was topographical mapping
and geophysical exploration.
 O'Malley and Zarzycki were senior officers of Canaero,
 O'Malley and Zarzycki resigned from their positions in August 1966.
 Prior to their resignation, they decided to form a business venture in the same fields as Canaero.
 It was incorporated as Terra Surveys Limited in September 1966.
 In that month, Terra was chosen to receive a contract to perform a topographical survey and related mapping
 The proposal upon which the contract was granted was based on preparatory work that had been performed by
O'Malley and Zarzycki for Canaero prior to their resignations.
 Canaero filed a claim on the basis that the defendants had improperly taken the fruits of a corporate
opportunity in which Canaero had a prior and continuing interest.
Issue
1) The determination of the relationship of O'Malley and Zarzycki to Canaero
2) The duty or duties, if any, owed by them to Canaero by reason of the ascertained relationship
3) Whether there has been any breach of duty?
4) What is the liability for breach of duty if established
Reasoning
 O and Z acted as president and vice-president of the company; they were ‘top management’
o Not mere employees whose duty consisted only of respect for trade secrets and confidentiality of
customer lists
o “Theirs was a larger, more exacting duty”
 O and Z stood in a fiduciary relationship to Canaero, which in its generality betokens loyalty, good faith and
avoidance of a conflict of duty and self-interest.
o More specifically to the situation at hand, a senior officer like O or Z is precluded from obtaining for
himself, either secretly or without the approval of the company any property or business advantage
either belonging to the company or for which it has been negotiating;
o Especially where the director or officer is a participant in the negotiations on behalf of the company.
o Precluded from so acting after his resignation where the resignation was influenced by a wish to
acquire the opportunity sought by the company, or where it was his position with the company rather
than a fresh initiative that led him to the opportunity which he later acquired
 Regal (Hastings) Ltd. v Gulliver
o “The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to
enter into engagements in which he has or can have a personal interest conflicting with the interests of
those whom he is bound to protect.”
o “The reaping of a profit by a person at a company's expense while a director thereof is an adequate
ground upon which to hold the director accountable.”
 Public interest argument
o Strict application against senior management officials is recognition of the degree of control which
their positions give them in corporate operations, and which comes under some scrutiny only at AGM
o It is a necessary supplement, in the public interest, an acknowledgment of the importance of the
corporation in the life of the community, and of the need to compel obedience by it and by its
directors to norms of exemplary behaviour
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
The fiduciary duty does not terminate upon resignation and that it cannot be renounced at will by the
termination of employment
 The fiduciary duty of O and Z would be reduced to an absurdity if it could be avoided by mere variations in
minor details of the project
o ‘cardinal fact was that it was the one and same substantial project’
o The fact that O and Z knew that Canaero was still interested in the project is a relevant factor
Damages
 Liability for breach of fiduciary duty does not depend upon proof by Canaero that, but for their intervention, it
would have obtained the Guyana contract;
o It is entitled to compel the faithless fiduciaries to answer for their default according to their gain.
o Whether the damages awarded here be viewed as an accounting of profits or as based on unjust
enrichment
Holding
 The defendants continued, after their resignations, to be under a fiduciary duty to respect Canaero's priority in
seeking to capture the contract for the Guyana project.
 They entered the bargaining table at the project’s maturation, known to them to be under active Government
consideration when they resigned from Canaero and when they proposed to bid on behalf of Terra
Ratio
 The general standards of loyalty, good faith and avoidance of a conflict of duty and self-interest to which the
conduct of a director or senior officer must conform, must be tested in each case by many factors
o Among them are the factor of position or office held, the nature of the corporate opportunity, its
ripeness, its specificness and the director's or managerial officer's relation to it, the amount of
knowledge possessed, the circumstances in which it was obtained and whether it was special or,
indeed, even private, the factor of time in the continuation of fiduciary duty where the alleged breach
occurs after termination of the relationship with the company, and the circumstances under which the
relationship was terminated, that is whether by retirement or resignation or discharge
Galambos v. Perez, [2009] 3 S.C.R. 247
Facts
 Perez made cash advances totaling $200,000 to her employer, the defendant law firm, Galambos LLP
 Perez made these advances voluntarily, much on her initiative and often without informing Mr. Galambos
beforehand.
 When the firm was placed in receivership and Mr. Galambos went bankrupt, she found herself an unsecured
creditor. She recovered nothing.
 She sued Mr. Galambos and the defunct firm for negligence, breach of contract and breach of fiduciary duty
Issue
 Was there a fiduciary relationship here? No! She’s just an idiot
Reasoning
 There was no ongoing solicitor-client relationship
o the firm had not undertaken to be her lawyer generally or to provide her with any specific legal
service
o The legal work undertaken by the firm was limited to the specific services requested and was
unrelated to the cash advances she made to the firm
 The fact that these advances were made outside a particular solicitor-client relationship does not circumvent
the nearly absolute professional standard not to borrow from clients. However, two points must be made
o There is an important distinction between the rules of professional conduct and the law of negligence.
Breach of one does not necessarily involve breach of the other.
o Secondly, the rule is a specific application of the general rules about conflict of interest.
 A conflict of interest occurs when there is a “substantial risk that the lawyer’s representation
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of the client would be materially and adversely affected by the lawyer’s own interests
there was no risk that the firm’s representation of Ms. Perez in connection with the wills or
mortgages could be affected by the firm’s interest in receiving the cash advances from her.
Certain categories of relationships are considered to give rise to fiduciary obligations because of their inherent
purpose or their presumed factual or legal incidents: per se fiduciary relationships.
o A solicitor-client relationship is an example
o Not every legal claim arising out of a per se fiduciary relationship will give rise to a claim for a
breach of fiduciary duty.
A claim for breach of fiduciary duty may only be founded on breaches of the specific obligations imposed
because the relationship is one characterized as fiduciary
o While the solicitor-client relationship has fiduciary aspects, many of the tasks undertaken in the
course of the solicitor-client relationship do not attract a fiduciary obligation.
“It is the nature of the relationship ... that gives rise to the fiduciary duty.”
o The underlying purpose of fiduciary law may be seen as protecting and reinforcing “the integrity of
social institutions and enterprises”, recognizing that “not all relationships are characterized by a
dynamic of mutual autonomy, and that the marketplace cannot always set the rules”:
o The particular relationships on which fiduciary law focuses are those in which one party is given a
discretionary power to affect the legal or vital practical interests of the other
Fiduciary law is more concerned with the position of the parties that results from the relationship which gives
rise to the fiduciary duty than with the respective positions of the parties before the relationship.
o While vulnerability in the broad sense resulting from factors external to the relationship is a relevant
consideration, a more important one is the extent to which vulnerability arises from the relationship
o A critical aspect of a fiduciary relationship is an undertaking of loyalty: the fiduciary undertakes to act
in the interests of the other party
Did an ad hoc fiduciary duty exist?
o Apart from the categories of relationships to which fiduciary obligations are innate, such obligations
may arise as a matter of fact out of the specific circumstances of a particular relationship
Was there a power-dependency relationship?
o Did Mr. Galambos have a position of overriding power or influence over Ms. Perez?
o Perez was not vulnerable in terms of her relationship with Mr. Galambos, she had not relinquished her
decision-making power with respect to the loans, and he had no discretion over her interests that he
was able to exercise unilaterally (pg 13 for more examples)
o No express requests for loans, which makes it illogical to conclude that Ms. Perez was unable to
refuse requests when there were in fact none
o Examples where this exists:
 Norberg involved an aging physician extorting sex for drugs from a young woman addicted to
prescription drugs.
 Mustaji involved a claim by a nanny brought to Canada under the Foreign Domestic
Movement Program.
 The defendants had taken over her affairs concerning her immigration and
employment in Canada, that they had the opportunity to exercise power over her
o There was no reliance on any statements, she knew that the financial circumstances of the firm were
not improving, that the influx of new legal work was speculative and that the potential for large
amounts of contingency fees was exaggerated.
 Even if Ms. Perez had in fact relied on Mr. Galambos’s general statements, her reliance was
not reasonable
“power-dependency” relationships are not a special category of fiduciary relationships
o not all power-dependency relationships are fiduciary in nature, and identifying a power-dependency
relationship does not, on its own, materially assist in deciding whether the relationship is fiduciary or
not.

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There are not special rules for recognition of fiduciary duties in the case of “power- dependency”
relationships
 Mutual Understanding or Undertaking by the Fiduciary
o Mutual understanding is fundamental to ad hoc fiduciary duties
o There must be an undertaking by the fiduciary, which may be either express or implied, that the
fiduciary will act in the best interests of the other party.
o For a person to be a fiduciary he must first and foremost have bound himself in some way to protect
and/or to advance the interests of another
o An express undertaking is not required
 The fiduciary’s undertaking may be implied in the particular circumstances of the parties’
relationship.
 Relevant considerations such as professional norms, industry or other common practices and
whether the alleged fiduciary induced the other party into relying on the fiduciary’s loyalty.
o Having never requested the advances, it is difficult to see how there was any implied undertaking to
act only in Ms. Perez’s interests with respect to them.
 Transfer of discretionary power
o fundamental to the existence of any fiduciary obligation that the fiduciary has a discretionary power to
affect the other party’s legal or practical interests
o No evidence that Ms. Perez relinquished her decision-making power with respect to the loans to Mr.
Galambos or that there was any discretion over her interests that he was able to exercise unilaterally
Holding
 There was no fiduciary relationship of any kind! Discretionary power is fundamental!
Ratio

o
Paul B. Miller, “A Theory of Fiduciary Liability” (2011) 56:2 McGill LJ 235

The SCC has gradually been moving toward an essentialist view of the fiduciary relationship.
o The realization of such a view would make good the assumption implicit in the law that the fiduciary
relationship is a distinctive kind of legal relationship and that fiduciary liability is a distinctive mode
of private ordering
 There is widespread uncertainty on three critical aspects of fiduciary relationships
o Essential character
o Formation
o Structural qualities subsequent to relationship formation
 Two approaches used to identify fiduciary relationships
o Status-based approach
o Fact-based approach
Status-based relationships
 Status determines whether a relationship is to be recognized as fiduciary.
 Confronted with a given relationship, the court will categorize it (debtor-creditor, trustee-cestui que trust,
lawyer-client) and determine whether the category is conventionally recognized as fiduciary.
o If so, it is generally treated as fiduciary.
o If not, it falls to be considered whether the category ought to be recognized as having fiduciary status.
o Courts are highly reluctant to anoint new categories given concerns over undue expansion of the
scope of liability.
o Problems with this approach is that it is solely analogical presupposing an underlying principle
 “It is the nature of the relationship, not the specific category of actor involved that gives rise
to the fiduciary duty” Dickson in Guerin
 “An extension of fiduciary obligations to new ‘categories’ of relationship presupposes the
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existence of an underlying principle which governs the imposition of the fiduciary
obligation” Wilson in Frame
Fact-based Fiduciary Relationships
 A relationship may be identified as fiduciary by virtue of its possession of certain characteristics or indicia of
recognized fiduciary relationships.
o Stipulation of the indicia has been the central challenge in developing this approach
 Wilson’s attempt: Relationships in which a fiduciary obligation have been imposed seem to possess three
general characteristics:
1) The fiduciary has scope for the exercise of some discretion or power
2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal
or practical interests.
3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or
power.
 Lac Minerals
 LaForest found a fiduciary relationship by establishing new indicia of a fiduciary relationship
 influence, ascendancy, disclosure of confidential information, trust, and confidence
 reasonable expectations of the parties as determined by industry custom
 Vulnerability is not a necessary ingredient in every fiduciary relationship
 Sopinka (majority) held that there was no fiduciary relationship and rejected LaForest’s list
 Dependency or vulnerability is the one “indispensable” characteristic of fiduciary
relationships and that vulnerability must be “physical or psychological” in nature
 Hodgkinson v Simms
 Hodgkinson, an investment professional, sought and obtained the advice of Simms, a tax and
investment advisor, on tax planning and tax-sheltered investments—matters foreign to his expertise.
 On the basis of that advice, he invested in a series of real estate developments.
 Unbeknownst to Hodgkinson, Simms received referral fees from the developers.
 The real estate market crashed and Hodgkinson lost his investment.
 Hodgkinson sued Simms for breach of fiduciary duty, claiming he would not have invested, and thus
suffered the loss, had he known of Simms’ interest
 LaForest (majority) found that a fiduciary relationship existed!
 “Vulnerability is not the hallmark of the fiduciary relationship though it is an
important indicium of its existence.”
 Vulnerability is an insufficiently precise because it is also characteristic of other
relationships treated differently in law and equity
 Disputed the relevance of equality of bargaining power
 Dismissed the idea that a contract between individuals is incompatible with the
existence of a fiduciary relationship between them
 Added confidentiality and the “complexity and importance of the subject matter” to
his list of indicia
 Sopinka was critical of the ever-expanding list of indicia, as it would increase uncertainty
over the scope of liability
 Endorsed Wilson’s list in Frame
 “Phrases like “unilateral exercise of power”, “at the mercy of the other’s discretion”
and “has given over that power” suggest a total reliance and dependence on the
fiduciary by the beneficiary”
Problems with the Status- and Fact-Based Approaches
 Neither affords a principled basis for the ascription of liability.
 Neither affords the predictability and flexibility expected of liability rules at common law.
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

Neither approach is capable of vindicating the idea that fiduciary liability is premised upon essential
characteristics of the fiduciary relationship
Status-based approach is unprincipled as determinations of status lack reasoned justification
o Courts have failed to say which similarities justify analogies drawn
o This will lead to inconsistencies over similarities justifying a finding of fiduciary relationships
o The SCC has held that relationships will not always be treated as fiduciary in spite of their status
 This will not give individuals a reliable guide to rightful conduct
Fact-based approach has been relegated to use at the margins of status-based, in cases where courts prefer to
make a one-off decision rather than rule on the broader-reaching question of status
o The approach is unprincipled as there is no clear concept of fiduciary to accurate evaluate necessary
qualities
o The approach affords flexibility at the cost of predictability
o “The difficulty has always been that these descriptors, although apt to describe relationships where
fiduciary obligations are imposed, are often equally apt when such obligations are absent.”
Emerging Theory of Fiduciary Liability
 In the author’s view, a fiduciary relationship is one in which one party (the fiduciary) enjoys discretionary
power over the significant practical interests of another (the beneficiary).
 Galambos marks the culmination of the court’s approach to a rationalized principle underpinning fiduciaries!
o “The particular relationships on which fiduciary law focuses are those in which one party is given a
discretionary power to affect the legal or vital practical interests of the other”
o “It is fundamental to the existence of any fiduciary obligation that the fiduciary has a discretionary
power to affect the other party’s legal or practical interests.”
o The Court in Galambos has thus clearly resolved that discretionary power is an essential
characteristic of all fiduciary relationships
o Cromwell distinguishes the status- from the fact-based approach:
 Certain categories of relationships are considered to give rise to fiduciary obligations because
of their inherent purpose or their presumed factual or legal incidents ... These categories are
sometimes called per se fiduciary relationships.
 Apart from the categories of relationships to which fiduciary obligations are innate, such
obligations may arise as a matter of fact out of the specific circumstances of a particular
relationship
o Cromwell is uncomfortable with the ill-sorted lists of indicia
 “power-dependency relationships”—by which he appears to mean any relationship
characterized by inequality of power and dependence—are not invariably fiduciary”
 “to assert that the protection of the vulnerable is the role of fiduciary law puts the matter too
broadly.”
Conclusions
 Fiduciary liability is premised upon the fiduciary relationship, understood as a distinctive kind of legal
relationship.
 A unifying theory will clarify the essential character of the fiduciary relationship and explains the foundation,
nature, and scope of fiduciary obligation.
 The essential character is the discretionary power wielded by the fiduciary over the practical interests of the
beneficiary.
 The power wielded by the fiduciary is properly understood as a means belonging rightfully to the beneficiary,
to be exercised in his interests.
 The cardinal fiduciary duty of loyalty arises from the beneficiary’s inherent vulnerability to exploitive misuse
of power by the fiduciary.
 This vulnerability is a structural feature consequent upon the establishment of the fiduciary relationship.
 The scope of fiduciary obligation is defined by the ambit and duration of the fiduciary relationship.
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o
As we have identified the essential character of a fiduciary relationship, we should abandon the factand status-based approaches
 Many of the relationships identified under the status-based approach will indeed by
rationalized as fiduciary, but the problem is that these groups may be overly broad and
overly-restrictive at the same time!
 The fact-based approach will inform the emerging essentialist view of fiduciary relationships
How close? Fiduciary obligations in the Commercial Context
Lac Minerals Ltd v. International Corona Resources Ltd [1989] 2 SCR 574, 61 DLR
(4th) 14
Facts
 Corona, junior mining company, identified opportunity and made arrangements to acquire Williams property
but needs a partner for development
 Corona met with Lac Minerals, senior mining company, and communicated confidential geological findings
regarding Williams property
 Parties discuss development and financing, and Lac Minerals advises Corona to acquire property
 Lac Minerals then acquires Williams property without informing Corona
Issue
 Did a fiduciary relationship exist between Corona and Lac which was breached by Lac’s acquisition of the
Williams property?
Reasoning
Sopinka, dissenting in part
 Rare that a fiduciary relationship is required in the context of an arm’s length commercial transaction
o Parties have an adequate opportunity to prescribe their own mutual obligations and the contractual
remedies available to them to obtain compensation for any breach of those obligations should be
sufficient
 Equity’s blunt tool must be reserved for situations that are truly in need of the special protection that equity
affords
 There are some relationships which are recognized to give rise to fiduciary obligations
o Director-corporation
o Trustee-beneficiary
o Solicitor-client
o Partners
o Principal-agent
 The categories of relationships giving rise to fiduciary duties are not closed, nor do the traditional
relationships invariable give rise to fiduciary obligation
 When the court is dealing with one of the traditional relationships, the characteristics or criteria for a fiduciary
relationship are assumed to exist
o If they are shown to be absent the relationship itself will not suffice
 When confronted with a relationship that does not fall in one of the categories use the “rough and steady”
guide provided by the Wilson dissent in Frame v Smith
o The fiduciary has scope for the exercise of some discretion or power
o The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal
or practical interests
o The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or
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power
Possible for a fiduciary relationship to be found although not all of these characteristics are present; the
presence of these ingredients will not invariable identify the existence of a fiduciary relationship
 The one feature which is considered to be indispensable in the existence of the relationship is that of
dependency and vulnerability
o One party is at the mercy of the other’s discretion
o Vulnerability arises from the inability of the beneficiary to prevent the injurious exercise of the
power or discretion combined with the grave inadequacy of absence of other legal or practical
remedies to redress the wrong exercise of the discretion or power
 Dependency and vulnerability is lacking in this case and its absence cannot be replaced by any of the other
factors
 While it is possible to have a dependency between corporations, that cannot be so when dealing with
experienced mining promoters who have ready access to geologists, engineers and lawyers
o Any vulnerability could have been prevented through the exercise of bargaining power and the
remedies for the wrongful exercise or abuse of that discretion or power are adequate
 If Corona placed itself in a vulnerable position because Lac was given confidential information, then this
dependence was gratuitously incurred ; nothing prevented Corona from exacting an undertaking from Lac that
it would not acquire the Williams property unilaterally
 Corona did not protect itself contractually + misuse of confidential info can be handled in other ways does
not justify using equity’s blunt tool of fiduciary duty
 Link between constructive trust and fiduciary obligation
o The two usually go together
o Constructive trust has been used outside of fiduciary obligations in cases of unjust enrichment
o Constructive trust is inappropriate in most other caes
La Forest
 Fiduciary has 3 different meanings
o Focus on the identification of relationships in which, because of their inherent purpose or their
presumed legal incidents the courts will impose a fiduciary obligation on one party to act or refrain
from acting in a certain way  presumption of a fiduciary duty given the type of relationship
o A fiduciary duty can arise as a matter of fact out of the specific circumstances of a relationship
 One party is so implicated in the other’s affairs that there is a “fiduciary expectation”
o Fiduciary used to compensate where remedies deemed appropriate in the circumstances would not be
available unless a fiduciary relationship was present  conclusion to justify a result
 Reads equity backwards; it is a misuse of the term
 Factors which support the imposition of a fiduciary duty under the second meaning
o Trust and confidence
o Industry practice
o Vulnerability
 Trust and confidence
o The existence of such a bond plays an important role in determining whether one party could
reasonably expect the other to act or refrain from acting against the interests of the former
o There was industry practice known to Lac which set up an expectation that Lac would not use
confidential information acquired during its negotiations with Corona in a manner contrary to
Corona’s interest
o Both parties would reasonably expect that a legal obligation would be imposed on Lac not to act in a
manner contrary to Corona’s interest with respect to the Williams property
 Industry practice
o There was a known “duty” not to act to the other party’s detriment when in serious negotiations
through the misuse of confidential information
o The practice is so well know that at the very least Corona could expect Lac to abide by it
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Vulnerability
o Vulnerability is not a necessary ingredient in every fiduciary relationship
 When it is found it is an additional circumstance that must be considered in determining if the
facts give rise to a fiduciary obligation
 When determining if new classes of relationship should be taken to give rise to fiduciary
obligations then vulnerability of the class of beneficiaries of the obligation is a relevant
consideration
o Persons are vulnerable if they are susceptible to harm or open to injury
 They are vulnerable at the hands of a fiduciary if the fiduciary is the one who can inflict that
harm
 Fiduciary obligations can be breached without harm being inflicted on the beneficiary
 Susceptibility to harm will not be present in many cases
o Cannot agree with Sopinka that vulnerability or its absence will conclude the question of fiduciary
obligation
o The issue should be whether, having regard to the facts and circumstances one party stands in relation
to another such that it could reasonably be expected that the other would act or refrain from acting in a
way contrary to the interests of that other
o Here Corona was vulnerable to Lac
 The court should not deny the existence of a fiduciary obligation simply because the parties could have by
means of a confidentiality agreement regulated their affairs
 The existence of an alternative procedure is only relevant if the parties would realistically have been expected
to contemplate it as an alternative
 A fiduciary obligation existed and it was breached
 A fiduciary relationship is not precluded by the fact that the parties were involved in pre-contractual
negotiations
 It is a question to be determined on the facts whether the parties have reached a stage in their relationship
where their expectations should be protected
 In this case the facts support the existence of a fiduciary obligation not to act to the detriment of Corona’s
interest by acquiring the Williams property by using information acquired during the negotiation process
 Remedy
o Claim for unjust enrichment; a type of restitutionary claim
o But for Lac, Corona would have acquired the property
 Fact that Corona never owned the property should not preclude it from pursuing a
restitutionary claim
o Essence of imposing fiduciary obligations is its utility in the promotion and preservation of desired
social behaviour and institutions; likewise with the protection of confidences in the business world
 The institution of bargaining in good faith is worthy of legal protection
o This remedy, which restores an asset to the party who would have acquired it but for a breach of
fiduciary duties acts as a deterrent and strengthens the social fabric
 While the principle of unjust enrichment lies at the heart of the constructive trust, the converse is not true
o The constructive trust does not lie at the heart of restitution, but is a remedy to be imposed in
appropriate circumstances
Holding
 There was no fiduciary obligation here but there was a breach of confidence with the remedy of a
constructive trust
Ratio
 Lamer is a drunk
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Cossman and Hoffstein ‘Disputes Involving Trusts: The Canadian Experience’ in (ed)
Nedim Peter Vogt Disputes Involving Trusts (Basel: Helbing & Lichtenhahn, 1999) pp
45-50, 74-78
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The common law recognized ownership of property
o Then came the ‘use of another’ principle in property law
o This title was not recognized in the common law
o The Courts of Equity were used to compel compliance via the use of specific performance or trust
o The common law and equity courts have now been unified, which informs the context in which the
trust has evolved in
Civil law jurisdictions have trouble recognizing trusts due to their adherence to absolute ownership
The Trust is a device for property holding and administration whereby one person (a trustee) has an
obligation to deal with property over which he/she has control (the trust property) for the benefit of others
(beneficiaries, cestui que use/trust)
o The person who creates the trust is called the settlor
The trust is not a legal entity, but rather a relationship between trustees and beneficiaries
o Trustees are not agents of the beneficiaries, but rather act as principles
Beneficiaries generally have no rights or powers against or over trustees except to insist that the terms of the
trust are performed in accordance with the provisions of the trust instrument
o Trustee’s primary obligation is to carry out the instructions of the settlor by exercising powers and
performing obligations for the benefit of the beneficiary
Trusts can be express trusts where there is an intention to create a trust, a transfer of property
o Other trusts are remedial in nature and are imposed by a court whereby a fiduciary obligation is
created (constructive and resulting trusts)
Express Trusts
 Two requirements needed:
1) The formality for the transfer of property has been undertaken to transfer title from the settlor to the
trustee
2) The three certainties can be found in the trust deed or will:
a) Intention to create a trust
b) Certainty of subject matter
c) Certainty of objects; ascertain the intended beneficiaries
Fiduciary Duties
 4 main obligations
1) Duty of care: the standard is that which a reasonable and prudent business person would exercise in
conducting his own affairs
 the duty to exhibit vigilance, prudence and sagacity in carrying out trustee functions
 There may be a higher standard of care owned by a professional trustees than by a nonprofessional
2) Duty to act personally: a trustee generally cannot delegate his decision-making power
 Been recognized that trustees can and should retain agents to assist him in the discharge of
duties
 Administrative functions can be delegated, but decision-making functions cannot
3) Duty to avoid conflict of interest and to act solely for the benefit of the beneficiaries
 The duty of loyalty is the most fundamental duty!
 A trustee must avoid conflict of interests between his personal interests and those of the
beneficiary
 A trustee cannot profit or benefit personally by reason of his fiduciary position
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4) Duty to act impartially among different beneficiaries
 The even-hand rule; trustees cannot favor one class of beneficiaries over another, all
beneficiaries must be treated equally
Remedial Trusts
 Remedial trusts (resulting and constructive trusts) arise by operation of law regardless of the express intention
of the parties
 A resulting trust may be imposed to return property to a person who is entitled to it beneficially from the
person who is the legal title holder. Two situations:
a) A resulting trust for the settlor when a beneficial interest under an express trust fails (i.e. improper
will construction)
b) Where equity chooses to presume that a trust was created and puts the burden on the defendant
titleolder to prove that there was not rust
 Arises where one person voluntarily conveys property to another, or purchase property and
directs that title be taken in another person’s name, but the conveyer or purchaser does not
intent that the other person should take beneficially
 Resulting trust not presumed where the property transfer was for illegal purposes
 A constructive trust is largely employed in the fiduciary context
a) Used where a fiduciary makes a gain from his or her position (Keech v Sandford)
 This reading using Wilson’s analysis in Frame to define a fiduciary
 Canadian courts more often apply the construct trust in terms of being a remedy
 Used to prevent injustice (Soulos) and unjust enrichment (Pettkus)
 Considered restitutionary as it imposes liability upon one person to make restitution ot another by
transferring the property back to the person
 Page 227-228 have good summaries for Lac Minerals and CanAero
 Common elements of relationships in which a constructive trust can be found include
 Fiduciaries based on a duty of loyalty: Holders of office, i.e. officers, directors, advisors, and other
relationships where only party has given an express undertaking to advise another
 Influence-based Fiduciaries: those who possess special power such as superior information
 Concern in Canada that constructive trust has been over-extended
 Found to exist even in the context of commercial relations between sophisticated business parties
 Counter-argument that they should exist to reinforce strict code of ethics and to curb selfinterest (see Hodkinson v Simms)
Unjust Enrichment
Deglman v. Guaranty Trust Co. of Canada, [1954] S.C.R. 725, [1954] 3 D.L.R. 785.
Facts
 Aunt stated that if the nephew would ‘be good to her and do such services for her as might from time to time
request during her lifetime she would leave him the home they lived in
 Court finds that a contract had been created
Issue
 Does part performance allow for a remedy?
Reasoning
 “law must provide remedies for cases of unjust enrichment to prevent a man from retaining the money of or
some benefit derived from another which it is against conscience that he should keep”
o These remedies fall into the category of quasi-contract or restitution
 The law is not implying a contract; it is implying a debt or obligation
 Equity imposes an obligation that one who receives benefit of the performance of another must pay the fair
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value of the benefits received
Even though this obligation came to the fruition upon the death of the Aunt, the Aunt’s estate has an equitable
obligation to account for the benefits they have unjustly received
Peel (Regional Municipality) v. Canada; Peel (Regional Municipality) v. Ontario,
[1992] 3 S.C.R. 762
Facts
 Federal government passed a law requiring municipality to pay some expenses for certain child care services
 The courts eventually ruled the law unconstitutional
 The municipality is suing the government to get its money back
 Municipality claims under unjust enrichment
Issue
 Is this a valid claim of unjust enrichment? How should benefit in the Pettkus case be defined?
Reasoning
 2 distinct doctrinal approaches to restitution at common law.
o 1) traditional "category" approach.
 See if the case fits into any of the categories of cases in which previous recovery has been
allowed, and then applying the criteria applicable to a given category
o 2) "principled" approach
 3 criteria present in all cases of unjust enrichment:
 (1) benefit to the defendant;
 (2) corresponding detriment to the plaintiff;
 (3) the absence of any juridical reason for the defendant's retention of the benefit:
 Tension in jurisprudential nature
o Need for certainty in the law and the need to do justice in the individual case
o Need for predictable rules upon which people can predicate their conduct and the desire to allow
recovery where retention of the benefit is considered unjust
o The traditional approach brings predictability
o The principled approach is more ‘equitable’ in nature
 Philosophical-policy tension
o Traditional reluctance to permit recovery to a plaintiff who had provided non-contractual benefits to
another is founded on robust individualism which expected every person to look out after his own
interests
o The general principle shrinks from the harsh consequences of individualism and seeks to effect justice
where fairness requires restoration of the benefit conferred.
 “We must choose a middle path; one which acknowledges the importance of proceeding on general principles
but seeks to reconcile the principles with the established categories of recovery; one which charts a predictable
course without falling into the trap of excessive formalism; one which recognizes the importance of the right
to choose where to spend one's money while taking account of legitimate expectations”
 Equity’s most fundamental contribution is the development of the remedial constructive trust as a means of
remedying unjust enrichment
 At the heart of unjust enrichment lies the notion of restoration of a benefit which justice does not permit one
to retain
 The traditional categories of recovery, while instructive, are not the final determinants of whether a claim lies.
o In most cases, the traditional categories of recovery can be reconciled with the general principles
enunciated in Pettkus
o new situations can arise which do not fit into an established category of recovery but nevertheless
merit recognition on the basis of the general rule.
Application to the case at hand
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suggested that the case is analogous to the following classes of cases where recovery has been allowed:
o (1) a benefit conferred under compulsion;
o (2) a benefit conferred out of necessity;
o (3) a benefit conferred as a result of an ineffective transaction; and
o (4) a benefit conferred at the request of the defendant
 Difficulty in this case is assessing what the benefit to the federal government was
 Courts have held that for a benefit to be established in the class of compulsion (1), it must be shown that the
plaintiff’s payments discharged the defendant’s liability
o If no liability has been discharged, it is irrelevant that the plaintiff has incidentally conferred some
benefit on the defendant by his payment
 In the case at hand, the federal government had no obligation to provide the child care services
o The benefit which the government is said to have received is the discharge of responsibilities which it
might have undertaken because conscience required that someone do so.
 No legal liability on government as required by the traditional tests
 Can the municipality claim under the general Pettkus test?
o Plaintiffs argue that that the third criteria only requires that the plaintiff's payments have discharged a
political, social or moral responsibility of the defendant, for which the defendant was
o primarily liable
 the plaintiff need not have discharged a liability enforceable at law.
o Essentially, can a defendant may be found to have benefitted from the payment of a certain sum even
though the defendant had the option of whether or not it wished to incur this expenditure?
 An "incontrovertible benefit" is an unquestionable benefit, a benefit which is demonstrably apparent and not
subject to debate and conjecture.
o Where the benefit is not clear and manifest, it would be wrong to make the defendant pay, since he or
she might well have preferred to decline the benefit if given the choice
 To allow recovery because a defendant has been incontrovertibly benefited is to accept that he must make
restitution even though he did not request or freely accept the benefit.
o "liabilities are not to be forced on people behind their backs any more than you can confer a benefit
upon a man against his will," has been regarded as paramount.
o Free choice must be preserved inviolate. To
 While free choice is important, it loses its force if it is an incontrovertible benefit, because the defendant
would not have realistically declined the enrichment.
o The principle of incontrovertible benefit is not the antithesis of freedom of choice. It is not in
competition with the latter; rather, it exists when freedom of choice as a problem is absent.
o However, this should only be imposed if the ‘equities of circumstances demand it’
Ration #1
 Any relaxation on the requirement of discharge of legal obligation which may be effected through the concept
of "incontrovertible benefit" is limited to situations where it is clear on the facts that had the plaintiff not paid,
the defendant would have done so. Otherwise, the benefit is not incontrovertible.
o It must provide an immediate benefit; it cannot be an incidental benefit
 In the case at hand, it was neither inevitable nor likely who would pay for the childcare expenses and for what
amount
o Not shown that the government would have even spent $$$ on these services; ‘inevitable expense’
o By limiting in such a way, we avoid the Cardozo indefinite liability maxim
Failing all other arguments, can the municipality claim on the basis of justice and fairness alone? NO!
 The courts' concern to strike an appropriate balance between predictability in the law and justice in the
individual case has led them to choose a middle course between the extremes of inflexible rules and case by
case "palm tree" justice.
o The middle course consists in adhering to legal principles, but recognizing that those principles must
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be sufficiently flexible to permit recovery where justice so requires having regard to the reasonable
expectations of the parties in all the circumstances of the case as well as to public policy.
 Restitution in justice is distinct from other areas of law as it is not concerned with duties, standards, and
culpability
o Restitution focuses on re-establishing equality between the two parties, as a response to a disruption
of equilibrium; a non-consensual receipt and a retention of value
o Fairness must embrace not only the situation of the claimant, but the position of those from whom
payment is claimed (goes against Manderson’s piece)
 In the case at hand, the government did not receive the end benefits; the children whom services were
provided to did
Holding
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Ratio
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Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629
Facts
 Consumers’ Gas is a regulated utility which provides natural gas to commercial and residential customers
 Defendant cannot sell gas or charge for gas-related services except in accordance with rate orders issued by
the government
 Defendant bill on a monthly basis, and customers who do not pay by the due date incur a late payment penalty
 Garland, the plaintiff, has paid $75 in late fees over the course of 12 years
 In a separate case, the SCC found that these late fees set by gov were charging a criminal rate of interest
 Garland now seeks restitution for unjust enrichment of late fee charges received by the defendants
Issue
 Using the 3-step Pettkus test, is this a case to impose unjust enrichment?
Reasoning
 Unjust enrichment requires 3 elements:
o (1) an enrichment of the defendant;
o (2) a corresponding deprivation of the plaintiff; and
o (3) an absence of juristic reason for the enrichment
 In Peel, enrichment was held to connote a tangible benefit conferred on the defendant
o It can be a positive or negative benefit; payment of money, or sparing of expense
 Where money is transferred from plaintiff to defendant, there is an enrichment
o Where it might be unjust to award restitution in cases where the benefit was not retained, this analysis
will be done outside the 3-step test as a change of defence analysis
 Highlights the tension again between predictability, yet flexibility to find remedies in unjust situations
o We must find a balance between the principled and categorical approach
 Proper approach to the juristic reason analysis is in two parts.
o First, the plaintiff must show that no juristic reason from an established category exists to deny
recovery.
 By closing the list of categories, this eliminates the problem of proving the absence or nonexistence of something
 The established categories include a contract (Pettkus,), a disposition of law (Pettkus,), a
donative intent (Peter,), and other valid common law, equitable or statutory obligations
(Peter,).
o If no juristic reason from an established category, then the plaintiff has made a prima facie case
o The prima facie case is rebuttable, however, where the defendant can show that there is another
reason to deny recovery.
 there is a de facto burden of proof placed on the defendant to show the reason why the
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enrichment should be retained.
This allows the court to look at all the circumstances of the transaction in order to determine
whether there is another reason to deny recovery, two in particular being
 The reasonable expectations of the parties, and public policy considerations.
Application to the case at hand
 The only possible juristic reason to justify enrichment was the government orders creating the late fees
o Been held that a valid statute is a juristic reason barring recovery in unjust enrichment
 However, this cannot be a defence as these orders were deemed unconstitutional
 The plaintiffs have a prima facie case for unjust enrichment!
 Second step requires a consideration of reasonable expectation and policy considerations
o Claimed that late payers cannot have reasonably expected that the late fees were invalid as
Consumers’ Gas derived the power to charge these late fees from the government!
o Consumers’ Gas relied on the good judgment of the government
o Policy considerations argue that Consumers’ Gas cannot keep the late fees as they have been to be
criminal; a criminal cannot be permitted to keep the proceeds of his crime
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Therefore, the court finds that Consumers’ Gas reasonable reliance is a juristic reason for enrichment!
However, when the claim for criminal interest was filed, Consumers’ Gas knew that there was a serious
possibility that they were involved in criminal activity
o No longer reasonable for defendant to rely on government’s claims
o Consumers’ Gas has no juristic reason for enrichment when the original court case was filed!
These two findings balance the interests of both parties (notice difference with tort law where we looking at
both parties to find a solution =restitution =restoration of balance)
Change of Position Defence
o Even where the elements of unjust enrichment are made out, the remedy of restitution will be denied where an
innocent defendant demonstrates that it has materially changed its position as a result of an enrichment such
that it would be inequitable to require the benefit to be returned
o any “benefit” it received from the unlawful charges was passed on to other customers in the form of
lower gas delivery rates.
o The issue here is not the ultimate destination within the regulatory system of an amount of money equivalent
to the unlawful overcharges, nor is this case concerned with the net impact of these overcharges on the
respondent’s financial position.
o The issue is whether, as between the overcharging respondent and the overcharged appellant, the
passing of the benefit on to other customers excuses the respondent of having overcharged the
appellant.
o defence of change of position is not available to a defendant who is a wrongdoer
o The rationale for the change of position defence appears to flow from considerations of equity
 Consumers’ Gas is a wrongdoer; charged under the Criminal Code!
o “It is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases
such as these? The answer must be that, where an innocent defendant’s position is so changed that he will
suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay
outweighs the injustice of denying the plaintiff restitution.” (Equity’s centrality to good faith and morals)
Ratio
 Describes what in the world ‘juristic reason’ means!
Lionel Smith, “Demystifying Juristic Reasons” (2007) Can Bus. L.J. 281
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Deglman held that unjust enrichment is a source of obligations
Pettkus created the 3-step test for recognizing unjust enrichment
Garland held that the inquiry is largely dependent on the juristic reason third step
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o
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We are to ask whether there is a juristic reason that justifies the enrichment and corresponding
deprivation
First step of identifying juristic reason (ratio of Garland):
o “First, the plaintiff must show that no juristic reason from an established category exists to deny
recovery.
o By closing the list of categories, Smith’s objection that it required proof of a negative is answered.
o The established categories that can constitute juristic reasons include a contract, a disposition of law,
a donative intent, and other valid common law, equitable or statutory obligations
o If there is no juristic reason, then the plaintiff has made out a prima facie case under the first step
A common approach is to think of juristic reason as legal figures that are external to the law of unjust
enrichment. For example:
o A contract is a juristic reason
 Law of contract formation determines whether we have a contract
 Juristic reasons are ‘legal institutions or figures, from outside the law of unjust
enrichment, that justify enrichments.’
o This is different than the principles of restitution; this is a civilian approach
Civilian Approach
o It operates on the basis of categorization of cases that are based on the particular codal texts of the
particular experiences of the codal system
o The Garland approach is line with the unity of unjust enrichment found in common law
 It does not draw distinctions between different kinds of enrichments or different motivational
states on the part of the plaintiff
o The Garland approach has a somewhat civilian aspect in that it has juristic reasons and reasons for
restitution
 For example, one of the listed juristic reasons is donative intent
 This is not a legal figure or institution, but one primarily of fact
o The plaintiff must show that there was no intent
 This can be done by showing no contract or other obligation, a
juristic reason
 However, what of the case of the deliberate risk-taker (i.e.
someone washes your windows knowing full well he doesn’t have to,
then he sues under unjust enrichment )
 All legal systems deny this claim, although there is no
juristic reason
o This is an example of ‘no reason for restitution’
o Therefore, no existing legal system uses a pure juristic reason approach
Obligations do not always justify enrichments
 Contractual obligations
o Untrue that there can be no unjust enrichment claim within a valid contract
 Existence of claims for benefits conferred under valid contracts that are later discharged due
to frustration or breach. Commonplace that neither frustration nor breach avoids a contract
null ab initio
 Example where A advances $$$ for a car
 Car not delivered
 A demands money back
o Obligation to return the money is not a term of the contract
o There was a term for the initial cash advance
o Enrichment unjust even where there was a contract
 Law of contract does not tell us which enrichments are just
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Only the law of unjust enrichments tells us this. The following proposition is that:
o A plaintiff’s obligation to confer an enrichment is not a juristic reason if
 A) the obligation arose from a bilateral bargain
 B) the counterparty has now been released from making the
counterperformance
 Extracontractual obligations
o Counterexamples here as well!
 Defendant hit by car; doctor must provide services lest he be liable due to duty of care
obligations; defendant is enriched by services
 Doctor can recover although there was an obligation in tort
 Three-party cases
o Guarantor covers liability of primary debtor to creditor
 Guarantor has a direct claim against the primary debtor based on unjust enrichment
 Guarantor enriched the primary debtor pursuant to an obligation to do so, but
nonetheless the guarantor has a claim in unjust enrichment
 Perhaps it can be explained on the basis that risk-taking can serve as a juristic reason? No!
o Even though the guarantor deals voluntarily with the creditor, the guarantor cannot be said to have
acquired from the creditor the price of the obligation undertaken by the guarantor
 The obligation is an accommodation by the guarantor of the needs of the primary debtor
o Extend this logic to cases of several co-guarantors where one pays all of the losses
 This guarantor can demand contribution against the others
 The fact that the guarantor who paid was obliged to pay is not a juristic reason that
denies a claim in unjust enrichment
o No element of voluntariness or risk-taking
Conclusion!
 We have demonstrated the independence of unjust enrichment
o The question whether an enrichment was unjustified is separate from the question whether the
plaintiff was required to confer it
 There may be an obligation to enrich someone, and yet the enriched person should make
restitution
 The question answered by the law of unjust enrichment is whether the economic benefit of the enrichment
should properly be assigned to the plaintiff!
o We answer it by reference to whether the plaintiff fully intended to enrich the defendant
 When we consider intent, whether we are using restitution or juristic reasons, we must be
cognizant of the fact that we have institutions (law of contract) that exist to allow people to
commit themselves in advance to the intentional conferral of benefits
 When the contract is terminated, it is no longer necessarily decisive if the one who is
burdened may not necessarily receive the awards
 Most juristic reasons are based in consent: donative intent, deliberate risk-taking, contract
o Some reasons lie outside of this, i.e. statutory requirements
 All systems uses both reasons of restitution and juristic reasons
Constructive Trusts
Pettkus v. Becker, [1980]2 S.C.R. 834
Facts
 Rosa Becker and Lothar Pettkus, two immigrants to Canada, met in 1955.
 They moved in together and lived as husband and wife, although they did not marry, and they had no children.
 Until 1960, Becker paid the rent and living expenses from her outside income and Pettkus deposited his
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income in a bank account in his name.
In 1961, they bought a farm in Quebec.
The money came from Pettkus' account and ownership ("title") was taken out in his name, as was the custom
in those days.
 They shared the farm labour and both worked very hard. They turned their farm into a profitable bee-keeping
operation.
 Becker also earned some income which was used for household expenses and to repair the farmhouse.
 Their savings went back into the farm or the Pettkus bank account.
 In 1974, Becker left Pettkus for good, taking the car and $2,600 in cash.
 She sued for a one-half interest in the properties, bee-keeping business and assets acquired through their joint
efforts.
 Under Ontario legislation, a common law wife was not legally entitled to a share
 Therefore, any remedy would be based in constructive trust and principles of unjust enrichment
Reasoning
 “The principle of unjust enrichment lies at the heart of the constructive trust.”
o “The defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity
to refund the money.”
 “The great advantage of ancient principles of equity is their flexibility
o The judiciary is thus able to shape these malleable to accommodate the changing needs and mores of
society, in order to achieve justice.
o The constructive trust has proven to be a useful tool in the judicial armoury.
 Test for unjust enrichment comes from Pettkus
o “there are three requirements to be satisfied before an unjust enrichment can be said to exist: an
enrichment, a corresponding deprivation and absence of any juristic reason for the enrichment”
 In the case at hand, Miss Becker supported Mr. Pettkus for 5 years. She then worked on the farm for about 14
years.
o She believed she had some interest in the farm; this expectation was reasonable in the circumstances.
o Pettkus never told her that she would receive no share for her work over the 19 years
 First two requirements of the test are clearly met. As for the third requirement:
o “where one person in a relationship tantamount to spousal prejudices herself in the reasonable
expectation of receiving an interest in property and the other person in the relationship freely accepts
benefits conferred by the first person in circumstances where he knows or ought to have known of that
reasonable expectation, it would be unjust to allow the recipient of the benefit to retain it”
Holding
 We will use the constructive trust as a remedy in the interests of justice and equity
Ratio
 3-step test for unjust enrichment; constructive trust used as a remedy!
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Soulos v. Korkontzilas, [1997] 2 S.C.R. 217
Facts
 K, a real estate broker, entered into negotiations to purchase a commercial building on behalf of S, his client.
 The vendor rejected the offer made and advised K of the amount it would accept
 Instead of conveying this information to S, K arranged for his wife to purchase to property, which was then
transferred to K and his wife as joint tenants.
 S brought an action against K to have the property conveyed to him, alleging breach of fiduciary duty giving
rise to a constructive trust.
 He asserted that the property held special value to him because its tenant was his banker, and being one’s
banker’s landlord was a source of prestige in the Greek community.
 He abandoned his claim for damages because the market value of the property had decreased from the time of
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the purchase by K.
The trial judge held that a constructive trust was not an appropriate remedy because K had not been
“enriched”.
Issue
 Can a constructive trust be imposed even where there is no enrichment and deprivation? Yes!
Reasoning
 Begin by asking what duties did K owe to S?
o This is an agency relationship; principal and agent; a fiduciary relationship
o K owed S a duty of loyalty, which he breached when he failed to refer the vendor’s counter-offer to S
What remedy can we use?
 Constructive trust is an ancient and eclectic institution imposed by law not only to remedy unjust enrichment,
but to hold persons in different situations to high standards of trust and probity and prevent them from
retaining property which in “good conscience” they should not be permitted to retain.
o This served the end, not only of doing justice in the case before the court, but of protecting
relationships of trust and the institutions that depend on these relationships.
o Accomplished by treating the person holding the property as a trustee of it for the wronged person’s
benefit, even though there was no true trust created by intention.
 There is no unifying theory for the use of a constructive trust
o “the constructive trust “was never any more than a convenient and available language medium
through which . . . the obligations of parties might be expressed or determined”.
 The situations in which a constructive trust was recognized include constructive trusts arising on breach of a
fiduciary relationship, as well as trusts imposed to prevent the absence of writing from depriving a person of
proprietary rights, to prevent a purchaser with notice from fraudulently retaining trust properties, and to
enforce secret trusts and mutual wills.
o not all breaches of fiduciary relationships give rise to a constructive trust.
 The word “fiduciary,” we find, is not definitive of a single class of relationships to which a
fixed set of rules and principles apply. Each equitable remedy is available only in a limited
number of fiduciary situations
o Nor does the absence of a classic fiduciary relationship necessarily preclude a finding of a
constructive trust
 the wrongful nature of an act may be sufficient to constitute breach of a trust-like duty:
 Canadian courts has recently developed the constructive trust as a remedy for unjust enrichment via the 3-step
Pettkus test
o This does not eliminate the fiduciary branch of constructive trust; the two pathways can both exist!
 McLean states that the most satisfactory underpinning for unjust enrichment to be the concept of “good
conscience” which lies at “the very foundation of equitable jurisdiction”
o “Good conscience” has a sound basis in equity, some basis in common law, and is wide enough to
encompass constructive trusts where the defendant has not obtained a benefit or where the plaintiff
has not suffered a loss.
o the “natural justice and equity” or “good conscience” trust “may be viewed as the underpinning of the
various institutional trusts as well as the unjust enrichment restitutionary constructive trust
 When property has been acquired in such circumstances that the holder of the legal title may
not in good conscience retain the beneficial interest, equity converts him into a trustee
 Idea of deterrence: Good conscience addresses not only fairness between the parties before the court, but the
larger public concern of the courts to maintain the integrity of institutions like fiduciary relationships
Ratio
 A constructive trust may be imposed where good conscience so requires.
o The inquiry into good conscience is informed by the situations where constructive trusts have been
recognized in the past.
o It is also informed by the dual reasons for which constructive trusts have traditionally been imposed:
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to do justice between the parties and to maintain the integrity of institutions dependent on
trust-like relationships.
o Finally, it is informed by the absence of an indication that a constructive trust would have an unfair or
unjust effect on the defendant or third parties
o Equitable remedies are flexible; their award is based on what is just in all the circumstances of the
case
Constructive trusts are recognized both for wrongful acts like fraud and breach of duty of loyalty, as well as to
remedy unjust enrichment and corresponding deprivation. Constructive trusts may be imposed on either
ground:
o where there is a wrongful act but no unjust enrichment and corresponding deprivation (Soulous); or
o where there is an unconscionable unjust enrichment in the absence of a wrongful act (Pettkus)
Under the Wrongful act branch, there are 4 requirements:
o (1) The defendant must have been under an equitable obligation in relation to the activities giving
rise to the assets in his hands;
o (2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual
agency activities of the defendant in breach of his equitable obligation to the plaintiff;
o (3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or
related to the need to ensure that others like the defendant remain faithful to their duties and;
o (4) There must be no factors which would render imposition of a constructive trust unjust in all the
circumstances of the case
Applying this test to the case at hand
1) K was under an equitable obligation in relation to the property at issue.
a. His conflict of interest amounted to a flagrant breach of his duty of loyalty under his fiduciary
relationship
2) His acquisition of the property was a direct result of his breach of duty
3) S had pressing socio-cultural reasons for wanting the property
a. A constructive trust is also required to ensure that agents and others in positions of trust remain
faithful to their duty of loyalty
4) No 3rd party would suffer from this judgment!
Holding
 Constructive trust can be imposed to compel K to convey the property wrongfully acquired to S!
Ratio
 Constructive trust has two tests now: 3-step Pettkus test for unjust enrichment and 4-step Soulos test
for ‘good conscience’
Tracy v. Instaloans Financial Solution Centres (B.C.) Ltd. [2010] 9 W.W.R. 11, 320
D.L.R. (4th) 577 (BCCA)
Facts
 Instaloans was found to have been charging criminal interests (like the Garland case)
 Can we impose a constructive trust? Are there any hurdles/problems in cases of class actions?
Reasoning
 The constructive trustee is required to make specific restitution of that which he ought to restore to another.
We may call this the duty to admit another's claim provided we understand we are merely describing the effect
of imposing upon him the obligation to restore what he should not have, and enforcing that obligation through
the availability of a restitutionary remedy.
o The constructive trustee does not owe the fiduciary obligations of loyalty which are always
undertaken voluntarily.
 "[The unjustly enriched person] is not compelled to convey the property because he is a constructive trustee; it
is because he can be compelled to convey it that he is a constructive trustee." What compels him is the
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obligation to make restitution of an unjust enrichment.
 Summarizes Pettkus and Soulos
 Peter v Beblow
o For a constructive trust to arise, "the plaintiff must establish a direct link to the property which is the
subject of the trust by reason of the plaintiff's contribution."
o “The first step is to determine whether a monetary award is insufficient and whether there is nexus
between the contribution and the property. In looking at whether a monetary award is insufficient the
court may take into account the probability of the award's being paid as well as the special interest in
the property acquired by the contributions”
 Constructive trusts are discretionary in nature; other simpler remedies are imposed if they are effective
o Trusts do not arise automatically when the Pettkus test is satisfied
Proprietary link in this Case (issue of pure economic loss?)
 Funds or accounts are proprietary in nature and are the proper subject for a constructive trust
o This done by the means of ‘following’ or tracing
 One must trace in equity into a mixed fund and trace unmixed money into its proceeds and
assert ownership of the proceeds.
 Is there a proprietary link?
o If the plaintiffs successfully establish a proprietary entitlement to the Unlawful Finance Charges in the
hands of the Storefront Lenders, they may trace those funds from there into the hands of other
defendants, and even into the hands of third parties
o The plaintiffs would then be entitled to assert a constructive trust against the holder(s) of the funds or
other property without the exercise of any further discretion by the court
 Why do we need a constructive trust? Why not use the remedy of damages?
o Argument is that this is not like Lac Minerals where it was virtually impossible to value the mine
o Counter-argument is that of collectability
 Not just whether the defendants have enough funds to pay a judgment
 Also the ease of enforcing the judgment
o Constructive trust is not a way of prioritizing creditors over a defaulting debtor
 It`s an equitable manner to return assets taken due to unjust enrichment
 Creditors take the risk, therefore the honest individual unjustly deprived has a stronger claim
Robert Chambers, 'Constructive Trusts in Canada' (1999) 37 Alta.L.Rev. 173

Constructive trusts respond to two categories of events:
 Acquisition of assets in breach of duty
 Intention to benefit others, not unjust enrichment as the SCC suggests
Assets Wrongfully Acquired
 Compensation is measured by the loss to the plaintiff, and restitution is dependent on the receipt of a benefit
or asset by the defendant
 Restitution is more common in cases where the duty breached is equitable or involved an interference with
property rights
 Constructive trusts historically used to remove from trustees assets acquired in breach of their fiduciary duties
 Wrong to characterize Soulos as an example of unjust enrichment
 A wrong will give rise to a constructive trust if
o a) the wrongdoer acquired an asset by means of a breach of a duty owed to the victim and
o b) that the breach was of the kind for which a constructive trust is considered an appropriate response
 These questions are answered by the 4-step Soulos test
 Accounts of profits and constructive trusts can both be used as restitutionary responses
o Account of profits produces a debt equal to the net profits
o Constructive attaches to the entire asset received
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Intentions to Benefit Others
 All the other cases of constructive trust aside from the Soulos category are not cases of unjust enrichment
o The cases are much broader than this
o They are constructive trusts raised to give better effect to intentions to benefit others
 “Perfectionary” in nature (a trust created to perfect an intention to transfer an asset)
 Role of Intention
o Express trusts are created by the settlor’s properly manifested intention to create that trust.
 (a) did the settlor really mean to create a trust,
 (b) was that intention expressed in the manner required by law,
 (c) did the intended trustee obtain title to the assets which form the subject matter of the
intended trust,
 (d) is that subject matter identifiable, and
 (e) is the purpose of the intended trust sufficiently defined and acceptable?
 If the first requirement is met, but one of the others is not, then the settlor will have
intended but failed to create an express trust.
 That intention can be relevant to the creation of resulting and constructive trusts.
 Express, resulting and constructive trusts respond to intention in different ways.
o Resulting trusts arise in cases where an express trust was intended but failed to take effect
 Intention is significant because it indicates that the trustee was not intended to receive the
property for his or her own benefit
 These trusts have been underutilized due to an over-emphasis on the role of intention
 Constructive trusts are incorrectly used and overlap with the sphere of resulting trusts due to
the idea that intention has absolutely nothing to do with constructive trusts!
 This cannot be reconciled with common situations where constructive trusts arise:
contracts of sale, secret trusts, mutual wills, incomplete gifts, family property
o Contracts of sale
o Constructive trust arises from the moment the contract is made, provided the promise to transfer the
asset is specifically enforceable.
o If the vendor sells the asset in breach of contract (and trust), a trust can attach to the proceeds of sale
 The constructive trust operates to perfect the vendor's intention to pass the beneficial
ownership of an asset to another.
 Having bargained away his options with respect to that asset, the vendor is not permitted, in
equity, to change his or her mind and pay damages instead.
 The constructive trust is linked directly to the vendor's intention to confer a benefit on
another.
 It cannot be explained as a response either to wrongdoing or to unjust enrichment.
 Incomplete Gifts
 When a donor has done everything he needs to do to make a gift, and the donee has the power to take
the extra steps needed to cause legal title to pass, equity treats the gift as complete.
 Although legal title has not yet passed to the donee, equitable beneficial ownership has.
 This separation of legal and beneficial ownership by operation of law is a constructive trust.
 The event creating the trust is an intention to make a gift, coupled with actions which empower the
donee to complete the gift.
 Why do we use the remedy of constructive trust?
 To respect the autonomy of the donor's choice to dispose of his or her options in favour of the
donee.
 Family Property (Pettkus!)
 If the other party (the plaintiff) is entitled to a share of the home, it must be a trust.
 An express trust is unlikely, since an intention to create that trust must be manifested in
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writing.
A resulting trust is possible if the plaintiff contributed to the defendant's acquisition of the
home.
 However, in many cases, the plaintiff's right to a beneficial share will only be possible as a
constructive trust
 True that unjust enrichment is often present in these cases, however constructive trusts are not
responding to the unjust nature, but to the failed intended purpose of mutual enjoyment
 It is the failure of the purpose for which the benefits were provided which renders the
enrichment unjust.
Detrimental Reliance on Expectation
 The trust is not possible unless the constructive trustee is (or ought to be) aware that the beneficiary expected
to receive an interest in the assets subject to that trust.
o That expectation is the key ingredient and the constructive trust arises to perfect it
o It is reliance and not the unjust enrichment which created the constructive trust
 What is the role, if any, of unjust enrichment?
o While a restitutionary response to unjust enrichment is necessarily measured by the value of that
enrichment, the constructive trust of the family home arises to perfect an intention and, therefore,
does not have to correspond to the value of the unjust enrichment which justifies its creation.
o Where a constructive trust of a family home is possible, there are three different values by which that
trust could be measured:
 (a) the interest the plaintiff reasonably expects to receive,
 (b) the unjust enrichment of the defendant, or
 (c) the detriment to the plaintiff. The expectation should provide the upper limit.
 Since the constructive trust is not a direct response to the unjust enrichment, greater
enrichment would not justify creating a constructive trust which exceeded the
expectation.
 The constructive trust of the family home is not a response to wrongdoing and,
therefore, should not be used to compensate the plaintiff for losses suffered above the
value of the expected interest
 There will be many cases where there is great disparity between the market values of
inputs and expectations
o “If it can otherwise be established that the plaintiff did expect to receive that interest, the defendant
was or ought to have been aware of that expectation, and the plaintiff suffered significant detriment in
reliance on that expectation, is unjust enrichment necessary? The justification for perfecting that
intention exists without it.”
 “In today's society it is unreasonable to assume that the presence of love automatically
implies a gift of one party's services to another. Nor is it unreasonable for the party providing
the domestic labour required to create a home to expect to share in the property of the parties
when the relationship is terminated.” Cory in Peter v Beblow

Conclusion
 Pettkus created an assumption that constructive trusts in Canada are based on unjust enrichment.
 Soulos re-affirmed that constructive trusts in Canada still respond to all "the situations in which English
courts of equity traditionally found a constructive trust."
 Suggested that there are two main categories of events which give rise to constructive trusts: (a) the
acquisition of assets in breach of duty and (b) unjust enrichment.
 However, the second main category of constructive trusts are raised, not to effect restitution of unjust
enrichment, but to perfect intentions to benefit others, usually because those intentions have been
detrimentally relied upon or because valuable consideration has been given in exchange.
 Trusts do arise in response to unjust enrichment, but only for the purpose of effecting
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restitution of the unjust enrichment itself.
The law has had difficulty working out precisely why and when an unjust enrichment will generate a trust.
 A trust should arise only where (a) the unjust enrichment is an asset capable of being the subject
matter of a trust, (b) the defendant did not acquire the full beneficial ownership of that asset before
the plaintiff's right to restitution arose, and (c) the enrichment is unjust because the plaintiff did not
intend the defendant to have the benefit of the asset in the circumstances.
 It turns out that this is a description of the event which gives rise to a resulting trust.
A great impediment has been occasioned by the belief that intention has nothing whatsoever to do with the
constructive trust.
 It is true that constructive trusts (and resulting trusts) are not created by the properly manifested
intention to create a trust (as are express trusts).
 "It is one thing to say that a constructive trust does not arise from the intention of the parties, but it is
a non sequitur to then conclude that the parties' intentions are irrelevant to the question of whether the
trust has arisen."
 In one main category of constructive trusts, an intention to benefit another is, in combination with
other factors, the event which calls for the creation of a trust by operation of law.
Constructive trusts arise to effect restitution of assets acquired through breach of duty or to perfect informal
intentions to benefit others, while express trusts arise in direct response to properly manifested intentions to
create a trust and resulting trusts arise to effect restitution of unjust enrichment.
Expert evidence
Frye v. United States (1923) 293 F. 1013 (CA, D.C.)
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‘The rule is that the opinions of experts or skilled witnesses are admissible in evidence in those cases in which
the matter of inquiry is such that inexperienced persons are unlikely to prove capable of forming a correct
judgment upon it, for the reason that the subject-matter so far partakes of a science, art, or trade as to require a
previous habit or experience or study in it, in order to acquire a knowledge of it.
When the question involved does not lie within the range of common experience/knowledge, but requires
special experience or special knowledge, then the opinions of witnesses skilled in that particular science, art,
or trade to which the question relates are admissible in evidence.
Just when a scientific principle or discovery crosses the line between the experimental and demonstrable
stages is difficult to define.
While courts will go a long way in admitting expert testimony deduced from a well-recognized scientific
principle or discovery, the thing from which the deduction is made must be sufficiently established to have
gained general acceptance in the particular field in which it belongs.
Daubert v. Merrell Dow Pharmaceuticals, Inc. (1993), 509 U.S. 579
Issue
 Is the Frye test indicative of the current evidence test? NO! We now have legislation
Legislation
Rule 402 of the Federal Rules of Evidence
“All relevant evidence is admissible, except as otherwise provided by the Constitution of the United States, by Act
of Congress, by these rules, or by other rules prescribed by the Supreme Court pursuant to statutory authority.
Evidence which is not relevant is not admissible.”
“Relevant evidence” is defined as that which has “any tendency to make the existence of any fact that is of
consequence to the determination of the action more probable or less probable than it would be without the
evidence.” The Rule's basic standard of relevance thus is a liberal one.
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Rule 702
“If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education,
may testify thereto in the form of an opinion or otherwise.”
Reasoning
 Nowhere does this imply a ‘general acceptance’ for admissibility
 The trial judge must ensure that expert evidence is not only relevant but reliable
 The subject of an expert's testimony must be “scientific ... knowledge.”
o The adjective “ scientific” implies a grounding in the methods and procedures of science.
o the word “knowledge” connotes more than subjective belief or unsupported speculation.
o unreasonable to conclude that the subject of scientific testimony must be “known” to a certainty
 In order to qualify as scientific knowledge, an inference must be derived by the scientific
method
 “…assist the trier of fact to understand the evidence or to determine a fact in issue”
o Relevance of the expert testimony; the condition of ‘fit’
 Unlike an ordinary witness, an expert is permitted wide latitude to offer opinions, including those that are not
based on firsthand knowledge or observation.
o Relaxation of the firsthand principle is premised on an assumption that the expert's opinion will have
a reliable basis in the knowledge and experience of his discipline.
 Essentially, the trial judge must make an assessment of whether the reasoning or methodology underlying the
testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the
facts in issue
o Key question is whether the theory or technique has been tested à la scientific method
o Has the theory been subject to peer review and publication
 Submission to the scrutiny of the scientific community is a component of “good science,” in
part because it increases the likelihood that substantive flaws in methodology will be detected.
 publication is relevant, though not dispositive
 Reappearance of Frye and ‘general acceptance’
o Widespread acceptance can be an important factor in ruling particular evidence admissible,
o “A known technique which has been able to attract only minimal support within the community,” may
properly be viewed with skepticism.
 Rule 403 permits the exclusion of relevant evidence “if its probative value is substantially outweighed by the
danger of unfair prejudice, confusion of the issues, or misleading the jury....”
o “Expert evidence can be quite misleading because of the difficulty in evaluating it.
o judge must weigh possible prejudice against probative force
 We should not be overly pessimistic about the capabilities of the jury and of the adversary system generally.
o Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden
of proof are the traditional and appropriate means of attacking shaky but admissible evidence
o The court remains free to direct a judgment, and likewise to grant summary judgment.
 These conventional devices, rather than wholesale exclusion under an uncompromising
“general acceptance” test, are the appropriate safeguards
Essay fodder on the philosophical differences between scientific and legal progression on theories
 Argument that the recognition of a screening role for the judge will stifle scientific development to truth.
o It is true that open debate is an essential part of both legal and scientific analyses.
o Important differences between the quest for truth in the courtroom and the quest for truth in the
laboratory.
 Scientific conclusions are subject to perpetual revision
 Law, on the other hand, must resolve disputes finally and quickly.
 The scientific project is advanced by broad and wide-ranging consideration of a multitude of
hypotheses, for those that are incorrect will eventually be shown to be so, and that in itself is
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an advance.
Conjectures that are probably wrong are of little use in the project of reaching a quick, final,
and binding legal judgment
o We recognize that, in practice, a gatekeeping role for the judge, no matter how flexible, inevitably on
occasion will prevent the jury from learning of authentic insights and innovations.
Balance is struck by Rules of Evidence designed not for the exhaustive search for cosmic understanding but
for the particularized resolution of legal disputes.
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R v. J [2000] 2 S.C.R. 600
Facts
 This is the Canadian version of Daubert; how to manage expert evidence? Trial judge as the gatekeeper
Reasoning
 the dramatic growth in the use of expert evidence has led to ongoing debate about suitable controls
o Precautions to exclude "junk science", and the need to preserve and protect the role of the trier of fact
o “Dressed up in scientific language which the jury does not easily understand and submitted through a
witness of impressive antecedents, this evidence is apt to be accepted by the jury as being virtually
infallible and as having more weight than it deserves.”
o Experts must not be permitted to usurp the functions of the trier of fact.
o The trial may become nothing more than a contest of experts with the trier of fact acting as referee
 The admissibility of the expert evidence should be scrutinized at the time it is proffered, instead of letting all
experts in and then weighing them appropriately
 However, the Court's gatekeeper function must afford the parties the opportunity to put forward the most
complete evidentiary record consistent with the rules of evidence
o This is founded in the fundamental tenet that an innocent person must not be convicted.
 The search for truth excludes expert evidence which may "distort the fact-finding process”
 The criteria to be used is as follows:
o Subject matter of the inquiry
 The subject-matter must be such that ordinary people are unlikely to form a correct judgment
about it, if unassisted by persons with special knowledge"
o Novel Scientific Theory or Technique
 Canada has rejected the ‘general acceptance’ formulated in Frye
 Has adopted the reliable foundation test found in Daubert
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whether the theory or technique can be and has been tested:
 whether the theory or technique has been subjected to peer review and publication
 the known or potential rate of error or the existence of standards; and,
 whether the theory or technique used has been generally accepted
 Case by case evaluation of novel science is necessary in light of the changing nature of our
scientific knowledge
 However, novel scientific theory or technique is subjected to special scrutiny to determine
whether it meets a basic threshold of reliability and whether it is essential
“Dr. Beltrami’s evidence, if accepted was potentially very powerful.”
o The underlying hypothesis was that if the respondent did not "score" on the plethysmograph, he must
lack the disposition to commit such acts.
o The inference is that if he lacks the disposition then he did not do it.
o The closer the evidence approaches an opinion on an ultimate issue, the stricter the application of this
principle.
Stephen Breyer, “The Interdependence of Science and Law” (1998) 82 Judicature 24
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law itself increasingly needs access to sound science
o The need arises because, as society becomes more dependent for its well being upon scientifically
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complex technology, we find that this technology increasingly underlies legal issues of importance
The importance of scientific accuracy in the decision of such cases may reach well beyond the case itself.
o A decision wrongly denying compensation can deprive not only the plaintiff, say a worker, of
warranted compensation, but can discourage other, similarly situated workers from even trying to
obtain compensation and can encourage the continued use of a dangerous substance.
o On the other hand, a decision wrongly granting compensation can, through the strong financial
disincentives, improperly force abandonment of the substance. This, if the decision is wrong, will
improperly deprive the public of what can be far more important benefits
we must search for law that reflects an understanding of the relevant underlying scientific art
o That search is not a search for scientific precision and would not be appropriate for the legal system
o Judges inevitably lack the scientific training that might facilitate the evaluation of scientific claims or
the evaluation of expert witnesses who make such claims.
 They typically are generalists, dealing with cases that may vary widely in respect to
substantive subject matter.
 Their primary objective is usually process-related: that of seeing that a decision is reached
fairly and in a timely way.
 Decisions typically focus on a particular event and specific, individualized evidence.
o In contrast, the scientist looks for more general truths
 Is trained to look very closely at a few matters, holding all others constant.
 Truth, rather than justice, is the primary goal;
 Considerations of accuracy must override contrary concerns related to time, cost, or the need
for a definite answer.
Science itself may be highly uncertain and controversial in respect to many of the matters that come before
the courts
A court proceeding, such as a trial, is not simply a search for dispassionate truth
o The law must be fair.
o The ultimate legal decisions must remain with judge and jury.
Courts hear not only from the parties to a case, but also from outside groups that file amicus curiae briefs.
o Briefs inform judges about the relevant scientific “state of the art.”
The law imposes on trial judges the duty, in respect to scientific evidence, to become evidentiary
“gatekeepers.”
o The judge, must determine whether purported scientific evidence is “reliable” and will “assist the trier
of fact,” thereby protecting juries from misleading testimonies. This is done via pre-trial hearings
o Trial judges increasingly have used pretrial conferences to narrow the scientific issues in dispute, and
the appointment of ‘court technical advisers’
 the adviser serves “as a sounding board for the court to think through the scientific
significance of the evidence” and to “assist the court in determining the validity of any
scientific evidence, hypothesis or theory on which the experts base their testimony
 These techniques are neutral, favoring neither plaintiff nor defendant
 The use of an independent expert enhances both the credibility and the objectivity of the legal
process
Internal musings: Ways in which the common law comes together as a forum of discussion to improve the
dispute resolution process!
Proximity and Relational Personal Loss
Rhodes v Canadian National Railway (1990) 75 DLR (4th)
Facts
 The plaintiff became seriously and chronically depressed after her 23-year-old son was killed in a train wreck
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caused by the defendant's negligence.
the plaintiff did not directly witness the accident or its immediate aftermath,
She alleged that her condition resulted from her experiences in the aftermath of her son's death,
the plaintiff claimed that the loss of her son, to whom she had been very close, was the proximate cause of her
illness and that her illness was a foreseeable consequence of the defendant's negligence.
Issue
 Can there be a duty owed to someone who suffers nervous shock, unaccompanied by physical injury
Reasoning
 Begins with a long overview of Commonwealth jurisprudence on the matter. I skipped it. Lulz
 Nervous shock cases, unaccompanied by physical injury, necessitate a different approach in fixing liability
o The difference arises from the fact that the plaintiff's psychiatric injury is alleged to have been caused
by observing, experiencing, or being informed of the injury or death to a third party
 the injury is the indirect result of a direct physical injury to a third party.
 When one appreciates that grief, sorrow or reactive depression are not compensable, the
problems of determining foreseeability and causation of such psychiatric illness are clearly
apparent.
 Accordingly, to resolve the issues of foreseeability and causation, some factors beyond the psychiatric illness
sustained by the plaintiff and the foreseeability of injury must be established:
o A duty of care is not owed to everyone but only to those persons the defendant should have foreseen
would be directly affected by his conduct.
o It is the proximity relationship of the claimant to the defendant's conduct which will conclude that a
reasonable person should foresee that his conduct, in such circumstances, could create a risk of
"direct" psychiatric injury and so give rise to a duty of care to avoid such a result
 The requisite proximity relationship is made up of a combination of various relational elements or factors:
o relational proximity (the closeness of the relationship between the claimant and the victim of the
defendant's conduct);
 This is viewed as a predominant factor
o locational proximity (being at the scene and observing the shocking event);
o temporal proximity (the relation between the time of the event and the onset of the psychiatric
illness).
 In the case at hand, the duty of care turns on whether Rhodes psychiatric illness was a reasonably foreseeable
consequence of the defendant’s negligent conduct!
o Rhodes was not at the scene of the accident
o She did not observe the conduct of the defendants
o She heard of the train crash on the radio
o The relationship with her son was exceptionally strong, but this is not a determinative factor
o Fails to establish the requisite proximity relationship to conclude that Rhodes psychiatric injury was a
reasonable foreseeability
 Confusion surrounding the right of recovery for psychiatric illness arises from the failure to differentiate
between the significance of the requisite proximity relationship in respect of the issue of reasonable
foreseeability and the issue of causation
 While both analyses analyse proximity, they are separate and are directed to different objectives.
 To be successful, the complainant first must establish the duty of care and its breach, and then establish that
the defendant's tortious conduct was the direct cause of the psychiatric illness he or she sustained
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Southin J.A. (concurrent judgment which talks about ‘horror’)
1. Proof of impact is not necessary in order for the victim to recover damages in an action founded upon the
negligent act of the defendant.
2. If the defendant's act is frightening or terrifying to the plaintiff who thereby suffers physical injury, the
plaintiff may recover.
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3. The fright need not be fear for the plaintiff's own life.
4. They do not establish that the plaintiff may recover for mental injury not itself arising from a physical injury.
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Holding that fright, terror and horror is compensable, is a mental disturbance compensable?
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Although the usual purpose of damages in tort is restitution for pecuniary loss and although money cannot
take away pain and suffering, nonetheless we award damages for pain and suffering, i.e., non-pecuniary loss,
all the time.
 'monetary compensation is the best that the law can afford
 it would be harsh to refuse any compensation for a clear loss on the ground that the loss was an
irreparable loss'
 our law in assessing 'general' damages purports to give the plaintiff compensation, not restitution.
 Approaching this issue from a human experience
 Physical and psychological pain is a subjective process
 There is a form of pain or suffering, which from being part of or witnessing a dreadful event
 What is the logical difference between a scar on the flesh and a scar on the mind?
 If a scar on the flesh is compensable although it causes no pecuniary loss, why should a scar on the
mind be any the less compensable?
 In both cases, there are serious difficulties of assessment.
 That has not stopped court's from making awards for non-pecuniary losses
 To the sufferer, what is the difference between physical pain and emotion pain?
 We should recognize this and make both types of pain/damages compensable
 We must reject Lord Denning’s “recognizable psychiatric illness” approach
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Taylor + Woods (concurring, similar to the first judge, fails at causation)
 The key question will always be whether injury was suffered by someone “closely and directly affected” by
my negligent act
o Proximity is not confined to mere physical proximity
 Reasonable foreseeability deals specifically with foreseeability of consequences which are ‘close and direct’
as opposed to consequences which flow indirectly
 The very fact that the plaintiff was not present at the crash site or hospital creates the presumption that this is
an indirect consequence
o Indirect consequence: one that is not of the impact of the negligent conduct on the plaintiff’s own
senses, but of the plaintiff’s reaction to the impact which the negligent conduct has had on someone
else
 For exposure to the "aftermath" of an accident to be the basis of recovery for psychological injury there must,
be proof that the injury was caused by some experience of an alarming, startling or frightening nature, and that
it was foreseeable that such injury might ensue
Holding
 Fails to show that there was a breach of a duty of care
Shauna Van Praagh, “Who Lost What?: Relationship and Relational Loss” (2002) 17
Sup. Ct. L. Rev. (2d) 269
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Relational losses can be differentiated depending on the nature of the loss or injury experienced and the
appropriateness of searching for a private law response to the aw in question
Personal Relational Loss
 Common law starting point is that no one can bring a claim against a tortfeasor for relational harm stemming
from the death of another person, with the exception of nervous shock
 Civil law starts with a general inclusive provision (universalism)
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Common law asks “Who are you?”
o Legislation has generally restricted to family members only
o Certain relationships were deemed particularly valuable
o Societal assumptions as to the significance and status of particular relationships are clear
o Better described as relationship losses
 Focus on the status of that person’s relationship to the deceased or injured
o A list of status-defined beneficiaries will always be both under- and over-inclusive
o Nervous shock is the exception to the common law restriction on secondary victims
 Severely restricted by emotional, temporal, and physical proximity
 This creates an unnecessary tension between nervous shock and relational loss
 The two are usually conflated! One does not need the other
 Confusing damage to relationship and injury in relation to a wrongful event
 We don’t need to characterize nervous shock as a secondary damage
 Should stand alone with negligent act of defendant
 Due to emotional proximity, also heavily influenced by societal assumptions
 Civil law asks “What have you lost?”
o No a priori restriction
o Is the loss the result of the wrongdoing?
 How do we define/limit this?
 Causation, rather than common law’s proximity
 Causation found easier in certain relationships
o Civil law uses societal assumptions as well!
 Whether the quality of the injury and the particular relationship allows that loss to count
o Civil law tends to only compensate the long term loss of relationship, rather than the immediate pain
and suffering
 Relationship loss as well!
Reflections on relationship in relational loss
 Both systems end up in the same spot
 Both use societal assumptions
 Common law denies relational loss, although it allows relationship losses in assumed relationships in nervous
shock
 Both systems should perhaps look into compensating the immediate suffering, as it is reasonably foreseeable
Judicial style and the extension of principle
Miller v. Jackson (1977) Q.B. 966
Facts
 Houses were built next to a cricket ground
 A newcomer has bought a house next to the cricket ground, and demands an injunction against cricket
 Cricket club did everything possible to see that no balls entered the newcomer’s property: high fence; gave
batsmen instructions for hitting the balls
 No one has been hurt by the balls before/after erection of fence
 There has been damage to property but the cricket club has offered to remedy the damage and pay all
expenses
Issue
 Should an injunction against the cricket club be granted?
Reasoning
Lord Denning
 Bolton v Stone “If cricket cannot be played on a ground without creating a substantial risk, then it should not
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be played there at all”
o Would agree with this, if the cricket ground had been there for 70 years
o Cricket club is under a duty to use reasonable care consistently with the playing of cricket, but cannot
be expected to give up the game
 Must balance right of the cricket club to continue playing cricket on their ground against the right of the
householder not to be interfered with
o Give priority to the right of the cricket club to continue playing cricket over the right of the newcomer
to sit in his garden undisturbed
o Contest between interest of the public at large in protecting the environment by preserving playing
fields in face of development, and private interest in securing the privacy of home and garden without
intrusion or interference
 Here the public interest should prevail over the private interest
 Injunction is a discretionary measure
o Right exercise of discretion is to refuse injunction
o Club was entitled to use the ground for cricket in the accustomed way
 Not a nuisance or negligence for them to do so
Lord Lane
 Was there a use by the defendants of their land involving an unreasonable interference with the plaintiffs’
enjoyment of their land?
o Yes
 Balance between the rights of the individual to enjoy his house and garden without the threat
of damage, and the rights of the public in general or a neighbour to engage in lawful pastimes
 There is a risk of serious injury
 In favour of the defendants : cricket has been played on this ground for 70 years
o Can the defendants take advantage of the fact that the plaintiffs have put themselves in such a position
by coming to occupy a house on the edge of a small cricket field with the result that what was not a
nuisance in the past now becomes a nuisance?
 Sturges v. Bridgman: it is no answer to a claim in nuisance for the defendant to show that
the plaintiff brought the trouble on his own head by building or coming to live in a house so
close to the defendant’s premises that he would inevitably be affected by the defendant’s
activities where no one had been affected previously
 It may be that this rule works injustice, it may be that one would decide the matter differently in the absence
of authority. But we are bound by the decision and it is not for this court as I see it to alter a rule which stood
for so long. Deference to precedence. Role of the courts
 There is no reason why the plaintiffs should have to submit to the inevitable breakage of tiles/windows even
though the defendants have expressed their willingness to foot the costs.
Lord Cumming-Bruce
 Agrees with reasoning and conclusion upon liability of the defendants in negligence and nuisance
 Where the court is given judicial discretion to grant an injunction, the court is under a duty to consider the
interests of the public
o “regard must be had not only to the dry strict rights of the parties, but also the surrounding
circumstances, the rights or interests of other persons more or less involved
 But: where the plaintiff has prima facie a right to specific relief, a court of equity will, if occasion should
arise, weigh the disadvantage or hardship which he will suffer if relief were refused against any hardship or
disadvantage which would be caused to third persons or the public generally if relief were granted
o Equity must seek to strike a balance between the right of the plaintiffs to enjoy their house against that
of the inhabitants of the village to continue to enjoy cricket
 The plaintiffs having accepted the benefit of the open space marching with their land, should accept the
restrictions upon enjoyment of their garden
o Must bear this burden such that the inhabitants of the village are not deprived of the facilities to play
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cricket on this ground
Desmond Manderson, Proximity, Torts and the Soul of Law (Montreal: McGill-Queen’s
University Press, 2006) Chapter 4 Parts III and IV
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Asymmetric responsibility in tort
o The responsibility is not merely social and expedient but personal and ethical
o It is directed not towards the preservation of autonomy, but towards the recognition of suffering
Insurance, from a self-centred perspective, it can be seen as a way of protecting myself from legal action
o From Manderson’s perspective, insurance is a way of protecting others from my negligence
 People may suffer from me; I should provide for them
If we focus on suffering, the question of whether we have caused it by our behaviour or merely let it happen
by our indifference is much less significant
o Law is committed to a model of responsibility that strongly distinguishes actions from omissions
 An injurious omission with no prior obligation cannot be fitted within a legal framework
which sees responsibility as fundamentally stemming from free choice
 Law maintains autonomy of the self as key!
 An omission is only liable in relation to distinct duties
The question then what responsibilities of positive conduct were voluntarily assumed or undertaken?
o But what if responsibility is not constituted by choice but by the call of the other?
 If it is the need of the other person, coupled with the capacity of the defendant to respond,
that determines the ambit of the relationship, then a duty to rescue becomes the duty of care!
 This is the real practical asymmetry of the relationship, which takes into
consideration the vulnerability of the parties
o We begin talking about the plaintiff’s respons-ability!
Responsibility cannot be understood in terms of the autonomous decisions of the defendant alone, but the
situation in which they find themselves
o Proximity is the description of an event, not an intention!
 We do not conceive of relations. We ARE in relation
 It is not choice but predicament that generates a responsibility
Lowns v Wood
o Kid had an epileptic seizure; neighbourhood doctor refused treatment; permanent damage
o Court found a duty of care breach!
 With responsibility-as-ethics, it was proximity that mattered!
 Doctor was thrust into responsibility; he had a duty to rescue!
o Responsibility is not a symmetrical exchange
 They are singular demands that often arrive unexpectedly
 The responsibility should stem from statute, as the majority suggests, but from the fact that
the doctor can make a difference!
Issues with this point is the Cardozo maxim
o It can be limited by the party’s capability to respond
 Responsibility encumbers me commensurate only with my ability and my resources
o Also limited to our responsibility to third parties, and to ourselves!
Responsibility derives from the asymmetrical nature of the relationship
o Power and capacity on the one hand, vulnerability and dependence on the other
o The decoupling of responsibility and reciprocity is Manderson’s ethical theory
Dennis R. Klinck ‘This Other Eden: Lord Denning's Pastoral Vision’ (1994) 14 Oxford
Journal of Legal Studies 25-55
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Pastoral vision refers to a picture that represents at least the possibility of a good rural life
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o It focuses upon some stage of communal experience
o The pastoral place is customarily set in contrast to the non-pastoral world: wilderness, city, court life
Pastoral is the process of simplification!
o Pastoral is created by sophisticated people about simple, humble people
o Supposes that complex human nature can best be understood in terms of simple human nature
o This creates the pastoral figure with a sense of humility yet separation from others as well
The sophisticated world can learn from the pastoral world
o The important person and the unimportant person are equals
o Belong together as part of the same integrated social order
 Total withdrawal into the pastoral world; complete isolation and segregation
Pastoralism is nostalgia for the good old days
o Refuge, reflection, rescue, requiem, reconstruction
Reconstruction involves a ‘prescriptive’ re-creation of the pastoral world in a way that distorts its real nature
o Idealization served to reinforce the status quo
o Pastoral world is portrayed as threatened by forces from outside
o Internal inadequacies are not admitted
o These external forces must be excluded from the pastoral world: xenophobia!
Pastoral in Denning
 Denning’s writing is ripe with nostalgia
o His love of pleasant country living reflects England as he would like it to be – or as he believes it still
to be
o Writes about how the changing lifestyles are threatening the simple, genuine English way of life
 Denning is a conservative reformer:
o Using Pastoralism to convince readers that we must reform to our old ways
o Questions precedence so as to return to the 19th century
o Denning commonly mocks the ‘modern man’
 Seen as the uncommon spokesman for the common man
o Consistently refers to Englishmen as ‘simple people’ and common folk
o A sense of sympathy and condescension that expresses the ambivalence of the sophisticated observer
to the ordinary people he is describing
o Idealizes and identifies with the common man
 This, in a sense, obscures the real hardship faced by them, and is an argument for status quo
o This sense of condescension turns into an ironic diminishing of them at times
 Denning identifies with them but also is above them, separate from them, as the pastor
 This is the double-edged sword of Pastoralism
 This simplification of the common folk is used to also mock the ‘overly-complex nature of law
o Believes law is best understood in a simple form
 Uses this technique to avoid the real legal battle, and get straight to policy
 Also uses it mock overly complex arguments that would ‘steal away the law’ from his flock
 Uses Pastoralism to vilify the outside world and its corrupting influence of change
o Invasion of immigrants, nouveaux-riche, anyone who does not belong in HIS pastoral world
o Must protect England from the evil of industrial development
o Miller v Jackson: “The whole village will be much the poorer. And all this because of a newcomer.
o The village in which neighbours can keep a watchful eye on each other: BIG BROTHER
o Also defends the tradition home/family complex
 Used the castle=cottage notion
 Home = castle = impenetrable = protect integrity of family unit= property rights are
key
 Squatter = intruder = invasion = vagabond = gypsy = outsider
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o
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Family is portrayed as the enclave, the enclosed space which is a locus of happiness, until it is
disrupted from the outside
 All those outside of the family nucleus are strangers, anonymous outsiders
Denning speaks of England as the favoured place, both geographically and as an institution
o Sounds rather nationalistic, isolationistic xenophobic
o ‘Native English race’
o Cultural relativism, ethnic consciousness
o Non-Englishmen described in terms of nationality when it is not at issue at all
 Frequently pays them somewhat condescending compliments on their otherness
 Decries Human Rights Commissions
 Relies on the melting pot mentality
 Does not treat immigrants well at all = intruders in our home!
o Decries loss of English nationalism with the wave of immigration; rallies for the use of (us v them)
Denning chooses what he will protect…suitable to his 19th century idealism!
o Attractiveness of Pastoralism is that it creates a world that is better than the world that is
 Conceals the warts and rough edges!
Richard Posner ‘Cardozo’s Judicial Technique’ in Cardozo: A Study in Reputation
(Chicago: Chicago University Press, 1990)
Most famous case was Palsgraf!
 Cardozo’s recital of the facts is both elliptical and slanted
o Downplays the carrier-passenger relationship that entitled Palsgraf under traditional legal principles
the highest degree of care
o Depersonalise the parties at hand, always calls them the plaintiff
o The bundle is described as small even though the witnessed had described it as large
o No hint of the magnitude of the explosion
o Makes the collapse of the scale seem freakish
o Describes the scales as being far away, when in fact there was no record of the location of the scale
nor its distance from the explosion
 Having by selection and alteration of facts made the accident seem unforeseeable, Cardozo
has prepared the way for his audacious denial that the railroad had been culpably negligent
 The recital strips away all extraneous details
o This economical, skeletal presentation enables the reader to grasp the situation at the glance Cardozo
wants them to grasp
o The more facts that are stated in an opinion, the easier it is for judges in subsequent cases to
distinguish, narrow, confine,
 Cardozo also writes in a pedagogical nature; ready to teach us about the law
 Uses rhetoric to sidestep the legal issues!
o Less is being said than appears, But Cardozo’s confidence sweeps the reader along
o Uses bluffs: “A different conclusion will involve us in a maze of contradiction.”
o Avoids practical considerations while sounding practical, hard-headed
Hynes v New York Central
 This time he personalize the plaintiff/victim
o Make that emotional connection! All about boyish fun!
 Dramatic description of the accident’s unfolding
o Think of the Chester case
 Changes normal word ordering for a flexible, fluid, clear result
o Also uses synonyms to his advantage to attach the correct emotional reaction to each sentence!
 Assumes many facts along the way; but we are again swept up due to the confidence embodied in his writing
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Frame the debate and ridicule the other side by bringing their logic to the absolute extreme
These are all examples where the judge choose a remedy beforehand, and then spun the story to suit his needs
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Appellate judges frame the facts and legal arguments in a manner supportive of the court’s view. Rhetoric and
style march along with legalisms
o The grouping of facts and argument and illustration so as to produce a cumulative and mass effect!
Benjamin N. Cardozo ‘Lecture III: The Method of Sociology. The Judge as Legislator’
in The Nature of the Judicial Process (New Haven: Yale University Press, 1921) pp.
102-115
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The juristic philosophy of the common law is at bottom the philosophy of pragmatism
o We must not sacrifice the general to the particular
o We must not throw away the advantages of consistency and uniformity to do justice in the instance
o We must keep within those interstitial limits which precedent and custom delineate
Law is an historical growth, for it is an expression of customary morality which develops silently and
unconsciously from one age to another
o Law is also a conscious or purposed growth, for the expression of customary morality will be false
unless the mind of the judge is directed to the attainment of the moral and its embodiment in legal
forms
A jurisprudence that is not constantly brought into relation to objective or external standards, incurs the risk
of degenerating into a jurisprudence of mere sentiment or feeling
If there are no legal principles, the judges values must yield to the norms of the community
Logic, history, custom and utility, and the accepted standards of right conduct are the forces which singly or
in combination shape the progress of the law
o Which of these forces shall dominate in any case, must depend largely upon the comparative
importance or value of the social interests that will be thereby promoted or impaired
Uniformity ceases to be a good when it becomes uniformity of oppression
How does a judge know when to weigh which interest by which amount?
o The judge must get his knowledge just as the legislator gets it, from experience and study and
reflection; in brief, from life itself
o The judge only legislates between gaps. He fills the open spaces in the law
o How far he may go without travelling beyond the walls of the interstices cannot be staked out for him
upon a chart. He must learn it for himself as he gains he sense of fitness and proportion that comes
with years of habitude in the practice of an art.
o The law which is the resulting product is not found, but made!
Creativity and change
Lord Devlin, ‘Judges and Lawmakers’ [1976] Modern Law Review 1
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Law is the gatekeeper of the status quo
Law acts as a valve
o New policies must gather strength before they can force an entry
 When they are admitted and absorbed into the consensus, the legal system should expand to
hold them
o It should also contract to squeeze out old policies which have lost the consensus they once obtained
Judges need both impartiality and the appearance of impartiality
o The process is a big part of it
o Impartiality to promote a civilised method of settling disputes
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o The verdict must not be corrupt; the judge who does not appear impartial is useless!
Judges should use a disinterested application of the law
o Virtues of balance, patience, courtesy and detachment
Dynamic lawmaking is not allowed; idea is taken when it is not yet a consensus; no impartiality!
Problem with lawmaking today than previously
o We leave in a time of sociology where consensus and ideas can be mined from many sources!
Confusion between social and personal justice; justice in rem and justice in personam
o Personal justice in a community is dependent on the existence of laws and its exercise consists in the
just administration of them.
o Social justice is above the law; it is the body of principles with which the law should conform.
 Social justice guides the lawmaker: the law guides the judge.
 Judges are not concerned with social justice: they are not professionally concerned.
 They might not administer the law fairly if they were constantly questioning its justice or
agitating their minds about its improvement
Necessary to distinguish between common law and statute law.
o The public is not interested in the common law as a whole.
o When it becomes interested in any particular section of it, it calls for a statute; the rest it leaves to the
judges.
o The consensus is expressed in a general warrant for judicial lawmaking.
 This warrant is an informal and rather negative one, amounting to a willingness to let the
judges get on with their traditional work on two conditions
 first, that they do it in the traditional way, and
 second, that parliamentary interference should be regarded as unobjectionable.
o In relation to statute law, there can be no general warrant authorising the judges to do anything except
interpret and apply
 The statute is the master and not the servant of the judgment
 Statutes are not philosophical treatises, and if there is one, it is half-baked
Judicial lawmaking is unacceptable because it undemocratic, and the objection of retroactivity
Biggest objection is that judges by themselves are not as a body the complete lawmaker and it is unreasonable
to expect that they should be
o The making of law requires much more than a knowledge of existing law and its administration
o We need far-reaching consultation for law-making!
 Litigants are only interested in their remedy, they are not interested in far-reaching social
implications
Judicial activism is sometimes important when one cares to fix a problem!
Judges must not abrogate their responsibility for keeping it abreast of the times
Judges should be allowed to change the common law themselves
o They created it, they can amend or fix it!
o IF they fuck up, Parliament will fix it
Judges must protect the rules of procedure and evidence though as they are the most knowledgeable
“The keepers of these boundaries cannot also be among the outriders. The judges are the keepers of the law
and the qualities they need for that task are not those of the creative lawmaker. The creative lawmaker is the
squire of the social reformer and the quality they both need is enthusiasm. But enthusiasm is rarely consistent
with impartiality and never with the appearance of it”
“Progressives are in a hurry to get things done and judges with their plenitude of power could apparently get
them done so quickly; there seems to be no limit to what they could do if only they would unshackle themselves from their precedents.
o It is a great temptation to cast the judiciary as an elite which will bypass the traffic-laden ways of the
democratic process. But it would only apparently be a bypass.
 In truth it would be a road that would never rejoin the highway but would lead inevitably,
however long and winding the path, to the totalitarian state”
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Lord Goff, ‘The Future of the Common Law’ (1997) 46 Int’l & Comp. L.Q. 745
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“The major differences between the common law and the civil law are to found rather in the form than in the
substance of our law, and still more in our judicial system and our procedure as seen in its broadest sense,
together with our methods of legal reasons”
Mentions Denning as always fearful of the outsider invader! In this case, European law!
o “As Lord Denning, tides tend to go out as well as come in.
o This two-way trade in influence must surely be regarded as fruitful! How can we improve!
The distinctive feature of the common law is the case law system, in which judge-made law is an important
source of law!
o Contrasted with the application of codified principles
o This statement must be qualified with the recent spat of codification, i.e. Criminal Code
Support for codification came from the under-developed common law jurisdictions
o Difficult to maintain where resources are very minimal
German civil law also moved towards an equity system based upon the codal provision on good faith
o Both systems mimic and learn from each other!
the historical fact that common lawyers have been reared on a diet of case law has had a profound effect on
our judicial method.
o Common lawyers tend to proceed by analogy, moving gradually from case to case, the principles
gradually emerging from concrete cases as they are decided.
o In other words, we tend to reason upwards from the facts of the cases before us, whereas our
continental colleagues tend to reason downwards from a code.
o The result is that we tend to think of each case as having a relatively limited effect, a base for future
operations as the law develops forwards from case to case
o This method of working can be epitomised in the statement that common lawyers worship at the
shrine of the working hypothesis
the judicial process as an educated reflex to fact
o When a judge approaches a particular case before him, he tends to have an instinctive feel for the
result in that case.
 This is not mere hunch; it is the fruit of an amalgam-an amalgam of his knowledge of legal
principle, his experience as a lawyer, his understanding of the subtler restraints with which all
judges should work, sense of justice and his innate sense of humanity, and his common sense.
 It is experience, not knowledge, which is the name of the game
 Which explains why give we give judges such high stature in our legal system
Independence of the judiciary and independence of the individual judge
o The dissenting judgment! Each judge is free to speak his own mind!
 They tell the truth, the real decisions for our decisions
 Not written in abstract code like in France and Germany
o Dissenting judgments not tolerated in civil law as it would undermine the authority of the judiciary
process
Impact of the jury
o Law of evidence and procedure
 Principle of the single continuous trial
 Adversarial system
 Judge has assumed a less than inquisitorial role in the legal process
 Oral procedure and system of cross-examination
 Rules of evidence are very technical and restrictive
 Civil cases ruled over only by a single judge
Common law is the rule of pragmatism and the break on idealism!
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