Contents

1.0 Law Primer............................................................................................................ 1

1.0.1 What is Law? - Canadian System of Laws................................................1
1.0.2 Who makes the Laws - Public Law & Private Law.....................................2
1.0.3 Public Law - Division of Federal and Provincial Powers................................2
1.0.4 Court Structures.......................................................................................... 4
2.0 Contract Law........................................................................................................ 5
2.1 Introduction to the Law of Contracts.................................................................5
2.1.1 Introduction to the Law of Contracts...........................................................5
1. Capacity........................................................................................................... 5
2. Mutual Intent to Enter into a Contract..............................................................6
3. Offer and Acceptance....................................................................................... 7
4. Consideration................................................................................................... 8
5. Lawful Purpose................................................................................................. 9
2.2 Elements of a Contract.................................................................................... 10
2.2.1 Certainty of Terms..................................................................................... 10
Conditions.......................................................................................................... 10
Warranties and Indemnities...............................................................................11
Statute of Frauds................................................................................................ 11
Boilerplate.......................................................................................................... 12
Battle of Forms................................................................................................... 13
Parole Evidence Rule.......................................................................................... 13
2.3 Vitiating Factors on the Ability to Contract......................................................13
3.0.1 Vitiating Factors........................................................................................ 13
2.3 Misrepresentation......................................................................................... 14
2.3.2 Mistake...................................................................................................... 14
2.3.3 Situational Factors..................................................................................... 15
2.4 Discharge of Contract...................................................................................... 16
2.3.1 Discharge by Performance........................................................................16
2.3.2 Discharge by Frustration...........................................................................16
2.5 Breach of Contract.......................................................................................... 17
2.6 Remedies for Breach of a Contract..................................................................18

Repudiation........................................................................................................ 18
Damages............................................................................................................ 18
Restitution.......................................................................................................... 18
Specific Performance.......................................................................................... 19
Injunction........................................................................................................... 19
Quantim Merit.................................................................................................... 19
Substantial Performance/Compliance.................................................................19
Fundamental Breach.......................................................................................... 19
3.0 Tort Law.............................................................................................................. 23
Introduction........................................................................................................ 23
Common Element of Tort Liability......................................................................24
The Engineers Standard of Care........................................................................25
Case Law Developments in Tort Law..................................................................26
Vicarious Liability............................................................................................... 31
Product Liability.................................................................................................. 32

1.0 Law Primer

1.0.1 What is Law? - Canadian System of Laws

What is Law? Generally speaking, Law is a system of rules that a society has adopted
to regulate human activities. This system of rules is not absolute in nature, but a
general set of principles whose purpose is to serve as a social mediator. The creation
of laws also requires an enforcement mechanism to ensure adherence to the laws that
are created.
The Canadian system of law contains two separate regimes of law called the commonlaw system and the civil-law system. These systems and their development is based on
the historical development of the country. The majority of the provinces and territories
of Canada follow a system of rules that are derived from the English common-law. In
fact many English colonies follow common-law principles. These countries include:
England and Wales, Ireland, United States (federal), Canada (federal), Australia, Kenya,
New Zealand, South Africa, India, Pakistan, and Hong Kong.
The principle of the common-law system is that the primary source of law is derived
from decisions of an independent judiciary rather than that of a set of statutes or
constitutions. This system allows for the set of rules to be changed by each decision of
the judiciary. To establish consistency and predictability to these set of rules, a theory of
precedent was developed. The theory of precedent (Stare decisis) is when a court is
asked to decide an issue based on a fact scenario, the court should follow previous
decisions if the facts are similar or analogous. Flexibility in the system is derived from
distinctions between the facts at issue versus the facts contained within the precedent.
These distinctions can form a basis for a court to dismiss the application of a
precedent.
The civil-law system in Canada is contained only within the Province of Qubec and is
limited to areas of private law within the province. The civil-law system of Qubec is
codified in a master code called the Civil Code of Qubec. The areas of private law
within the Civil Code of Qubec include a system of rules to regulate persons, families,
successions (wills), property, obligations (torts), priority of claims, evidence, prescription
(timing), publication of rights, and private international law. The main difference
between the civil-law system and the common-law system is that the primary source of
law is derived from the code and the court is not rigidly bound by previous decisions
(Stare decisis).
In general the content of this course will focus on the laws of Ontario and hence the
remainder of the course will take the view of the common-law system of rules.

1.0.2 Who makes the Laws - Public Law & Private Law

In addition to the primary source of judge made law, which is the cornerstone of the
common-law system, individuals or groups of individuals(governments) can create laws
that they voluntarily wish to be bound by.
Individuals can create a set of Private Laws to bind themselves and are private in
nature. Contracts and Torts are forms of Private Laws between individual parties and
will be the main focus of this course.
Public Laws are created by groups of individuals (governments) and are intended to
bind all individuals within their sphere of authority. An important source Public Law is
legislation.
1.0.3 Public Law - Division of Federal and Provincial Powers

Legislation comprise of a set of rules of law that are created by different forms of
government. Great deference is given to these rules by courts as they are rules that
society voluntarily decides to impose on themselves through representational
government.
Generally legislation is created by creating a draft law called a bill. The bill is openly
debated, voted on, and when the bill is passed it becomes a law. The newly enacted
law is in the form a document called a statute. A passed statutes requires a means of
application of these rules by different ministries of government (Ministry of
Transportation, Ontario Ministry of Education, etc). The process of application of a
statute is contained within documents called regulations.
Canada is a very diverse society and it was recognised early that there is a requirement
for a system of government to deal with localized issues as well as issues that affect the
country as a whole. The Canadian Constitution (The Constitution Act, 1867)created two
levels of government: Parliament (federal) and the Legislature (provincial).
The Legislature of each province the exclusive power to create laws relating to issues
local in nature. Section 92 of the Constitution enumerates 16 areas exclusive to the
Legislature including:
2.

Direct Taxation...

5.

Management of Public Lands...

7.

Public Health...

8.

Municipal Institutions...
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10.

Local Works...

12.

Marriage...

13.

Property rights...

14.

Administration of Justice...

16.

Generally all Matters of a merely local or private Nature in the Province.

The Parliament of Canada has the exclusive power to create laws that are not local in
nature. Section 91 expressly allows Parliament to create laws regarding 29 areas of
law, including:
2.

Regulation of Trade and Commerce...

3.

Taxation by any means...

5.

Postal service...

7.

Military...

8.

Navigation and Shipping...

9.

Currency...

22.

Patents...

23.

Copyrights...

24.

Natives and lands reserved for Natives...

27.

Criminal Law...

Prior to 1982, the courts did not have the formal power to alter public laws passed by
Parliament or the Legislature. The doctrine of Parliamentary Supremacy allowed the
government to pass laws that could offend civil liberties. The courts were limited to
voiding laws that extended past the spheres of authority of each level of government.
This changed as of 1982 during Canadas ceding from the United Kingdoms
governmental control. On April 17th, 1982 the United Kingdom ceded control of the
3

laws of Canada to the Canadian Governments and in doing so enacted the Canadian
Charter of Rights and Freedoms [Charter]. The Charter guarantees certain civil
liberties to all people in Canada. This enactment makes theCharter the supreme law in
Canada, and any other law that is passed is of no force or effect if it is inconsistent with
the Charter. As the Charter is the supreme law, the courts now have a method of
striking down public laws that offend the basic principles set out within the Charter.
Currently, with the Canadian system of parlimentary democracy, a legislative body must
respect its limitations of power set out in Canada's entrenched consititution
(Consititution Act, 1867) and the permissive impact of the legislation on the rights
protected under the Charter. If these powers & rights are respected, the law that is
passed is valid and paramount over all other sources of law. If a private law (contract),
common law, or international law is in conflict with legislation, the legislation prevails.(1)
R. Sullivan, Statutory Interpretation, 2nd ed. (Toronto: Irwin Law Inc., 2007) at 33.
1.0.4 Court Structures

As of 1982, the Supreme Court of Canada is the highest court in Canada. They hear
appeals from every provinces appeal court on all subjects. Typically they only grant
leave to appeal to matter that have a national significance and hence they strive to
create cohesiveness of the application of the law across the country.
The highest court in Ontario is the Court of Appeal of Ontario. They are the ultimate
appeal court for the variety of boards and courts within Ontario. The main structure
below the Court of Appeal is the Superior Court of Justice (higher or general division)
and the Ontario Court of Justice (lower or provincial division).
The Superior Court of Justice handles all civil matters, family matters, and serious
criminal offences. The Superior Court of Justice has several divisions within it to
accomplish this undertaking. The Divisional Court is an internal appeal level court
within the Superior Court of Justice which hears appeals from minor civil claims and
various boards. The Family Court is a division of the Superior Court of Justice which
hears a variety of matters that relate to family structures including the Divorce
Act (Canada), the Family Law Act (except Part V), the Marriage Act. The Small Claims
Court is a division of the Superior Court of Justice that hears matters that in which the
maximum claim for damages is not more than $25,000.
The Ontario Court of Justice hears criminal matters, provincial offences, youth criminal
matters, and a variety of matters under different family law matters

In addition to the formal court structure, a variety of topics have been taken out of the
formal courts structure and integrated into specialized adjudicative boards and
tribunals. Examples of this are the Landlord Tenant Board, Ontario Municipal Board,
Ontario Securities Commission, Human Rights Tribunal of Ontario, and many others.
These boards are creatures of statute and are only awards the powers conferred to
them under the statute. The general oversight of these adjudicative boards is the
responsibility of the courts and as such, the appeals of the decision of the boards are
generally to the divisional court.

2.0 Contract Law

2.1 Introduction to the Law of Contracts
2.1.1 Introduction to the Law of Contracts

What is a contract? Simply put, a contract is a type of private law consisting of a

legally enforceable agreement between individuals. This simplification is made difficult
as all contracts are agreements, but not all agreements are contracts. The key
differentiator between a contract and a general agreement is that a contract is legally
enforceable through the courts.
To make a legally enforceable contract there are five elements that must be present.
They are:
1)

The parties must have capacity to enter into a contract;

2)

There is mutual intent of the parties to enter into the contract;

3)

An offer is made and accepted;

4)

There must be consideration upon entering the contract; and

5)

The contract must have a lawful purpose.

1. Capacity

The issue of capacity is whether or not the parties are legally and voluntarily able to
enter a contract with each other. One or more parties may not have the legal ability to
enter into a contract. Prior to enter into a contract one should establish the other party
has capacity. Generally when dealing with contracts you will be dealing with another

natural person (human being), a corporation (same rights as a natural person), or a

group of natural persons and/or corporations (partnerships).
Furthermore you may be dealing directly with the aforementioned or through an agent
who acts on their behalf. To ensure that the contract that you wish to enter into is
enforceable you must have some knowledge that the other person is capable to enter
into the contract.
Natural Persons

When dealing with natural persons issues to keep in mind is whether the parties are
minors and/or otherwise mentally incompetent to enter into a contract. A minor is a
person who is under the age of 18. The common law has generally placed minors into a
special category and afforded them special protections. Generally speaking a contract
with a minor is voidable at the minors option. The exception to the exception is that
necessities toward the minors life is enforceable by the courts, because presumably no
party would deal with a minor otherwise. Upon reaching the age of majority, a minor
can ratify the contract and be bound under the previously entered contract.
A natural person may not have the capacity to enter into a contract if they are unable
to understand the nature of the contract they are intending to bind themselves to. The
term of mentally incompetent can range from the certifiably insane to extreme
drunkenness to commercial naivet.
Corporations

A corporation is an artificial person who is given official legal status by a government. A

corporation is afforded the same legal rights as a natural person. As such, unless
specifically limited, a corporation is able enter contracts the same as a natural person.
A corporation is only a legal entity as it is just a pile of paper. In order to transact
business, a corporation is to rely on agents to act on its behalf. When contracting with a
corporation, you must ensure that 1) the agent you are dealing with has the authority to
act on the corporations behalf, and 2) the corporation has the legal authority to enter
into the contract.
The authority of the agent should be expressed in the contract and personally verified.
Generally when contracting with a corporation, the corporate agent executed the
document and under writes I have the authority to bind the corporation.
The authority of the corporation should generally be verified on the public records.
Some corporations are incorporated for a specific purpose and their articles of
incorporation may be limited in the authority. For instance a corporation may be limited

from entering into loan agreements. A federal or provincial corporation may be

incorporated from a special statute and given specific powers.
Partnerships

A person may contract with a group of persons. A group of persons is generally defined
as a partnership. A partnership can be expressly defined in an agreement or implied
based on actions. In Ontario, any partner can contract on behalf of all partners and all
partners are equally liable to the contract. Similar to dealing with a corporation, you
should verify the powers of the partnership to enter into the contract and whether the
person you are dealing with has the authority to bind the partnership. This is more
difficult in practice as generally there are no public documents to rely upon and one
must rely on representations from the other party.
2. Mutual Intent to Enter into a Contract

To establish a contract it must be established that both parties intended to enter into a
legally binding agreement with each other. There are a wide variety of agreements,
such as social agreements, that may bare a moral obligation but not a legal obligation.
The test on whether parties are intending to be bound is based on reasonable person
test on behalf of the promisee. This test is not whether a person making a promise (the
promisor) is intending to be bound by it, rather the test is whether a reasonable person
upon hearing the promise, within the circumstances of the promisors conduct, would
conclude that the promise is intending to be binding on the promisor.
In a commercial context parties will frequently elements of a future agreement in
writing. These documents have a variety of names such as Preliminary Agreements,
Letters of Intent, Agreements Subject to Contract, Commitment Letters, Term Sheets,
Memoranda of Understanding, etc. These documents may consist of just a mere
invitation to another party to enter into a contact. A common example is a real estate
listing. In the listing it shows the house, what is included, and an asking price. In this
instance the listing is an invitation to contract as it missing essential contract provisions
such as consideration, certainty of terms, etc. and the courts have determined such
listings as mere desire to contract.
The question arises on whether these preliminary documents are contracts within
themselves. These documents must be viewed on the legal sense on whether they
meet all the necessities for a legal contract on their own terms. Ideally, a professionally
drafted Letter of Intent will explicitly state within the document that the party is not
intending to be bound by the letter. The letter may also include terms where the parties
are intending to be bound, such as confidentiality clauses or negotiation processes.
Whenever dealing with Letters of Intent it is wise to seek legal advice specific to your
scenario.
7

3. Offer and Acceptance

The essence of a contract is formed when a promise to do something is made by one

person (the Promisor), and the counter party (the Promisee) unequivocally accepts
it. Furthermore it is an indispensible requirement that both parties have reached a true
consensus over the essential elements of the contract and that there is a meeting of
the minds. Generally contracts are not required to be in writing, but for an evidentiary
record it is preferable in order to assure that both parties are fully aware of all the terms
of the contract.
In a commercial setting, a promisor may wish to enter into a contract with the promisee.
The promisor will draft a contract, with the intent to be bound by it, and communicate it
to the promisee. If the promisee accepts the contract as is, they are required to
communicate their acceptance to be bound by it to the promisor. If the promisee does
not unequivocally accept the terms of the contract, they may alter the terms and
communicate the altered draft contract to the promisor. At this time the original draft
contract is considered to be voided, and the new draft contract is the valid one and the
former promise is the new promisor and vice versa. Until each party are aware that the
counterparty wishes to be bound by the promise, a legally binding contract is not
reached. In fact suppose each party wishes to contract with the other, and each party
independently draft a contract and communicates it to the other at the same time, a
valid contract is still not reached until one party accepts the others draft contract.
Unless the draft contract specifies otherwise, a promisor can revoke their offer to
contract at any time prior to acceptance and their revocation is effective on the receipt
by the promissee. If the promisee wishes to be bound by the offer, they must
communicate their acceptance prior to the offer being revoked. As you can imagine
there can be a battle regarding communication between the parties.
The general rule for the promisor is that communication of a revocation is not official
until actually received by the other party. The courts have developed different rules for
the promisee.
The postal acceptance rule states that if the contract allows for acceptance by mail,
acceptance is communicated the second the promisee mails the acceptance. This is
different than the promisor as if the promisor decides to send a revocation by mail, it is
not communicated until the revocation reaches the promisee. As the contract is formed
once the promisee mails the draft contract, the actual letter could be delivered late, or
even lost, and the contract would still be valid even though the promisor is not made
aware of the acceptance. This seems harsh but the promisor drafted the clause to
indicate that acceptance by mail was sufficient and must be prepared to accept the risk
of late or missing acceptance. The promisor can stipulate within the contract that
8

acceptance is only valid upon receipt of the contract by the promisor, and this clause
would override the postal acceptance rule.
If the contract allows for acceptance by telegram/facsimile, the acceptance is
communicated upon delivery to the promisor.
Unilateral Contracts

A contract may be a unilateral contract if it takes the form of an open contract with the
intention of contracting with any member of the public. An example of this is a parking
garage who allows access to the public upon the consideration of payment. Frequently
this type of contract is stipulated as If you do X, Ill do Y. A contract will be found to
exist if the promisee conducts action relying on the publically made offer by the
promisor.
4. Consideration

Consideration is the primary motive for the parties to enter into a contract. It can be
said that consideration is the thing of value that is to be exchanged between the
parties. A promise of an engineer to undertake a design upon the promise of the client
to pay a fee is considered to be the consideration of the contract. Consideration can
also be an exchange of promises with no payment of money being undertaken. If there
is no exchange of consideration, there is no legally binding contract.
Sometimes a contract is intended to be binding on the parties but the valuable
consideration is only unidirectional. An example is a promise to gift a piece of property
to a person. Normally as the recipient of the gift is not giving something back in return,
it could be said that the promise is not legally enforceable due to lack of consideration.
If the parties wish to be bound to the promise, the recipient of a gift can use a seal (little
red adhesive wafer) that can be used as substitution to valuable consideration. The
seal stands in the place for the valuable consideration.
The use of seals are also used in the commercial context to enforce an irrevocability of
an offer. A client may wish to send a project out for tender to different firms. Ideally the
client would want to have all the tenders present and open to compare at the same
time. To undertake this, the client would ask all tenders to be irrevocable until the date
upon which they are able to compare tenders submitted. A tendering firm could promise
to not revoke a tender but as the tender is not accepted, the tendering company can
revoke it against their express promise. To prevent this and enforce the promise not to
revoke, generally a tender will requires a deposit or a seal in order to establish an
exchange of promises.

If consideration is exchanged, the court generally will not delve into whether the amount
of consideration is adequate. The peppercorn theory states that consideration can be
trivial in value, such as a peppercorn, but it symbolizes the meeting of the minds as it
illustrates the exchange of consideration with the view of making a legally binding
contract. In practice though the lack of valuable consideration may lead the court to
decide that unconscionable actions surrounding the formation of the contract and may
make a finding that the parties did not actually have mutual intent to enter into a legally
enforceable contract.
In addition, consideration that is exchanged prior to the formation of a contract is not
considered to be part of the contract. The exchange of consideration, of promise to
exchange, must occur at the time of entering the contract. It is often said that past
consideration is no consideration.
5. Lawful Purpose

A contract will be unenforceable is the purpose of the contract is either illegal/unlawful

or contrary to any public statute. Contract law is a very vast area of law and there are
many statutes that govern contracts between parties. Examples are Sales of Goods
Act, Competition Act, Criminal Code, Unconscionable Transaction Relief Act,
Residential Tenancies Act, etc. Public statutes can read in implied terms into contract
between parties and render previously negotiated clauses void. In the extreme the
courts may render the entire contract void rather than limiting it to the offending clauses,
if the offending clause goes to the root of the contract.
The contract may be rendered illegal and/or void by the courts is it is contrary to public
policy. Although there may not be a statute expressly forbidding a contract, the contract
may be read as whether it offends the general public welfare. An example of this is a
non-compete clause in an employment contract for a dentist. In this example the courts
may look at whether or not the non-compete clause geographical or temporal in nature
and whether or not the restrictive covenants are too onerous for the public as a whole.
For instance a dentist seeking to challenge a non-compete clause will have an better
case if he is the only other competiting dentist in town or whether the non-compete
clause is worded too broadly (eg. Mr. X is not allowed to practice dentistry in the
Province of Ontario for the next 100 years).
2.2 Elements of a Contract
2.2.1 Certainty of Terms

To have a meeting of the minds the parties must fully understand the essential
elements of the agreement/contract . Where the terms are sufficiently vague, the
contract will be unenforceable. A promise to do something in the future bears little
weight unless you define what the something is, and when in the future you intend it to
10

be due. Also if essential parts of the intended contract is missing, the courts may find
that the contract is a mere agreement to agree in the future and not to be binding on
the parties. An example of this would be an agreement to build a house but not specify
the price of the house. The courts have found that the price of a good/service is an
essential part of the contract.
Quite frequently terms are not sufficiently described. Often this is due to give business
efficiency to agreement. The courts have developed a reasonable person test to
determine what the terms would mean to a the average person. An example of an
implied term would be a tradesperson who undertakes to build a house would have the
implied term that the house would be built in a good, legal, and workmanlike fashion.
Often statutes impose implied terms into agreements. For example, in Ontario the Sale
of Goods Act places several implied terms of fitness and quiet possession upon the sale
of goods.
Conditions

A contract will often have clauses known as conditions. These conditions often are
used to indicate a specific state of affairs that must be in existence prior to the contract
being enforceable. If the parties are intending to be bound by promises that themselves
make it is called a promissory condition. If the parties are intending to be bound
based on the action of a third party, it is called a non-promissory condition. The
difference between promissory conditions and non-promissory conditions are that the
either party is unable to waive a non-promissory condition if the condition cannot be
met by the third party. An example of this would be: A promise to get a mortgage at
5% would be a promissory condition where as A promise to get a mortgage at 5%
from Bank of Montreal would be a non-promissory condition. If the party is unable to
get a mortgage at 5% (say the market rate is 6%), the party could waive the 1 st condition
and treat the rest of the contract as binding, where as in the 2 nd condition the party is
unable to waive the condition and the contract is treated as void.
Furthermore conditions can be said to act either prior to the contract being binding
(condition precedent), or after the contract is binding and provides for an out (condition
subsequent). The difference between the two is whether the contract is enforceable on
the other party. An example of the two conditions would be Ill buy your house, if you
give me your keys verses Ill buy your house, after which you give me your keys. The
first doesnt obligate the purchaser until the keys are given, the second obligates the
purchaser to buy the house then attempt to get the keys.
Warranties and Indemnities

A warranty is when one party places a guarantee upon a condition/description. A

warranty can be expressly defined or implicit to the contract. An explicitly defined
11

warranty is a declaration by one party with knowledge that the other party is relying on
it. For instance, Schrdinger is trying to sell his cat in his box. Both parties do not know
the condition of the cat. To obtain a higher price Schrdinger could offer a warranty to
state that the cat is alive and well.
An implied warranty could be derived from statute or from the common law. Under
common law, the courts have developed the principle of implied warranty to be: a
professional seller, through the course of their normal business, has an implied warranty
that their goods were saleable as per their description and fit for the buyers purpose if
the buyers purpose was disclosed to the seller as to show reliance.
Damages arising from warranties include both general and specific damages (example:
damages from personal injuries).
Warranties are a condition of the contract and end once the contract is completed. As
such future conditions of goods are not warranted unless the parties expressly contract
for it (ie: the fridge is warranted to work for the next 2years).
Warranties are contractual obligations, and as such privities of contract applies. This
leads to complications during normal business situations. Generally a manufacturer will
sell their goods to a distributor, who will sell to a retailer, who will sell to the end user.
The manufacturer will have no direct contract with the end user. As a result it would
normally be impossible for a manufacturer to create a warranty with the end user (aside
from any statutory protections). To circumvent this limitation, it is general practice for
manufacture to include warranty cards that exchange a manufacture warranty of goods,
for certain duration, for the exchange of the end users information.
Statute of Frauds

Generally a contract between parties can be oral, written, or a combination of the two. It
is assumed the parties wished to be bound by the contract and wish it to be legally
enforceable. As such it is generally advised to have a contract in a written form. The
party who wishes to utilize the courts to uphold a contract has the burden to prove on a
balance of probabilities that the contract exists as it has the five above elements. A
written executed document is a form of proof of the intention of the parties.
Certain contracts have a legal requirement to be put into writing to be enforceable. In
Ontario the Statute of Frauds lists certain contracts that are to be in writing if they are to
be enforceable. Relevant areas to this course are: Transactions regarding interests in
land, contracts regarding indebtness of a party, and the transfer of tort liability to a party.

12

Boilerplate

The term boilerplate refers to standard clauses that appear in most contracts. Engineer
are generally familiar with failure mode and effect analysis. The similar principles are
applied in law in the formation of contracts. Lawyers and their clients try to foresee
possible areas of contention and make agreement on how to settle them prior to
executing the contract. Sample areas include:

Contract to be interpreted within the laws of the Province of Ontario.

o What if one party is resident of another jurisdiction? Whos court system is to
interpret the contract?

Parties agree to binding arbitration rather than courts upon default of the contract.
o Parties can agree to use an independent mediator/arbitrator rather than the court
system to deal with disputes. Often this is used to save money and time
providing both parties agree to be bound by the decision of the
mediator/arbitrator.

Clauses are severable.

o If the court finds one clause to be invalid and void, it is the intention of the parties
that the remaining clauses are not void and are enforceable.

Time is of the essence

o If timing is critical then the contract should state that, otherwise one party may
extend their obligations under the contract.

All terms of the contract are written within the contract (parole evidence rule).
o A clause to this effect limits the obligations of the parties to what is written within
the contract. Obligations and/or representations not explicitly stated within the
contract have no binding effect

There are many other types of clauses that are specific to different areas of law.
Frequently these boilerplate clauses have been litigated in the past and have decisions
regarding the enforceability of the clauses. Frequently in commercial activities, these
boilerplate clauses are not negotiated but form a standard form contract where the
parties fill in the essence of the contract as required.

13

Battle of Forms

As standard form contracts are frequently used, each party may have their own
version of preprinted contracts. An example may be that a vendor lists how payment is
to be made (eg. 30days from invoice) and the purchaser uses their contract to purchase
which list another payment method (eg. 90days from receipt of goods). This scenario is
known as the battle of forms. Generally the interpretation is that every correspondence
is changing the terms of the last and hence no meeting of the minds ever occurs and
hence a legally enforceable contract never is created. To circumvent this occurrence in
practice, the courts have inferred acceptance in this circumstance through the
performance of the parties. For instance if the above example if the vendor offers a
contract, and delivers their product prior to the purchaser sending their forms it is
assumed that the vendors contract was accepted. This performance doctrine, or last
shot rule, is based on the party that fires the last document prior to performance
prevails.
Parole Evidence Rule

As contracts can be both written, oral, or a combination of the two, it is left to the courts
to interpret whether the written contract contains all the intended terms between the
parties. If both parties agree that the written contract contains all the terms, then there
generally is no problem. Often though, one party intends the written contract to be the
exclusive agreement between the parties, where as the other party seeks to rely on past
representations in addition to the written contract. The parole evidence rule states that
if a party wishes to rely on previous communications/agreements may be prevented
from introducing evidence if the communication/agreement supplements, or is otherwise
inconsistent, with the written contract. There are exceptions to this rule such as
precondition to entering the contract, collateral contracts, fixing mistakes, fraud, undue
influence, etc. Generally, if the parties have explicitly intended the written contract to
contain all the terms binding under their agreement, there is a strong presumption that
the contract is the exclusive source of their agreement.
2.3 Vitiating Factors on the Ability to Contract

3.0.1 Vitiating Factors

Sometimes a party would seek to not be bound by a contract. They would apply to the
courts to be vitiated from the promises contained within the contract or would seek to
have the contract voided or modified. There are several methods on how this can be
accomplished.

14

2.3 Misrepresentation
2.3.1 Misrepresentation

A misrepresentation is a false statement that induces a party to enter into a contract

with the misrepresentor. This misrepresentation must be a serious nature and not mere
sales talk or personal opinion. This misrepresentation may be innocent in nature or
fraudulent.
An innocent misrepresentation is one where the misrepresentor honestly believed in the
fact prior to communicating the fact. In this situation, the remedy is that the court can
consider the contract to be voidable on the other partys option. The party seeking the
remedy must apply to the court for recession within a reasonable time frame. If the
party does not apply within a reasonable time frame, they will be barred from bring a
claim for recession. The extent of the damages is to put both parties back to their precontract position. Generally it is limited to the costs sustained to enter the contract. If
each party cannot be easily restored to their original possessions, for instance a
contract to butcher an animal, the courts may award a monetary damage award of
restitution in order to reestablish the parties.
A fraudulent misrepresentation is one where the misrepresentor either knows the
statement to be untrue or communicates it without caring whether the statement is true
or not. A fraudulent misrepresentation can be made 1)knowingly, 2)recklessly, 3) or
without belief of its truth. The remedy for a fraudulent misrepresentation is the same as
above, but also allows the party to sue under tort for damages relating to the deceit.
2.3.2 Mistake
Mistake

The topic of mistake is a broad one. One can imagine that there are countless
methods of making mistakes when contracting with parties. Mistakes could consist of
typos, ambiguities, mistaken parties, mistakes on inducements to enter contracts and
many others. Broadly categorized mistakes fall into two categories being a mistake as
to the terms and mistake as to the motive. Generally a party to which the mistake
applies either will seek to have the mistake corrected, as they wish to continue to be
bound by the contract, or will seek to use the mistake to cancel the contract.
Mistake of Terms

A mistake of terms relates to the terms as recorded in the contract. A common

mistake is a typographical error that both parties acknowledge as being in error. At this
point a party can apply to the court to rectify the term and both parties can remain to be
bound by the contract.
15

A mistake as the ambiguity of the terms generally affords the remedy of rectification.
Ambiguity of terms is that each party believes that they are contracting for something
but each have the mistaken belief of the specific item. As such it could be said that
there was no meeting of the minds and the contract would be unenforceable. An
example of this would be a contract to purchase a textbook from the seller without
specifying an edition. The purchaser could believe that they are purchasing the latest
edition, where as the seller could be of the understanding that they have the latest
edition when they have the previous one.
A unilateral mistake is one where only one party seeks to rectify a mistake within a
contract where the other party is aware of the mistake but does not wish it to be
changed.. The party who applies has a large hurtle of the parole evidence rule that they
must overcome in order to seek redress. An example would be a mistake in terms of
price contained within a contract. If the typo is a order of magnitude, or a 9 instead of a
6, the courts may have an easier time addressing that this is a typographical error. If
the price relates to the differences between the parties past offering price, for example
the higher price being written although the agreement was for the lower price, the party
tendering to change the contract to the lower price will have a larger hurtle to convince
the court to alter the written contract.
Mistake of Assumptions

The mistake of assumptions goes to the motives of the parties during which the contract
is entered into. It is different than the above in the fact that the mistake is regarding a
future event rather than one that currently exists. There is much controversy over this
type of mistake and the law is not currently settled. Its purpose is to correct an unfair
outcome based on the change of circumstances that arise after the contract was
entered into. An example would be a mistaken assumption by both parties that a
certain section of land contains specific minerals. The courts need to balance the
competing values of contractual stability and the prohibition of severe injustice.
2.3.3 Situational Factors
Situational Conditions that Vitiate Freedom to Contract

The general principle of contract formation is that both parties to a contract are free in
order to negotiate and develop a set of rules on which they voluntarily be bound. As
such the courts tend to give great presumption that a contract is valid so that there is
stability, certainty and predictability in order for commerce to flourish. The balancing act
that courts are required to undertake is to ensure that this stability is not at the expense
of oppression. As such there exist legal protections to ensure both parties have a fair
and free ability to contract. If the conditions that surround the formation of a contract is
overtly oppressive, and the outcome is obviously against the position of the weaker
16

party, the courts may find that the contract is unconscionable and may render the
contract either void or voidable.
Duress

The threat of physical violence is an obvious inducement for one party to enter into an
unconscionable contract. The threat of violence can extend past the parties of the
contract and can be extended to threats of safety or towards members of the partys
family. Duress can also extend to the undue influence over property rights of a party.
Economic duress is where one party forces another party to enter a contract using
coercion relating to their means of conducting business. The party seeking relief under
economic duress must show that the coercion is to such extent that it vitiated consent of
the party.
Undue influence

Undue influence does not reach the extreme of duress but bears similarities with the
execption that the parties to the contract are not at arms length. This situation is
common in family run businesses where one party (parent-child, husband-wife, etc)
uses their power to extol more favorable terms of a contract from the weaker party. As
with duress, the party seeking relief under economic duress must show that the
coercion is to such extent that it vitiated consent of the party.
Unconscionability

An unconscionable contract is one where there is a great inequality of bargaining power

between arm length parties. To obtain this ruling a party must show that there is an
inequality in bargaining power to the level that the party is incapable of adequately
protecting their interest and that an undue benefit was received by the stronger party.
Common factors that may indicate unequal bargaining power include old age,
emotional distress, dependence, alcoholism, and lack of business experience.
2.4 Discharge of Contract
2.3.1 Discharge by Performance
When both parties has fulfilled all the requirements set forth by the contract, the contract is at an
end. Some contracts will extend passed their initial performance, such as warranties and
condition subsequent.
2.3.2 Discharge by Frustration

Frustration is said to occur when there is intervening events that render the
performance under the contract virtually impossible. These events could be war,
political unrest, strikes, destruction of the item under contract, and many others. There
are three standard categorizations of frustrations. They are impossibility, frustration of
purpose, and temporal impossibility.
17

Frustration Due to Impossibility

Frustration due to impossibility is where the obligation of performance of the agreement

is discharged by the promisor, without fault of their own, a) the promisor dies or is
incapacitated through illness, b) performance requires the existence of a specific thing
and that specific thing no longer exists, and c) the performance is subsequently
prohibited by operation of law.
Frustration Due to Purpose

Frustration due to purpose is when contract is technically able to be performed but the
state of affairs surrounding the contract have changed. An example would be person
A who rents a room from a person B on the belief that a parade will pass in front of
the room at a future date. After the contract is entered, both parties find out that the
parade is cancelled. It could be alleged that Person A should be allowed to vitiate the
contract as they have no reason to have a room without the parade. This doctrine and
mistake of assumptions bear similarities but remain separate doctrines.
Frustration Due to Temporary Impossibility

This type of frustration is due to substantial delays in time that would substantially
reduce the value of the performance of the contract. A party may still be able to fulfill
their requirements under a contract, but due to delay caused by war, strikes, shipping
delays, etc. the value received by the counter party is substantially reduced.
Risk Allocation & Force Majeure

Generally parties are able to foresee such events and wish to protect their interests in
light of these possibilities. Parties are able to include force majeure clauses into their
contract that will indicate what the parties are expected to do upon these unlikely events
occurring. Generally these clauses explicitly list events upon which either party will be
excused from the performance of the contract. The clause may also indicate that the
parties can be required to be duly diligent in attempting to rectify the situation or make
alternative arrangements
2.5 Breach of Contract

A breach of contract occurs when one party fails to perform their obligations under the
contract. If the breach goes toward the essence of the contract, the obligation is said
to be a condition and the non-defaulting party can consider the contract discharged
(repudiated) and sue for damages that result. If the breach is to a non-essential portion
of the contract, the obligation is said to be a warranty and the non-defaulting party can
only sue for damages. Contracting parties are advised to stipulate what they consider
to be a condition and a warranty to avoid ambiguities within the contract.
2.6 Remedies for Breach of a Contract
18

Repudiation

A breach of a clause within a contract does not automatically terminate a contract, it

merely allows for the election of termination by the party not in breach. The nondefaulting party should communicate their intention to treat the contract as repudiated to
the breaching party, otherwise the courts may not allow the termination of the contract.
The communication does not have to indicate why they are treating the contract as
repudiated.
There are two limitations to the doctrine of repudiation. First is if the condition
surrounding of the breach could have been corrected at the time of termination, if the
beaching party was drawn attention to it, the contract is not to be considered
repudiated. The second is based on the principle of waiver and estoppels. If the nonbreaching party has communicated, either expressly or through action, that a condition
is waived then they are stopped (estopped) from claiming that the past waived
condition is valid. An example of this would be if a seller delivers their good late every
month and the buyer nevertheless accepts late delivery, the buyer is estopped from
claiming that the contract is repudiated as they have a history of accepting late delivery.
Damages

Damages can fall under two main categories of general (direct) and special (indirect).
An award of general damages would be the amount of out of pocket costs that the nonbreaching party had to incur to correct the breach. Special damages are consequential
damages that arise out of the breach. An example would be a contract to fix the front
stairs of a business. If the contractor negligently fixes the stairs, the owner can pay a
third party to correct the stairs and then sue the contractor for the additional expense of
having the stairs correctly fixed (general damages). If the result of having the stairs
fixed twice causes the business to lose customers due to the delay the owner can sue
for the loss of income (special damages).
There is a duty on the non-breaching party to mitigate their losses as soon as possible.
Using the above example, the owner is not entitled to delay the third party repair so they
can justify a higher special damages award due to an increase of delay due to their
inaction.
Restitution

Sometime rather than seeking a damage award, a non-breaching party would rather
have restitution. This is often when the object of the contract increases or decreases in
value from the time of the contract. An example would be a contract to sell a painting
was entered into between a vendor and purchaser. Before the transaction finished the
painting increased substantially in value. As such, the vendor elects to keep the
painting breaching their contract. If the buyer was to seek damages, they would be
19

limited to the money that they lost (their purchase price). Under restitution the buyer
would request not only the money lost, but the gain of value of the painting.
Specific Performance

Damage awards by courts are monetary in nature. An award of specific performance is

a court order for the action described within a contract. Utilizing the restitution example
above, the monetary award would be a sum of money payable from the vendor to the
buyer. An order of specific performance would be for the vendor to release the painting
to the purchaser.
Specifc performance although available is not a frequently awarded remedy in the
common-law jurisdictions. The general remedy in common-law jurisdictions is monetary
compensation. If the specific performance requires court supervision, it is rarely
awarded. Hence breach of contract for engineering services, design/build, etc are
rarely awarded.
Injunction

An injunction is similar to specific performance but it is a court order for the breaching
party to refrain from doing what they promised to refrain from doing under the contract.
Quantim Merit

This form of damages arises from the theory that a good/service received should be
fairly compensated for, even if the performance was only partially completed. This is
based on the doctrine of unjust enrichment. An example of this would be an owner who
contracts with a contractor to perform alterations to their house but fails to stipulate a
price. Upon completion the owner fails to pay, or underpays, the contractor for the work
performed. The contractor is entitled for fair compensation for the work that they
completed and can sue under quantim merit.
Substantial Performance/Compliance

The person who repudiates the contract cannot generally sue for quantim merit. If the
breaching party substantially completes what is required under the contract, they are
entitled to be paid for work completed less any damages awarded to the non-breaching
party. To obtain this award the beaching party must show that there is a benefit that
was awarded to the non-breaching party and the non-breaching party would be unjustly
enriched if they were to retain this benefit without payment.
Fundamental Breach

Typically in commercial contracts the parties negotiate associated risks and limitations
associated to performance under contract. An example would be a clause that limits
any damage awards to the contract price stipulation. The doctrine of fundamental
20

breach is a breach that is so radically different than what was contemplated in the
contract, that the clause exempting limitation of damages has no effect. An example
would be if a vendor & purchaser agree to transact a load of grain but the vendor
delivers the grain to a wrong party. The clause within the contract that limits damages
would not be effective.
Note: Chapter 20 of the course textbook is out of date. The Law for the
Professional Engineers Fourth Edition was published in 2008. In 2010. the
Supreme court of Canada has "laid to rest" the topic of fundamental breach in
the case Tercon Contractors Ltd. v. British Columbia (Transportation and
Highways),2010 SCC 4, [2010] 1 SCR 69 (SCC) Link to Canlii.
In this case the majority decision agreed with the three part test proposed by the
dissenting judge. The three part test is: 1)upon interpreting the exclusion clause,
does it even apply, 2) If the exclusion clause applies, was the exclusion clause was
unconscionable at the time the contract was made, 3)If the exclusion clause is
held to be valid and applicable, should the court nevertheless refuse to enforce
the valid exclusion clause because of the existence of an overriding public policy.
[paras 62, 122, 123]
The following historical precidents are for informational purposes only, and may
be used on the PPE depending on whether their questions are based on the
textbook.
The first case is Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd, [1970] 1
QB 447, [1970] 1 All E.R. 225
The facts of this case is that Wayne Tank and Pump Co. Ltd. Contracted to build a
transportation system for greasy wax. The design was not adequate as the pipeing
burst leading to a massive fire at the factory. The contract had a provision which
limited liability for accidents and damages to 2300GBP.
The court found that the breach went to the very root of the contract, and because of
this fundamental breach the contractor was not allowed to rely upon the limitedliability clause in the contract.
The Harbutt case stood as sound law until Photo Production Ltd v Securicor
Transport Ltd, [1980] AC 827, [1980] 1 All ER 556 Link to Balii.org
The facts in this case are that Securicor provided security services to Photo Production
Ltd. An employee of Securicor started a fire which destroyed the premises of Photo
Production Ltd. The contract between the parties had an exclusion clause:
21

"Under no circumstances shall the Company [Securicor] be responsible for any

injurious act or default by any employee of the Company unless such act or default
could have been foreseen and avoided by the exercise of due diligence on the part of
the Company as his employer; nor, in any event, shall the Company be held
responsible for (a) Any loss suffered by the customer through burglary, theft, fire or
any other cause, except insofar as such loss is solely attributable to the negligence of
the Company's employees acting within the course of their employment..."
The court in this case overturned the Harbutt decision. The court found that both
parties were equal in sophistication and had equally agreed to the terms and risks of
the contract. The court found no contractual execptions that would apply in this case,
and hence did not award damages under the doctorine of fundamental breach.
The Harbutt and Photo Production cases were imported into various Canadian
decisions. The Supreme Court of Canada sought to unite the doctorine in Hunter
Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426 Link to Canlii
The facts in this case is that Syncrude contracted with Hunter Engineering to create
mechanical gearboxes for their production in the Albert oil sands. The gearboxes
failed just over a year later. Syncrude sought to have them repaired under warranty
but Hunter Engineering refused. Hunter Engineering agreed that the gearboxes
weaked from use but failed to accept liability. Their contact had a clause:
"Notwithstanding any other provision in this contract or any applicable statutory
provisions neither the Seller nor the Buyer shall be liable to the other for special or
consequential damages or damages for loss of use arising directly or indirectly from
any breach of this contract, fundamental or otherwise or from any tortious acts or
omissions of their respective employees or agents and in no event shall the liability of
the Seller exceed the unit price of the defective product or of the product subject to
late delivery."
The court adopted the framework of Photo Production citing:
"I am inclined to adopt the course charted by the House of Lords in Photo Production
Ltd. v. Securicor Transport Ltd., [1980] A.C. 827, and to treat fundamental breach as a
matter of contract construction...In my view, the courts should not disturb the bargain
the parties have struck, and I am inclined to replace the doctrine of fundamental
breach with a rule that holds the parties to the terms of their agreement, provided the
agreement is not unconscionable."
and

22

"In light of the unnecessary complexities the doctrine of fundamental breach has
created, the resulting uncertainty in the law, and the unrefined nature of the doctrine as
a tool for averting unfairness, I am much inclined to lay the doctrine of fundamental
breach to rest, and where necessary and appropriate, to deal explicitly with
unconscionability. In my view, there is much to be gained by addressing directly the
protection of the weak from over-reaching by the strong, rather than relying on the
artificial legal doctrine of "fundamental breach". There is little value in cloaking the
inquiry behind a construct that takes on its own idiosyncratic traits, sometimes at odds
with concerns of fairness. This is precisely what has happened with the doctrine of
fundamental breach. It is preferable to interpret the terms of the contract, in an attempt
to determine exactly what the parties agreed. If on its true construction the contract
excludes liability for the kind of breach that occurred, the party in breach will
generally be saved from liability. Only where the contract is unconscionable, as might
arise from situations of unequal bargaining power between the parties, should the
courts interfere with agreements the parties have freely concluded. The courts do not
blindly enforce harsh or unconscionable bargains and, as Professor Waddams has
argued, the doctrine of "fundamental breach" may best be understood as but one
manifestation of a general underlying principle which explains judicial intervention in
a variety of contractual settings. Explicitly addressing concerns of unconscionability
and inequality of bargaining power allows the courts to focus expressly on the real
grounds for refusing to give force to a contractual term said to have been agreed to by
the parties." [Emphasis added]
and
"In rejecting the doctrine of fundamental breach and adopting an approach that binds
the parties to the bargains they make, subject to unconscionability, I do not wish to be
taken as expressing an opinion on the substantial failure of contract performance,
sometimes described as fundamental breach, that will relieve a party from future
obligations under the contract...I wish to be clear that my comments are restricted to
the use of fundamental breach in the context of enforcing contractual exclusion
clauses."
The court in this case has favored a strict construction approach between equal
bargining partners and not to be limited unless there is unconscionability.
Subsequent court decisions have upheld the strict construction approach and adopted
the "approach that binds the parties to the bargains they make, subject to
unconscionability"

23

3.0 Tort Law

Introduction

The law of tort is a legal mechanism for one party to be compensated for harm that
another party inflicts on them. This harm may be harm to the person, their dignity, their
property, or their wealth. That law of tort comprises of numerous discrete wrongs (or
torts), each with their requirements of proof and defenses allotted to them. Examples of
torts are negligence, battery, assault, nuisance, trespass, and many others. This area
of law is not static and the courts are creating new torts as the law evolves.
The general rule of tort liability is there is no liability without fault. When assessing the
elements above the conduct of a person may be intentional, negligent, or accidental.
Tort law intends to assess accountability to persons who either commit wrongs
intentionally, or to those who can reasonably foresee potential risks and fails to act. Tort
law does not intend to make person liable for accidents, errors in judgment, or bad luck.

Here is a news clip regarding the hot coffee tort suit mentioned last
class http://www.youtube.com/watch?feature=player_embedded&v=pCkL9UlmCOE

Rausch v. Pickering (City), 2013 ONCA 740, [2013] O.J. No. 5584
37 The foundation of a claim in negligence is the recognition of a duty of care owed
by the defendant to the plaintiff. A duty of care is not a duty to do anything specific:
the duty is to take reasonable care to avoid causing foreseeable harm to those with
whom one is in a relationship of proximity.
38 An error frequently made is conflating the duty of care with the standard of care.
They are discrete concepts. As the Supreme Court of Canada wrote in Stewart
v. Pettie, [1995] 1 S.C.R. 131, at para. 32, "the question of whether a duty of care
exists is a question of the relationship between the parties, not a question of conduct."
The question of what conduct is required to satisfy the duty is a question of the
appropriate standard of care. This important point is expressed in Carolyn
Sappideen&Prue Vines, Fleming's The Law of Torts, 10th ed. (Sydney: Thomson
Reuters, 2011), at pp. 123-24:
The general standard of conduct required by law is a necessary
complement of the legal concept of "duty". There is not only the
question "Did the defendant owe a duty to be careful?" but also "What
24

precisely was required of the defendant to discharge it?" Indeed, it is not

uncommon to encounter formulations of the standard of care or of some
particular precaution that an actor in the defendant's position should take
in terms of "duty", as when it is asserted that a motorist is under a duty to
keep a proper lookout or that a person has (or has not) a duty to warn
another of a certain risk. But this method of expression is best avoided.
In the first place, the duty issue is already sufficiently complex without
fragmenting it further to cover an endless series of details of conduct.
"Duty" is more appropriately reserved for the problem of whether the
relation between the parties (like manufacturer and consumer or occupier
and trespasser) warrants the imposition upon one of an obligation of care
for the benefit of the other, and it is more convenient to deal with
individual conduct in terms of the legal standard of what is required to
meet that obligation. Secondly, it is apt to obscure the division of
functions between judge and jury or the distinction between questions of
law and fact. It is for the court to determine the existence of a duty
relationship and to lay down in general terms the standard of care by
which to measure the defendant's conduct; it is for the jury or judge
sitting alone to translate the general into a particular standard suitable for
the case in hand and to decide whether that standard has been attained or
the duty breached.
39 The existence of a duty of care simply means that the defendant is in a
relationship of sufficient proximity with the plaintiff that he or she ought to have the
plaintiff in mind as a person foreseeably harmed by his or her wrongful actions. It is
not a duty to do anything specific; it is a duty to take reasonable care to avoid causing
foreseeable harm: Ryan v. Victoria (City), [1999] 1 S.C.R. 201, at paras. 25-27.
40 If a duty of care is recognized, then the standard of care necessary to discharge
the duty and whether it has been breached will be determined at trial.
Common Element of Tort Liability

There are many different kinds of individual torts, but the common elements to all tort
claims are that:
1)

The defendant owed the plaintiff a duty of care;

2)

The defendant breached the duty of care; and

3)

The plaintiff sustained harm from the defendants breach.

25

A duty of care is the legal obligation of a person to exercise care in their action in favor
of the plaintiff, or their interests.
Unlike contract law, there is no privity of contract between the tort feasor and the victim.
For instance, a negligent driver is liable to their victim, if their victim sustains damages
from the negligent driver's actions.
The Engineers Standard of Care

For liability to attach to a potential tort feasor, a duty of care must be owed to the
plaintiff ("victim"). For engineering services, a duty of care is created when the
engineer undertakes to perform specialized engineering services, and the other party
relies on the engineer to perform those services. To determine whether or not the
services supplied are adequately performed, a standard is applied. The standard is that
the engineer is to use "reasonable care" and is measured by application of professional
standards of the engineering profession at the time of when the services are
performed.
It should be noted that in assessing whether or not an engineer has performed their
services with "reasonable care" the courts may look to legislation/regulation. For
instance when dealing with building construction, section 2 of Performance Standards,
O Reg 260/08 would apply. When the PEO deals with professional misconduct, they
define negligence as:
negligence means an act or an omission in the carrying out of the work of a
practitioner that constitutes a failure to maintain the standards that a reasonable and
prudent practitioner would maintain in the circumstances. R.R.O. 1990, Reg. 941,
s. 72 (1); O. Reg. 657/00, s. 1 (1).General, RRO 1990, Reg 941
In general, liablity of an engineer was cited in Dominion Chain Co. Ltd. v. Eastern
Construction Co. Ltd. et al. (1974), 3 O.R. (2d) 481, 46 D.L.R. (3d) 28 (OCJ) Link to
Case (LexusNexus login req)
"Liability of engineer
It is trite law that an engineer is liable for incompetence, carelessness or negligence
which results in damages to his employer and he is in the same position as any other
professional or skilled person who undertakes his professional work for reward and is
therefore responsible if he does or omits to do his professional undertakings with an
ordinary and reasonable degree of care and skill.

26

In 3 Hals., 3rd ed., p. 528, para. 1050, it is stated:

Architects and engineers are bound to possess a reasonable amount of skill in the art
or profession they exercise for reward, and to use a reasonable amount of care and
diligence in the carrying out of work which they undertake, including the preparation
of plans and specifications. Every person who enters into a profession undertakes to
bring to the exercise of it a reasonable degree of care and skill, and represents himself
as understanding the subject and qualified to act in the business in which he professes
to act. The employer buys both skill and judgment, and the architect ought not to
undertake the work if it cannot succeed, and he should know whether it will or not.
And in para. 1051 of the same volume of Halsbury, it is stated:
As to the amount of skill required, the architect or engineer need not necessarily
exercise an extraordinary degree of skill. It is not enough to make him responsible that
others of greater experience or ability might have used a greater degree of skill, or
even that he might have used some greater degree. The question is whether there has
been such a want of competent care and skill, leading to the bad result, as to amount
to negligence.
And in para. 1056, pp. 530-1, it is stated:
In addition to this, if the negligence or want of skill of the architect or enginer has
occasioned loss to his employer, he will be liable to the latter in damages. These are
not limited to the amount of remuneration which under the agreement the architect or
engineer was to receive, but are measured by the actual loss occasioned to the
employer.
The findings of negligence in this case on the part of the engineer are both breaches of
his written contract for services as set out in the correspondence, exs. 22 and 23, and
for negligence in the performance of his professional duties."
Case Law Developments in Tort Law

Donoghue v Stevenson, [1932] UKHL 100, [1932] AC 562 (HL). Link to Donoghue v Stevenson
Famous case in Great Britian which established that a manufacturer has liability attached to the products
they sell. In this case the manufacturer produced bottles of ginger beer. One bottle was purported to
have a decomposing snail within it. The plaintiff bought the beer, drank it without knowledge of the snail
until it was too late, and became ill. The plaintiff sued the manufacturer. In deciding this case the court
held:

27

"a manufacturer of products which he sells in such a form as to show that he intends them to reach the
ultimate consumer in the form in which they left him with no reasonable possibility of intermediate
examination, and with the knowledge that the absence of reasonable care in the preparation or putting up
of the products is likely to result in injury to the consumers life or property owes a duty to the consumer to
take that reasonable care"

Hedley Byrne & Co Ltd v Heller & Partners Ltd., [1963] UKHL 4, [1964] AC 465 (HL) Link to Hedley
Byrne & Co Ltd v Heller & Partners Ltd
An important case regarding professional services. In this case the plaintiff asked the bank to report as to
the creditworthness of a company that the plaintiff had dealings with. Specifically the plaintiff:
" wanted to know in confidence, and without responsibility on our [the bank's] part, the respectability and
standing of Easipower, Ltd., and whether they would be good for an advertising contract for 8,000 to
9,000." [emphasis added]
The bank did not look into the situation but nevertheless reported that the company had a favorable
financial position. Based on this representation, the plaintiff conducted business with the company,
suffered a loss, then sued the bank over its representation. The court found:
"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."
As such the court found that the bank did owe a duty of care to the plaintiff. In this specific case, liability
from the breach could not be applied for as the plaintiff specifically requested information without
responsibility. That exclusion clause precluded liability.

Wolverine Tube (Canada) Inc. v. Noranda Metal Industries Ltd. (1994), 21 OR (3d) 264, [1994] O.J.
No. 2696 (ONSC) Link to Wolverine Tube (Canada) Inc. v. Noranda Metal Industries Ltd. aff'd
by Wolverine Tube (Canada) Inc. v. Noranda Metal Industries Ltd., 1995 CanLII 785 (ONCA)
An important case regarding the production of reports and the use of the reports by 3rd parties. In this
case Noranda requested ADL to perform environmental compliance audits and liability assessments. ADL
created a report under contract. The contract precluded the report to be presented to third parties without
ADL written consent. Within the report ADL stated:
"This report was prepared by Arthur D. Little of Canada, Limited for the account of Noranda, Inc. The
material in it reflects Arthur D. Littles best judgment in light of the information available to it at the time of
preparation. Any use which a third party makes of this report, or any reliance on or decisions to be made
based on it, are the responsibility of such third parties. Arthur D. Little accepts no responsibility for
damages, if any, suffered by any third party as a result of decisions made or actions based on this report."
[emphasis added]
Noranda used this report as representations as to the sale of the subject property and induced Wolverine
to reply on them instead of performing their own audit. No contract existed between ADL and Wolverine.
The court in its decision cited the Hedley Byrne & Co Ltd v Heller & Partners Ltd. case and found:

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" It is apparent that Canadian authorities binding upon me have consistently recognized not only the duty
of care for negligent misrepresentation as found in Hedley Byrne, but also the right of the issuer of the
statement to disclaim any assumption of a duty of care."
If the work product of an engineer is to be relied upon, an engineer has a duty of care towards the person
following the design. An engineer can be held liable for breaches of this duty.
Trident Construction Ltd. v. W.L. Wardrop, [1979] 6 W.W.R. 481, [1979] 3 A.C.W.S. 438 (Man
QB); Link to case (LexusNexus login req)
The engineer in this case produced an unsuitable engineering design for a sewage disposal plant. No
contract existed between the contractor and the engineer. Each were contracted through the principal.
The court found:
"Why should it be otherwise, as to the responsibility of the professional engineer or architect whose plans
the builder is required to follow, in the event a mistake in those plans proves costly to the builder? Surely,
the party whose design it is may be taken to have in contemplation the party invited to build the project as
designed, and who by his contract will have to abide by the plans in question, as forming an integral part
of his undertaking with the owner. I have no difficulty in fixing the professional engineer with a duty to care
towards the person who is to follow the engineer's design, to ensure that the plans are workable, for
breach of which duty the engineer may be made accountable." [Emphasis added]
Brown & Huston Ltd. v. York (City), [1983] O.J. No. 1287, 5 C.L.R. 240 (ONSC) Link to case
(LexusNexus login req)
The consulting engineer was aware of detrimental soil conditions but did not state this in the request for
tenders. The tendering documents required tenderers to visually inspect soil conditions prior to bidding.
The clause specifically states:
"Each Tenderer must visit the site of the work before submitting his tender and must satisfy himself by
personal examination as to the local conditions to be met with during the construction and conduct of the
work. lie shall make his own estimate of the surface facilities and difficulties to be encountered. He is not
to claim at any time after submission of his tender that there was any misunderstanding of the terms and
conditions of the Contract relating to surface site conditions."
The court held that there was a duty of care on the engineer and cited:
"There is no doubt that in the circumstances that existed here, there was a duty of care...The engineers
must have known that tenderers would rely on the tender package; particularly when the contract
documents did not require the contractor to satisfy itself about the sub-surface conditions...Was the lack
of reference to the soils reports and the change of the sketch and plan a negligent omission to convey
necessary information? Information concerning the water and sub-surface conditions was of great
significance to any tenderer. I can think of no good reason why the engineers did not refer to the soils
reports in the tender package and no reason for this omission was advanced at trial."
Unit Farm Concrete Products Ltd. v. Eckerlea Acres Ltd. (1983), 5 C.L.R. 149, 24 A.C.W.S. (2d) 309
(ONSC) Link to case (LexusNexus login req)
In this case the plaintiff was constructing aa manure pit. In the past the plaintiff relied on a governmental
engineer in assessing rebar requirements. The plaintiff created a manure pit design and sent to various
persons including the engineer. The engineer acknowledged that he did not carefully review the plans,
but nevertheless sent a letter stating:

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"Good set of plans. I like the detail. Wish I could spend that amount of time on each project. Keep up the
good work."
The court found that the rebar schedule and rebar placement were deficient. The court found that the
engineer had a duty of care to the plaintiff citing:
"that he was called upon to exercise the skill of an engineer even though he was not a consulting
engineer. The course of his conduct with Huitema was such as to entitle Huitema to rely on engineering
information given to him by Huffman, in the absence of a disclaimer of responsibility on Huffman's part"
"that engineers do approve plans of others, if consulted, in different ways. One of the ways would be a
letter, and I find that the absence of the seal of a professional engineer has no bearing on this case."
The court also appointed negligence notwithstanding that the engineer was not aware that his services
were being relied upon. The court found:
"Huffman [the engineer] says he did not know he was being consulted, and subjectively that may very well
be so. Unfortunately when we are being held to account for negligence, it is not what we subjectively feel
or think but what our conduct objectively makes the other person believe we feel or think.
SEDCO v. William Kelly Holdings Ltd., [1988] 4 W.W.R. 221, 29 C.L.R. 245 (Sask. Q.B.) Link to case
(LexusNexus login req)
Hospital Laundry Services (HLS) provides a laundry service to various Regina area hospitals. SEDCO
was to construct a new building and lease it to HLS. SEDCO contracted with William Kelly Holdings Ltd.
(an Architect). The Architect with the mechanical engineers to design the mechanical requirements of the
building. Plans were drawn, construction commenced upon finishing HLS leased the building from
SEDCO. It was immediately apparent that there were defects in the mechanical design for the building,
primarily in relation to the building's cooling system.
The court found that there was no contract between HLS and the Architect.
"There is no contract between Hospital and Kelly. As a general rule, as a result of the doctrine of privity of
contract, a contract cannot confer rights or impose obligations on a person who is not a party to it. An
exception to the rule occurs when there is a valid assignment of contractual rights and obligations. ...
Contracts involving personal relations or personal skills are not assignable without the consent of both
parties to them. A contract to employ an architect is a personal one and Kelly didn't consent to the
assignment to Hospital. As well, article 10 of the Kelly agreement stated in part: Neither the client nor the
architect shall assign, sublet, or transfer any interest in this agreement without the written consent of the
other."
The court did find the engineer owed a duty of care to HLS
"The proximity between Hospital and Briggs [engineer] was sufficiently close for Briggs to owe a duty of
care to Hospital. I am satisfied Briggs was guilty of negligence that led to a breach of that duty. It is
conceded that the design of the mechanical cooling system was faulty. Briggs admits it under-estimated
the heat rejection from the laundry equipment. Briggs was bound to exercise the standard of care and
degree of skill usual to mechanical engineers in estimating the heat load from the equipment. It didn't
obtain information on heat loads from the manufacturers of the equipment or other people who might
have knowledge. It didn't do calculations of the head loads of the equipment from first principles, and it
didn't do a heat balance analysis on the building to determine if the calculations it did do were correct. A
mechanical engineer of ordinary competence following the usual methods and standards of the
profession would have undertaken these steps in designing the mechanical requirements of the building."

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Edgeworth Construction Ltd. v. N. D. Lea & Associates Ltd., [1993] 3 SCR 206, 107 DLR (4th) 169
(SCC) Link to Edgeworth Construction Ltd. v. N. D. Lea & Associates Ltd.
Edgeworth Construction Ltd. won a bid on a contract to build a section of highway in the Revelstoke area.
Edgeworth lost money on the project due to errors in the specifications and construction drawings. It
commenced proceedings for negligent misrepresentation against the engineering firm which prepared
those drawings, N. D. Lea & Associates Ltd.
The court found:
"Liability for negligent misrepresentation arises where a person makes a representation knowing that
another may rely on it, and the plaintiff in fact relies on the representation to its detriment: Hedley Byrne &
Co. v. Heller & Partners Ltd...The facts alleged in this case meet this test, leaving the contract between
the contractor and the province to one side. The engineers undertook to provide information (the tender
package) for use by a definable group of persons with whom it did not have any contractual relationship.
The purpose of supplying the information was to allow tenderers to prepare a price to be submitted. The
engineers knew this. The plaintiff contractor was one of the tenderers. It relied on the information
prepared by the engineers in preparing its bid. Its reliance upon the engineers' work was reasonable. It
alleges it suffered loss as a consequence. These facts establish a prima facie cause of action against the
engineering firm."

Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 SCR 85, 121 DLR
(4th) 193 (SCC) Link to Winnipeg Condominium Corporation No. 36 v. Bird Construction Co.
A company by the name of Tuxedo Properties Co. Ltd. ("Tuxedo") entered into a contract with a general
contractor, Bird Construction Co. Ltd. ("Bird"), to build a 94-unit apartment building. The building was then
sold to Winnipeg Condominium Corporation No. 36. Four years after purchase the Condominium
Corporation became concerned about the state of the exterior cladding of the building. The directors
observed that some of the mortar had broken away and that cracks were developing in the stone work. As
a result of these concerns, the Condominium Corporation retained a firm of structural engineers and the
original architects, Smith Carter, to inspect the building. The engineers and Smith Carter recommended
some minor remedial work but offered the opinion that the stonework on the building was structurally
sound. Seven years later a storey-high section of the cladding fell off.
In assessing on whether a duty of care exists to future owners, the court found:
"In my view, it is reasonably foreseeable to contractors that, if they design or construct a building
negligently and if that building contains latent defects as a result of that negligence, subsequent
purchasers of the building may suffer personal injury or damage to other property when those defects
manifest themselves. A lack of contractual privity between the contractor and the inhabitants at the time
the defect becomes manifest does not make the potential for injury any less foreseeable. Buildings are
permanent structures that are commonly inhabited by many different persons over their useful life. By
constructing the building negligently, contractors (or any other person responsible for the design and
construction of a building) create a foreseeable danger that will threaten not only the original owner, but
every inhabitant during the useful life of the building."
"I conclude that the law in Canada has now progressed to the point where it can be said that contractors
(as well as subcontractors, architects and engineers) who take part in the design and construction 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 create defects that
pose a substantial danger to the health and safety of the occupants. Where negligence is established and
such defects manifest themselves before any damage to persons or property occurs, they should, in my

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view, be liable for the reasonable cost of repairing the defects and putting the building back into a nondangerous state."

Vicarious Liability

If an employee commits a tort in the course of their employment, the employer is said
to be vicariously liable for their employee's actions.
In Dutton v. Bognor Regis United Building Co. Ltd., [1972] 1 All E.R. 462 the court
was to decide whether or not the municipality was vicariously liable for their building
inspector. The building inspector in this case failed to do the required inspections
prior to giving the approval for the construction to proceed. Construction proceeded
and there was severe foundation problems. The court in this case found that the
municipality is liable for the actions of the inspector.
In some instances both the employee as well as the employer can be jointly liable for
negligence of the employee. In the engineering field, the Supreme Court of Canada
found in Edgeworth Construction Ltd. v. N. D. Lea & Associates Ltd., [1993] 3 SCR
206, 107 DLR (4th) 169 (SCC) Link that:
Majority decision "The position of the individual engineers is different. The only basis
upon which they are sued is the fact that each of them affixed his seal to the design
documents. In my view, this is insufficient to establish a duty of care between the
individual engineers and Edgeworth. The seal attests that a qualified engineer
prepared the drawing. It is not a guarantee of accuracy. The affixation of a seal,
without more, is insufficient to found liability for negligent misrepresentation."
Minority decision "The situation of the individual engineers is quite different. While
they may, in one sense, have expected that persons in the position of the appellant
would rely on their work, they would expect that the appellant would place reliance
on their firm's pocketbook and not theirs for indemnification; see London Drugs,
supra, at pp. 386-87. Looked at the other way, the appellant could not reasonably rely
for indemnification on the individual engineers. It would have to show that it was
relying on the particular expertise of an individual engineer without regard to the
corporate character of the engineering firm. It would seem quite unrealistic, as my
colleague observes, to hold that the mere presence of an individual engineer's seal was
sufficient indication of personal reliance (or for that matter voluntary assumption of
risk). In considering the matter, other more general policy issues should be
considered. As I noted in London Drugs, supra, at p. 387, the case raises "with
particular acuity the question of whether in effect requiring double insurance by both
the firm and the employee makes sense in that context".
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Product Liability

Product liability in Canada is based on the tort of negligence. Many products have a
risk of injury associated to them. If products have inherent risks, manufacturers are
liable to damages if they do not inform the end user of the inherent risks within their
product.
Lambert v. Lastoplex Chemicals Co., [1972] S.C.R. 569, 25 D.L.R. (3d) 121
(SCC) Link
The plaintiff was a mechanical engineering who purchased two cans of a fast drying
lacquer seal to seal a parquet floor in his basement. Within his basement there was a
natural gas furnace and a natural gas water, both with pilot lights. The plaintiff
opened up a door and window prior to application. He did not extingush the pilot
lights. An explosion resulted during the application.
The can had three warning labels on it:
"The three labels on the cans of the respondent's product contained, respectively, the
following cautions: (1) The largest label, rectangular in shape, which bore the name
and description of the product, contained on its end panel, in addition to drying time
information, the words "Caution inflammable! Keep away from open flame!". Along
the side of this panel, vertically and in small type, were the words "Danger harmful
if swallowed, avoid prolonged skin contact, use with adequate ventilation, keep out of
reach of children". (2) A diamond-shaped red label with black lettering, issued in
conformity with packing and marking regulations of the then Board of Transport
Commissioners for Canada and having shipping in view, had on it in large letters the
following: "KEEP AWAY FROM FIRE, HEAT AND OPEN-FLAME LIGHTS",
"CAUTION", "LEAKING Packages Must be Removed to a Safe Place", "DO NOT
DROP". (3) A third label, rectangular in shape, contained a four language caution,
which was in the following English version: "CAUTION, INFLAMMABLE Do
not use near open flame or while smoking. Ventilate room while using."
The court in assessing whether the manufacturer had met it's duty of care to warn
looked at competing products:
"The evidence disclosed that a lacquer sealer sold by a competitor of the respondent
contained on its label a more explicit warning of danger in the following terms:
"DANGER FLAMMABLE", "DO NOT SMOKE. ADEQUATE VENTILATION
TO THE OUTSIDE MUST BE PROVIDED. ALL SPARK PRODUCING DEVICES

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AND OPEN FLAMES (FURNACES, ALL PILOT LIGHTS, SPARK-PRODUCING

SWITCHES, ETC.), MUST BE ELIMINATED, IN OR NEAR WORKING AREA."
The court found that:
"Manufacturers owe a duty to consumers of their products to see that there are no
defects in manufacture which are likely to give rise to injury in the ordinary course of
use. Their duty does not, however, end if the product, although suitable for the
purpose for which it is manufactured and marketed, is at the same time dangerous to
use; and if they are aware of its dangerous character they cannot, without more, pass
the risk of injury to the consumer.
The applicable principle of law according to which the positions of the parties in this
case should be assessed may be stated as follows. Where manufactured products are
put on the market for ultimate purchase and use by the general public and carry
danger (in this case, by reason of high inflammability), although put to the use for
which they are intended, the manufacturer, knowing of their hazardous nature, has a
duty to specify the attendant dangers, which it must be taken to appreciate in a detail
not known to the ordinary consumer or user. A general warning, as for example, that
the product is inflammable, will not suffice where the likelihood of fire may be
increased according to the surroundings in which it may reasonably be expected that
the product will be used. The required explicitness of the warning will, of course, vary
with the danger likely to be encountered in the ordinary use of the product."
HoLem v. Barotto Sports Ltd., [1976] 6 WWR 430, 1976 ALTASCAD 153 (CanLII)
(ABSC) Link
The facts in this case surround a shotgun shell reloading machine. The machine was
known on the market to be the highest quality. The loader came with instructions,
which if followed would produce shells equivalent to factory-made shells. The
plaintiff was adequately instructed on how to use the machine. The plaintiff failed to
follow instructions and failed to note the apparent consequences of failing to follow
instructions. The instructions did state that if followed the machine would be
impossible to create a double load shell. The plaintiff created a double load of
powder, no wad, and a double load of shot which blew up in his face when test firing.
The court relies on a Lambert v. Lastoplex Chemicals Co. Ltd. decision which places
the duty of warn onto the manufacturer citing:
"Manufacturers owe a duty to consumers of their products to see that there are no
defects in manufacture which are likely to give rise to injury in the ordinary course of
use. Their duty does not, however, end if the product, although suitable for the
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purpose for which it is manufactured and marketed, is at the same time dangerous to
use; and if they are aware of its dangerous character they cannot, without more, pass
the risk of injury to the consumer."
Utlimately the court found that the plaintiff was solely responsible for their own
misfortunes as the manufacturer could not reasonably foresee all possible iterations
that a customer could perform.
"In the result, I am of opinion that the circumstances I have related disclose a
sequence of faults on the part of Lem, in failures not only to follow clear and simple
instructions and perform simple acts, but also to observe audible and visual evidence
of those failures and to follow the prescribed remedial steps, "so fortuitous as to be
beyond the range of foreseeable results" of misuse which Ponsness and Barotto as
reasonable persons should anticipate and warn against. Those which might normally
be expected to occur are dealt with in the owners' manual. There is no evidence that
any such combination of negligences on the part of an operator had ever occurred
before. If one is called upon to anticipate and warn against all of the combinations and
permutations of possible acts and omissions of negligence, one is moved from the area
of reasonable foreseeability to the position of an insurer. The damage suffered by Lem
was not caused by failure in a duty owed to him by either of the defendants: it was
caused by his own fault." [emphasis added]
Historically damages from negligence would only be awarded if there were an injury
to a person. Pure economic losses were not awarded unless there was accompaning
injury. For product liability issues this changed in 1973 within Canada.
Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189, 40 D.L.R. (3d)
530 (SCC) Link
In this case the plaintiff operated barges that were used in the logging industry. The
plaintiff became aware that a similar barge, by the same manufacturer, had a
catastrophic failure resulting in the death of the worker. The Workmen's
Compensation Board of British Columbia ordered the plaintiff to inspect their crane
on their barge and defects were found. The defects were cracks that resulted from
negligent design of the crane. Washington Iron Works knew of the cracks and the
deficient design for sometime prior to the events but did not warn the plaintiff.
Although no catastrophic failure had occured, the plaintiff sued for loss of use of the
barge during the repair period.
The court found that Washing Iron Works had a duty to warn customers of potential
defects citing:
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"In my opinion the knowledge of the danger involved in the continued use of these
cranes for the purpose for which they were designed carried with it a duty to warn
those to whom the crane had been supplied, and this duty arose at the moment when
the respondents or either of them became seized with the knowledge."
"Finding as I do that there was in this case a breach of a duty to warn which
constituted negligence on the part of both respondents, and that the economic loss
solely attributable to the interruption of the appellant's business during "coastal
operations" was the immediate consequence of that breach, I come to consider the
question of whether such damage is recoverable in an action for negligence."
"I am conscious of the fact that I have not referred to all relevant authorities relating
to recovery for economic loss under such circumstances, but I am satisfied that in the
present case there was a proximity of relationship giving rise to a duty to warn, and
that the damages awarded by the learned trial Judge were recoverable as
compensation for the direct and demonstrably foreseeable result of the breach of that
duty. "

Macmillan Bloedel Ltd. v. Foundation Company of Canada Ltd., [1977] B.C.J. No.
1186, 75 D.L.R. (3d) 294 (BCSC) Link to case (LexusNexus login req)
The plaintiff sues the defendant for negliently installing an electric cable to their
office building. This damage interrupted the supply of electricity to the building and
the plaintiff was unable to continue operations for some hours and had to send its
employees home. The plaintiff sued for $48,841, being the salaries and wages paid to
the staff who were employed that day.
The court found that the economic loss was based on the management decision to
send the workers home and hence was not recoverable. They find:
"I am prepared to conclude, therefore, that it was reasonably foreseeable by the
defendant that it would do economic harm to the plaintiff as a direct result of its
negligent act on April 11, 1974...However, I find an insurmountable obstacle in the
path of the plaintiff's recovery. It has not proved that the pecuniary or economic loss
which it claims, resulted from the defendant's negligent act...The evidence is clear that
the plaintiff seeks here to recover a sum which it is required to pay to its employees
under their respective contracts of employment. The payment in respect of which it
seeks compensation from the defendant is not an economic loss resulting from the
power interruption caused by the negligence of the defendants. The payments made to
the employees were a consequence of the plaintiff's obligations to its employees
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which existed prior to the negligent act being committed. Clearly the plaintiff cannot
justify its recovery on per quod servitiumamisit. Plaintiff's counsel does not make that
submission."
Bethlehem Steel Corporation v. St. Lawrence Seaway Authority, [1978] 1 F.C.
464, [1977] F.C.J. No. 162 (FCCA) Link to case (NexusLexus login req)
The plantiffseeked to limit liability for damage to a lift bridge when their ship ran into
a lift bridge over the Welland Ship Canal. Several parties joined in action against the
plantiff seeking redress for lost profit from shipping delays caused by the accident.
The court in this case defined the ability to recover a pure economic loss to be very
narrow. The court found:
"It is clear that the above tests apply and can serve to either found or defeat a claim in
tort when actual physical damage occurs.But where the damage is solely of the nature
of an economic loss, the general law is that such damage is not recoverable even
where it might have been foreseeable and where the proper causal relationship
between the tortious act and the damage exists, as I would be prepared to find in the
case at bar. There are, of course, exceptions to this general such as actions for the
intentional tort of deceit, actions by a master for injury to his servant and cases where
there has been a mis-statement negligently made by someone presumably possessed
of a special knowledge where it might reasonably be foreseen that the statement
would be relied upon by somebody such as the person claiming the economic loss and
that economic loss might in fact ensue. Since the well-known and widely discussed
obiter dictum of the House of Lords in the case of Hedley Byrne & Co. Ltd. v. Heller
& Partners Ltd., which obiter has been applied by Canadian courts on several
occasions, it is clear that economic or pecuniary loss is not outside the scope of
liability for negligence. But, in my view, the range of cases, where economic loss
which is not dependent upon physical damage of some sort is recoverable, remains
nevertheless very limited." [Emphasis Added]
The court distingushed the Rivtow case citing:
"It is therefore clear, in my view, that the Rivtow case, supra, does not in any way
change the law as it was previously formulated and recognized by Canadian courts.
Even if the minority judgment were followed at some later date, liability would only
be extended from cases where there was actual physical harm to those where physical
harm to the property of the claimant was threatened. There certainly was no threat of
physical harm to the property of the claimant National Steel Corporation by
Bethlehem Steel in the case at bar. Finally, from a factual standpoint, the Rivtow case,
unlike the case at bar, would tend to fall within the general category of product cases
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such as the classical decision of M'Alister (or Donoghue) v. Stevenson7 where special
norms of liability apply."
Ultimately the court held that the pure economic loss was not recoverable to all
defendants.

Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 SCR
1021, 91 DLR (4th) 289 (SCC). Link
The defendant was towing a log barge that collided with a railway bridge owned by
PWC. The bridge was utilized as a main connector for the CN property on either side
of the bridge. Railway service was disrupted due to the collision. The plaintiff
brought an action against the defendant to recover
The court in a 4/3 split decision, the majority held:
"In summary, it is my view that the authorities suggest that 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. 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. To date,
sufficient proximity has been found in the case of negligent misstatements where there
is an undertaking and correlative reliance (Hedley Byrne); where there is a duty to
warn (Rivtow); and where a statute imposes a responsibility on a municipality toward
the owners and occupiers of land (Kamloops). But the categories are not closed. As
more cases are decided, we can expect further definition on what factors give rise to
liability for pure economic loss in particular categories of cases.
I add the following observations on proximity. The absolute exclusionary rule adopted
in Stockton and affirmed in Murphy (subject to Hedley Byrne) can itself be seen as an
indicator of proximity. Where there is physical injury or damage, one posits proximity
on the ground that if one is close enough to someone or something to do physical
damage to it, one is close enough to be held legally responsible for the consequences.
Physical injury has the advantage of being a clear and simple indicator of proximity.
The problem arises when it is taken as the only indicator of proximity. As the cases
amply demonstrate, the necessary proximity to found legal liability fairly in tort may
well arise in circumstances where there is no physical damage."

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