Arvay Finlay Wins Right for Mill Workers to Sue Province

Reasons for Judgment of the Honourable Mr. Justice Esson:

1. The Encyclopedia of British Columbia, published in 2000, states at p. 787:
   
   Youbou is a sawmill community on the north shore of Cowichan Lk, 45 km west of Duncan on Vancouver Island. It was the site of the first sawmill on the lake in 1913. When the CNR reached the community in 1925 it was called Cottonwood; the next year it took the name Youbou after 2 pioneer loggers, Yount and Bouten. The forest industry has remained the economic mainstay.

In January 2001, Youbou ceased to be a sawmill community. The mill was permanently shut down and the jobs which it had provided ceased to exist. The plaintiff, who held one of those jobs until closure, brought this action under the Class Proceedings Act, R.S.B.C. 1996, c. 50, claiming damages against Her Majesty on the ground that she is vicariously liable for the negligence of the Minister of Forests and/or the staff of his Ministry in inadvertently removing from a tree farm licence ("TFL 46") a provision which would have prevented the mill from being closed without the Minister's approval.

2. The Crown now appeals the order of Mr. Justice R. D. Wilson certifying this action as a class proceeding. Subsection 4(1) of the Class Proceedings Act sets out five requirements which must be met on such an application. The Crown concedes that the plaintiff's case meets all of those requirements except the first: "(a) the pleadings disclose a cause of action." It now appears to be settled law that the plaintiff will be found to have met that requirement "unless it is plain and obvious that no reasonable cause of action is disclosed": Endean v. Canadian Red Cross Society (1998), 157 D.L.R. (4th) 465, 48 B.C.L.R. (3d) 90 (B.C.C.A.); Cooper v. Hobart, [2001] 3 S.C.R. 537, 2001 SCC 79, at para. 7.

THE PLAINTIFF'S CASE

3. The relevant pleading is the plaintiff's statement of claim, which is set out at length in the reasons for judgment of Wilson J., 2004 BCSC 608. I will summarize the substance of the claim.
    
4. For many years prior to 2001, much of the timber processed at the Youbou Mill came from TFL 46. In 1991, in granting an application by the then licensee, Fletcher Challenge, to split TFL 46 into two blocks in order to allow part of it to be transferred to another company, the Minister required the inclusion, in the licence covering the block to be retained by Fletcher Challenge, of a new clause ("Clause 7") which read:
   

   The Licensee will not cause its timber processing facility at Youbou to reduce production or to close for a sustained period of time, unless, and to the extent that the Minister, or his designate, exempts the Licensee from the requirement of this paragraph.

5. The plaintiff alleges that Clause 7 was specifically intended to address concerns expressed to the Minister by the mill's employees through their bargaining agent (the "IWA") regarding the impact on the employees of reducing the quantity of timber available to the Youbou Mill.
    
6. In 1993, Fletcher Challenge assigned TFL 46 to TimberWest Forest Limited, in which Fletcher Challenge held 51% of the shares.
    
7. In 1996, there was a revision of some of the terms of TFL 46. During the discussions leading up to that, the IWA made representations in writing to the Minister regarding the importance of retaining provisions, including Clause 7, which would "connect TFL #46 to the ongoing operation of the [mill] at Youbou, B.C."
    
8. The plaintiff alleges that it was only through carelessness on the part of the Minister and his assistants that the replacement TFL, when executed in 1997, did not include Clause 7. He also alleges that the union and the workers were unaware of that omission until October 2000, after notice of closure had been served by the licensee on the Minister. The Crown, while denying that it had a duty of care to the employees or that it breached any duty which it might have had, concedes that the omission of Clause 7 was "inadvertent".

GROUNDS OF APPEAL

9. The appellant's position on appeal is concisely summarized in a paragraph in the "Opening Statement" in its factum [for ease of reference, I have given each sentence a letter and will describe each as a 'point']:
   1. It is the position of the Province that the plaintiff's claim is bound to fail because there was no duty of care owed to the members of the proposed class with respect to the continued inclusion of Clause 7 in the Province's ongoing contract with Timberwest.
   2. The plaintiff's loss was purely economic.
   3. There was neither reasonable nor detrimental reliance by the plaintiff on the Province with respect to the continued inclusion of Clause 7 in the replacement of TFL 46.
   4. There was no contractual duty on the Province to ensure that Clause 7 was included in all subsequent replacements of the original TFL 46.
   5. In these circumstances, recognizing an ongoing duty of care in the circumstances of this case gives rise to a real concern of indeterminate liability.
   6. Finally, the plaintiff's entitlement to compensation on termination of his employment was governed by his contract of employment with Timberwest in any event.
   7. He was not without a remedy when his employment was terminated.
       
10. Points B and D can be dealt with quite briefly. With respect to B, the judge rejected the plaintiff's contention that this is not a case of pure economic loss. That contention was based on cases such as Wallace v. United Grain Growers Ltd. (c.o.b. Public Press), [1997] 3 S.C.R. 701, which have stressed the importance of employment to the well-being of the individual. I agree with the judge's conclusion that those cases do not apply to defining pure economic loss, which has consistently been held to be loss which is not accompanied by or does not result from personal injury or property damage.
     
11. With respect to point D, I do not understand the plaintiff to have contended that there was a contractual duty to ensure that Clause 7 was maintained in force or to dispute the right of the Minister, on policy grounds, to delete Clause 7. The submission is that the Minister, having required the inclusion of Clause 7 for the benefit of the employees and intending to maintain that clause in force, is liable to the plaintiff for having inadvertently, and thus negligently, allowed the clause to go by the boards.
     
12. Point A is clearly relevant to the question whether the pleadings disclose a cause of action capable of meeting the test in Endean v. Canadian Red Cross Society, supra, and, indeed, is of overriding importance in deciding that question. The remaining four points may also have some relevance to that question. To the extent they are relevant, they are subsidiary or peripheral to the issue raised in point A, which is whether the plaintiff can establish the existence of a prima facie duty of care. I will deal with those four points after considering point A.

THE DECISION APPEALED FROM

13. I turn then to the grounds upon which the chambers judge held that it was not plain and obvious that no reasonable cause of action is disclosed by the pleadings. Having reached the conclusion that the case was one of pure economic loss, he turned to the question of identifying the category of such loss in accordance with the analysis of Professor Feldthusen in his article "Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1990-91), 17 Can. Bus. L.J. 356. That analysis, at 357-58, identified five categories of pure economic loss as follows:
    1. The Independent Liability of Statutory Public Authorities;
    2. Negligent Misrepresentation;
    3. Negligent Performance of a Service;
    4. Negligent Supply of Shoddy Goods or Structures;
    5. Relational Economic Loss.

The judge held that the only categories which could possibly apply to this case were the first and third categories. That conclusion is not disputed.

14. Wilson J. went on to consider whether the case fell within the first category and concluded that it did not. He based that conclusion primarily upon his view that this case is indistinguishable from the decision of the Supreme Court of Canada in Cooper v. Hobart, supra, which, along with the companion decision in Edwards v. Law Society of Upper Canada, [2001] 3 S.C.R. 562, 2001 SCC 80, in which judgment was given on the same day, is the most recent and perhaps most significant decision in relation to the troublesome question of the liability of statutory public authorities for breach of the common law duty of care. In my view, the judge erred in ruling that the case could not be brought within the first category. Put shortly, I would hold that, if this case cannot be distinguished from Cooper, it would necessarily follow that the action must be dismissed on the ground that no cause of action is disclosed. However, I am also of the view that this case is distinguishable from Cooper in ways which, in several respects, provide support to the plaintiff's case.

ANALYSIS OF COOPER v. HOBART

15. The facts of that case, as stated in paragraphs 2 to 5 of the joint reasons of McLachlin C.J.C. and Major J., for the court, were:
    2. Eron Mortgage Corporation ("Eron") was registered as a mortgage broker under the Mortgage Brokers Act, R.S.B.C. 1996, c. 313 ("the Act"), from early 1993 until 1997. On October 3, 1997, the respondent, Robert J. Hobart, in his capacity as the Registrar under the Act, suspended Eron's mortgage broker's licence and issued a freeze order in respect of its assets.
    3. Eron acted as a mortgage broker for large syndicated loans. It arranged for numerous lenders (or investors) to pool their funds for the purpose of making a single loan to a borrower, which was typically a developer of commercial real estate. The syndicated loans were made in the name of Eron or one of its related companies, which held the security in trust for the investors.
    4. It is alleged that the funds provided by the investors were used by Eron for several unauthorized purposes, such as funding interest payments on other non-performing mortgages and paying for personal items for the benefit of the principals of Eron. It is currently estimated that $222 million is outstanding to the investors on these loans. Investors will likely realize only $40 million from the security taken from the loans, leaving a shortfall of $182 million.
    5. Soon after Eron's mortgage licence was suspended, it went out of business. The appellant Mary Francis Cooper ("Cooper"), one of over 3000 investors who advanced money to Eron, brought an action against the Registrar. The Statement of Claim alleged that the Registrar breached the duty of care that he allegedly owed to the appellant and other investors. The appellant asserted that by August 28, 1996, the Registrar was aware of serious violations of the Act committed by Eron but that he failed to suspend Eron's mortgage broker's licence until October 3, 1997 and failed to notify investors that Eron was under investigation by the Registrar's office. According to the appellant, if the Registrar had taken steps to suspend or cancel Eron's mortgage broker's licence at an earlier date, the losses suffered by the investors would have been avoided or diminished.
        
16. The action was brought under the Class Proceedings Act. On the application to certify, Mr. Justice Tysoe held ((1999), 68 B.C.L.R. (3d) 274 (S.C.)) that it was not plain and obvious that no reasonable cause of action was disclosed and granted the application for certification. The Registrar's appeal was allowed (184 D.L.R. (4th) 287, 75 B.C.L.R. (3d) 54, 2000 BCCA 151) on the ground that the pleadings did not disclose a cause of action against the Registrar. The principal reasons were those of Newbury J.A. (Southin J.A. concurring). Huddart J.A. concurred in separate reasons on somewhat different grounds.
     
17. The passage in the r