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Newsletter > September 2009

In this issue: 1. Firm News 2. Supreme Court of Canada: Former Shareholders and Directors Did Not Breach Non Competition Clause / Misappropriate Business Opportunity: Enerchem Transport v. Gravino2009 CANLII 13445 3. Fifteen Nations Ratify Rotterdam Rules 4. Sometimes the Best Thought Out Legal Arguments Just Go Down the Drain: Charting the Difficult Area of Tort Law

1. Firm News

  • Rui Fernandes and Gordon Hearn have been listed in the upcoming 2010 edition of “Best Lawyers” in the areas of Maritime Law and Transportation Law.
  • Rui Fernandes and Gordon Hearn have also been named in the Legal Media Group Guide to the World’s Leading Shipping & Maritime Lawyers.
  • Rui Fernandes will be participating on a panel on the role of Average Adjusters at the International Marine Claims Conference held in Dublin Ireland at the end of September. He will be representing the Association of Average Adjusters of Canada as the current Secretary of the Association.
  • Gordon Hearn will be participating in a panel discussion on the “World of Transportation Contract Logistics” at the upcoming annual meeting of the Canadian Transport Lawyers Association being held October 2-3, 2009 at Niagara-on-the-Lake, Ontario.
  • Gordon Hearn will be presenting a paper relating to Canadian surface transportation law at the “SMC3 Loss Prevention Conference” in Atlanta, Georgia on October 21, 2009.
  • Gordon Hearn will be presenting a paper on the “Liability for Payment of Freight Charges and Trust Obligations” to a joint meeting of the National Transportation Brokers Association and the Delta Nu Alpha Transportation fraternity in Mississauga, Ontario on October 22, 2009.
  • Kim Stoll is the Ontario Director of the Canadian Transport Lawyers Association and member of the Education Committee. Kim will be the moderator for two panel presentations at the Canadian Transport Lawyers Association Annual Meeting in Niagara- on- the Lake October 1-3, 2009. The panels are entitled: “Cross-border Freight Claims and Personal Injury Cases”, “Welcome to the Age of Pirates and Terrorists: Legal Initiatives”. Kim will also be the moderator for the roundtable discussion on “Due Diligence in the Selection of Carriers and Drivers”.
  • The firm’s 10th Annual Maritime and Transportation Conference will be held on Friday January 15th 2010. Please reserve the date on your calendar.

2. Supreme Court of Canada: Former Shareholders and Directors Did Not Breach Non Competition Clause / Misappropriate Business Opportunity: Enerchem Transport v. Gravino 2009 CANLII 13445

The Supreme Court of Canada recently upheld the Quebec Court of Appeal decision in Gravino v. Enerchem Transport Inc. 2008 QCCA 1820 by dismissing Enerchem Transport Inc’s application for leave to appeal the decision.

In the Gravino case the trial judge found that Nicholas Gravino and Richard Carson, who were former directors of Enerchem Transport Inc. had breached their duty of loyalty towards their former employer (Enerchem) and ordered the directors to pay $3,100,000 for having appropriated a business opportunity upon which they had actively worked in the course of their employment with Enerchem.

The tangled web of activities started in 1994. Ultramar began negotiations with Enerchem for the subchartering of three of Enerchem’s tankers under charter to Ultramar. Ultramar no longer needed the tankers for itself. Gravino and Carson, who were then shareholders and directors of Enerchem, actively took part in the negotiations with Ultramar. No agreement was reached between Ultramar and Enerchem. In February 1996, Gravino and Carson exercised their share options selling their Enerchem shares to the majority shareholder of the company and, in June 1996, both terminated their employment contracts with Enerchem. By virtue of the terms of the unanimous shareholders agreement and the exercise of their options, the non-competition clause in the agreement ceased to apply to them as of their resignation date.

Following their departure, Gravino and Carson founded their own company, Petro-Nav Inc. , and competed directly with Enerchem. They entered into discussions with Shell for the control of the three tankers under charter to Ultramar. In September 1996, the marketing vice president of Enerchem moved to Petro-Nav. In April 2007, Ultramar assigned its lease agreement for the three tankers to a subsidiary of Petro Nav.

Enerchem commenced a suit against Gravino and Carson alleging that the former directors and officers had appropriated for themselves, to Enerchem’s detriment, a business opportunity that they had developed for Enerchem, breaching their duty of loyalty to their former employer.

The trial judge agreed with Enerchem.

The Quebec Court of Appeal overturned the judgment of the trial judge. The Court of Appeal looked at two issues. It examined the non-competition clause in the shareholders agreement and examined the obligation to act loyally and in good faith in the context of a maturing business opportunity.

The Court of Appeal affirmed the principle that, even where a non-competition clause is extinguished, as it was here, the director / fiduciary is not freed from the general obligation to act loyally and in good faith to their former employer. However, the Court of Appeal found that directors and officers can compete with their former employers provided that doing so is not incompatible with their obligation to act loyally and in good faith. In the present case, the court found that a “maturing business opportunity” requires a sufficient degree of specificity so as to be virtually autonomous. The Court concluded that the business opportunity that Gravino and Carson had contemplated exploiting while in the employ of Enerchem was then still too vague to be characterized as a “maturing business opportunity.” The opportunity had not evolved into a privileged interest of the company in order to be deemed more than an embryonic idea.

The Court also noted that the business ultimately obtained by Petro-Nav was generically too different from the Enerchem1996 proposition to have proximately resulted therefrom, and too much time had elapsed between those two junctures to be able to conclude that the same business opportunity was at issue.

Among the criteria cited by the Court in support of its finding that the situation in this case did not amount to Petro-Nav or its principals usurping what was a maturing business opportunity for Enerchem, the following are worthy of note: (a) the fact that the existence of the opportunity in question was generally known in business circles (as opposed to being confidential); (b) the fact that the project was exploratory and hypothetical in nature (as opposed to being in an advanced state of completion); (c) the fact that the defendants had had knowledge of the business opportunity even before a new shareholder acquired its interest in Enerchem (as opposed to learning about it specifically by reason of their duties); (d) the absence of a continuing conflict of interest (the directors concerned having resigned from the board); and (e) the fact that the opportunity that was ultimately exploited differed in its execution from the one that Enerchem had been pursuing. The case must be read on its facts. It does not mean that the law has changed. The applicable law was the duty of loyalty under Articles 322 and 323 of the Civil Code of Québec. Other provinces have similar duties of loyalty in their provincial legislation.

In Ontario, for example, Section 134 of the OBCA sets out the fiduciary duties of directors: Standards of care, etc., of directors, etc.

134. (1) Every director and officer of a corporation in exercising his or her powers and discharging his or her duties shall (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

The Ontario Court of Appeal explained these duties and the duties of employees in Felker v. Cunningham 2000 CanLII 16801 (ON C.A.), 191 D.L.R. (4th) 734. Felker was employed as a senior sales person with Electro Source, a company owned by Cunningham. Mr. Felker learned of an opportunity to become the manufacturer’s representative in Canada for a company known as Microchip. Felker and two partners, Cammuso and Bowden, put together a proposal on behalf of Felker’s company, JAS, which they planned to submit to Microchip in the expectation of gaining a substantial client who would get their own business started. Some years earlier, Electro Source had had discussions with Microchip about representing its product lines; however, it did not pursue the discussions when it learned that Microchip manufactured a product that competed with a product manufactured by one of Electro Source’s clients.

The evidence indicated that Felker prepared a “power point” presentation on the Compaq notebook computer he had received from Electro Source under the employment contract. In his testimony, Felker admitted that he did not devote his full time and attention to his duties at Electro Source while preparing the presentation to Microchip and that he was not concerned about advancing the business of Electro Source during this period. He advised Cunningham in a memo dated March 20, 1996 that he would be spending more time out of the office on sales. Subsequent to the date of the memo, Cunningham noticed Felker’s absence from the office until the time Felker was terminated. Felker did not disclose to Cunningham that he was pursuing the Microchip opportunity, nor did he receive Cunningham’s permission to do so. He admitted that he was not frank, open and honest with Cunningham in that regard.

Felker was to make his presentation to Microchip on April 9, 1996. On April 4, Cunningham learned of Felker’s activities. He testified that he did not confront Felker as confrontation was not his management style. Rather, he preferred that Felker come forward and be honest and open with him about his activities concerning Microchip. When Felker failed to come forward, Cunningham realized that he could no longer trust him and decided to terminate Felker’s employment. He did so on April 8, 1996.

Although Felker made the proposal to Microchip, it was not accepted. Had it been accepted, Felker would have left his employment with Electro Source to operate his own company, JAS, in competition with Electro Source.

Felker sued for wrongful dismissal and was awarded damages of $100,000 by the trial judge. The Court of Appeal for Ontario reversed this decision, finding that Felker had breached his duty of loyalty. The Court found that Cunningham had just cause for terminating the employment.

The Court of Appeal stated:

…it has been established law in Canada that high echelon managers and directors of an organization owe their employer a fiduciary obligation that transcends their implied duty of fidelity as a regular employee. Thus, an employee who stands in a fiduciary relationship to his or her employer has an equitable obligation of loyalty, good faith, honesty and avoidance of conflict of duty and self-interest. The employee must act honestly, in good faith and with a view to advancing the employer’s best interests. This court has held that fiduciary employees cannot enter into engagements in which they have a personal interest that conflict with anything the employer does, or realistically may do, without first making full disclosure and obtaining the employer’s consent: Manley Inc. v. Fallis (1977), 2 B.L.R. 277. Moreover, as the fiduciary duty is based on trust, loyalty and confidence, and not economic cost to the employer, fiduciary employees are not relieved of their fiduciary duties if the business opportunity sought to further their own ends is one that the employer would have been unwilling or incapable of exploiting: Re Berkey Photo (Canada) Ltd. v. Ohlig (1983), 43 O.R. (2d) 518 at 530-531 (H.C.J.).

Another illustrative decision in this area, is Jordan Inc. v. Jordan Engineering Inc. 2004 CanLII 5863. Jordan Inc., a consulting business in the computer systems integration field, was founded by Katherine van Nes and Sandra Murre. Both women were professional engineers. The principals left full time employment and started the plaintiff company in 1997. The company specialized in providing information services and control systems for large companies that included configuration, integration, and support services.

The company’s revenue was based on projects and services provided to its clients. In March and April 1998, the corporation received its first contracts. Thereafter, work increased. At times, there were pressures upon both principals from too much work. The two principals got along well. They socialized together outside of work and managed to balance work with their family life and personal commitments.

In the early period, the principals marketed the company. They set up offices in Sandra Murre’s home. She was primarily responsible for the office activities and supervised the bookkeeper, Anna Murre, Sandra’s sister-in-law. Both Sandra Murre and Katherine van Nes preformed the work as contracted with the clients.

The business grew. The principals did not address having a shareholders agreement and none was entered into. They made no arrangement for a buy-out.

The demands and pressures of business, combined with increasing personal demands, created friction between the principals. In the spring and summer of 1999, both Katherine van Nes and Sandra Murre gave birth to their second children. Sandra Murre was of the view that they should create two separate companies and she made this proposal to Katherine van Nes. Katherine van Nes did not agree with that proposal. Katherine van Nes and Sandra Murre continued to run the company until October 1999.

On October 13, 1999, Sandra Murre called a meeting with Katherine van Nes. She told Katherine van Nes she wanted to run the company on her own. An offer in writing followed to purchase Ms. van Nes’s interest for $70,000. The proposal was that the company would permit Katherine van Nes to work for Jordan Inc. as an employee or independent contractor. Katherine van Nes was disappointed by the developments. She rejected Sandra Murre’s offer and obtained her own evaluation of the company. Sandra Murre did not agree with this valuation.

Katherine van Nes was not satisfied with the events which followed. These included the disclosure made by Sandra Murre with respect to Jordan Inc. and Sandra Murre’s formation of a new company called Jordan Engineering, the corporate defendant. Most of the employees of the plaintiff company resigned and joined the defendant company as did some of the clients.

The Ontario Superior court was asked, among other things, to determine if there was there a wrongful appropriation of Jordan Inc. by Sandra Murre (i.e. breach of a fiduciary duty).

In deciding that there was a breach of fiduciary duty the court stated:

[28] Thus, directors are prohibited from putting themselves in positions where their duty to act in the best interests of the corporation and their self-interest conflict. If directors use their positions to obtain a profit or other benefit for themselves, then they are required to give up the benefit to the corporation. I find that, as a director, Ms. Murre took advantage of a business opportunity which was not in the best interests of the plaintiffs when she set up her company.

[29] Similarly, the duty to act “honestly” prohibits directors from acting fraudulently in relation to the company; they are not to deprive the corporation of some assets or benefits which the corporation is entitled to for their own gain. In most cases, where there is a breach of fiduciary duty, the fiduciary has made some profit or received some advantage at the expense of the corporation. Here, I do not find that, as a director, Ms. Murre was acting fraudulently, but I do find she failed to act in the best interests of the plaintiffs when she commenced an operation for her own gains and best interests.

[30] Although it is not a breach of a fiduciary duty for a director to terminate his or her relationship with a corporation and go into competition with it, a fiduciary cannot compete with the corporation while he or she remains in her capacity as a fiduciary. The conflict between the personal interests of the fiduciary and her duty to act in the best interests of the corporation is obvious in such situations and the courts, traditionally, have provided relief whenever any competition has been found. In Re Thomson, [1930] 1 Ch. 203, the court granted relief against an executor who entered into competition with a business owned by the estate for which he was responsible.

[31] Also, a fiduciary cannot use her fiduciary position and the opportunities afforded to her in that position to develop a competing business and then quit to begin competing with her former organization. In Coleman Taymer Ltd. v. Oakes, [2001] 2 B.C.L.C. 749 (Ch D.), the court held that extensive preparations to compete by a director before he quit breached his fiduciary duty. The fiduciary obligations extend beyond the termination by the fiduciary.

[32] Even where a fiduciary has not used her position to develop an opportunity, she will have some obligations extending beyond the termination of the relationship with the corporation. A fiduciary cannot use confidential information belonging to the corporation, though it is not a breach to use skills, know-how, experience, and personal goodwill acquired by the fiduciary during her service to the corporation. As well, if a departing fiduciary attracts customers or other employees by virtue of her qualifications or experience, this will not breach the fiduciary duty; however, if she affirmatively solicits customers or employees, relying on relationships developed during her time with the corporation, she will be in breach of her fiduciary obligations. I find that happened here. I have no doubt that a number of clients came to Jordan Inc. because of Ms. Murre, but they then became the clients of Jordan Inc. As a departing fiduciary, she was under a common law obligation not to solicit these clients for a reasonable period. (See DiFlorio v. Con Structural Steel Ltd. (2000), 6 B.L.R. (3d) 253 (Ont. S.C.J.) and Felker v. Cunningham2000 CanLII 16801 (ON C.A.), (2000), 191 D.L.R. (4th) 734 (Ont. C.A.), leave to appeal to S.C.C. dismissed without reasons [2000] S.C.C.A. No. 538 (QL)). While I accept her position that clients willingly came to the her new company, I find that she made no efforts to honour her obligations to Jordan Inc. so that clients remained with that company. Ms. van Nes was neither informed nor involved in that process.

[33] Similarly, while Ms. Murre may not have solicited the employees who went with her to her new company, I find that Ms. van Nes was neither informed nor involved in giving the employees any options. Clearly, the employees had greater loyalty to Ms. Murre because of her physical visibility in the operation and her dealing with them, but this does not excuse the way in which the employees shifted from one company to another without Ms. van Nes having any involvement in the process or with the employees.

[34] Competition prohibited by the fiduciary duty includes not only competition by the fiduciary in her personal capacity, but also competition by a corporation in which the fiduciary has an interest. It has been held there is no absolute rule regarding multiple directorships. In each case, the question of whether there was a breach of a fiduciary duty will depend on the facts. The relevant question is whether Ms. Murre, as a fiduciary, could act in the best interests of both corporations. Where corporations are in active competition with each other, it is impossible not to conclude that a director of both corporations is in a conflict of interest and in breach of her fiduciary duty. That was the case here.

Katherine van Nes was awarded damages for the breach.

Rui Fernandes


3. Fifteen Nations Ratify Rotterdam Rules

On September 23, 2009 fifteen signatory nations including the United States, Denmark, the Netherlands, Switzerland, Spain, Poland, Guinea, Senegal, Greece, Norway, Ghana, Nigeria, Togo, Benin and the Democratic Republic of Congo ratified the Rotterdam Rules.

The Rotterdam Rules (United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea) is the new regime designed to regulate marine cargo liabilities. They are targeted to replace the Hague Rules, Hague-Visby Rules and the Hamburg Rules.

France and China are not yet signatories, but are public supporters of the Rotterdam Rules. The maritime nations of New Zealand, the United Kingdom, Singapore, Bulgaria, Slovenia, Japan, Finland and Croatia have not yet signed the Convention. Canada has announced that it will not sign the new Convention at this time. In a notice to industry, Transport Canada made the following announcement:

Throughout the negotiations in UNCITRAL, Transport Canada has consulted extensively with maritime stakeholders on the new Convention, and whether or not Canada should sign it, subject to ratification, at the Rotterdam conference.

While many stakeholders indicated that Canada should sign the Convention in Rotterdam, subject to ratification, there were also many stakeholders who could not support Canada’s signature at this time and felt that such a step should be considered as and when Canada’s major trading partners have indicated their commitment to ratify the new Convention. Taking into account the diverse views among stakeholders on the new Convention and the need to undertake further consultations on some of its provisions, particularly those related to domestic carriage of goods by water, Canada will not be in a position to sign the new Convention in Rotterdam.

The Convention will not be fully implemented until one year after it has been ratified by 20 signatory nations.

Rui Fernandes


4. Sometimes the Best Thought Out Legal Arguments Just Go Down the Drain: Charting the Difficult Area of Tort Law

The recent Ontario Court of Appeal decision in Bingley et al v. Morrison Fuels, a Division of 503373 Ontario Limited [(2009) 95 O.R. (3d) 192] provides a nice review of important principles of tort law as pertains to actions based on ‘negligence’.

The Facts

In 1979, the Bingleys hired Stanzel Plumbing to decommission their old oil-heating furnace and to convert their heating system to natural gas. Stanzel Plumbing attended and removed the Bingley’s oil furnace but left in place the oil tank in the basement as well as the oil fill pipe and the vent pipe left on the outside of the house. Stanzel Plumbing tightened the cap on the external oil fill pipe so that it could not be removed by hand and then turned this pipe down towards the ground to prevent it from being filled in this position and to indicate that it was no longer to be used.

In 2001 – 22 years later – one McDougall, an employee of Morrison Fuels, misread a delivery ticket and mistakenly made an oil delivery to the Bingley’s home. McDougall found the oil fill pipe on the exterior of the dwelling in the downward position with its cap end pointing towards the ground. Wrongly thinking that the oil fill pipe was merely loose [and, as such, not pointing in the other ‘up’ direction] he raised the pipe and then loosened the cap with a wrench. McDougall was unaware that he was pumping 933.4 litres of furnace oil into the wrong residence. In fact, the Bingley’s oil tank had beforehand rusted and leaked, as a result of which oil spilled onto the unfinished basement surface and entered the soil and groundwater. The house was rendered uninhabitable and serious environmental contamination occurred.

The Law Suits

The Bingleys sued Morrison Fuels and McDougall. The claim was based in ‘negligence’. Morrison Fuels and McDougall admitted their negligence, settled the Bingley’s claim and rectified the situation at a cost of over $1 million.

Morrison Fuels and McDougall commenced a ‘third party’ action against D.W. Stanzel Plumbing and Heating Limited and Donald Wright Stanzel [hereinafter collectively referred to as “Stanzel Plumbing”] claiming ‘contributory negligence’, alleging that Mr. Stanzel negligently decommissioned the Bingley property in 1979 and that Stanzel Plumbing has to pay a portion of the Bingley’s losses.

At a trial of this ‘third party’ claim, the judge found that Stanzel Plumbing had not in fact been negligent. Morrison Fuels and McDougall were not accordingly entitled to be indemnified by it, in whole or in part, for what they had paid to clean up the problem with the Bingley’s property.

At Trial

In her reasons for judgment, the trial judge focused on various errors by Mr. McDougall. He had only been employed at Morrison Fuels for two months when the events occurred. While he had seen similar ‘turned down’ oil pipes before, he did not know, nor had he been trained as to their significance. On the day of the accident, he was in a hurry and misread the delivery ticket. In particular, the ticket indicated that the exterior oil fill pipes at the intended address were at a different location relative to the dwelling than where the utilized pipe was actually found. In addition, the delivery ticket indicated that the delivered volume was to be less than 560 litres, significantly less than the amount delivered. In short, there was plenty of ‘negligent conduct’ to be found on the part of McDougall and in turn to fix on his employer, Morrison Fuels.

The key issue at trial – Morrison Fuels and McDougall already having admitted responsibility – was assessing the standard of care expected of Stanzel Plumbing in 1979 for the decommissioning and whether it met that standard. Did Stanzel Plumbing have to contribute towards the clean up?

[Note: A necessary ingredient to any ‘tort’ claim based on negligence, is the finding of important ‘pillars’ or key facts to give rise to such a claim. First, the defendant must be seen to have owed the plaintiff a ‘duty of care’. That is, the parties must have been in such proximity to each other that it could be said that the defendant should have or did in fact reasonably foresee that negligent conduct on its part would likely cause harm to the plaintiff. The next item concerns ‘negligent conduct’. This calls for an analysis, the parties having some proximity to the other, as to what standard of care was expected on the part of the defendant and whether the defendant’s conduct fell below that standard. As such, think of a claim in negligence being successful where ‘a defendant could reasonably foresee damage being suffered to a foreseeable plaintiff by the former’s conduct, amounting to something less than that reasonably expected of the defendant in the circumstances, which conduct actually causes harm or loss to the plaintiff.’]

A simple, rather theoretical test, but one that may be difficult to apply to the facts of a particular case.

Just what standard would Stanzel Plumbing be held to? The relevant ‘lens’ is the state of the industry and knowledge at the relevant time, back in 1979. As put by the judge, the question was “what would have been the standard of care expected of an ordinary, reasonable and prudent person in the same circumstances, having regard to the likelihood of a known or reasonably foreseeable harm, the gravity of that harm, the burden or cost which would be incurred to prevent the harm, industry practice and regulatory standard?”.

The judge found that Stanzel Plumbing’s method of decommissioning the Bingley’s furnace was an accepted practice in 1979 and that it complied with the then applicable regulatory standard, which required that the installer ensure that a system being replaced or being rendered obsolete “… has either been removed or left safe and secure from accidental discharge”.

Evidence was called at trial to the effect that in 1979 there was a prevailing industry practice in decommissioning an oil heating system, if the oil tank and piping were not to be removed, by turning the oil fill pipe down to the ground as a signal to any fuel delivery person. Accordingly, despite noting that the better decommissioning method would have been to remove or plug the fill pipe, the trial judge found that Stanzel Plumbing complied with accepted industry practice in 1979. The judge found that Stanzel Plumbing did owe the Bingley’s a ‘duty of care’, but that it did not owe any duty of care to Morrison Fuels or McDougall in terms of the decommissioning. In essence, the nature of the failures on the part of McDougall were far reaching and fundamental, such that Stanzel Plumbing should not be ‘pinched’ in terms of being expected to have foreseen that such errors could take place in the future by virtue of how the limited steps being taken in the 1979 decommissioning.

The judge ultimately ruled in favour of Stanzel Plumbing on the basis that it “could not have reasonably foreseen that a delivery of fuel oil that was not authorized by anyone and that was made in the face of many indicators [as misread, or missed by McDougall] to the contrary would be made into that tightened and down-turned oil pipe.”

The judge did find – should she be corrected on appeal on the question of whether Stanzel Plumbing should be held liable – that, on the evidence at trial, liability or blame should be apportioned as follows:

– McDougall: 75% – Morrison Fuels: 20% – Stanzel Plumbing: 5%

Proceedings before the Ontario Court of Appeal

Morrison Fuels and McDougall filed an appeal to the Ontario Court of Appeal.

A majority of the Court of Appeal reversed the trial judge’s findings and ruled that in fact Stanzel Plumbing should be held accountable for what happened.

The majority ruled that the judge erred in applying the ‘reasonable foreseeability of harm’ test to the circumstances of the case. While the trial judge was correct, in listing this as an essential element to a plaintiff succeeding against a defendant for a case in negligence, the majority disagreed with the trial judge as to how this test was to be applied to the facts of the case. The trial judge considered whether a mistaken delivery with the particular chain of events as unfolded was reasonably foreseeable rather than considering whether, in general, harm from a ‘mere’ mistaken delivery of oil [without more egregious facts] to the Bingley residence was reasonably foreseeable. The majority found that the former, more specific analysis was applied in error and that the latter more simple test should govern.

The Court of Appeal ruled, on the basis of case law precedent, that “one need not envisage the precise concatenation of circumstances which led up to the accident, provided that the general harm is reasonably foreseeable”. The test is not whether to assess whether the defendant can see the harm unfolding in the particular way that it did, but rather one is to have regard to only the general harm, not its ‘manner of incidence’, as being reasonably foreseeable. The question is then whether, Stanzel Plumbing could reasonably foresee the risk of a mis-delivery [which it did, hence, the reason for the pipe being turned downward] rather than whether it could have been expected to have foreseen all the particular aspects, or degrees of negligence of McDougall in this case leading up to the loss. The majority had little difficulty in citing the fact that Stanzel Plumbing could reasonably foresee the chance of an oil delivery person arriving at the wrong address to delivery oil.

The correct approach led to the conclusion that the failure to permanently plug the oil pipe created a reasonably foreseeable risk that oil could be mistakenly pumped into the pipe at a later point in time simply by virtue of a ‘mis-delivery’, without more. The majority also noted the chance that over time somehow the pipe might be bumped, inadvertently, into an upright position…

The majority ruled that in combining this reasonable forseeability with the enormous potential harm and the trifling cost of permanently plugging the fill pipe that Stanzel Plumbing breached the standard of care owed to the Bingleys. Having concluded that Stanzel Plumbing breached the standard of care owed to the Bingleys, the majority opted to defer to the findings of the trial judge as concerns the apportionment of liability between the parties. In the result Stanzel Plumbing would be assessed 5% of the blame.

The ‘Dissent’

As mentioned, one of the Court of Appeal judges parted from the majority with her analysis of the case. This judge found that on the particular facts of the case the method employed by Stanzel Plumbing did meet the standard of care and that there was a fair basis for the trial judge to find that there was no reasonably foreseeable risk of a mistaken oil fill when the Stanzel conversion method was used in 1979 because the Stanzel method protected against the then perceived risk of harm created by leaving the oil heating components in place. In essence, there was then no foreseeable risk of a mistaken oil fill when the Stanzel method was used. Whether applying the more fact specific analysis used by the trial judge, or the more simple ‘general foreseeability’ test employed by the majority, the dissenting judge ruled that either way Stanzel Plumbing could not reasonably have foreseen what happened and, according to this dissenting judge, it should not be found liable.


The difference in approaches between the majority and the minority dissenting judge [agreeing with the trial judge] is very nuanced. It is something that lawyers will have to struggle with. It highlights challenges in the law of tort, and yet points to one factor making the outcome in litigation unpredictable. While illustrating an important ‘foreseeability’ requirement in tort litigation, this decision shows how detailed the analysis can get, and how critical the facts are in each case.

Gordon Hearn

This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the “Content”) including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.

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