Judgments

Decision Information

Decision Content

T-3418-74
Bethlehem Steel Corporation (Plaintiff) v.
St. Lawrence Seaway Authority and all other per sons having claims against the plaintiff, its ship Steelton or the fund hereby to be created (Defendants)
Trial Division, Addy J.—Toronto, June 14; Ottawa, July 21, 1977.
Maritime law — Torts — Plaintiff's ship colliding with and destroying bridge over canal — Whether or not economic loss legally compensable — Whether or not plaintiff can deduct from fund amounts it would have to pay claimants in U.S. action — Canada Shipping Act, R.S.C. 1970, c. S-9, ss. 647, 648.
In this action, initiated pursuant to sections 647 and 648 of the Canada Shipping Act, for limitation of liability for dam ages caused by plaintiffs ship colliding with and destroying a bridge over the Welland Canal, decision was reserved with respect to three matters. The first concerned a claim for the loss of profits of two ships held up by the obstruction of the canal. The second concerned a claim for the extra cost of shipping cargo from Toronto rather than through the canal. The final matter was the plaintiffs right to claim against the fund paid into Court, any amount that it might have to pay claimants in the U.S. action out of the total limited amount that it paid into court in the United States.
Held, the claims against the fund are dismissed. Where the damage is solely of the nature of an economic loss, the general law is such damage is not recoverable even where it might have been foreseeable and where the proper causal relationship exists between the tortious act and the damage (as the Court would be prepared to find in the first matter under consideration). Although economic loss is not outside the scope of liability for negligence, the range of cases where economic loss not depend ent upon physical damage of some sort is recoverable remains very limited. The second claim is still further removed from plaintiffs responsibility. It meets neither the foreseeability test nor the direct consequence test. Moreover, the argument that there should be a distinction between the right of recovering an economic loss consisting of a disbursement and one consisting of a loss of profits, is rejected. Lastly, where a tort on which the claims are founded has been committed in Canada, this Court must not allow any credit against the limitation fund here for a claim declared valid by a foreign court unless that claim would have been recognized as valid at law in Canada.
Gypsum Carrier Inc. v. The Queen [1978] 1 F.C. 147, applied; Star Village Tavern v. Nield [1976] 6 W.W.R. 80, applied; Hunt v. T. W. Johnstone Co. Ltd. (1977) 69
D.L.R. (3d) 639, applied; Rivtow Marine Ltd. v. Wash- ington Iron Works [1974] S.C.R. 1189, applied.
ACTION. COUNSEL:
F. O. Gerity, Q.C., and N. H. Frawley for plaintiff Bethlehem Steel Corporation. Bernard Deschênes, Q.C., Robert Décary and Duff Friesen for defendant St. Lawrence Seaway Authority.
D. E. Pezzack for claimant Bell Canada.
R. Ayre for claimant Ontario Hydro.
No one appearing for claimant Joseph &
Reginald Rocco.
J. A. Baird for claimant National Steel
Corporation.
No one appearing for claimant Daniel &
Josephine Lacroix.
No one appearing for claimant Luria Bros. &
Co. Inc.
No one appearing for claimant John & Mary
Hill.
Dan Branoff for claimant Wayne Soap
Company.
SOLICITORS:
McMillan, Binch, Toronto, for plaintiff Beth- lehem Steel Corporation.
de Grandpré, Colas, Amyot, Lesage, Des - chênes & Godin, Montreal, for defendant St. Lawrence Seaway Authority.
Deputy Attorney General of Canada for defendant St. Lawrence Seaway Author ity.
D. E. Pezzack, c/o Bell Canada, Toronto, for claimant Bell Canada.
R. Ayre, c/o Ontario Hydro, Toronto, for claimant Ontario Hydro.
Forestell, Talmage, Hugill & Taylor, Wel- land, for claimant Joseph & Reginald Rocco.
Holmested & Sutton, Toronto, for claimant National Steel Corporation.
Mark J. G. LaRose, Welland, for claimant Daniel & Josephine Lacroix.
Ed Joyce, c/o Luria Bros. & Co. Inc., New York, for claimant Luria Bros. & Co. Inc.
John & Mary Hill, Port Robinson, for claim ant John & Mary Hill.
Yuffy & Yuffy, Windsor, for claimant Wayne Soap Company.
The following are the reasons for judgment rendered in English by
ADDY J.: The present action was instituted pur suant to sections 647 and 648 of the Canada Shipping Act' by the plaintiff (hereinafter referred to as "Bethlehem Steel") for limitation of liability for damages caused by a ship which it owned and which ran into a lift bridge over the Welland Ship Canal, effectively destroying it, obstructing the canal and causing damage to other adjacent property such as telephone and electric cables. Shipping through the canal was also delayed for several days as a result of the obstruc tion caused by the collapsed bridge.
The accident occurred by reason of pilot error for which Bethlehem Steel is, at law, responsible. It admitted liability at an early stage and request ed in this action that it be granted the benefit of the above-mentioned sections, the amount to be paid into Court in accordance with the said sec tions being based on the ship's tonnage. As a result, pursuant to an order of my brother Cat- tanach J., an amount of $680,733.56 was paid into Court in full satisfaction of all legal claims arising out of the accident. As there has been no appeal from the order limiting the amount of liability, the above amount, plus accrued interest to date of distribution, constitutes the total fund available for distribution.
In addition to the defendant, the St. Lawrence Seaway Authority, owner of the bridge and of the canal, several other claimants are involved. Others were barred from claiming in this action by reason of their having failed to conform to orders of this Court requiring that their claims be filed within a limited time or, in some cases, by reason of their failure to undertake to refrain from ever claiming in any other court of law for any damages result ing from the accident.
' R.S.C. 1970, c. S-9.
Another similar action (hereinafter referred to as the "U.S. action") was instituted before the United States District Court of the Northern Dis trict of Ohio, Eastern Division. This last-men tioned action also involved several claimants, some of whom had originally attempted to qualify as claimants in the present action while at the same time maintaining their claims in the U.S. action. Pursuant to similar provisions as to limitation of liability in the United States, the sum of $850,000 was also paid into court there by Bethlehem Steel as a party to the U.S. action. The last-mentioned action is still pending.
The quantum of the claims in the present action was referred by me to Mr. J. A. Preston, the Prothonotary of this Court in Toronto, for the purpose of assessing the claims filed and reporting thereon. His report was duly issued and considered by me and the parties at the present hearing.
At the conclusion of the evidence and of the argument on the various claims, I delivered oral judgment as to the validity or otherwise of certain claims and confirmed or varied assessments con tained in the report of the learned prothonotary. No useful purpose would be served in reiterating in these reasons my findings thereon.
I did, however, reserve on three matters with regard to which I now wish to state my findings. The first concerns a claim filed by National Steel Corporation for loss of profits of two of its ships which were each held up for about two weeks, by reason of the obstruction of the canal by the damaged bridge. The claimant lost substantial operating profits. The learned prothonotary fixed the amount of this loss at $243,680.20. I hereby confirm his finding as to quantum. The real issue, however, is whether it is recoverable at law from Bethlehem Steel.
The question of whether a pure economic loss where there has been no damage to the person of the claimant or to property in which the claimant might have some actual or potential proprietory interest, is a complicated one and has been con sidered on many occasions. It is certainly not one of the areas where the law excels by its clarity or
where its various approaches to solving problems are necessarily consistent or totally reconcilable.
Our modern society bestows upon us many advantages and innumerable benefits, most of which result directly from or depend upon a multi tude of very intricate and intimate relationships which exist between its various members, groups and services. There is, however, a price to be paid for these benefits. In addition to contributing a considerable portion of our income and thus of the fruits of our daily labour and of allowing our actions, and even our relationships to be regulated and controlled to a large extent, we must frequent ly forego the redress of certain wrongs even where the recognition of a right of redress might appeal to one's instinctive thirst for perfect justice or satisfy some theoretically desirable entitlement to compensation.
The redress of what might appear to be a real wrong will not be recognized where its enforce ment would greatly impede the proper functioning of our society or, because of its intricate interrela tionships, ultimately result in greater wrongs than those for which relief is contemplated. Such prob lems must frequently be solved pragmatically and it matters little whether we declare that the limits which must be imposed are dictated by policy, common sense or by the more philosophically acceptable concepts of social justice or of legal theory. The important thing is that the law, in this necessarily hazy area of human relations, must lay down rules which define limits that can be recog nized by all members of our society in order that they may be aware of their respective rights, duties and responsibilities and govern themselves accord ingly.
In the law of torts generally, the courts, in order to formulate logically defensible basis for creating liability on the one hand and, on the other hand, for imposing limits to the responsibility for dam ages which might otherwise flow from a tortious act or omission, have applied to the problem of remoteness of damages three main tests. The first test is whether the alleged tortfeasor had a duty of care to the claimant; in applying this test difficul ties arise in defining the nature of the duty and in establishing the class of people to whom it is owed. At times in order to restrict and at other times to enlarge the area of responsibility, the courts have
resorted to the added tests of "foreseeability" of the nature of the damage and of causality, that is, of determining whether the damage was a direct consequence of the negligent act or whether it really resulted from some other intervening cause. The courts also at times refer to remoteness of damage as a separate test distinct from the other three. I, however, find difficulty in appreciating how, from the standpoint of legal theory, damage can be too remote if the nature of that damage is reasonably foreseeable, for it has been well estab lished that once the nature of the damage is reasonably foreseeable it is no answer to say that its actual extent was not.
The extent and applicability of these various tests have been exhaustively discussed by many learned authors in a multitude of leading cases which clearly indicate that, although the area of liability has gradually been extended, there still exist some very definite limitations.
Much of this jurisprudence has been considered and reviewed by my brother Collier J. in the case of Gypsum Carrier Inc. v. The Queen and Canadi- an National Railway Company v. The "Harry Lundeberg" 2 Having regard to this recent and comprehensive review, no useful purpose would be served in again examining the development of the law in the light of the applicability of the above- mentioned tests.
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 recover able 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 rule 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 misstatement negligently made by someone presumably possessed of a special knowledge where it might reasonably be foreseen
2 [1978] 1 F.C. 147.
that the statement would be relied upon by some body 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. 3 , 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.
In the Gypsum Carrier Inc. case, to which I have referred above, a ship collided with a railway bridge spanning the Fraser River. The Canadian National Railway Company and other parties, as users of the bridge, claimed for economic losses resulting from the delay in repairing the heavily damaged bridge. Collier J. held that, as they had no easement or other proprietory right in the bridge but merely contractual rights obtained in exchange for certain fees to run their trains over the bridge, damages for economic loss could not be recovered as the loss was too remote. He also held that recovery was not permitted notwithstanding that they may have enjoyed some sort of licence to the use of the bridge as the result of their contracts which were incorrectly described as easement contracts.
The relationship between the claimants and the damaged object in the Gypsum Carrier Inc. case was much more intimate than that which existed between the claimants National Steel Corporation and the damaged bridge in the case at bar. In the former case, the damaged object was the very thing which was used by the claimants and they at least had certain contractual rights covering it. Recovery was also denied in two other important Canadian decisions of Star Village Tavern v. Nield 4 and Hunt v. T. W. Johnstone Co. Ltd. 5
3 [1964] A.C. 465.
4 [1976] 6 W.W.R. 80.
5 (1977) 69 D.L.R. (3d) 639.
These cases were reviewed by Collier J. in the Gypsum Carrier Inc. case and I will refrain from further commenting on them except to say that I fully agree with these decisions.
The fairly recent case of Rivtow Marine Ltd. v. Washington Iron Works 6 is apparently the first one where the Supreme Court of Canada was called upon to consider whether judgment could be recovered in a negligence action for economic loss standing alone and not dependent upon physical injury. In that case, the plaintiff was the charterer of a log barge equipped with two cranes. The first defendant was the manufacturer and designer of the cranes and the second defendant was the sole distributor and representative of the manufacturer in the area. Both defendants were fully aware for some time of a serious defect in the design and construction of the cranes and they also knew that the plaintiff was going to use them and were fully aware of the express use to which the cranes would be put. Notwithstanding this, they failed to warn the plaintiff, who might otherwise have had the defects remedied during a period of the year when little or no work was available. It was also held that the defendants were fully aware of the fact that the plaintiff looked to them for advice regard ing the machinery and for its inspection and repair when necessary.
Because of a fatal accident on another compa- ny's barge, which was equipped with an identical crane, the plaintiff was advised by the Workmen's Compensation Board of British Columbia to obtain a certificate as to the soundness of the cranes and, as a result of the inspection, the plain tiff was obliged to carry out repairs at the height of the very profitable working season. The plaintiff sued for the cost of repairing the cranes and for loss of use during the repair period.
The judgment of seven of the Judges constitut ing the majority of the Court, which upheld the judgment of the Trial Judge, was delivered by Ritchie J. It was held that there was no liability for the cost of repairs and for such economic loss as would have occurred in any event if the warning of the defects in the cranes had been given immediately, but, that there was liability for the
6 [1974] S.C.R. 1189.
excess of economic loss which occurred because of failure to warn. The dissenting view of the remain ing two Judges, that is, Hall J. and Laskin J. (as he then was), was delivered by the latter. They would have allowed the cost of repairs in the amount of the consequent economic loss which would have occurred in any event if the repairs had been carris out during a slack season as well as the economic loss which occurred by reason of the repairs being carried out during the highly profitable period.
As to the cost of repairs in the economic loss which would have occurred even if the repairs had been carri:s out during the slack season, the majority of the Court disallowed both on the grounds that liability for the cost of repairing the damage to a defective article itself and for the economic loss flowing from the manufacturer's negligence is akin to liability under an express or implied warranty of fitness and is therefore of contractual origin and cannot be enforced against the manufacturer by a person not party to the contract.
The minority judgment would have found liabil ity on the basis that a mere threat of physical harm, as well as physical harm itself, should also constitute grounds for recovery. It is abundantly clear, however, that the whole Court were of the view that the liability for the excess economic loss due to failure to warn was properly founded on a failure to warn where there was a clear duty to do so in that particular case and that such failure to warn constituted an independent tort on which the liability could be founded. Ritchie J. had this to say on behalf of the majority at page 1215 of the above-mentioned report:
... 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. This being the case, I do not find it necessary to follow the sometimes winding paths leading to the formulation of a "policy decision."
Laskin J., on behalf of the minority, had this to say at page 1216:
I agree with the award of damages so far as it goes, but I would enlarge it to include as well the cost of repairs.
He had this to state at pages 1218 and 1219:
Support for such recovery in the present case will not lead to "liability in an indeterminate amount for an indeterminate time to an indeterminate class", to borrow an often-quoted state ment of the late Judge Cardozo in Ultramares Corp. v. Touche (1931), 255 N.Y. 170, at 179. The pragmatic considerations which underlay Cattle v. Stockton Waterworks Co. (1875) 10 Q.B. 453 will not be eroded by the imposition of liability upon Washington as a negligent designer and manufacturer: cf Fleming James, "Limitations on Liability for Economic Loss Caused by Negligence: A Pragmatic Appraisal", (1972), 12 Jo.S.P.T.L. 105. Liability here will not mean that it must also be imposed in the case of any negligent conduct where there is foreseeable economic loss; a typical instance would be claims by employees for lost wages where their employer's factory has been damaged and is shut down by reason of anther's negli gence. The present case is concerned with direct economic loss by a person whose use of the defendant Washington's product was a contemplated one, and not with indirect economic loss by third parties, for example, persons whose logs could not be loaded on the appellant's barge because of the withdrawal of the defective crane from service to undergo repairs. It is concerned (and here I repeat myself) with economic loss result ing directly from avoidance of threatened physical harm to property of the appellant if not also personal injury to persons in its employ.
The learned Judge also had this to say at pages 1221 and 1222:
This rationale embraces, in my opinion, threatened physical harm from a negligently designed and manufactured product resulting in economic loss. I need not decide whether it extends to claims for economic loss where there is no threat of physical harm or to claims for damage, without more, to the defective product.
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 Corpo ration 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 such as the classical decision of M'Alister (or Donog-
hue) v. Stevenson' where special norms of liability apply.
It was suggested, although not forcibly argued, that recovery might be allowed on the grounds of public nuisance. The obstruction of the seaway, which might constitute the nuisance, was caused by an inadvertent act of negligence and not by any wilful or deliberate action of the plaintiff and the obstruction was not allowed to continue nor pro longed by any further wilful act or negligent act or omission of the plaintiff. There did not therefore exist in the plaintiff the required guilt or intent to commit the type of petty offence which is required to found an action for public nuisance as opposed to one for private nuisance. In stating this, I do not wish to convey the impression that if the plaintiff were guilty of creating a public nuisance, the damages claimed by the National Steel Corpora tion would necessarily be recoverable at law.
For the above reasons the claim of National Steel Corporation is disallowed in its entirety.
The second matter on which I reserved was the claim of Wayne Soap Company, a shipper of merchandise. The claimant shipped tallow by ship through the canal and claims the extra costs of having to ship the tallow by truck overland to Toronto where it could be loaded for shipment to Europe.
Since the claim of National Steel Corporation has not been allowed, it is patently obvious that, as this claimant is still further removed from the orbit of responsibility of Bethlehem Steel, its claim must also be disallowed. Furthermore, it would neither meet the foreseeability test nor the direct consequence (causality) test.
I also completely reject the argument that there should be a distinction between the right of recov ering an economic loss which consists of a dis bursement actually made as in the claim of Wayne Soap Company, where it claims for costs of truck ing, and that which consists of loss of profits as in the case of National Steel Corporation.
7 [1932] A.C. 562.
The final matter on which I reserved was the right of Bethlehem Steel Corporation to claim against the fund paid into Court, any amount which it might have to pay claimants in the U.S. action out of the total limited amount of $850,000, which it paid into court in the United States.
A shipowner has the right to claim against his own limitation fund amounts of damages which he may have been called upon to pay in another jurisdiction. (Refer Leycester v. Logan$; Rankine v. Raschen 9 ; The "Crathie" 10 ; The "Kronprinz Olav""; and "T" Steam Coasters ("Coaster") v. Owners of Cargo Laden in `Dokka" 12 .)
Section 648(4) of the Canada Shipping Act recognizes this principle and provides as follows:
648... .
(4) In making a distribution under this section of the amount determined to be the liability of the owner of a ship, the Court may, having regard to any claim that may subse quently be established before a court outside Canada in respect of that liability, postpone the distribution of such part of the amount as it deems appropriate.
This section allows postponement, at my discre tion, of distribution of part of the amount of $680,733.56 paid into Court in the present case.
The right of recovery of the claimants in the U.S. action has not yet been determined. It appears that the very great majority of those claims, if not all of them, will fall within the same category as the claims of National Steel Corpora tion and of Wayne Soap Company which I have disallowed. It appears also, following a ruling by Krupanski J., who heard the application dealing with the limitation fund to be deposited in the U.S. action, that, following the same principles recog nized by Canadian courts and most nations of the Western World, United States courts, in order to determine liability in tort cases, apply the lex loci delicti commissi.
8 (1857) 26 L.J. (N.S.) 306.
9 4 Ct. of Sess. Cas. (4th series) 725.
10 [1897] P. 178.
11 [1921] P. 52.
12 (1921-2) 10 Ll. L.Rep. 592.
It is nevertheless of prime importance to bear in mind that where the tort on which the claims are founded has been committed in Canada, this Court must not allow any credit against the limitation fund here for a claim declared valid by a foreign court unless that claim would have been recog nized as valid at law in Canada; it would be nothing short of ludicrous to hold otherwise, for Canadian claimants would then be obliged to suffer a reduction in the amount to which they would otherwise have been entitled to receive from the fund merely because a claimant has chosen to appeal to a foreign jurisdiction rather than to a Canadian court where his claim would have failed. Thus, when exercising judicial discretion on the period of postponement to be allowed, if any, it is important to bear in mind that, even if a claim has been allowed in the U.S. action, it might still be subject to contestation here in so far as Bethlehem Steel's right to claim a credit therefor against the limitation fund here is concerned. In exercising that discretion, it must also be borne in mind that an indefinite or an exceedingly lengthy postpone ment would work an injustice against the other claimants who, after all, are obliged to see their otherwise legitimate claims reduced by reason of the special privilege allowed the shipowner by the legislation providing for limitation of liability. The accident occurred in August 1974 and all but three years have since elapsed. There have been several postponements and delays but they are not, in my view, attributable to Bethlehem Steel but rather to former claimants before this Court who are now claiming in the U.S. action.
There might still be some complicated issues to be decided in the U.S. action and, having no idea of the amount of work before the United States court, it becomes almost impossible to predict when it might finally dispose of the matter. Fur thermore, it is patently obvious that I have no control over the time to be taken to resolve what ever issues might remain to be decided in that jurisdiction.
With these considerations in mind and, having regard to the state of the U.S. action as I presently view it, I feel that a partial interim distribution of the fund should take place immediately among all of the legitimate claimants with the exception of
Bethlehem Steel and that the ultimate date of final distribution should take place within six months.
There will therefore be a temporary pro rata provision made against the funds in favour of Bethlehem Steel as if it had a valid claim of $850,000 (i.e.: the total amount paid into the limitation fund in the U.S. action) and, subject to that provision, immediate distribution of the remainder of the fund plus accumulated interest thereon to date shall take place pro rata among the other claimants in accordance with the claims which I have allowed.
The share of the fund represented by the $850,- 000 claim of Bethlehem Steel shall be set aside to be distributed finally on or before the 1st of March, 1978.
At the time of final distribution the amount remaining shall be paid out as follows:
1. Should the claims allowed in the U.S. action and recognized as enforceable under our law, equal or exceed the amount of $850,000, then the total amount remaining in the fund plus accumulated interest shall be paid out to Beth- lehem Steel.
2. Should there be no such valid United States claims allowed, then the balance shall be paid out pro rata among the other successful claim ants in this action.
3. Should the total of such valid proven claims as are allowed in the U.S. action be less than $850,000, then the balance of the fund shall be distributed between Bethlehem Steel and the other successful claimants, as if such total allowed claims in the United States had been known at the present time and prorated with the other claims against the total fund.
4. Should there be no final decision from the United States Trial Court as of the 1st of March, 1978, as to the validity of the claims made there, then the balance of the fund shall be paid out pro rata among the successful claim ants in this action without taking into account any possible liability of Bethlehem Steel in the U.S. action.
As there will always remain the possibility, remote as it may be, of a challenge of the validity
according to our law of any award made in the U.S. action, the above order for final distribution shall remain subject to any further order of this Court issued for the purpose of allowing it to finally dispose of any such challenge.
Except as otherwise specifically provided by any former order, Bethlehem Steel shall pay on a party-and-party basis all costs of all claimants before this Court, including unsuccessful claim ants, but not those of any claimants who withdrew in order to claim in the U.S. action.
Formal judgment shall issue in accordance with these reasons and the oral findings announced in open Court at the time of the trial.
 You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.