Non-Enforcement of Contracts PDF

Non-Enforcement of Contracts Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of why enforcement of contracts is the norm the exceptional circumstances in which contracts are not enforced which contracts must be in writing and why 2 The Importance of Enforcing Contracts (1) Once a contract is formed, the law then focuses on enforcing that agreement. It is important to preserve the integrity, reliability, and predictability of contractual relationships. Were it otherwise, the value of contracts would be lost. At the same time, the law recognizes the injustice of enforcing contracts without any provision for exceptional circumstances. 3 The Importance of Enforcing Contracts (2) The legal doctrines that are exceptions to the general rule that a contract is enforceable can be categorized based on there being o an unequal relationship between the two parties o misrepresentation or important mistakes concerning the contract o a defect within the contract itself If one of these doctrine applies, the result will be that the contract is either void or voidable. 4 The Importance of Enforcing Contracts (3) voidable contract: A contact that, in certain circumstances, an aggrieved party can choose to keep in force or bring it to an end. void contract: A contract involving a defect so substantial that it is of no force or effect. 5 Contracts Based on Unequal Relationships legal capacity: The ability to make binding contracts. The law assumes that individuals and organizations have the legal capacity to form contracts. However, children and those with mental incapacities are given special legal protection. age of majority: The age at which a person becomes an adult for legal purposes. o A minor is someone who has not reached the age of majority. 6 Legal Capacity: Minors (1) The general rule is that minors are not obligated by their contracts but have the option to fulfill their contracts and can enforce a contract against the other party. o Contracts are usually voidable at the option of the minor but not the adult. The exceptions to the general rule: o Minors are obligated by contracts and must pay a reasonable price for goods that are necessaries for life for which the minor does not have adequate supply. o Minors are bound by beneficial contracts of service (such as for an apprenticeship or for the purposes of earning a livelihood). In British Columbia, legislation provides that contracts for necessities and beneficial contracts of service are unenforceable at the election of the minor. 7 Legal Capacity: Minors (2) When a minor reaches the age of majority, there is no impact on most contracts formed when underage. o Exception: Unless, upon reaching legal age, the former minor expressly adopts or ratifies the agreement.  An exception to this rule is that agreements of a permanent or continuous nature, such as a partnership agreement, must be expressly repudiated by the minor upon reaching the age of majority. 8 Business Application of the Law 8.1 Dealing with Minors Because minors receive special legal protection due to their vulnerability, businesses face more risk of unenforceability when contracting with them. If the contract is for significant value, a contractor should consider contracting with the parent or guardian instead of the minor, or requiring that individual to co-sign or guarantee the performance of the minor. 9 Legal Capacity: Mental Incapacity Both parties must understand the nature and consequences of the agreement. Those impaired through illness, alcohol, or drugs may not appreciate the nature and consequence of their actions. The courts will not set aside a contract made with a mentally impaired person if (a) the contract is “fair and was made in good faith”; and (b) the other party “had no knowledge of his or her mental incapacity and did not take advantage of that person.” 10 Duress (1) Contracts that are made as a result of one of the parties being threatened with physical harm are not enforceable. Contracts made under duress are voidable by the victim. 11 Duress (2) economic duress: The threat of economic harm that coerces the will of the other party and results in a contract. o For example, to gain financial concessions, a company might threaten to break a contract that it knows is crucial to the other side.  A lack of practical or realistic alternatives can count as evidence of economic duress in the proper case.  Concessions will be unenforceable if coercion went beyond ordinary commercial pressure and prevented the other side from giving true consent to the proposal. 12 Undue Influence (1) undue influence: Unfair manipulation that compromises someone’s free will or choice. The contract is voidable at the option of the victim. 13 Undue Influence (2) Undue influence can be the following: o actual pressure arising from unfair influence  Example: a contract between an elderly person and their caregiver to hand over an estate in return for care o presumed pressure based on a special relationship  Example: if a contract is formed between family members or between a lawyer and client or a doctor and patient, the court is entitled to assume that undue influence has been exerted.  This presumption is rebuttable.  Recommending independent legal advice may help protect the stronger party. 14 Case 8.1 (1) Bank of Montreal v Duguid, 2000 CanLII 5710 (ONCA), leave to appeal to SCC granted, (2000) SCCB 2238; notice of discontinuance filed (2001) SCCB 1416 Duguid and a business partner applied to the Bank of Montreal for a loan to finance their investment in a condominium project. The bank said that it would make the loan only if Mrs. Duguid would co-sign it. Mr. Duguid approached his wife, a real estate agent, who did sign the loan. Contrary to the bank’s usual policy in such matters, its representative failed to recommend to Mrs. Duguid that she secure independent legal advice prior to signing. The loan went into default, Duguid declared bankruptcy, and the bank sued Mrs. Duguid for the amount outstanding on the loan of $87 000 plus interest. 15 Case 8.1 (2) Bank of Montreal v Duguid, 2000 CanLII 5710 (ONCA), leave to appeal to SCC granted, (2000) SCCB 2238; notice of discontinuance filed (2001) SCCB 1416 Court: o The bank itself did not exert undue influence, but any undue influence exerted by the husband would release the wife from her obligation under the loan if the bank knew or should have known and did nothing. o Because Duguid was in a close, personal relationship with his wife, the bank had a duty to make inquiries since the loan was clearly to the wife’s disadvantage. o If there was any undue influence, this failure by the bank would lead to the wife’s loan being set aside. 16 Unconscionability unconscionable contract: An unfair contract formed when one party takes advantage of the weakness of another. o Two-step process to prove:  proof of inequality of bargaining power between the parties  proof of an improvident bargain or proof of exploitation 17 Case 8.2 (1) Uber Technologies Inc v Heller, 2020 SCC 16 Heller, an UberEats driver, commenced a proposed class action on behalf of Uber drivers claiming that the drivers were employees (not independent contractors) and were entitled to benefits provided by employment standards legislation. Uber argued that Heller could not bring a class action as a clause in his driver’s contract with Uber required disputes to be arbitrated in the Netherlands. The actual cost for initiating the arbitration process was considerable, namely US$14 500 and close to Heller’s annual income, not including his legal expenses, travel costs, or the arbitrator’s fees. 18 Case 8.2 (2) Uber Technologies Inc v Heller, 2020 SCC 16 Was the arbitration clause unconscionable? Court: The clause was unconscionable and Heller could proceed with the class action. o There was inequality of bargaining power because of a significant gulf in sophistication between Mr. Heller, a food deliveryman, and Uber, a large multinational corporation. Also, the agreement contained no information about the costs of a Netherlands mediation and arbitration. o The bargain was improvident, due to the high cost of initiating arbitration in relation to the likely size of any award. Also, designating the Netherlands as the location and governing law gave drivers the impression they had no choice but to travel at their own expense to the Netherlands to individually 19 pursue claims against Uber. Misrepresentations and Important Mistakes (1) Misrepresentation of Relevant Facts Parties negotiating are not usually obligated to volunteer information. misrepresentation: A false statement of fact that causes someone to enter a contract. o If the untrue statement is made in the contract, a breach of contract has occurred. o If the statement is made prior to entering into the contract but is not a term, it may be an actionable misrepresentation. 20 Misrepresentations and Important Mistakes (2) Misrepresentation of Relevant Facts Sometimes parties do owe a duty to disclose information without being prompted: o One party provides only partial information to the other side. o One party actively conceals the truth (for example, hides a foundation crack). o One party neglects to correct an earlier assertion that, when stated, was correct but now no longer is so. o The parties are in a relationship requiring utmost good faith—for example, an applicant applying for insurance. o A statute imposes a positive obligation to disclose information. 21 Misrepresentations and Important Mistakes (3) Misrepresentation of Relevant Facts A party who has relied on a misrepresentation can have the contract cancelled. rescission: The remedy that results in the parties being returned to their pre- contractual positions. The person seeking rescission must act promptly in bringing the complaint forward. If rescission is not possible, the court will still attempt to assist, such as with monetary compensation. 22 Misrepresentations and Important Mistakes (4) Ingredients of an Actionable Misrepresentation To count as a misrepresentation, it must be proven that the statement is o false o clear and unambiguous o material to the contract—that is, it must be significant to the decision of whether or not to enter into the contract o one that actually induces the aggrieved party to enter into the contract o concerned with a fact and not an opinion, unless the speaker claims to have special knowledge or expertise in relation to an opinion 23 Misrepresentations and Important Mistakes (5) Categories of Actionable Misrepresentations Three main categories: o Fraudulent misrepresentation: remedy is rescission or tort damages  The speaker has a deliberate intent to mislead or makes the statement recklessly without knowing or believing that it is true. o Negligent misrepresentation: remedy is rescission or tort damages  The speaker makes the statement carelessly or negligently. o Innocent misrepresentation: remedy is rescission  The speaker has not been fraudulent or negligent, but has misrepresented a fact. 24 Mistake (1) mistake: An error made by one or both parties that seriously undermines the contract. common mistake: Both parties to the agreement share the same fundamental mistake. Mistake is rarely proven, but if successful, the contract may be set aside. Oversight or error by one negotiating party does not constitute a legal mistake and provides no basis for avoiding a contract, unless it is so significant that the other party should have noticed. Courts will fix errors in contract on a limited basis, such as when parties have made a common mistake in recording their agreement. 25 Mistake (2) rectification: A remedy available where the parties have made a mistake in recording their agreement and based on establishing the specific terms actually agreed to. Simple carelessness in signing a document without attention to what it is or to what its consequences might be is not enough to avoid enforceability. 26 Case 8.3 (1) The Queen (Ont) v Ron Engineering, 1981 CanLII 17 (SCC) Ron Engineering submitted a tender on a project for a price of $2 748 000 along with a certified deposit cheque for $150 000 as the tendering rules required. The tendering rules stipulated that tenders could be withdrawn up to the official closing time, after which they would be irrevocable and the deposit would be forfeited if the successful contractor refused to proceed with the project. Shortly after closing, Ron Engineering discovered a $750 000 error in its bid. 27 Case 8.3 (2) The Queen (Ont) v Ron Engineering, 1981 CanLII 17 (SCC) Court: o Ron Engineering could not withdraw its tender after the official closing time. o Upon submission of its tender, Ron was in a preliminary contract with the owner (known as Contract A), which required the owner to respect the rules on how to evaluate tenders and required tenderers not to withdraw their tenders after the official closing time. o Only the successful tenderer would enter into the larger contract to perform the work in question (known as Contract B). 28 Contracts Based on Defects (1) Illegality illegal contract: A contract that cannot be enforced because it is contrary to legislation or public policy. A contract is illegal if it is contrary to a specific statute and/or violates public policy. 29 Contracts Based on Defects (2) Illegality Examples of illegal contracts: o The Criminal Code limits the rate of interest on a loan to 60 percent per year. o The Competition Act invalidates some sales practices to allow competition. o The Ontario Real Estate and Business Brokers Act provides that an unlicensed realtor cannot maintain an action for services rendered. Businesses must ensure that the statutory and regulatory obligations related to their business and contracts are met. 30 Contracts Based on Defects (3) Illegality public policy: The community’s common sense and common conscience. Contracts are contrary to public policy when they injure public interest. Clauses that restrict someone’s business activities are known as restrictive covenants or covenants in restraint of trade. o If drafted too broadly, they are unenforceable as being contrary to public policy because they unduly interfere with the other side’s ability to earn a livelihood, and they reduce competition within a sector. 31 Contracts Based on Defects (4) Illegality Restrictive covenants in the sale of a business are subject to less scrutiny because the business owner is typically paid for goodwill. Restrictive covenants in the employment context will be scrutinized because of the power imbalance. non-solicitation clause: A clause forbidding contact with the business’s customers. non-competition clause: A clause forbidding competition. 32 Contracts Based on Defects (5) Illegality Non-competition clauses are enforceable if they are reasonable between the parties and with reference to the public interest. o The court would assess whether the employer has a proprietary interest they are entitled to protect, and will weigh the following factors:  how large a geographic area is covered by the clause  the period of time during which the covenant purports to be in force  the extent of the activity which the clause purports to limit In the employment context, courts will not to re-draft overly broad clauses. Unreasonable clauses are simply unenforceable, putting the risk on employers who draft overly broad terms. 33 Business and Legislation 8.1 Non-Compete Clauses Ontario recently banned most non-compete clauses, based on the concern that employees were being subject to unfair disadvantages and required better protection. o Non-compete clauses can still be part of senior executive agreements and used in the sale of a business scenario. o The legislation does not ban non-disclosure agreements. 34 Case 8.4 (1) M & P Drug Mart Inc v Norton, 2022 ONCA 398 A non-compete clause prohibited a pharmacy manager from competing with his employer for one year following termination. The clause stated: “Employee shall not carry on, or be engaged in, concerned with, or interested in, directly or indirectly, any undertaking involving any business the same as, similar to or competitive with the business within a fifteen (15) kilometre radius of the business of the business.” The employee resigned, giving several months notice, and took a position as a pharmacist at the drug store less than three kilometres away. 35 Case 8.4 (2) M & P Drug Mart Inc v Norton, 2022 ONCA 398 Court: o The non-competition agreement was unenforceable because it was unreasonable. o The clause was vague and overly broad. For example, it could forbid the employee from participating even in the non-pharmacy aspects of a business, which would be an unreasonable restriction. 36 Non-Solicitation Clauses Non-solicitation clauses must also be reasonable, unambiguous, and restricted to a timeframe, but territorial limitations in non-solicitation clauses have generally become obsolete, due to the globalized nature of the economy and the state of technology. 37 Writing as a Requirement (1) Contracts do not usually have to be in writing to be enforceable. Oral contract parties need to prove the contract in other ways, such as by witnesses. 38 Writing as a Requirement (2) Statute of Frauds requires that certain contracts be in writing to be enforceable. o It is intended to prevent fraud and perjury.  Four categories most relevant to business: contracts of guarantee contracts not to be performed within a year contracts dealing with land contracts for the sale of goods 39 Writing as a Requirement (3) These contracts must have their essential terms contained in a document or documents signed by the party against whom the contract is to be enforced. Several documents can be combined to meet the requirement. If the writing requirement cannot be met, the contract is generally unenforceable. Some provinces have modified or repealed the requirements imposed by the Statute of Frauds. 40 Technology and the Law 8.1 Electronic Signatures The purpose of a signature is to identify who is signing, the authenticity of the document, and to establish the signatory’s approval of the document’s contents. A mark made by the person signing is sufficient if intended as authentication of the document and initialling the document can suffice. For electronic contracts, provincial legislation offers guidance as to what fulfills a signature requirement. In one case, the court concluded that an email with the sender’s name typed at the bottom counted as a signature required by the Statute of Frauds. 41 Contracts for the Sale of Goods Contracts for the sale of goods above $30 (or $50 in some jurisdictions) must be in writing. Because they are so common, there are broad exceptions. Even without Statute of Frauds or Sale of Goods legislation requirements, creating a record of an agreement is generally a prudent business decision. 42 Business and Legislation 8.2 Internet Contracts As a part of a broader consumer protection strategy, most governments across Canada have enacted protections in relation to internet contracts. This varies but one broad requirement is that the merchant provide a copy of their online contract and other particulars related to the sale. Generally speaking, if the merchant fails to comply with these requirements, the consumer can cancel the contract altogether, making it unenforceable. 43 Termination and Enforcement of Contracts Canadian Business and the Law, EIGHTH EDITION Learning Objectives (1) After studying this chapter, you should have an understanding of the termination of a contract by performance the termination of a contract by agreement the termination of a contract by frustration 45 Learning Objectives (2) After studying this chapter, you should have an understanding of the termination of a contract by breach the methods of enforcing contracts the concept of privity remedies for breach of contract 46 Termination of Contracts: An Overview Ways in which a contract can be brought to an end (“terminated”): o performance: Both parties fulfill their obligations. o agreement: The parties are free to voluntarily bring the contract to an end. o frustration: An important, unforeseen event occurs after the formation of a contract. o breach: A serious breach can release the innocent party from continuing with the contract if it wishes. 47 Termination Through Performance (1) Performance is complete when all implied and express promises have been fulfilled. It does not necessarily mean the relationship ends. The parties may continue to do business by means of new, continuing, and overlapping contracts. 48 Termination Through Performance (2) vicarious performance: Performance of contractual obligations through others. The law distinguishes between those who have the contractual obligation and those who may actually do the necessary work. A business creates the contract, but the person who actually does the work may not be privy to it. o Thus, they cannot be sued or sue on the contract, although there may be liability in tort. The law holds the employer responsible for their employee’s negligence (vicarious liability). 49 Termination by Agreement Between Parties (1) Parties may enter agreements that become unfavourable for one or both, and may decide to o cancel the original contract and enter into a whole new contract (novation). o vary certain terms of the contract.  This will require fresh consideration in most provinces. 50 Termination by Agreement Between Parties (2) Parties may enter agreements that become unfavourable for one or both, and may decide to o end the contract, with both parties in agreement. o transfer one party’s rights and obligations to someone else (substitute a party).  This is a limited form of novation.  All parties must be in agreement. 51 Termination by Agreement: Transfer of Rights (1) In some circumstances, a party can transfer their rights under a contract to someone else. o The right to collect payment from a customer is one example. assignment (of a contract): The transfer of a right by an assignor to an assignee. o This does not terminate the contract, but it does end the original party’s (the assignor) role in it. o It is not possible to assign one’s duties under a contract; only rights can be transferred. 52 Termination by Agreement: Transfer of Rights (2) A creditor (the assignor) may assign the right to collect to another person (the assignee) without the agreement of the debtor. To be effective, the debtor must have notice of the assignment so that they know to pay the assignee rather than the creditor. If there are multiple assignees, the first to give notice has priority to collect. The assignee’s rights to enforce the debt can be no greater than the assignor’s right to collect the debt. 53 Termination by Frustration (1) frustration: A contract cannot be performed due to a supervening event beyond the parties’ control, including natural disasters, wars, and changes to government regulation relating to the transaction. o This differs from “mistake”, in that it deals with events that occur after the contract is formed. o It is difficult to establish in court. 54 Termination by Frustration (2) To establish frustration, the party must prove that the event o was unforeseen; o was not due to the fault of the parties; o was not addressed in the contract; and o made the contract radically different from what was agreed. If all criteria are met, both parties are excused from the contract. Neither side is liable for breach. 55 Termination by Frustration (3) An event that causes performance to become more difficult or expensive will not amount to frustration. For example, an increase in costs to fulfill a contract would not amount to frustration. The event cannot be self-induced. For example, firing all of one’s employees would be self-induced and would not amount to frustration. If frustration has been established, further obligations under the contracts cease and the parties are left in the position they were at when the contract became frustrated. Some jurisdictions have enacted legislation to allocate losses between the parties. 56 INTERNATIONAL PERSPECTIVE 9.1 Force Majeure Clauses Rather than leaving it to a judge to decide whether the occurrence of a given event amounts to frustration, it is common in domestic and international contracts to include a force majeure clause. The purpose of this clause is to define in advance what constitutes frustration, and typically o relieves one or both parties from performance. o suspends contractual obligations during the duration of the event. It usually, but not always, displaces the doctrine of frustration, depending on the wording of the clause. 57 Enforcement of Contracts Non-performance of contractual obligations may result in breach of contract and be subject to a lawsuit. The plaintiff must demonstrate, beyond a balance of probabilities, the following: o Privity of contract: Only parties to the contract have rights to enforce the contract. o Breach of the contract: Prove the other party has failed to keep its promises. o Entitlement to a remedy: Demonstrate entitlement to the remedy claimed. 58 Breach of Contract (1) To determine what the remedy in a breach will be, the courts will first decide if the term breached is a condition or a warranty. condition: An important term that, if breached, gives the innocent party the right to terminate the contract and claim damages. warranty: A minor term that, if breached, gives the innocent party the right to claim damages only. 59 Breach of Contract (2) innominate term: A term that cannot easily be classified as either a condition or a warranty. The court will review the circumstances to decide. Note: The parties can expressly classify terms as warranties or conditions. 60 Exemption and Limitation of Liability Clauses Parties are free to include a clause in their contract that limits or excludes liability for breach. Whether the clause is enforceable depends on the following: o proving the exemption applies to the situation o whether the exemption clauses is unconscionable, as might arise where there is unequal bargaining power o whether there are overriding public policy concerns that justify overriding the clause 61 ETHICAL CONSIDERATIONS 9.1 Is It Unethical to Breach a Contract? Contract law compensates the innocent and does not generally punish the breaker. The “bad man” theory suggests that because there is no punishment, contract breakers can decide to breach and pay compensation, especially when compensation is less than continuing the contract would be. Critics of the “bad man” theory maintain that businesses recognize the obligation to keep promises, and will, for the most part, be moral in their dealings. 62 Timing of the Breach Breaches can be identified at the time they happen, or can be expected in advance (such as with future deliveries). anticipatory breach: A breach that occurs before the date for performance. o It is actionable, so the innocent party can sue immediately. o The innocent party is entitled to damages. o The innocent party is entitled to treat the contract as terminated if the breach is serious enough. 63 Entitlement to a Remedy This is the final step in an action for breach of contract. The plaintiff must satisfy the court that they are entitled to damages. damages: Monetary compensation for breach of contract or other actionable wrong. 64 The Measure of Damages expectation damages: These are the most common way to award damages. o These damages provide the plaintiff with the monetary equivalent of contractual performance. The purpose of damages in contract law is generally to compensate a plaintiff. punitive damages: An award to the plaintiff to punish the defendant for malicious, oppressive, and high-handed conduct. o This is very rare. 65 Pecuniary and Non-Pecuniary Damages Pecuniary damages are for financial loss. Non-pecuniary damages are for loss of enjoyment, mental distress, etc. o Recovery for non-pecuniary damages is unusual.  For example, pain and suffering are not usually seen as a consequence of a contract breach. 66 Recovery of Pecuniary Damages Monetary losses are recoverable unless a clause exists that limits or fixes that liability. 67 Recovery of Non-Pecuniary Damages Traditionally, these are not recoverable for contract breach. o For an exception, see Fidler v Sun Life.  The object of the contract was to secure a psychological benefit.  The degree of mental suffering was sufficient to warrant compensation. 68 Damages Must Not Be Too Remote The kinds of damages recoverable are determined by the test for remoteness. o A claim for damages must pass a remoteness test, which requires the plaintiff to prove  the damages could have been anticipated, having “arisen naturally” from the breach; or  the damages—although perhaps difficult to anticipate in the ordinary case—are reasonably foreseeable because the unusual circumstances were communicated to the defendant at the time the contract was being formed. 69 Breach of Contract and Reasonable Foreseeability Gabriella Nagy of Toronto is suing Rogers for breach of contract. o She states that Rogers made changes to her account without her permission—it had done so at her husband’s request. o As a result, her husband found out she was having an affair and left Nagy, who then became highly distressed and lost her job. 70 BUSINESS APPLICATION OF THE LAW 9.3 (1) Sunwing Charter to Cancun A group of passengers boarded a privately chartered Sunwing flight from Montreal to Cancun. During the flight, several of those onboard did not mask. Behaviour among the group also included vaping, passing around alcohol, and dancing on seats. 71 BUSINESS APPLICATION OF THE LAW 9.3 (2) Sunwing Charter to Cancun The conduct contravened several Canadian Aviation Regulations as well as public health regulations, resulting in fines of $59 000. Sunwing cancelled the return flight. Their contract provided that Sunwing could refuse to carry a passenger when the person’s “conduct, or condition is or has been known to be verbally or physically abusive, offensive, threatening, intimidating, violent or otherwise disorderly and in the reasonable judgment of a Carrier employee there is a possibility that such Passenger(s) would cause disruption or serious impairment to the physical comfort or safety of other Passengers or Carrier’s employees, interfere with an Air Crew member in the performance of his duties aboard Carrier’s aircraft, or otherwise jeopardize safe and adequate flight operations …” 72 Duty to Mitigate All who suffer a breach of contract are obligated to take reasonable steps to minimize the losses resulting from a breach of contract or other wrong, known as the duty to mitigate. o A purchaser who is supplied an inferior quality of goods than contracted for has a duty to mitigate by trying to find substitute goods is one example. Reasonable costs associated with the mitigation are recoverable by the party in breach. 73 Equitable Remedies (1) Used in rare situations in which damages would be an inadequate remedy for breach of contract. o Specific performance is an example of an equitable remedy.  Instead of compensation, the party that breached is ordered to do exactly what the contract obligated them to do.  This is only available when the item is unique and cannot be replaced by money.  The court can refuse to use it under certain circumstances. 74 Equitable Remedies (2) Injunction: The court orders the party that breached the contract not to engage in specified activities (can be in addition to damages). o This is commonly used to restrain a party from breaching a promise not to do something. Interlocutory injunction: An order to refrain from doing something for a limited period of time, such as until the entire dispute is resolved. 75 Equitable Remedies (3) rescission: Restores the parties to the situation they were in before the contract was formed. o It is used instead of compensation. o Must be possible to restore the parties and the remedy is unavailable if the plaintiff delays in seeking the court’s assistance. restitutionary quantum meruit: An amount that is reasonable given the benefit the plaintiff has conferred. 76 Restitutionary Remedies (1) The law of restitution gives recourse to a plaintiff who has conferred benefits on the defendant, in a contract that cannot be enforced. o Being non-compliant with the Statute of Frauds is one example. This is a complex area of law, meant to remedy unjust enrichment. 77 Restitutionary Remedies (2) unjust enrichment: Occurs when one party has undeservedly or unjustly secured a benefit at the other party’s expense. The court will usually order that the benefit be restored to the plaintiff. 78 Managing Risk (1) There are several risks that a business faces when the time comes to perform a contract. o It may be that the business cannot perform at all or that when it does perform, it does so deficiently. o A business can attend to these possibilities proactively or reactively. 79 Managing Risk (2) proactively: Negotiate clauses, limit or exclude liability, force majeure clauses, good negotiation training for employees, proper insurance. reactively: Once the business is in breach, matters are reactive. o The business faces liability, and should consider mediation, arbitration, or compromises like settlement offers. 80 Introduction to Tort Law Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of the broad scope of tort law the differences between a civil action and a criminal action the purpose of tort remedies how business can manage the risk of liability in tort 82 Defining Tort Law (1) tort: A harm caused by one person to another, other than through a breach of contract, and for which the law provides a remedy. A primary object of the law of tort is to provide compensation to persons who are injured as a result of the actions of others. Torts law determines when responsibility for a loss should be “shifted” to the person considered responsible for causing the loss. 83 Defining Tort Law (2) The law breaks torts down into distinct categories, each with its own discrete definition. o For example:  trespass to land: Wrongful interference with someone’s possession of land.  deceit or fraud: A false representation intentionally or recklessly made by one person to another that causes damage.  negligence: Unreasonable conduct, including a careless act or omission, that causes harm to another. 84 Case 10.1 Fullowka v Pinkerton’s of Canada Ltd, 2010 SCC 5 Pinkerton was hired to provide security during a bitter strike at a gold mine. A striking minor evaded the security and planted an explosive device in the mine, killing nine miners. The widows sued Pinkerton for negligence. Supreme Court of Canada: o Pinkerton’s duty was to provide “reasonable care” to prevent such intrusions, not to ensure the mine entrances were properly guarded to stop intrusions such as an intentional crime committed by a striking miner. 85 How Torts Are Categorized Torts can generally be categorized as falling into two main groups: torts committed intentionally, and torts committed through negligence. intentional tort: A harmful act that is committed deliberately or on purpose. o Examples:  false imprisonment: Unlawful detention or physical restraint or coercion by psychological means.  battery: Intentional infliction of harmful or offensive physical contact. When someone is negligent, they are liable for damages even though they did not intentionally cause the event in question. 86 Tort Law and Criminal Law The same event can give rise to two distinct legal consequences: one in tort law and one in criminal law. For example, an impaired driver who injures a pedestrian in a crosswalk may have committed a criminal offence and may be liable for the tort of negligence. The purpose of criminal law and tort law differ: o The purpose of a criminal prosecution is to censure behaviour, and the prosecution of the crime is carried out by the government, usually without compensation to the victim. o The purpose of tort law is to require the wrongdoer to compensate the victim. 87 Commencing the Actions In criminal law, the legal action is called a prosecution and is brought most often by Crown prosecutors employed by the federal or provincial governments. o The wrongdoer is the “accused,” and the victim is the “complainant.” In tort law, the injured party sues in a civil action to enforce their personal or private right to secure compensation. o The injured person is the “plaintiff,” and the wrongdoer is the “defendant.” 88 Proving the Actions In a criminal action: o The Crown has the burden of proving the crime “beyond a reasonable doubt.”  Guilt must be a logical deduction from the evidence, and it is not sufficient that the jury or judge believed the accused “probably” committed the act.  Conviction may result in imprisonment. In a civil action: o The plaintiff has the burden of proof and must prove that it is more likely than not that the defendant committed the tort—i.e., a better than 50 percent chance. o A successful action usually results in the defendant paying damages to the plaintiff. 89 Liability in Tort: Primary and Vicarious Liability (1) Primary liability arises due to one’s own personal wrongdoing. vicarious liability: The liability than an employer has for the tortious acts of an employee committed in the ordinary course or scope of employment. o Employers are traditionally vicariously liable for (1) employee acts authorized by the employer; or (2) unauthorized acts so connected with authorized acts that they may be regarded as modes (albeit improper modes) of doing an authorized act. 90 Liability in Tort: Primary and Vicarious Liability (2) It can be difficult to distinguish between an improper “mode” of performing an authorized act that attracts liability and an entirely independent “act” that does not. An employer can be vicariously liable for the employee’s intentionally wrongful acts if a significant connection to authorized conduct is established. Employers are not vicariously liable for crimes committed by employees. 91 Liability and Joint Tort-Feasors tort-feasor: A person who commits a tort. joint tort-feasors: Two or more persons whom a court has held to be jointly responsible for the plaintiff’s loss or injuries. Legislation provides the following: o If the negligence of more than one person is responsible for the loss, the plaintiff can sue any or all of them, and fault will be apportioned between the joint tort-feasors according to their level of responsibility. o The plaintiff can recover 100 percent of the judgment from any of those defendants whom a court has held to be jointly responsible for the loss or injuries. 92 Liability and Contributory Negligence contributory negligence: A defence claiming that the plaintiff is at least partially responsible for the harm that has occurred. If the defendant proves that the plaintiff was responsible for at least a part of the loss, the amount of damages that the plaintiff is awarded is reduced by the proportion for which the plaintiff is responsible. 93 Damages in Tort The primary goal of a tort remedy is to compensate the victim, usually with a money judgment. o The plaintiff is entitled to be put into the position they were in before the tort was committed. There are less common alternatives are equitable remedies, such as an injunction—a court order requiring or prohibiting certain conduct. o For example, an injunction would be ordered if money would not suffice, such as a recurring trespass where there is little economic harm, but the plaintiff wants the trespasser to stop. 94 Business and Legislation 10.1 Workers’ Compensation workers’ compensation legislation: Legislation that provides no-fault compensation for injured employees in lieu of their right to sue in tort. 95 Pecuniary and Non-Pecuniary Damages (1) non-pecuniary damages: Compensation for pain and suffering, loss of enjoyment of life, and loss of life expectancy. Also called general damages. o Currently (2023), the ceiling for damages for general pain and suffering is approximately $445 000. 96 Pecuniary and Non-Pecuniary Damages (2) pecuniary damages: Compensation for out-of-pocket expenses, loss of future income, and cost of future care. o An injured person is entitled to an award sufficient to provide them with all the care and assistance their injury will necessitate. o A court may award past loss of income up to the date of trial and will also value the diminished earning capacity, usually with input of experts such as vocational experts and labour economists. 97 Pecuniary and Non-Pecuniary Damages (3) Special damages refer to out-of-pocket expenses resulting from the injury- causing event, such as ambulance costs and medication costs. Some of these damages may be repaid to the provincial health insurer under the principle of subrogation. o Not all torts cause personal injury, and other types of losses are also compensable.  For example, if a truck driver damages a parked car, the losses are compensable. 98 Punitive or Exemplary Damages Punitive damages—also known as exemplary damages—are much like a fine and are intended punish the defendant for outrageous, antisocial, or illegal behaviour. For example, the intentional act of defacing someone’s property may attract punitive damages. 99 Business Application of the Law 10.1 Punitive Damages in the United States and Canada There have been news reports of high punitive damage awards in the United States. Usually, such awards have been made by juries, who may be more easily influenced to make large awards than judges. The Supreme Court of Canada has expressed concern about uncontrollable awards of punitive damages and has insisted that such damages be exceptional, rationally related to the incident, and be no greater than necessary to punish, deter, and denounce the defendant’s behaviour. Extreme punitive awards have also been scrutinized by American courts such as in a notorious maritime case, holding that such damages should be no greater than the compensatory damages. 100 Aggravated Damages aggravated damages: Compensation for intangible injuries such as distress and humiliation caused by the defendant’s reprehensible conduct. o Unlike punitive damages, they seek to compensate the plaintiff for the emotional consequences of the defendant’s poor behaviour. 101 Business Application of the Law 10.2 Steve Moore’s Tort Action Against Todd Bertuzzi Moore was sucker-punched by Bertuzzi during an NHL game. The injuries ended Moore’s NHL career. Bertuzzi pleaded guilty to assault. Moore sued Bertuzzi, and also sued Bertuzzi’s hockey team for vicarious liability and for allegedly encouraging the attack for $35M pecuniary damages, $1M for aggravated damages, and $2M for punitive damages. The lawsuit was eventually settled for an undisclosed sum. 102 Tort Law and Contract Sometimes the same set of facts can give rise to liability in tort and in contract. o For example, a lawyer is hired to give advice and is negligent, causing a loss to the client. Whether the plaintiff recovers their loss in contract or in tort should not make any difference but where there is a difference, the plaintiff may choose whichever claim provides the higher payout. 103 The Tort of Negligence Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of the conduct that the law of negligence addresses the principles of the law of negligence the defences in a negligence action the common kinds of negligence actions that businesses face the difference between negligence and strict liability 105 What Is Negligence? Negligence is as a careless act that causes harm to another. In law, this refers to a failure to show the care that a reasonable person would have shown in a similar situation. The plaintiff does not need to prove the defendant intended to cause the damage or that the defendant acted deliberately. reasonable care: The care that a reasonable person would exhibit in a similar situation. The law of negligence attempts to provide compensation to victims without discouraging legitimate activity or imposing unreasonable standards. 106 Landmark Case 11.1 (1) Donoghue v Stevenson, AC 562 (HL) A customer bought an opaque bottle of ginger beer to share with her friend, Donoghue. A decomposed snail was discovered in the contents, and Donoghue became ill and sued the manufacturer for negligence. At the time, a manufacturer could only be sued by those with whom it shared a contractual relationship, which resulted in most consumers being unable to recover from manufacturers. 107 Landmark Case 11.1 (2) Donoghue v Stevenson, AC 562 (HL) Resolution: o Lord Atkin wrote this now classic statement discussing to whom a duty of care is owed:  The rule that you are to love your neighbour becomes in law, you must not injure your neighbour, and the lawyer’s question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer seems to be—persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question. 108 Establishing a Negligence Action (1) The Elements of a Negligence Action 1. Does the Defendant Owe the Plaintiff a Duty of Care? o duty of care: The responsibility owed to avoid carelessness that causes harm to others. o This step involves two stages:  Stage 1: Is there a prima facie duty of care? The plaintiff must prove reasonable foreseeability and proximity. prima facie: At first sight or on first appearances. 109 Establishing a Negligence Action (2) The Elements of a Negligence Action Reasonable foreseeability arises if the harm to the plaintiff was a “reasonably foreseeable consequence of the defendant’s negligence.” Reasonable foreseeability considers whether the defendant should objectively have anticipated that their act or omission would cause harm to the plaintiff. Proximity arises when the parties are in such a close and direct relationship that it would be “just and fair having regard to that relationship to impose a duty of care in law.” 110 Establishing a Negligence Action (3) The Elements of a Negligence Action  Stage 2: Are there residual policy considerations outside the relationship of the parties that may negate imposing a duty of care? For example, would imposing a duty expose businesses and other defendants to an unreasonably broad, unknowable, and indeterminate extent? 111 Establishing a Negligence Action (4) The Elements of a Negligence Action 2. Did the Defendant Breach the Standard of Care? o The defendant’s conduct is judged according to the standards of behaviour that would be observed by the reasonable person in society. o reasonable person: the standard used to judge whether a person’s conduct in a particular situation is negligent.  A reasonable person is not perfect and is a person of ordinary intelligence who uses ordinary prudence.  Professionals must meet a higher or specialized standard of care. For example, a heart surgeon must meet the standard of a reasonable heart surgeon.  When the activity poses a high risk, the law imposes a higher standard 112 of care. Establishing a Negligence Action (5) The Elements of a Negligence Action 3. Did the Plaintiff Sustain Damage? Damage is a requirement of the tort of negligence. 4. Was that Damage Caused by the Defendant’s Breach? o The plaintiff must show causation:  causation: The relationship that exists between the defendant’s conduct and the plaintiff’s loss or injury.  Causation is usually determined by asking the following question: Would the harm not have occurred but for the defendant’s actions? 113 Case 11.1 (1) Resurfice Corp v Hanke, 2007 SCC 7 Hanke was the operator of an ice-resurfacing machine and was was severely burned because he mistakenly placed hot water in the gasoline tank portion of the machine rather than in the hot water tank portion, where it belonged. Vapourized gasoline was released into the air, which was ignited by an overhead heater, resulting in a fire and explosion. Hanke sued the manufacturer of the machine, Resurfice Corp, among others. Hanke argued the design was negligent because the gasoline and water tanks were similar in appearance and placed close together on the machine, making it possible to confuse one tank for the other. 114 Case 11.1 (2) Resurfice Corp v Hanke, 2007 SCC 7 The legal question: Did the manufacturer cause Hanke’s loss? Resolution: o The trial judge found that Hanke was aware of which was the water tank and which was the gas tank and was aware water should not be introduced to the gas tank. o The Supreme Court of Canada restored the trial judge’s findings. o In short, the accident did not happen because the machine had a confusing design. Hanke understood how the machine worked and, tragically, was simply not paying proper attention to what he was doing. 115 Establishing a Negligence Action (6) The Elements of a Negligence Action 5. Was the Damage Too Remote? o At this point, a court asks: If there is an obligation to take reasonable care and it was breached, how far will the legal liability of the defendant stretch?  remoteness of damage: Whether the actual harm suffered was reasonably foreseeable or not. 116 Establishing a Negligence Action (7) The Elements of a Negligence Action o thin skull rule: The principle that a defendant is liable for the full extent of a plaintiff’s injury even where a prior vulnerability makes the harm more serious than it otherwise might be.  This rule protects the plaintiff who has an inherent weakness or “thin skull” that makes a given injury more serious than one might otherwise reasonably anticipate. The law requires the plaintiff to prove each and every element in a negligence action. It is not enough to establish some of the elements or even most of them. 117 Case 11.2 (1) Mustapha v Culligan of Canada Ltd, 2008 SCC 27 Mustapha was a customer of Culligan, a manufacturer and supplier of drinking water and used its services because cleanliness and proper sanitation were tremendously important to him. As Mustapha was replacing a large, empty water bottle with a new, unopened one, he noticed that the new bottle contained a dead fly. Mustapha became obsessed with the dead fly and its “revolting implications” for his family’s health and well-being. At trial, he was awarded $80 000 for emotional upset $237 600 for past and future economic loss. The decision was appealed and eventually went to the Supreme Court of Canada. 118 Case 11.2 (2) Mustapha v Culligan of Canada Ltd, 2008 SCC 27 Resolution: o The Supreme Court of Canada agreed that Culligan owed a duty of care to Mustapha to provide clean water and that it breached the standard of care. o While the breach was the factual cause of the serious psychological damages Mustapha suffered, only if mental injury would occur in a person of ordinary mental fortitude could recovery for such damages flow. 119 Defences Contributory negligence—this defence recognizes that, in many instances, both the defendant and the plaintiff may have been negligent. o If proven, the court will reduce the plaintiff’s award by their proportion of fault. voluntary assumption of risk: The defence that no liability exists as the plaintiff agreed to accept the risk inherent in the activity. o This is a complete defence, and the plaintiff will be awarded nothing even though the defendant had been negligent. o The defendant must show that the plaintiff—knowing of the virtually certain risk of harm—released their right to sue for injuries due to the negligence of the defendant. 120 Case 11.3 Kralik v Mount Seymour Resorts, 2008 BCCA 97 Kralik, an experienced skier, was trying to clear some snow and ice from the chair of a chairlift as it moved toward him and failed to seat himself in time. He instinctively grabbed onto the chair and dangled from it as the chair began to ascend. He let go and fell into an embankment, injuring his right shoulder and resulting in a loss of future earning capacity. At trial, the lift operator was found 100 percent at fault for failing to notice the situation and immediately stop the lift. On appeal, the Court of Appeal found Kralik 50 percent contributorily negligent, for not simply stepping aside and letting the chair pass by and continue on without him. 121 Case 11.4 (1) Crocker v Sundance Northwest Resorts Ltd, 1988 CanLII 45 (SCC) Crocker entered an inner-tube race at an event put on by Sundance, the operators of a ski slope after seeing a video of the event held in the previous year. He was required to sign a waiver and did so without reading it or knowing what it involved. It was obvious to the manager of the facility that Crocker had been drinking and on his second trip down the hill, the manager advised him not to proceed with the race. Crocker did not listen. On his way down the hill, Crocker fell off the tube, broke his neck, and was rendered quadriplegic. Crocker sued. 122 Case 11.4 (2) Crocker v Sundance Northwest Resorts Ltd, 1988 CanLII 45 (SCC) Resolution: o The Supreme Court of Canada held:  Sundance owed a duty of care to the participants because it had set up an inherently dangerous event for profit.  It was obligated to take all reasonable care to prevent Crocker—who was clearly drunk—from injury, and the manager’s suggestion that he not continue was insufficient to meet the standard of care and was liable in damages. 123 Case 11.4 (3) Crocker v Sundance Northwest Resorts Ltd, 1988 CanLII 45 (SCC) o The court rejected Sundance’s defence of voluntary assumption of risk. o While Crocker’s participation could be regarded as an assumption of the physical risks, even this was a questionable conclusion given that Crocker was inebriated. o Crocker had not consented to the legal risk, as even though he had signed it, this had no legal effect since he had not read it and nor did Sundance have any reasonable grounds for concluding that the signed waiver expressed Crocker’s true intention. o Crocker was found 25 percent contributorily negligent for his voluntary intoxication. 124 Negligent Misstatement (or Negligent Misrepresentation) (1) Only in a relatively few areas, such as negligent misstatement or negligent performance of a service, may a plaintiff recover for pure economic loss. pure economic loss: Financial loss that results from a negligent act where there as been no accompanying property or personal injury damage to the person claiming the loss. negligent misstatement or negligent misrepresentation: An incorrect statement carelessly made. professional: Someone engaged in an occupation, usually governed by a professional body, requiring the exercise of special knowledge, education, and skill. 125 Negligent Misstatement (or Negligent Misrepresentation) (2) Professionals such as an accountants, lawyers, and engineers are most likely to commit the tort of negligent misstatement by giving bad advice or providing the client with an incompetently prepared report. o The professional may also be in breach of contract with the client. 126 Business Application of the Law 11.1 (1) Negligent Misrepresentation and Auditors Accountants are often retained by corporations to perform a statutory audit, the primary purpose of which is to allow shareholders to evaluate the performance of management. However, the audit may also end up being relied upon for secondary or extraneous reasons, such as to attract new investors or get a loan, and current or prospective investors may make personal investment decisions based on them. Should auditors be liable for losses arising from such secondary uses of the audit? This question was addressed by the Supreme Court of Canada in Deloitte & Touche v Livent Inc (Receiver of), 2017 SCC 63 [Livent]. 127 Business Application of the Law 11.1 (2) Negligent Misrepresentation and Auditors The auditors in Livent failed to detect a massive financial fraud being perpetrated on Livent, its client, by two of Livent’s directors and their associates. To its detriment, Livent relied on the audit to assess management and, additionally or secondarily, to solicit investment in Livent. Livent ultimately went bankrupt, leading the receivers to sue the auditor because Livent continued to operate with fraudsters at the helm, thereby growing its liquidation deficit. 128 Business Application of the Law 11.1 (3) Negligent Misrepresentation and Auditors Resolution: o The Supreme Court ruled that the duty of care assessment is essentially the same whether the loss in question is caused by negligent words or negligent actions. o In applying the first stage, the court emphasized that proximity and reasonable foreseeability are determined strictly in relation to what the auditor has undertaken to do. o The auditor will not be liable for the use of the audit beyond that scope. o The auditor was liable for losses when the statutory audit was used for its intended purpose, namely to oversee and evaluate management performance. In that context, the auditor and Livent were in a proximate 129 relationship, and Livent’s financial losses attributed to the faulty audit to Business Application of the Law 11.1 (4) Negligent Misrepresentation and Auditors Resolution: o In contrast, Livent’s losses related to using the audit to solicit investment were not recoverable. The audit was not prepared for that purpose, and the auditors were able to escape liability to this extent. o Livent also confirmed that auditors are not generally liable to a third party, like current shareholders or new investors, who rely on the audit to make personal investment decisions. 130 Negligence and Product Liability product liability: Liability relating to the design, manufacture, or sale of the product. The same elements of proving negligence apply to negligence claims against a manufacturer. 131 Negligence and the Service of Alcohol Commercial establishments serving alcohol owe a duty of care to impaired patrons to assist them or prevent them from being injured and to members of the public who are injured by the conduct of their drunken customers. The economic relationship between the commercial host and patron provides an important rationale for extending the law of negligence in this way. 132 Case 11.5 (1) McIntyre v Grigg, 2006 CanLII 37326 (ONCA) McIntyre, a McMaster University student, was walking with several friends, on her way back home from The Downstairs John, operated by the McMaster Students Union. As McIntyre was walking along the side of the curb, she was struck by Grigg’s vehicle. Grigg had also been drinking at The Downstairs John and other venues earlier. Grigg’s blood alcohol level two hours after the accident was three times the legal limit, suggesting he was served 18 drinks. Some but not all patrons observed signs of intoxication at the club ,and the court concluded there were visible signs. McIntyre sued Grigg as well as the McMaster Students Union. 133 Case 11.5 (2) McIntyre v Grigg, 2006 CanLII 37326 (ONCA) Resolution: o Commercial vendors of alcohol owe a duty of care to persons who might reasonably be expected to come into contact with an intoxicated person and do not escape liability simply because a patron does not exhibit any visible signs of intoxication if in the circumstances the tavern knew or ought to have known that the patron was becoming intoxicated. o Grigg was found 70 percent liable and the Student’s Union was found 30 percent at fault. Grigg was also ordered to pay punitive damages. 134 The Negligence Standard versus Strict Liability strict liability: The principle that liability will be imposed irrespective of proof of negligence. The scope of strict liability is limited. o Strict liability is largely confined to vicarious liability as well as liability for fires, dangerous animals, and the escape of dangerous substances. o Liability in contract is also strict liability. 135 International Perspective 11.1 Strict Liability Members of the European Union (EU) and areas in the United States use a strict liability rather than a fault-based standard in defective-product liability cases, meaning that manufacturers can be held liable for unsafe products even if they were not negligent in any way and exercised due care. In the EU: o A product is defective when it does not provide the safety that a person is entitled to expect, taking into consideration all the circumstances. o Relevant considerations include the presentation of the product, expectation of use, and the time the product was put into circulation. 136 Other Torts Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of the range of torts that are relevant to business organizations how torts arise from the use of property how torts arise from business operations how a business can manage the risk of liability in tort 138 Torts and Property Use occupier: Someone who has some degree of control over land or buildings on that land. o An occupier may be an owner or even a tenant. Tort actions may arise in relation to property in a number of ways, most commonly when the occupier of the property harms others. 139 Occupiers’ Liability: The Common Law (1) This area of the law varies by jurisdiction. The common law determines liability by classifying the visitor as either a trespasser, licensee, invitee, or contractual entrant. Each class is owed a different standard of care, with the trespasser being owed the lowest standard and the contractual entrant being owed the highest. 140 Occupiers’ Liability: The Common Law (2) contractual entrant: Any person who has paid (contracted) for the right to enter the premises. o The duty owed to this class (in the absence of a contract specifying the duty) is a warranty that the premises are as safe as reasonable care and skill on the part of anyone can make them. invitee: Any person who comes onto the property to provide the occupier with a benefit. o The occupier must warn the invitee of any unusual danger. o There is no requirement to warn of a usual or common danger that ordinary reasonable persons can be expected to know and appreciate. 141 Occupiers’ Liability: The Common Law (3) licensee: Someone who has been permitted by the occupier to enter for the benefit of the licensee. Occupiers are responsible to licensees for any unusual danger of which they are aware or that they have reason to know about. trespasser: Any person who is not invited onto the property and whose presence is either unknown to the occupier or is objected to by the occupier. o The occupier is liable for any act done with the deliberate intention of doing harm to the trespasser, or an act done with reckless disregard for the presence of the trespasser. o Sometimes a child trespasser is classified as an invitee, or the duty owed to a child trespasser is interpreted generously to avoid the harshness of the general rule. 142 Liability Under Occupiers’ Liability Legislation Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, and Prince Edward Island have enacted occupiers’ liability legislation. The legislation differs somewhat between jurisdictions, but there are some common general principles. o A high duty of care, equivalent to the negligence standard, is owed to entrants who are on the property with express or implied permission. o Occupiers may not deliberately harm or endanger trespassers. o Alberta has special provision for child trespassers. 143 Case 12.1 (1) Martin v AGO, 2022 ONSC 1923 Martin suffered injuries when he slipped and fell on a small amount of water in the Hamilton courthouse. He sued the building owner, Ontario Infrastructure and Land Corporation, and the maintenance company, Bee-Clean Building Maintenance, for failing to take “care as in all the circumstances of the case is reasonable to see that persons entering on the premises … are reasonably safe while on the premises.” 144 Case 12.1 (2) Martin v AGO, 2022 ONSC 1923 Resolution: o The claim was dismissed—the standard was not perfection or constant surveillance. o The defendants demonstrated that they adopted a system of inspection and cleaning, had carefully placed mats at the entrances, and used appropriate signs. o Even if they had not met the expected standard, the fall would have occurred anyway as the amount of water was very miniscule, and Martin would have been found 30 percent at fault for choosing to wear footwear with partially worn soles. 145 The Tort of Nuisance (1) nuisance: Any activity on an occupier’s property that unreasonably and substantially interferes with the neighbour’s rights to enjoyment of the neighbour’s own property. o The general test is whether the impugned activity has resulted in an unreasonable and substantial interference with the use and enjoyment of land. 146 The Tort of Nuisance (2) The courts have developed the following guidelines: o Interference must be substantial and unreasonable. o Nuisance typically does not arise where the interference is only temporary. o Not all interests are protected by the tort of nuisance—such as the right to sunlight. o In nuisance actions, courts will consider tradeoffs in interest. For example, when the noise in question is reasonable and for the public good, the action in nuisance will fail. 147 Case 12.2 (1) TMS Lighting Ltd v KJS Transport Inc, 2014 ONCA 1, varying 2012 ONSC 5907 TMS manufactured high-end commercial lighting fixtures at a location selected because it required clean premises for lighting fixture manufacturing. KJS, a long-haul trucking service, moved in next door some time later. KJS did not pave its parking lot, and, as a result, for four years, dust particles raised by KJS trucks driving on its unpaved parking lot caused damage as dust blew into TMS’s factory and settled on the lighting products manufactured on site. Even if TMS closed all its windows and doors, factory fans, which were necessary for tolerable working conditions, would draw in dust, resulting in production slow-downs and shut-downs. KJS failed to remedy the dust problem and TMS sued. 148 Case 12.2 (2) TMS Lighting Ltd v KJS Transport Inc, 2014 ONCA 1, varying 2012 ONSC 5907 Resolution: o Nuisance involves an interference with the plaintiff’s use or enjoyment of land that is both (1) substantial (i.e., non-trivial) and (2) unreasonable. o Unreasonableness is assessed by balancing the gravity of the harm against the utility of the defendant’s conduct in all of the circumstances, such as the severity of the interference, the character of the neighbourhood, the sensitivity of the plaintiff to the harm caused, and the frequency and duration of the interference. o Court of Appeal upheld the trial judge’s decision that had found the interference of KJS was both substantial and unreasonable. o A further trial was ordered to determine an appropriate award of damages. 149 Trespass trespass to land: Wrongful interference with someone’s possession of land. Trespass arises in several ways: o A person comes onto the property without the occupier’s express or implied permission. o A person comes onto the property with the occupier’s express or implied consent but is subsequently asked to leave. Any person who refuses to leave becomes a trespasser. o A person leaves an object on the property without the occupier’s express or implied permission. Trespass is actionable without proof of harm or damage, and injunctions are usually the remedy sought. Legislation in some provinces impose fines for trespass. 150 Case 12.3 (1) TMS Lighting Ltd v KJS Transport Inc, 2014 ONCA 1 (continued from Case 12.2) TMS’s legal complaint against KJS was not just in nuisance. Very large trucks owned by KJS would frequently pull onto TMS’s driveway because there was an insufficient turning radius on KJS premises. To prevent the trespass from continuing, TMS first installed six-inch-high concrete curb stones along the edge of its factory driveway, but KJS trucks simply drove over those stones, ultimately destroying them. In response, TMS installed three-foot-high concrete blocks, which KJS trucks continued to strike and often ended up pushing them right onto TMS’s driveway. This blocked TMS’s driveway, requiring TMS to send employees out with forklifts to reposition the blocks on a regular basis. 151 Case 12.3 (2) TMS Lighting Ltd v KJS Transport Inc, 2014 ONCA 1 (continued from Case 12.2) Resolution: o KJS’s use of the driveway was found to be a substantial interference with TMS’s rights, and TMS was granted an injunction to prohibit future trespass by KJS. A further trial was ordered to determine an appropriate award of damages. 152 Environmental Perspective 12.1 (1) Tort Actions Relating to the Environment Four main torts provide remedies for environmental damage: (1) the tort of negligence; (2) the tort of trespass; (3) actions based on Rylands v Fletcher; and (4) the tort of nuisance. Each of these torts can offer a way for a plaintiff to secure an injunction and damages. To successfully sue in negligence, the plaintiff must establish all the elements of a tort action,n including that the environmental damage was caused by the defendant’s carelessness. To succeed in trespass, the plaintiff must show direct intrusion of pollutants generated by the defendant which came onto the plaintiff’s land without permission or authorization. 153 Environmental Perspective 12.1 (2) Tort Actions Relating to the Environment The tort in Rylands v Fletcher does not require the plaintiff to show that the defendant was careless but rather that something from the defendant’s land (such as water or gas) escaped onto the plaintiff’s land due to the defendant’s dangerous and non-natural use of their land. The tort of nuisance requires proof that the defendant’s pollutants amounted to an unreasonable and substantial interference with the plaintiff’s enjoyment of their own property. 154 Environmental Perspective 12.1 (3) Tort Actions Relating to the Environment Governments have enacted legislation that seeks to balance economic development with a degree of “acceptable” environmental damage. Municipal and land-use planning laws also put constraints on the kind of activity that can occur on the land affected. 155 Torts from Business Operations (1) Negligence was reviewed previously, but there are other torts that may impact business operations. assault: Threat of imminent physical harm by disturbing someone’s sense of security. battery: Intentional infliction of harmful or offensive physical contact. For example, security personnel may commit the torts of assault and battery when seeking to apprehend a suspected shoplifter or eject a patron. 156 Torts from Business Operations (2) false imprisonment: Unlawful detention or physical restraint or coercion by psychological means. legal authority: The authority by law to detain under section 494 of the Criminal Code. To defend against the tort of false imprisonment if detaining a suspected shoplifter, the retailer and/or its employees must show legal authority to detain under section 494 of Canada’s Criminal Code. o The arrest can happen at the time of the offence or “within a reasonable time after the offence is committed and they believe on reasonable grounds that it is not feasible in the circumstances for a peace officer to make the arrest.” o If store personnel detain a suspected shoplifter, they must immediately call the police. 157 Torts from Business Operations (3) deceit or fraud: A false representation intentionally or recklessly made by one person to another that causes damage. o In contract law, the victim is also entitled to be released from the contract. passing off: Presenting another’s goods or services as one’s own. o This tort can be intentional or even accidental. o Damages and/or an injunction may be sought. Note: The Trademarks Act also contains a statutory form of action that bears a strong resemblance to the tort of passing off. 158 Case 12.4 (1) Ciba-Geigy Canada Ltd v Apotex Inc, 1992 CanLII 33 (SCC) Ciba-Geigy Canada Ltd manufactured and sold the drug metoprolol tartrate in Canada. Apotex began to manufacture and sell the same drug in Canada. The products were officially designated as “interchangeable,” meaning that the pharmacist could, in filling a prescription, give the defendant’s product in place of the plaintiff’s product provided the prescription did not contain a “no substitution” notation. The plaintiff sued for passing off on the basis that the defendants were copying the plaintiff’s “getup” in relation to the size, shape, and colour of the pills, claiming this was confusing consumers. 159 Case 12.4 (2) Ciba-Geigy Canada Ltd v Apotex Inc, 1992 CanLII 33 (SCC) Resolution: o The Supreme Court of Canada confirmed that competing laboratories must avoid manufacturing and marketing drugs with such a similar getup that it sows confusion in the customer’s mind. It outlined three steps to proving the tort of passing off:  The existence of goodwill.  Deception of the public or likely creation of confusion in the public mind.  Actual or potential damage to the plaintiff. 160 Torts from Business Operations (4) interference with contractual relations: Inducing someone to break a contractual obligation owed to another. o For example, poaching an employee and enticing them to breach their contract with their existing employer. defamation: The public utterance of a false statement of fact or opinion that harms another’s reputation. o The key ingredients to this tort:  The defendant’s words would “tend to lower the plaintiff’s reputation in the eyes of a reasonable person.”  The statement did in fact refer to the plaintiff.  The words were communicated to at least one other person beyond the plaintiff. 161 Torts from Business Operations (5) Defences to defamation: o justification: A defence to defamation based on the defamatory statement being substantially true. o qualified privilege: A defence to defamation based on the defamatory statement being relevant, without malice, and communicated only to a party who has a legitimate interest in receiving it. 162 Torts from Business Operations (6) Defences to defamation: o fair comment: A defence to defamation that is established when the plaintiff cannot show malice and the defendant can show that the comment concerned a matter of public interest, was factually based, and expressed a view that could honestly be held by anyone. o absolute privilege: A defence to defamation in relation to parliamentary or judicial proceedings. 163 Technology and the Law 12.1 E-Torts: Defamation on the Internet Negative reviews can have a devastating consequence for the business involved. At the same time, however, customers have the right to raise concerns about the quality of goods or service received. In Premier Finance Ltd v Ginther, an individual who made untrue statements in an online review that accused a business of deceit and fraud was ordered to pay $90 000 in damages. 164 Torts from Business Operations (7) injurious or malicious falsehood: A statement about another’s goods or services that is false and harmful to the reputation of those goods or services. o Injurious falsehood requires the plaintiff to establish that the statement about the goods or services was false and was published (or uttered) with malice or improper motive. o Malice includes publishing material one knows is false or with a reckless disregard as to its truth or falsity. 165 Business Application of the Law 12.1 Protection of Privacy The common law has historically protected privacy interests through the torts of defamation trespass, nuisance, assault, battery, and false imprisonment. In 2012, the Ontario Court of Appeal recognized a tort, intrusion upon seclusion, which permits a person to sue for invasion of privacy and suggested a $20 000 ceiling for damages. intrusion upon seclusion: Intentional, offensive invasion of another’s personal affairs without lawful justification. Government protects privacy through legislation that deals with the collection, use, and disclosure of personal information by organizations in the course of commercial activities, and some provinces have passed legislation that creates the tort of breach of privacy. 166 The Agency Relationship Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of the agency relationship and its relevance to business how an agency relationship comes into being agency duties and liabilities how the agency relationship ends 168 The Nature of Agency Agency is the relationship between two persons that permits one person, the agent, to affect the legal relationships of another, known in law as the principal. agency: A relationship that exists when one party (the agent) represents another party (the principal) in the formation of legal relations. agent: A person who is authorized to act on behalf of another. principal: A person who has permitted another to act on their behalf. 169 Examples of Agency Relationships A sports agent negotiates a multimillion-dollar deal on behalf of a hockey player. An insurance agent sells fire and theft insurance on behalf of several insurance companies. A travel agent sells tickets, cruises, and vacation packages on behalf of carriers and hotels. 170 Relationships in Agency There are two key relationships at play in an agency situation: o agent–principal relationship o outsider–principal relationship  relationship between the principal and the party with whom the agent does business (the outsider or third party) 171 Law of Agency This law governs the relationship where one party, the agent, acts on behalf of another, the principal. It addresses and rights and duties of the principal, agent, and third party (outsider), and the complications resulting from these relationships. It is derived largely from tort and contract law. 172 Creation of Agency (1) An agency relationship usually arises by contract between the parties in which the principal authorizes an agent to act on their behalf and the agent agrees to do so. The contract may be created only for a single purpose—for example, to purchase a delivery van. Alternately, it can arise as part of a larger contract—an employment contract, for example, where the employee’s duties include entering into sales transactions for the employer (principal). 173 Creation of Agency (2) Sometimes a relationship arises by conduct or behaviour of the principal, which leads outsiders to believe there is an agency relationship. An agency agreement can be express, implied, oral, in writing, or in writing under seal. power of attorney: A document, with or without seal, granting wide or specific powers to the agent to act for the principal. 174 The Concept of Authority The authority of the agent is a key aspect of the agency relationship. It determines whether there is a contract between the principal and the outsider. When an agent acts within the scope of the agent’s authority and negotiates a contract for the principal, the principal is bound by the contract, whether or not the principal likes it. 175 Actual Authority actual authority: The power of an agent that derives from either express or implied agreement. Express authority may be written or oral and is the authority specifically granted by the principal to the agent—for example, authority to purchase supplies. Implied authority arises by implication, such as from o the position the agent occupies o necessity in order to carry out or implement the agent’s express authority o well-recognized custom in a particular trade, industry, or profession 176 Apparent Authority apparent authority: The power that an agent appears to have to an outsider because of conduct or statements of the principal. 177 Business Application of the Law 13.1 Agent’s Authority to Enter Agreement to Share Prize Finalists agreed to share a $100 000 prize when one won. The winner’s wife had been present to agree with the plan and signed a document agreeing to share. When the winner was named, he did not share—other finalists cl

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