[1994] 2 F.C. 318
T-552-88
Canadian National Railway Company (Plaintiff)
v.
Norsk Pacific Steamship Company Limited, Norsk Pacific Maritime Services Ltd., Crown Forest Industries Ltd., Fletcher Challenge Ltd., The Tug “Jervis Crown”, The Barge “Crown Forest No. 4”, Francis MacDonnel, Rivtow Straits Ltd. and R.V.C. Holdings Ltd., operating under the firm name and style of Westminster Tug Boats and the said Westminster Tug Boats, The Tug “Westminster Chinook” and Barry Smith (Defendants)
Indexed as: Canadian National Railway Co. v. Jervis Crown (The) (T.D.)
Trial Division, Reed J.—Vancouver, November 22; Ottawa, December 10, 1993.
Damages — Compensatory — Corporate expenses resulting from collision of ship with railway bridge — Overhead, including general administrative overhead, recoverable as costs incurred by plaintiff due to accident — Claim for taxi services substantiated — Wages for temporary supervisors recoverable to extent of increase over regular salary — Charges relating to processing invoices recoverable as percentages applied reasonable, adopted by industry in such cases — Plaintiff estopped from arguing compound interest should be awarded as matter implicitly dealt with in earlier proceeding, on basis of simple interest.
This was an assessment of damages subsequent to a trial as to liability before Addy J. at which the plaintiff was held entitled to judgment against the defendants as a result of an accident caused when the Jervis Crown, towing a barge at a high speed in heavy fog, collided with a railway bridge. The bridge was closed to traffic for one month, during which time the railways had to reroute traffic over another bridge and the transportation of freight was delayed, cancelled or done by other means.
The items of the claim upon which the parties had not agreed were: a claim with respect to overhead amounting to $215,542.71; a claim for expenses incurred in checking, assessing and paying third party invoices amounting to $10,894.75; a claim for wages paid to four temporary supervisors in the amount of $22,979.20; a claim for taxi expenses in the amount of $14,193.55. There was also the question of whether compound or simple interest should be awarded.
Held, the claims should be allowed, but the amount with respect to wages was limited to the additional wages paid to the four temporary supervisors. Interest was to be calculated on a simple interest basis.
Taxi Services
There was no dispute with respect to taxi services to “unique locations”—places where plaintiff would not normally require such service. With respect to taxi services to non-unique locations, the evidence made it clear that the usage by the plaintiff increased substantially, to the full extent of the claim, as a result of the damage to the bridge.
Wages for Supervisors
The wages claimed were paid to four carmen who were asked to act as temporary supervisors at another location during the time of the detour. The evidence disclosed that the four temporary supervisors were paid approximately ten percent more than the amount they would have received as carmen. The defendants agree that a claim for these additional wages was recoverable by the plaintiff.
Charges Relating to Processing Invoices
Case law establishes that adopting percentages as an assessment of costs incurred is not contrary to the principles of damage assessment. The percentages which were sought to be applied were ones adopted by the industry as a reasonable charge for the expenses incurred. On at least one occasion, which ended up saving the defendants six times the amount plaintiff was claiming in this respect, it was clear that a considerable amount of time was spent by the plaintiff’s employees verifying, negotiating and eventually obtaining the reissuance of an invoice. The charges were reasonable in the circumstances.
Overhead
There need not be a demonstrated direct link between the claim relating to any specific item of overhead and the damage arising out of the accident. Case law has established that overhead may be recoverable as costs incurred by a plaintiff as a result of injury caused to it. The plaintiff claimed overhead in relation to three types of activity occasioned by the accident and bridge closure: the extra miles which the plaintiff’s trains were required to travel as a result of the detours and rerouting; the construction of temporary repair facilities and additional construction, repair or maintenance of tracks and roadways. Cost calculations had been done in accordance with generally accepted accounting principles.
The defendants’ argument that only items of overhead which increase as a result of the accident should be included in the claim was not supported by either the case law, the expert evidence or common sense. It was obvious that in the case of an accident of this type, employees of the plaintiff, other than first-line operatives, would have to spend time coping with the disruption of the plaintiff’s normal business activities. The company’s resources, both personnel and material, would be used for this purpose. Management time, clerical staff time, changes needed to computer programs, data processing charges, telephone services and a myriad of other items would be involved.
It may well be that different approaches to overhead are required in different cases. In the present case, the claims for overhead, including that described as relating to general management, have been shown to be part of the cost incurred by the plaintiff as a result of the accident and have been demonstrated as reasonable.
Compound or Simple Interest
It was not necessary to decide whether it would be appropriate in the present case to award compound interest since the matter had already been implicitly dealt with (on the basis that simple interest should be awarded) in an earlier proceeding. Issue estoppel therefore applied.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Federal Court Rules, C.R.C., c. 663, R. 500.
CASES JUDICIALLY CONSIDERED
APPLIED:
Hydro-Electric Power Commission of Ontario v. Mather et al., [1954] O.W.N. 382 (C.A.); C.P.R. v. Can. Freightways Ltd. and O’Bray (1962), 39 W.W.R. 191 (B.C.C.A.); Bell Telephone Co. of Canada v. Montreal Dual Mixed Concrete Ltd. & Highway Paving Co. (1959), 23 D.L.R. (2d) 346; 80 C.R.T.C. 363; [1959] R.L. 425 (Que. C.A.); British Columbia Hydro and Power Authority v. Marathon Realty Co. (1992), 89 D.L.R. (4th) 419 (B.C.C.A.).
DISTINGUISHED:
Diversified Products Corp. v. Tye-Sil Corp. (1990), 32 C.P.R. (3d) 385; 38 F.T.R. 251 (F.C.T.D.); Hi-Speed Tools Limited v. Empire Tool Works (1923), 25 O.W.N. 172.
REFERRED TO:
Miller Dredging Ltd. v. Dorothy MacKenzie (The), [1993] B.C.J. No. 153 (Q.L.); Monk Corp. v. Island Fertilizers Ltd. (1989), 97 N.R. 384 (F.C.A.); approved [1991] 1 S.C.R. 779; (1991), 80 D.L.R. (4th) 58; 123 N.R. 1; Amoco Cadiz, In re, [1992] A.M.C. 913.
AUTHORS CITED
Law Reform Commission of British Columbia. Report on the Court Order Interest Act. Victoria, B.C.: Queen’s Printer, 1987.
ASSESSMENT OF DAMAGES subsequent to a Trial Division decision on liability dated April 14, 1989 (Cdn. National Railway Co. v. Norsk Pacific Steamship Co. (1989), 49 C.C.L.T. 1; 26 F.T.R. 81 (F.C.T.D.); affd [1990] 3 F.C. 114; (1990), 65 D.L.R. (4th) 321; 3 C.C.L.T. (2d) 229; 104 N.R. 321 (C.A.); affd [1992] 1 S.C.R. 1021; (1992), 137 N.R. 241).
COUNSEL:
Marshall Bray for B.C. Power and Hydro Authority.
David F. McEwen for CNR Co.
M. Ian Giroday for Burlington Northern Railroad.
Murray L. Smith and Raj Samtani for defendants.
SOLICITORS:
Golman Mathiesen Lakhani Seligman, Vancouver, for B.C. Power and Hydro Authority.
McEwen, Schmitt & Co., Vancouver, for CNR Co.
Douglas, Symes & Brissenden, Vancouver, for Burlington Northern Railroad.
Campney & Murphy, Vancouver, for defendants.
The following are the reasons for judgment rendered in English by
Reed J.: This decision relates to the assessment of damages which the plaintiff is entitled to recover from the defendants as a result of Mr. Justice Addy’s decision of April 14, 1989 [Cdn. National Railway Co. v. Norsk Pacific Steamship Co. (1989), 49 C.C.L.T. 1 (F.C.T.D.)].
The accident which gave rise to the damages was caused when the Jervis Crown, owned and operated by the Norsk defendants and under the control of their captain Francis MacDonnel, towing the barge Crown Forest No. 4 after dark on an ebb tide in heavy fog attempted to transit the New Westminster Railway Bridge at nearly full speed. As a result, the Crown Forest No. 4 collided with the bridge. The bridge was badly damaged and was closed to rail traffic from November 28, 1987 to December 23, 1987. It is admitted that as a result of the accident,
The railways were required to reroute traffic over another bridge located further upstream. The transportation of freight by rail was delayed and/or freight was transported by other means or was not transported at all.
The trial on the subject of liability took place in 1989, and a judgment in favour of the plaintiff was handed down on April 14, 1989. That judgment was appealed to the Federal Court of Appeal which appeal was dismissed on January 5, 1990 [[1990] 3 F.C. 114]. That decision was appealed to the Supreme Court of Canada and that appeal was dismissed on April 30, 1992 [[1992] 1 S.C.R. 1021]. An application for re-hearing of the appeal before the Supreme Court of Canada was dismissed on July 23, 1992.
Prior to the hearing before me, agreement was reached by the parties on many aspects of the claim. The plaintiff’s claim is for $1,681,315.58 plus interest. Of this amount only $263,610.20 remains in dispute, together with the question of whether simple or compound interest should be awarded. Counsel advises that the difference in the award referable to this last would amount to approximately $300,000.
The items of the claim upon which the parties have not agreed are: a claim with respect to overhead amounting to $215,542.71; a claim for expenses incurred in checking, assessing and paying third party invoices amounting to $10,894.75; a claim for wages paid to four temporary supervisors in the amount of $22,979.20; a claim for taxi expenses in the amount of $14,193.55. I will deal with these issues in the reverse order to which they have been listed. Then the question of compound or simple interest will be considered.
Taxi Services
The dispute with respect to taxi services relates to the sufficiency of the evidence and whether the plaintiff has proven its claim. The plaintiff claimed $38,470.51 as expenses incurred for taxi fares which were occasioned by the detour arrangements and rerouting of trains which it had to put in place as a result of the accident. Some of these expenses were incurred as a result of taxis taken to or from locations to which the plaintiff would not under normal circumstances have required such service (unique locations). Others were incurred as a result of an increased number of trips to or from locations to which the plaintiff normally used taxi services (non-unique locations). The expenses relating to the unique locations were identified and amounted to $24,276.97. The defendants admit that these are properly recoverable. The defendants contest the expenses relating to the non-unique locations. The defendants argue that the latter were not properly identified or coded for accounting purposes by the plaintiff at the time the taxi services were rendered and therefore they have not been proven to have been caused by the accident.
The evidence makes it clear that as a result of the damage to the bridge, the taxi usage by the plaintiff to and from non-unique locations increased substantially. Mr. Hopewell pointed out that under normal operating conditions, the crews would often travel to the locations, where they were to commence their duties, on trains going to those locations. As a result of the closure of the bridge, this way of commuting was not as likely to be available. Crews therefore had to travel to and from those locations by taxi. He also pointed out that because of the detours and the consequent delays, crews might be sent to locations at which the relevant trains did not arrive until the end of the crew’s shift. In that case the crew would have to return and a second crew sent out. This would involve three taxi trips where there would normally have been none or perhaps only one.
The apportionment of the expenses relating to the non-unique locations as between normal expenses and those which were incurred as a result of the bridge closure was done by an employee of the plaintiff who normally reviewed the taxi invoices. In addition, a comparison was done, by one of the plaintiff’s witnesses, of the taxi expenses incurred by the plaintiff during the two months preceding the accident and the two months after. When the average thus determined is compared with the actual taxi costs incurred by the plaintiff during the time of the bridge closure the estimated additional costs are calculated to have been approximately $41,889. This is in the same ball park as the $38,470.52 which was claimed.
Counsel for the defendants argues that this comparison should have been to the months of December for the previous year and the year following the accident. There is no evidence that those months are better comparables than the months which were chosen. In my view, the plaintiff has proven, on the balance of probabilities, that the $14,193.55 for taxi service to non-unique locations was caused by the bridge closure.
Wages for Supervisors
The plaintiff claims wages paid to four individuals who before the accident worked as carmen at the Thornton Yard but who were sent to Lynn Creek during the time of the detour as temporary supervisors. While four individuals were involved there was only one person acting as a supervisor at any given time. The need for four arises because there were three shifts per day, seven days a week to be covered.
Counsel for the defendants argues that only the extra amount that these individuals were paid above their normal wages as carmen should be included in the claim. The plaintiff’s evidence is that the total wages paid to these individuals was included in the claim because their duties at Thornton Yard were performed by others, for whose wages no claim was made. Mr. Tassone explained that although considerably fewer trains and cargo moved into and out of Thornton Yard during the time when the bridge was closed and although less carmen were needed at the Thornton Yard, the number of carmen working throughout the Vancouver Terminal area (Thornton Yard, Lynn Creek and Vancouver) remained constant. Mr. Tassone explained that the four carmen who were promoted to temporary supervisors were replaced by carmen off the overtime board.
I accept counsel for the defendants’ argument, that there is simply insufficient proof, concerning the alleged extra overtime paid, to substantiate the plaintiff’s claim. There is a lack of specificity in the evidence. No comparable data has been submitted to substantiate the claim for wages, even as a reasonable estimate.
The evidence discloses that the four temporary supervisors were paid approximately ten percent more than the amount they would have received as carmen. The defendants agree that a claim for these additional wages is recoverable by the plaintiff.
Charges Relating to Processing Invoices
The evidence establishes that in the case of invoices which have been paid by a company but which are being submitted for reimbursement to another, the practice in the railway industry is to add an additional charge, to the amount sought for reimbursement, to compensate for the processing of the invoice. The charge added is based on a schedule established by the Canadian Transport Commission (now the National Transportation Agency). The schedule authorizes the adding of 3% for the first $50,000 payable under the invoice, 2% for the next $50,000 and 1% for any amount exceeding $100,000. The plaintiff is claiming from the defendants payment according to this scale for expenses incurred in processing and paying invoices which arose as a result of the accident, the amount of such invoices being ultimately recoverable from the defendants as part of the plaintiff’s damage claim.
Counsel for the defendants argues that these charges are excessive, especially when applied to invoices for large amounts. It is argued that they bear no relation to the actual cost of the processing of the individual invoices which it is suggested in most instances would be a very perfunctory matter. Counsel for the defendants argues that the expenses claimed breach two principles applicable to the assessment of damages: they are based on arbitrary percentages and they are unreasonable.
Counsel for the plaintiff argues that while the charges are based on percentages, this is pursuant to a practice which is general in the industry. He argues that they are not unreasonable since while the verifying and checking of many invoices may be fairly straightforward, this will not always be the case. A number of steps are involved. The invoices are first checked not only for their arithmetical accuracy but also as to whether they conform to the terms of the contract pursuant to which they have been issued. They are then sent to the relevant operating department to verify that the work to which they relate was in fact performed and lastly the comptroller issues a cheque to pay the invoice. In this case, on one occasion the plaintiff’s invoice checking and verification procedures led to errors being found which required negotiation with the invoicing party (Canadian Pacific Limited) including a field inspection of the track to which the invoice related. A new invoice was eventually issued. It is clear that a considerable amount of time was spent by the plaintiff’s employees in verifying and eventually negotiating the new invoice. The amount saved thereby was approximately $60,000. The procedure which the plaintiff had followed ended up saving the defendants six times as much as the amount the plaintiff is claiming for expenses incurred in checking, verifying and processing all the relevant invoices.
As I read the jurisprudence, I do not find that adopting percentages as an assessment of costs incurred is contrary to the principles of damage assessment. The question is whether such percentages are reasonable. In this case, it would be totally impractical for each of the plaintiff’s employees who handled one of the invoices in question to segregate and document the time he or she spent on that exercise. It is clear there is a cost involved in processing the invoices. The percentages which are sought to be applied are ones adopted by the industry as a reasonable charge for the expenses incurred. In this case there are invoices for small amounts and others for large amounts. It is not a situation in which only one or two large invoices had to be processed. On at least one occasion, it is clear that a considerable amount of time was spent by the plaintiff’s employees verifying, negotiating and eventually obtaining the reissuance of an invoice. In the light of all these considerations it is my view that the charges are reasonable in the circumstances.
Overhead
The dispute between the parties concerning overhead was initially differently characterized by counsel for the plaintiff and counsel for the defendants. As I understood counsel for the plaintiff’s arguments he anticipated that the defendants would argue that the plaintiff had used the wrong accounting methods in calculating its overhead costs and, that in any event, amounts relating to general management should not be included in overhead. As I understood counsel for the defendants, his argument was in part related to these facets of the overhead being claimed but it was also more fundamental. Counsel argues that there must be a demonstrated direct causal link between the claim relating to any specific item of overhead and the damage arising out of the accident. He argues that the link must be such that an increase in the amount of overhead payable by the plaintiff can be shown to have occurred as a result of the accident.
It is necessary first, I think, to review the jurisprudence. There is no doubt that overhead may be recoverable as costs incurred by a plaintiff as a result of injury caused to it. In Hydro-Electric Power Commission of Ontario v. Mather et al., [1954] O.W.N. 382 (C.A.), at page 383, the following was said:
It is a cardinal principle that only such damages are recoverable as arise naturally from the act complained of. In my opinion it would appear to be uncontroversial that certain expenses in the nature of the cost of superintendence and office expenses and overhead, such as mentioned hereinbefore, are a natural consequence arising from the act complained of in this instance. Undoubtedly the cost which is involved in connection with the repair of injuries, as here incurred, is more than that of the physical labour of the repairmen who expended time and labour in actually repairing or replacing the broken poles or wires. In the very nature of a business such as that of the respondent there must be certain preliminaries and superintendence involved which, in turn, involve the cost of clerks and stenographers. I am unable to hold that such costs are so remote from the damage as to fall within the category of costs that cannot be allowed as compensation.
There might be some real question if an attempt were made to collect a percentage of general costs of management. That overhead costs are a proper subject for inclusion in compensation has been well recognized, as illustrated by the decision of the Exchequer Court of Canada in The King v. Petite, [1933] Ex. C.R. 186. In this last-named report Angers J. reviewed a number of Admiralty cases and other authorities wherein an additional sum for overhead was allowed. [Underlining added.]
In C.P.R. v. Can. Freightways Ltd. and O’Bray (1962), 39 W.W.R. 191 (B.C.C.A.) the plaintiffs’ claim for overhead was dismissed on the ground that it had not been adequately proven. At the same time Mr. Justice Norris, after referring to the decision in the Hydro-Electric Power Commission case and noting that all that was required was that a “reasonable foundation” be shown for the percentages added for overhead, continued, at page 197:
It must be remembered that the operations of the appellant are those of a transcontinental railway and are extremely farflung, complex and diverse in their nature and doubtless its system of accounting is equally complex. The learned trial judge seems to have considered in his judgment, in his references throughout to the large amount of the claim, to the salaries of high officials of the appellant company and telephone charges, that the damages were required to be estimated on the basis of evidence as to the actual cost of the particular items involved without a consideration of such items as overhead charges. He refers to the burden on the appellant to mitigate its damages, which of course is correct, but that consideration does not, it seems to me, arise in this case. The question is purely and simply as to whether or not the appellant discharged the burden of proof on it to demonstrate its loss, whether by proving a system of cost-accounting and damages on the basis of a proportion of overall cost applied to the particular loss in this case, or otherwise. [Underlining added.]
In Bell Telephone Co. of Canada v. Montreal Dual Mixed Concrete Ltd. & Highway Paving Co. (1959), 23 D.L.R. (2d) 346 (Que. C.A.) the following was said about the claim for overhead [at page 348]:
These percentages according to Hewitt represent actual expense to appellant and are charged on direct labour according to recognized accounting practice, the general principles of which were accepted by counsel for respondents at trial. It is no argument that the expenses would have been incurred regardless of this particular operation. The total productivness [sic] of any industrial enterprise is based on the effectiveness of its first line operatives. If they are engaged on repairing damage they cannot do their work. To disregard these indirect items is to penalize the appellant and refuse to indemnify it for its full loss sustained. The evidence is that there is no amount included for profit in these figures. [Underlining added.]
In British Columbia Hydro and Power Authority v. Marathon Realty Co. (1992), 89 D.L.R. (4th) 419 (B.C.C.A.) the following was said with respect to the overhead claimed in that case [at pages 424-425]:
The evidence in this case goes much further than that in Canadian Pacific R. Co. v. Canadian Freightways. Here a witness, who was knowledgeable, calculated the loss and explained how he calculated it. He conceded that some of the figures were arbitrary and that sometimes the rules changed within Hydro and that sometimes the amounts that Hydro charged as overhead were high. He also gave evidence, and this was the evidence missing in the Canadian Pacific case, that overall the amount claimed was only nominal, that the expenses incurred were far in excess of those claimed in the statement prepared by him. He said that the amounts claimed were insufficient to fully compensate Hydro for its indirect cost.
In my view, what we have here is a case in which it is quite impossible to calculate the loss with great precision. Nor can we calculate the cost of each item. It might not be impossible but it would be unreasonable to spend the court’s time valuing each letter, each phone call, each intervention by a Hydro person.
This is not a case of there not being proof of a loss. There is proof of a loss but it is one that is difficult to quantify.
…
I think it is necessary to calculate overhead. It is not practical to calculate different amounts for different tasks. That would have to be done and was done by the witness. There is bound to be an element of arbitrariness. It is inescapable.
There was evidence that made it clear that there was a significant loss. In view of the trial judge’s conclusion, I accept that the amount claimed may exceed the actual loss, notwithstanding the evidence to the contrary. The amount claimed was something in excess of 12% of the whole of the job made up, of course, of various percentages applicable to various parts.
I would allow the appeal in this regard and increase the plaintiff’s award by allowing 10% for overhead. [Underlining added.]
See also Miller Dredging Ltd. v. Dorothy MacKenzie (The) (Supreme Court of British Columbia, C914695, January 27, 1993), [[1993] B.C.J. No. 153 (Q.L.)] at pages 16-18 of that unreported decision. I was informed that this decision is under appeal.
In the present case, the plaintiff claims overhead in relation to three types of activity all of which were occasioned by the accident and consequent closure of the bridge: the extra miles which the plaintiff’s trains were required to travel as a result of the detours and rerouting; the additional construction required of temporary repair facilities and related services; additional construction, repair or maintenance of tracks and roadways. The overhead with respect to the first is included by the plaintiff in its calculation of net train costs. That with respect to the second relates to the extra activities undertaken by what the plaintiff calls its equipment department. That with respect to the third relates to the extra activities undertaken by what the plaintiff calls its engineering department. The overhead relating to the three functions is not duplicated as among them.
The overhead with respect to operating the trains for longer distances is calculated in a different fashion from that relating to the equipment and engineering functions. With respect to the costs of operating a train a given distance, the plaintiff had available to it a sophisticated costing system which it had developed over the course of many years and which it used and uses for its own internal decision-making and pricing purposes. In addition, this unit costing system was and is used for regulatory purposes, e.g., branch line abandonment applications. As such, the cost allocations set out in the unit costing manual are approved by the Canadian Transport Commission (now the National Transportation Agency).
The plaintiff’s costing system allocates the variable costs incurred in the operation of the railway to various output functions. What are characterized as fixed costs by the plaintiff (20-25% of total costs) are not included in the allocation system. Thus, the plaintiff had available to it a method of ascertaining the cost, including overhead, to the plaintiff of running various units (a rail car owned by the plaintiff, a rail car owned by someone else, a caboose, a diesel unit) over a mile of track. These could be determined by reference to the unit costing manual. The cost figures are updated annually on the basis of the preceding year’s audited financial statements. Those calculated in 1988, which depend on the 1987 year’s costs, were used for the purposes of calculating the plaintiff’s claim.
The defendants agree that with respect to the train costs the plaintiff should be compensated for amounts paid as crew wages, other labour, employee benefits and what the defendants characterize as other direct costs. They do not accept the plaintiff’s overhead claim ($192,181.71). In presenting its claim for overhead, the plaintiff divided this claim into two parts: that for general management overhead ($67,902.53) and that for “other overhead” or what is also referred to as general administrative overhead ($124,279.18). As I understand the expert evidence of the plaintiff’s witness, this is not a normal distinction made when allocating costs to a given function. In fact it is not defensible from a cost allocation point of view at all. The distinction was drawn in this case at the request of counsel for the plaintiff because of dicta in some of the cases concerning the lack of appropriateness of claiming general management overhead in a damage claim.
In so far as the overhead part of the claim respecting the additional equipment and engineering functions is concerned, this was assessed by first calculating the ratio of overhead costs to direct labour costs which the plaintiff normally incurs with respect to these two functions. In deriving this ratio only certain categories of overhead were included. For example, no amounts for costs incurred by the legal department, head office or financial planning functions were included. No costs respecting supervision above the regional level were included. It is clear that the selection of the overhead components which were taken into account in calculating this aspect of the claim are the subject of debate. One of the plaintiff’s witnesses indicated that he disagreed with what had been done and would have added additional items. He noted as well that although overhead was not included with respect to supervision above the regional level or with respect to the financial planning functions of the company, there would have been costs incurred in those areas as a result of the accident. I think it is sufficient to note that the calculations with respect to the equipment and engineering functions are very conservative in so far as the items of overhead which have been included are concerned.
Once a ratio of overhead to direct labour was calculated, as described above, that ratio was applied to the direct labour costs which were incurred as a result of the accident. Again at counsel’s request, a divided calculation was prepared. One part excludes items which it might be said relate to general management overhead. The other includes such overhead. The overhead claim in relation to the equipment department, if the general management components are deleted, is $16,606; it is $18,569 if they are included. The overhead claim in relation to the engineering department, if general management components are deleted, is $4,320; it is $4,692 if they are included. The claims with respect to the engineering department are low because much of the rerouting which the plaintiff did was over tracks owned by others, mainly Canadian Pacific Limited. Part of the plaintiff’s own tracks therefore were not used as much as would normally have been the case. Credit for the costs saved as a result of the non-use of the plaintiff’s track was taken into account in calculating the claim.
Only the plaintiff called expert opinion evidence with respect to the cost calculations which it had done for the purposes of the present case. The expert’s evidence was that the plaintiff had made appropriate assumptions in allocating overheads for the purposes of its claim; the cost calculations had been done in accordance with generally accepted accounting principles and there was no element of profit therein. Mr. Elton’s evidence respecting the nature of overhead is relevant:
Overheads are: “costs that are not directly traced to a given cost objective”. A cost objective is “any activity for which a separate measurement of costs is desired. Examples include departments, products, territories, etc.”
There is not necessarily any real distinction between a direct cost and an overhead cost. Costing is a practical activity that tries to make financial information more useful. Some enterprises try to allocate almost all costs directly to a cost objective; this is precise, but sometimes expensive and unnecessarily detailed. Other enterprises directly allocate fewer costs. This is simpler, but may lose precision. As enterprises become larger and more complex, the job of allocating costs usually becomes more difficult.
In deciding whether to allocate costs directly, enterprises therefore make a trade off. There are some costs which are almost always directly allocated, some which are rarely directly allocated, and many which vary depending on management’s choice of a costing philosophy and a costing system.
Sometimes direct costs will be those relating to particular individuals e.g., hourly paid workers; sometimes they will relate to costs carried out at a particular location e.g., an off-site location. The same may apply to overheard, where e.g., head office costs may be allocated as overhead costs regardless of their nature.
In a world where an enterprise had unlimited time and resources to operate its costing system, all costs could be treated as direct costs, and there would be no overheads.
Costs are collected and aggregated at different levels in an organization. The distinction between direct and overhead costs may differ, depending on the level at which the distinction is made.
To a front-line supervisor in location A, his own salary or wages may be an overhead because he does not allocate portions of that salary to the different projects that his employees are working on. To do so might be burdensome, and also irrelevant.
Vice presidents responsible for all front-line operations in all locations, on the other hand, may be interested in the total costs by location, and might allocate supervisor salaries as direct costs to the relevant location. However, those vice presidents would probably not try to allocate their own salaries to the separate locations.
It follows from the above that: the description of a cost as overhead is to some extent arbitrary.
I have explained in Section 3 above that overhead costs are not different in nature from any other costs. They have been accounted for in a different way, and that is why they appear different to someone who is not familiar with accounting practices.
When talking about the cost of something, it is normal to use the full costs, i.e., including overhead.
Cost can be defined as “a sacrifice made for goods or services. May take the form of an outlay cost or an opportunity”. An outlay cost is a cash disbursement. An opportunity cost, in this context, can mean that if people did not have to spend time on dealing with the effects of the disruption which is the subject of this case, then they would be doing other things that would be valuable to CN. [Subheadings, paragraph numbers and footnotes omitted.]
In my view, the defendants’ argument that only items of overhead which increase as a result of the accident should be included in the claim is not supported by either the jurisprudence, the expert evidence or common sense. It is trite law that the purpose of an award of damages is to try to put the plaintiff in the position it would have been in had the accident not occurred: restitutio in integrum. It is obvious that in the case of an accident of the type which occurred in this case that employees of the company, other than those who are called first-line operatives, would necessarily have to spend time coping with the disruption which was caused to the plaintiff’s normal business activities. The company’s resources both personnel and material (property) would be used for this purpose.
As a result of the accident and the closure of the bridge detours had to be arranged, in part using Canadian Pacific tracks. Trains which would otherwise have been marshalled near Vancouver at Thornton Yard had to be marshalled in Edmonton. Trains had to be fully serviced in Kamloops instead of in Vancouver. Temporary repair and serving facilities had to be built at Lynn Creek. This included the construction of at least one temporary crossing. Several different detour routes were used depending on the nature of the train and its ultimate destination. Some trains had to be sent first to Thornton Yard and then back track to cross the Fraser River via the Canadian Pacific bridge at Mission/Matsqui. Carmen and crews which normally worked out of Thornton Yard had to travel to other locations. Prior to the accident the plaintiff used the New Westminster Railway Bridge for thirty-two trains per day. During the period the bridge was closed, Canadian Pacific was able to accommodate no more than 18 and on one occasion only nine trains per day across the Mission/Matsqui bridge. As a result of the bridge closure the plaintiff used significantly more manpower and equipment to move substantially less cargo. It is admitted that revenue was therefore lost, although the claim is not for lost profits, and trains were delayed.
It is clear that arranging for and supervising the detours and related activities would involve more than the direct costs which the defendants agree should be paid. One can think for example of management time, clerical staff time, changes needed to computer programs, data processing charges, telephone services and the myriad of other items which make up an overhead claim.
Counsel for the defendants argues that each employee who spent any time on any matter related to the accident should have made a note of that (much as lawyers keep a docket). I note that this argument is not premised on the position that the expenses are not properly claimed but merely that they have not been proven. It is not practical for such a detailed recording system to be kept. The whole purpose of claiming overhead is to try to assess those expenses which individually may be very small and which in Mr. Elton’s words “are not directly traced to a given costs objective.” They nevertheless are very real costs incurred by the plaintiff in relation to the activities in question.
If counsel for the defendants’ argument is correct, that only those items of overhead can be claimed which are demonstrated to have increased as a result of the accident, then the plaintiff would not be adequately compensated. No compensation would be awarded for the time and material resources of the company which were diverted from the normal business objectives of the company in order to cope with the results of the accident. If counsel’s argument is correct then overhead is not a proper head of damage. The jurisprudence has established otherwise.
Counsel for the defendants’ argument relies on the decision in Diversified Products Corp. v. Tye-Sil Corp. (1990), 32 C.P.R. (3d) 385 (F.C.T.D.). In that case, it was held that in assessing costs, the incremental accounting method was more appropriate than the full absorption method. I note, first of all, that the plaintiff’s expert gave evidence that the incremental method does not reflect all the costs relating to a specific function. At the same time he gave evidence that it was the only appropriate method for assessing an increase or decrease in profits. I do not think the Diversified Products case is relevant to the present situation. In that case, while costs were being assessed this was only for the purpose of determining what additional profits had been made by the defendant as a result of selling products which infringed the plaintiff’s patent. The question was not what was the cost of one specific unit of production in relation to the defendant’s business as a whole. In so far as the cost of any given unit of production may be lower as a result of more units being produced, there is no reason that an infringer should get the benefit of that advantage when an accounting of profits arising out of the infringement is being assessed. In the present case the question does not relate to profits at all. The exercise is designed to determine as closely as reasonably possible the total cost to the plaintiff which was occasioned by the accident. I accept the plaintiff’s argument that the full absorption method of accounting is more appropriate for that purpose.
Another way in which the defendants frame their argument, as I understand it, is that some of the components of the overhead claim, although characterized by the plaintiff as long term variable costs, are closer to fixed costs and therefore should not be taken into account in computing the overhead claim. For example, an amount attributable to municipal taxes or office furniture, however small, should not be included because these items of expense would not vary as a result of the detours and rerouting of the trains.
I think the plaintiff’s expert witness has successfully answered that argument. While the costs may be fixed in the sense that they do not increase as a result of the accident that does not mean that some, albeit small, portion was not a cost incurred by the plaintiff as a result of the accident. To the extent that the plaintiff had to divert resources away from its normal business activities, a cost was incurred. To the extent that overhead costs such as amounts paid for municipal taxes or office furniture were supporting the plaintiff’s extraordinary activities, coping with the results of the accident, rather than supporting its normal business activities, they are part of the costs which the plaintiff incurred as a result of the accident.
The defendants note that in the Canadian Transport Commission schedule dated March 1976 which was being used in 1987, it was provided that overhead of approximately 50% should be added to expenses claimed for work done by the railway company. In the present case the overhead which is included as part of net train costs amounts to 69% and those respecting the equipment and engineering functions are higher. The evidence indicates however that the percentage specified in the 1976 schedule was not based on full cost recovery. That schedule has since been revised and now specifies that the appropriate percentage for overhead is above 100 percent. None of the overheads claimed by the plaintiff exceed that amount.
What, then, of the division which has been made between general management overhead and other overhead? Counsel for the plaintiff requested that such distinction be made with the expectation that this would be the focus of the defendants’ argument. As I have noted, the argument put forward by counsel for the defendants was more fundamentally based and he did not dwell on this distinction. At the same time, that issue must be dealt with as a result of the comments in some cases, for example, that in the Hydro-Electric Power Commission decision, supra. It was suggested in that case that there might be some question as to whether general management overhead was properly recoverable. I note, first of all, that the comments respecting general management overhead in the cases cited to me are dicta. Secondly, the expert evidence before me was that the distinction in question is arbitrary and not particularly defensible from a cost analysis point of view. The defendants called no evidence to refute this nor to in any way criticize the choice of items which was made as components of the overhead claimed by the plaintiff. Lastly, the statements in the jurisprudence suggesting that general management overhead may not be compensable conflicts with the suggestion, also found in the jurisprudence, that one way of approaching the question of overhead is to consider what would have been paid to a third party to fulfil the tasks which the plaintiff was required to undertake, or voluntarily undertook, as a result of the accident. In such a case, the third party’s profits are not to be included but the costs which would be borne by that third party would necessarily include overhead.
It is necessary to turn to one other comment which occurs in many of the decisions which were cited to me, that is the remarks of Mr. Justice Masten in Hi-Speed Tools Limited v. Empire Tool Works (1923), 25 O.W.N. 172. The comment in question was made in reference to a contract claim although Mr. Justice Hope adopted them, in the Hydro-Electric Power Commission case (supra) [at page 384], as appropriate to a claim for damages in a tort action. The comments are:
“‘ Overhead was undoubtedly a proper part of the plaintiffs’ claim, payment being on a ‘cost plus’ basis; but the items of overhead chargeable against the defendants in such a case are not all the items which the fancy of an accountant may place under that heading, varying with different systems of accounting; only such items as under the contract bear some definite relation to the particular work to be performed by the plaintiffs for the defendants should be allowed—they could not be ascertained by an estimated or customary percentage on the annual turn-over of the business. The onus was on the plaintiffs to establish the claim; and, unless the overhead expense claimed was shown to have some relation to the fulfilment of the contract, it could not be charged against the defendants.”
This, in my opinion, is the common-sense approach to the problem and one which leaves the onus of proof in all cases upon the plaintiff, the proof to be to the satisfaction of the trial judge in the particular circumstances of the case.
With respect, I am not convinced that too much importance should be placed on the statement that “the items of overhead chargeable against the defendants in such a case are not all the items which the fancy of an accountant may place under that heading”. The issue in the Hi-Speed Tools case related to the interpretation of a contract. The issue under consideration was the intention of the parties when they entered into the ‘cost plus’ contract. Despite the fact that it was stated in the Hydro-Electric Power Commission decision that similar consideration applied to the case of a contract and in the case of a tort, I think it has to be kept in mind that assessing the intention of the parties with respect to a particular term of a contract is different from determining the costs incurred by a plaintiff as a result of damages caused to it as a result of a tort.
It may very well be that different approaches to overhead are required in different cases. I think it suffices for present purposes, to say that I have been persuaded that in the circumstances of the present case the claims for overhead, including that described as relating to general management, have been shown to be part of the cost incurred by the plaintiff as a result of the accident and have been demonstrated to be reasonable.
Compound or Simple Interest
The main issue relating to whether compound or simple interest should be awarded is whether or not that matter has already been decided by this Court. The action in this case was started in March of 1988. In June of 1988, Mr. Justice Collier issued an order consolidating several actions and setting parameters for the completion of a number of pre-trial proceedings. That order reads in part:
The actions (save and except issues relating to the quantification of damages) shall be tried together in such manner as the trial judge may direct.
The assessment of damages shall be deferred pending further order governing examinations for discovery, expert witnesses and trial in respect thereof. [Underlining added.]
On April 14, 1989, Mr Justice Addy, as has been noted, dealt with the issue of liability and rendered a judgment stating, in part, that “the plaintiff [shall] recover against the defendants … its damages to be assessed for its operational costs incurred by reasons of the collision with the Westminster Railway Bridge”. In early 1990, the successful defendants were apparently pressing for some resolution with respect to the costs they had incurred in defending the action. This led the plaintiff to bring a motion before the Court requesting an order that the unsuccessful defendants pay the costs of the successful defendants and that the plaintiff recover its costs from the unsuccessful defendants. The motion reads, in part:
Pursuant to Rule 337(5) that the Plaintiff shall recover from the Defendants Norsk Pacific Steamship Company Limited, Norsk Pacific Marine Services Ltd., the tug “Jervis Crown” and Francis MacDonnel, interest on the judgment at the prime lending rate set from time to time by chartered banks in Canada as published in the Bank of Canada Review from November 28, 1987 to the date of the payment of the judgment.
On April 27, 1990, Mr. Justice Addy ordered [Canadian National Railway Co. v. Norsk Pacific Steamship Co., T-552-88, Addy J., order dated 27/4/90, F.C.T.D., not reported]:
UPON MOTION by the plaintiff for directions regarding taxation of costs against the defendants Norsk Pacific Steamship Company Limited, Norsk Pacific Marine Services Limited, the Ship “Jervis Crown” and Francis MacDonnel and assessment of damages and for findings regarding pre-judgment and post-judgment interest, the said motion having been heard at the same time as other motions regarding related matters in other actions which were tried at the same time as the present action;
THIS COURT DOTH ORDER AND ADJUDGE:
1. THAT this action be referred to the Administrator of this Court or to such other officer of this Court as he may designate for assessment of damages and for determination of the actual interest rates applicable both before and after final judgment, in accordance with my reasons dated and filed on April 27, 1990.
2. THAT, upon damages being assessed as above mentioned or alternatively, upon agreement of the parties as to quantum, final judgment do issue in this matter on summary application for same.
Mr. Justice Addy’s reasons for this order read in part:
Regarding the reference for damages and the rates of interest applicable thereto, it is well settled law that, in admiralty cases, where damages ex delicto are awarded, the principle of restitutio in integrum requires that, where claimed, interest is to be awarded from the date the loss occurred, without the necessity of there being any enabling legislation such as is required in ordinary common law claims.
Since the rate of interest to be applied can depend on the circumstances of the case, it is proper for me to at least fix the means by which the rate can be ultimately proven and determined upon the reference.
For interest on the economic loss damages caused the railways, since they are business organizations, the fairest way of ensuring the application of the principle of restitutio in integrum would be to use the prime bank lending rate as it existed from time to time between the date when the damage occurred until the date of judgment on the reference. Since the damage would necessarily be continuously increasing from the time of the collision until the bridge was put back in use, the amount of damage will have to be estimated as it occurred throughout the period and the prevailing rates applied to the amount of damage as it accumulated during that time.
For post-judgment interest, it is important to ensure that a fixed rate be determined to facilitate the execution of the judgment and to avoid the requirement of further proof of existing rates of interest after judgment.
I direct that, for post-judgment interest, the average of the prime bank lending rate as it existed throughout the period from the date when the bridge was damaged until the date when the amount of damage has been determined, shall be applied to the total amount of the judgment.
The Crown, however, is not a business enterprise like the other three plaintiffs and is in a category distinct from that of any ordinary person, organization or corporation. It does not raise money by borrowing directly from banks but, in order to meet its short-term needs, it issues treasury bills from time to time. The rate of interest which it pays on those bills is somewhat lower than the prime bank lending rates. For pre-judgment interest, the rate which the Crown has to pay on three-month treasury bills from time to time shall be applied rather than the prime bank rate, otherwise the Crown would actually be reaping an unfair benefit and the principle of restitutio in integrum would be violated. For post-judgment interest, a fixed rate based on the average interest paid on the three-month treasury bills from the date the bridge was struck until the judgment fixing the damage has been rendered, will be applied.
In conclusion there will be an order in each case to the effect that the taxing officer in taxing costs in these actions, will be governed by the principles enunciated in these reasons. There will also be orders where applicable referring the question of damages to the administrator of this Court or to such other officer of the Court as he may designate to fix the amount of damages and the amounts of pre-judgment interest as well as the post-judgment rates applicable to the principal amounts of the damages. The said assessments will be carried out in accordance with the conclusions reached in these reasons.
Upon the referee having concluded the reference, judgment shall issue in accordance with the findings, on summary application for confirmation of same.
The action was not referred to the Administrator of the Court for an assessment of damages and determination of the actual interest rates applicable as contemplated by Mr. Justice Addy’s reasons and order. On February 18, 1993, the Associate Chief Justice signed an order:
UPON written request by counsel,
IT IS DIRECTED pursuant to the Court’s Judgment dated the 14th day of April, 1989, that Madame Justice Reed of this Court be and she is hereby designated as the Assessor for the purpose of determining the assessment of damages,
AND IT IS ORDERED that the hearing or trial for the assessment of damages take place before this Court at the Pacific Centre—16th Floor, 700 West Georgia Street, in the City of Vancouver, British Columbia, on Monday, the 22nd day of November, 1993, at 10:00 o’clock in the forenoon or at such other time and place as the said Assessor may appoint.
The proceedings before me commenced on November 22, 1993 and were conducted as a trial. Counsel for the plaintiff states that it was always contemplated by the parties that the procedure to be followed was that of a split trial with the issue of liability being tried first and the issue of damages being tried at a later date. In argument counsel for the defendants (who had not been counsel during the earlier proceedings) argued that the proceeding before me was by way of reference pursuant to Rule 500 [Federal Court Rules, C.R.C., c. 663] and that I had no jurisdiction to decide whether compound or simple interest should be awarded. Eventually, in order to expedite matters counsel for the defendants agreed that the proceeding which was taking place before me should be considered to be a trial. He argued, however, that it was equally improper for me, even sitting as a judge, to make any determination that compound interest should be awarded since Mr. Justice Addy had implicitly decided that point in April of 1990.
It is common ground that when the motion for directions with respect to costs and other matters was argued before Mr. Justice Addy in April 1990, no argument was addressed to the question of whether simple or compound interest should be awarded. It was assumed by all parties that only simple interest was being discussed. The plaintiff had not sought compound interest in its statement of claim. The decision in Monk Corp. v. Island Fertilizers Ltd. (1989), 97 N.R. 384 (F.C.A.); approved [1991] 1 S.C.R. 779 had not at the time of the filing of the statement of claim been decided.
Counsel for the defendants argues that even if there is no issue estoppel with respect to whether or not compound interest should be awarded it would still be inappropriate to order such because I was not the Trial Judge and therefore do not have knowledge of all the circumstances of the case. In addition, the plaintiff did not make a claim for compound interest in its statement of claim and it would not be appropriate to now allow what is essentially an amendment to pleading. Counsel for the plaintiff argues, on the other hand, that this is a highly appropriate case for an award of compound interest. He argues that this is so because of the length of time during which the plaintiff has been prevented from obtaining the monies to which it has been found entitled under the decision of April 14, 1989. This occurred as a result first of the lengthy appeals and then by the defendants failing to settle any part of the damage claim. I note that as recently as three months ago, August 31, 1993, the defendants’ position was that no items of the damage claim had been agreed to.
Counsel for the plaintiff presents many persuasive reasons for awarding compound interest. As was stated by Mr. Justice Hugessen [at page 391] in the Monk case (supra), it is “well in accord with the realities of modern commercial practice.” Reference was made to United States jurisprudence where the awarding of compound interest seems to be the norm in federal courts; see Amoco Cadiz, In re, [1992] A.M.C. 913, at pages 980-981:
By committing a tort, the wrongdoer creates an involuntary creditor. It may take time for the victim to obtain an enforceable judgment, but once there is a judgment the obligation is dated as of the time of the injury. In voluntary credit transactions, the borrower must pay the market rate for money. (The market rate is the minimum appropriate rate for prejudgment interest, because the involuntary creditor might have charged more to make a loan.) Prejudgment interest at the market rate puts both parties in the position they would have occupied had compensation been paid promptly.
…
Victims who finance their own cleanup lend to themselves; forced to devote money to a project not of their own choosing (money they otherwise could have lent out at the market rate of interest), they are entitled to compensation for the “hire” of the capital…. An injurer allowed to keep the return on this money has profited by the wrong. So we reiterate the holding of Gorenstein—one almost compelled by Devex and West Virginia—that compound prejudgment interest is the norm in federal litigation.
And in the Law Reform Commission of British Columbia’s Report on the Court Order Interest Act (1987), at pages 31-33, that body recommends changes to the British Columbia legislation to provide for the awarding of compound interest because it more accurately reflects the operation of the market place and the actual cost of delay to a plaintiff.
With some regret, I do not find it necessary to decide whether it would be appropriate in the present case to award compound interest. I think I am precluded from making any such decision by the April 1990 decision of Mr. Justice Addy. Both counsel admit that on that application everyone was proceeding on the assumption that they were talking about simple interest. In my view, the order Mr. Justice Addy made was implicitly decided on that basis. As I understand the law relating to issue estoppel it is that a party is estopped from raising, in a later proceeding, a matter which was implicitly dealt with in an earlier proceeding. An opportunity existed at the earlier time to raise the question of whether compound or simple interest should be ordered but the application was argued and disposed of by reference to simple interest only.
Conclusion
An order will therefore issue awarding the plaintiff damages as has been agreed between the parties, together with an amount of $14,193.55 on account of taxi services, an amount referable to the additional wages paid to the four temporary supervisors, an amount of $10,894.75 as expenses incurred in processing invoices and an amount of $215,542.71 as overhead.
The parties have agreed upon the relevant interest rates to be applied and the dates as of which they are to be applicable. Interest in accordance with those dates and rates shall be calculated on a simple, not compound basis.
I invite counsel for the plaintiff to submit a formal order in accordance with these reasons for my signature.
Counsel asked that no order with respect to costs be made until submissions thereon had been considered. Counsel are invited, if they cannot agree on the terms of an order respecting costs, to either file submissions in writing or to consult with the Registrar for the purpose of arranging a telephone conference with respect thereto.