DATE: 20050624

DOCKET: C37742 C37756

COURT OF APPEAL FOR ONTARIO

RE:

THE ATTORNEY GENERAL OF CANADA (Plaintiff (Appellant)) - and - THE BOEING COMPANY and BOEING OF CANADA LTD. (Defendants (Respondents))

BEFORE:

DOHERTY, MACFARLAND AND LAFORME JJ.A.

COUNSEL:

Derek G. Nicholson, Susanne M. Sviergula and Patrick N. Murphy for the appellant

K. Scott McLean and Leigh Ann Kirby for the respondent

HEARD:

Heard: June 14, 2005

On appeal from the judgment of Justice Gerry Morin of the Superior Court of Justice dated May 21, 1998.

E N D O R S E M E N T

[1] A Canadian Forces helicopter crashed in March 1974 killing the crew. The crash was caused when one of the rotor blades failed under stress. The failure was attributed to a pre-existing crack in the blade.

[2] The Attorney General of Canada (the “Crown”) eventually sued The Boeing Company and Boeing of Canada Limited claiming that the former was negligent in its conduct of a 2500 hr/4 year inspection of the blade conducted a few months before the accident and that Boeing of Canada breached its contractual obligations to the Crown in relation to that same inspection.

[3] The respondents denied that they breached any contractual obligation or were negligent in the conduct of the inspection. Furthermore, they argued that the Crown’s own negligence in the conduct of its inspections of the blade had been the principal cause of the failure to detect the crack which caused the crash.

[4] The trial judge found the Crown and the respondents equally liable, assessed the Crown’s loss at $1,000,000.00 and awarded damages to the Crown in the amount of $500,000.00.

[5] On appeal, the Crown argued first that there was no causal link between its negligence as found by the trial judge and the failure to discover the crack in the blade; and second, that if there was a link, the Crown’s portion of the liability should have been much less than fifty percent. The Crown also argues that the trial judge erred in his quantification of the damages.

[6] The respondents resisted the Crown’s appeal and by way of cross-appeal urged that the Crown should bear the brunt of the responsibility for the damages.

[7] Most of the oral argument was directed at the proportioning of the liability by the trial judge.

[8] The Crown’s causation argument rested on the assertion that the respondents’ negligence effectively severed any connection between the prior Crown negligence and the ultimate failure of the blade. Crown counsel stressed the respondents’ role as experts in the inspection and maintenance of the blades.

[9] We are not persuaded that the trial judge erred in rejecting this argument. The inspection, maintenance and repair of the blades was a joint effort involving both the Crown and the respondents. Each was responsible for various facets of the overall program intended to prevent the kind of thing which unfortunately happened in this case. The trial judge’s finding of joint liability is a fair reflection of the close and inter-dependent nature of the relationship between the parties insofar as the inspection, maintenance and repair of the blades was concerned. The negligence of the respondents cannot “insulate” the negligence of the Crown. Indeed, on the trial judge’s findings, the Crown had the “last chance” to discover the crack and failed to do so.

[10] Insofar as the apportionment of liability is concerned, the trial judge found the Crown liable because it failed to adequately instruct its technicians who conducted x-ray examinations of the blade of the significance of corrosion on the D spar of the blade, and in failing to ensure that the x-ray review it had directed in September 1973 was conducted before the fatal crash some seven months later. The trial judge concluded that both failures contributed to the failure to locate the crack and the subsequent crash. We see no basis upon which to interfere with either finding.

[11] Insofar as the respondents were concerned, the trial judge found that Boeing Canada was in breach of its contractual obligations by failing to ensure that the area of the blade that it had reworked to remove corrosion was examined by way of magnetic particling following that rework. That examination would have revealed the crack. The trial judge also concluded that Boeing U.S.A., to whom Boeing Canada had subcontracted the inspection work, was negligent in failing to apply non-destructive testing to the reworked are after the rework was completed. That testing would have revealed the crack. If the crack had been discovered, the blade would have been discarded.

[12] The trial judge found that both the breach of contract and the negligence contributed to the failure to discover the crack and the eventual crash. We see no basis upon which to interfere with those findings.

[13] In the course of oral argument, counsel referred us to other factual issues which in their submission should have increased the liability of the other party. For example, the Crown relied on misrepresentations made to it by the respondents prior to entering into the 2,500 hr./4 year inspection contract relating to the effectiveness of one of its tests in discovering cracks like the one which eventually caused this accident. The Crown argues that the misrepresentation should have significantly increased the respondents’ liability. The respondents argue that the trial judge did not give consideration to the role played by the Crown’s quality assurance person who was located at the site where the Boeing inspection occurred. That person was aware of the work done on the blade and “signed off” on that work. The respondents argue that the involvement of the quality assurance person significantly increases the Crown’s liability.

[14] This trial was heard over 29 days. Much of the evidence was technical and a number of experts were called. In our view, the trial judge was in the best position to determine the proper apportionment of liability as between the parties. He referred to all of the matters referred to by counsel, although he did not specifically address all of those issues in the context of his apportionment of liability. Some of the factors to which counsel referred on appeal could be placed on the scales for or against either party. In our view, however, these factors effectively balance each other out and do not undermine the trial judge’s conclusion that the parties were equally at fault. This conclusion is a fair reflection of the totality of the evidence.

[15] The Crown also challenged the trial judge’s quantification of damages. The trial judge reviewed the evidence, including the evidence of the Crown’s expert. While he ultimately accepted much of the evidence provided by the Crown’s expert, he chose a different approach to valuation than the two methods proffered by the Crown expert. The trial judge was not obliged to follow either of the valuation methods proposed by the Crown expert, even in the absence of evidence from the defence. The method chosen by the trial judge was a reasonable variation on one of the methods put forward by the Crown expert.

[16] In this court, for the first time in oral argument, counsel for the Crown argued that the trial judge had made a factual error in concluding that the acquisition costs of the subject helicopter had been $750,000 (Can.). The Crown argued that this figure represented only the cost of the hull and did not include the cost of the engines and certain taxes. According to the Crown, the actual acquisition costs were $990,858.02 (Can.). The trial judge used the acquisition costs multiplied by a sixty percent appreciation factor in arriving at the damages.

[17] This argument appears nowhere in the appellant’s factum and took counsel for the respondents by surprise when raised for the first time in oral argument. Counsel for the respondents quite properly declined to concede the point after having an opportunity to review the material.

[18] The documentary evidence said by the Crown to establish the factual error made as to the acquisition costs was a letter dated May 29, 1992 from a Mr. Crowley of the Department of National Defence to the appellant’s expert. Mr. Crowley refers to the delivery price of the helicopter as $990,858.02. The letter does not contain any back-up documentation. The only other documentation to which counsel for the Crown referred the court was a summary sheet prepared by the expert setting out various costs.

[19] We cannot say whether the trial judge made the factual error which the Crown claims he made. The appellant had adequate time to develop this argument and present it properly in its factum with supporting references. Its failure to do so leaves us unable to determine the merits of this submission.

[20] The Crown says that the trial judge came up with this approach to damages on his own and it could not, therefore, be faulted for its failure to lead evidence as to the acquisition costs. We cannot accept this argument. Even if the Crown was caught by surprise by the judge’s valuation method, if the judge made the error that the Crown now relies on, the Crown could easily have brought it to the trial judge’s attention before the formal judgment was taken out. If, as the Crown alleges, the trial judge neglected to include the cost of the engines in the acquisition costs, the trial judge would doubtlessly have corrected that error had it been brought to his attention.

[21] For these reasons the appeal and the cross-appeal on the liability findings are dismissed.

[22] The Boeing respondents also appeal the trial judge’s award of prejudgment interest and costs.

[23] In our view and as counsel for the Boeing appellants concedes in relation to both prejudgment interest and costs the trial judge applied the correct legal tests. The only issue was whether he properly exercised his discretion on the facts of this case. Absent palpable and overriding error this court will not interfere with an exercise of discretion. The trial judge considered all of the relevant factors and concluded that it would not be appropriate to reduce either the costs or prejudgment interest awards on the bases advanced by the Boeing appellants. In our view, he was correct in so doing. We would dismiss the appeal in respect of prejudgment interest and grant leave to appeal on the question of costs but dismiss the appeal.

[24] Because success has been divided we order no costs of the appeals or cross-appeal.

“Doherty J.A.”

“J. MacFarland J.A.”

“H. S. LaForme J.A.”