Haskett v. Equifax Canada Inc., 2003 ONCA 32896

Haskett v. Equifax Canada Inc. et al. Haskett v. Trans Union of Canada Inc. et al. [Indexed as: Haskett v. Equifax Canada Inc.]

63 O.R. (3d) 577

[2003] O.J. No. 771

Docket Nos. C37573 and C37574

Court of Appeal for Ontario

Feldman, MacPherson and Armstrong JJ.A.

March 6, 2003

*Applications for leave to appeal to the Supreme Court of Canada dismissed with costs November 27, 2003 (McLachlin C.J.C., Major and Fish JJ.).

Torts -- Negligence -- Duty of care -- Plaintiff unable to obtain credit because defendant credit reporting agencies improperly included information in his credit report which should not have been included under Consumer Reporting Act -- Plaintiff bringing action against defendants for damages for negligence -- Motion judge erring in striking out statement of claim as disclosing no reasonable cause of action -- Relationship of parties one of proximity -- Cause of action analogous to recognized category of negligent misrepresentation -- Alternatively, cause of action novel and ought to be recognized as new category of negligence -- No policy issues existing which negated imposition of duty of care -- Consumer Reporting Act, R.S.O. 1990, c. C.33.

The plaintiff made a voluntary assignment in bankruptcy in the early 1990s when third parties breached their financial obligations to him. He was discharged from bankruptcy without conditions as his trustee was satisfied that his bankruptcy resulted from circumstances beyond his control. Since his discharge, he had applied for and been denied credit despite the fact that he had an uninterrupted earning record averaging in excess of $75,000 per year, had been current on all debt obligations and had significant net worth from his post- bankruptcy earnings. He brought an action against two Canadian credit reporting agencies and their respective American parent companies, claiming that he had been denied credit from credit grantors in Canada because the two Canadian credit reporting agencies had improperly and illegally included information in his credit report which they were not entitled to report and which was inaccurate. The impugned information related to pre-bankruptcy debts that were released as a consequence of the discharge, and accruing interest on those debts. The reporting of this information was alleged to be contrary to s. 9(3)(a) and (f) of the Consumer Reporting Act.

This was a proposed class action. According to the statement of claim, there are approximately 80,000 individuals a year who have debts that are effectively statute barred by the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 or other applicable legislation, and the defendants routinely report this information in their credit reports. The plaintiff claimed that the defendants were negligent in failing to comply with the statutory requirement not to report statute barred debts and in failing to implement procedures to remove the prohibited information from their reports. In consequence, that negligence had caused harm to the members of the class. The action was struck out on a motion under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 as disclosing no reasonable cause of action. The motion judge held that although the defendants could owe the plaintiff a duty of care, there were policy reasons for declining to consider a cause of action in negligence. The plaintiff appealed.

Held, the appeal should be allowed.

The first part of the two-stage test for determining whether a duty of care exists and will found a cause of action in negligence includes both reasonable foreseeability of harm and the concept of "proximity", which is used to characterize [page578] the type of relationship in which a duty of care may arise. In considering the proximity issue at the first stage of the test, one must also address whether, as a matter of policy, the parties are in a relationship of proximity giving rise to a duty of care. At the second stage of the test, a court must consider residual policy considerations which do not concern the relationship between the parties, but which look to the broader effect that recognition of the duty of care will have on other legal obligations, the legal system and society in general. On a Rule 21 motion, the court applies this two-stage analysis to the facts as pleaded in the statement of claim in order to determine not whether a duty of care will be recognized, but whether it is plain and obvious that no duty of care can be recognized. In that context, a court may well recognize potential policy concerns, but should be circumspect in using those policy concerns to determine that there is no cause of action.

In this case, the motion judge reached the correct conclusion on the first stage of the test. The relationship of the parties was one of proximity, and damage was reasonably foreseeable from the defendants' conduct. The plaintiff was the subject of one or more credit reports prepared and published by the defendants. It was reasonably foreseeable that, if the defendants were negligent in the way they gathered and reported information, and if they reported inaccurate information, their actions could cause credit grantors to deny credit or to charge more than they otherwise would. To the extent that a person such as the plaintiff authorizes the gathering and reporting of credit information, it is fair to say that any such authorization would normally be limited to accurate and non- negligent reporting.

The first stage policy analysis also supported recognition of the duty of care. Credit is an integral part of everyday life in today's society. As credit is so ubiquitous, there is nothing exceptional about consumer reliance on credit reporters to carry out their function not only honestly, but accurately, with skill and diligence and in accordance with statutory obligations. The relationship of a credit reporting agency to the consumers about whom reports are made is not the type of relationship which fits exactly into one of the recognized categories. However, the situation in this case is analogous to the relationship that founds a cause of action for negligent misrepresentation, and a prima facie duty of care may be posited on that basis. Otherwise, this is a novel situation in which a new duty of care could be recognized.

The stage two policy analysis generally only takes place where a new category is asserted and not where the case falls within either an established or analogous category. To the extent that the circumstances in this case were analogous to the recognized category of negligent misrepresentation, it was unnecessary to consider the second part of the test. However, it was appropriate to consider the policy concerns raised by the motion judge on the basis that the circumstances could be viewed as a new category. The first policy concern was indeterminate liability. The motion judge was wrong to conclude that to extend liability in this case would create a serious risk of imposing liability in an indeterminate amount for an indefinite time to an indeterminate class. The class of persons to whom the duty would be owed was a group that was not only wholly within the knowledge, but also the control, of the defendants, i.e. the consumers about whom reports are made. The timing of the potential harm and therefore of liability was not indefinite. Generally, a credit report is made for a particular purpose and would be acted upon in the normal course. If errors are corrected by the credit reporting agency for future reports, then normally the adverse effect of the inaccurate report would be spent. Finally, the amount of liability was also limited by the purposes for which the report was sought, which purposes were known to the credit agency.

The second policy issue considered by the motion judge was whether the plaintiff had recourse to alternative legal remedies. The motion judge was of the view [page579] that there was no need to recognize the cause of action because the legislation provides alternative means to deal with the problem. The Consumer Reporting Act provides a mechanism for a consumer to determine the data being kept about him or her, for disputing the accuracy of the data and for seeking the assistance of the Registrar to investigate and order that information be deleted or amended, and also provides for an appeal to the tribunal under the Act for a hearing. These provisions should not bar recognition of a cause of action in damages, at least at this stage. They do not provide a remedy in damages to a consumer. As the loss to a consumer could be significant and cannot be overcome by the corrective measures available, the alternative means may not be equivalent to recognition of the cause of action. Moreover, the Act does not provide for punitive damages, a remedy that can be potentially useful in the context of class actions where one of the purposes of the action is deterrence of illegal conduct. Third, the plaintiff had pleaded the difficulties, expense and inconvenience of attempting to use the statutory procedures. This pleading could be explored at trial and, if substantiated, could weigh significantly in the policy analysis against recognizing the statutory procedures as an acceptable alternative and therefore a complete bar to a cause of action. Fourth, at trial the parties will be able to lead evidence on the effectiveness of the statutory procedures, how often they are used, and with what results. This information will be available from the Ministry and can form the factual background necessary to weigh the necessary policy considerations.

A court should be reluctant to dismiss a claim as disclosing no reasonable cause of action based on policy reasons at the motion stage before there is a record on which a court can analyze the strengths and weaknesses of the policy argument. Another policy concern was that recognition of such a cause of action would be an encroachment on the law of defamation and would preclude reliance on certain defences available in that cause of action such as qualified privilege. At least at this stage of the proceedings, the law of defamation should not preclude recognition of the relationship of proximity between credit reporting agencies and consumers who are the subjects of credit reports. At issue is not a person's general reputation in the community, but specific facts which affect a consumer's creditworthiness in the context of a specific inquiry. Furthermore, in this case the statutory prohibition at issue was in respect of reporting certain information post-bankruptcy which might arguably be viewed as true, depending on how the information was reported, that is, the existence of outstanding judgments even though they had been released by the order of discharge from bankruptcy.

In the defamation context, truth is a complete defence to an action. However, where the prohibition in the statute informs the common law duty of care, the cause of action in negligence could encompass reporting of such arguably "true" information. The motion judge erred in concluding that it was plain and obvious that the plaintiff had no cause of action against the defendants in negligence and that the action should be struck out at this stage.

APPEAL by a plaintiff from a judgment of Cumming J. (2001), 10 C.C.L.T. (3d) 128, [2001] O.J. No. 4949 (Quicklaw) (S.C.J.) striking a statement of claim as disclosing no reasonable cause of action.

Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492, 2 W.L.R. 1024, 75 L.G.R. 555, 141 J.P. 526, 121 Sol. Jo. 377, 5 B.L.R. 1, 243 Estates Gazette 523, 591, [1997] J.P.L. 514 (H.L.); Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, 96 B.C.L.R. (3d) 36, 206 D.L.R. (4th) 193, 277 N.R. 113, [2001] 11 W.W.R. 221, 8 C.C.L.T. (3d) 26 (sub nom. Cooper v. Registrar of Mortgage Brokers (B.C.) et al.); Edwards v. Law Society of Upper Canada, 2001 SCC 80, [2001] 3 S.C.R. 562, 56 O.R. (3d) 456n, 206 D.L.R. (4th) 211, 277 N.R. 145, 8 C.C.L.T. (3d) 153, 13 C.P.C. (5th) 35; Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 66 B.C.L.R. 273, 10 D.L.R. (4th) 641, 54 N.R. 1, [1984] 5 W.W.R. 1, 29 C.C.L.T. 97, 26 M.P.L.R. 81, apld Hedley Byrne & Co. v. Heller & Partners Ltd., [1963] 2 All E.R. 575, [1964] A.C. 465, [1963] 3 W.L.R. 101, 107 Sol. Jo. 454, [1963] 1 Lloyd's Rep. 485 (H.L.); [page580] Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87, 99 D.L.R. (4th) 626, 147 N.R. 169, 45 C.C.E.L. 153, 14 C.C.L.T. (2d) 113, 93 C.L.L.C. Â14,019; Robinson v. Ontario New Home Warranty Program (1994), 1994 7260 (ON SC), 18 O.R. (3d) 269, 1 L.W.R. 784, 13 B.L.R. (2d) 288, 21 C.C.L.T. (2d) 44 (Gen. Div.), consd Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, 115 Man. R. (2d) 241, 146 D.L.R. (4th) 577, 211 N.R. 352, 139 W.A.C. 241, [1997] 8 W.W.R. 80, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115, distd Other cases referred to 642947 Ontario Ltd. v. Fleischer (2001), 2001 8623 (ON CA), 56 O.R. (3d) 417, 209 D.L.R. (4th) 182, 47 R.P.R. (3d) 191, 16 C.P.C. (5th) 1 (C.A.), affg (1997), 9 R.P.R. (3d) 261 (Ont. Gen. Div.); Anger v. Berkshire, 2001 24141 (ON CA), [2001] O.J. No. 379 (Quicklaw), 141 O.A.C. 301 (C.A.); B.D.C. Ltd. v. Hofstrand Farms Ltd. and R. in Right of British Columbia, 1986 51 (SCC), [1986] 1 S.C.R. 228, 1 B.C.L.R. (2d) 324, 26 D.L.R. (4th) 1, 65 N.R. 261, [1986] 3 W.W.R. 216, 33 B.L.R. 293, 36 C.C.L.T. 87; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 307 (SCC), [1997] 3 S.C.R. 1210, 158 Nfld. & P.E.I.R. 269, 153 D.L.R. (4th) 385, 221 N.R. 1, 490 A.P.R. 269, 37 B.L.R. (2d) 1, 40 C.C.L.T. (2d) 235; Canada v. Saskatchewan Wheat Pool, 1983 21 (SCC), [1983] 1 S.C.R. 205, 143 D.L.R. (3d) 9, 45 N.R. 425, [1983] 3 W.W.R. 97, 23 C.C.L.T. 121 (sub nom. Saskatchewan Wheat Pool v. R.); Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 105 (SCC), [1992] 1 S.C.R. 1021, 91 D.L.R. (4th) 289, 137 N.R. 241, 11 C.C.L.T. (2d) 1 (sub nom. The Tug "Jervis Crown"); Donoghue v. Stevenson, 1932 536 (FOREP), [1932] A.C. 562, 48 T.L.R. 494, 101 L.J.P.C. 119, 37 Com. Cas. 350, 1932 S.C. (H.L.) 31, 147 L.T. 281, 76 Sol. Jo. 396, [1932] All E.R. 1, 1932 S.L.T. 317 (H.L.) (sub nom McAlister (or Donoghue) v. Stevenson; Donoghue (or McAlister) v. Stevenson); Gregorio v. Intrans-Corp. (1994), 1994 2241 (ON CA), 18 O.R. (3d) 527, 115 D.L.R. (4th) 200, 15 B.L.R. (2d) 109, 4 M.V.R. (3d) 140 (C.A.), supp. reasons (1994), 15 B.L.R. (2d) 109n (Ont. C.A.); Hollick v. Metropolitan Toronto (Municipality), 2001 SCC 68, [2001] 3 S.C.R. 158, 56 O.R. (3d) 214n, 205 D.L.R. (4th) 19, 277 N.R. 51, 24 M.P.L.R. (3d) 9, 13 C.P.C. (5th) 1; Hughes v. Sunbeam Corp. (Canada) (2002), 2002 45051 (ON CA), 61 O.R. (3d) 433, 219 D.L.R. (4th) 467, 28 B.L.R. (3d) 1, 25 C.P.C. (5th) 230, [2002] O.J. No. 3457 (Quicklaw) (C.A.), affg (2000), 2000 22685 (ON SC), 11 B.L.R. (3d) 236, 2 C.P.C. (5th) 335 (Ont. S.C.J.); Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc); Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, 186 F.T.R. 231n, 193 D.L.R. (4th) 1, 262 N.R. 285, 36 R.P.R. (3d) 175, 3 C.C.L.T. (3d) 1; NBD Bank, Canada v. Dofasco Inc. (1999), 1999 3826 (ON CA), 46 O.R. (3d) 514, 181 D.L.R. (4th) 37, 47 C.C.L.T. (2d) 213, 15 C.B.R. (4th) 67, 1 B.L.R. (3d) 1 (C.A.) [Leave to appeal to S.C.C. refused (2000), 254 N.R. 400n], affg (1997), 34 B.L.R. (2d) 209 (Ont. Gen. Div.); Spring v. Guardian Assurance plc, [1994] 3 All E.R. 129, [1994] 3 W.L.R. 354, [1994] I.C.R. 596, [1994] I.R.L.R. 460, [1994] N.L.J.R. 971, [1994] 40 L.S. Gaz. R. 36, 138 Sol. Jo. L.B. 183 (H.L.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., [1997] O.J. No. 3754 (Quicklaw) (C.A.), affg (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423, 2 O.T.C. 146, [1996] O.J. No. 1568 (Quicklaw) (Gen. Div.) Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 178(2) Consumer Reporting Act, R.S.N.S. 1989, c. 93 Consumer Reporting Act, R.S.O. 1990, c. C.33, ss. 8(1)(d), 9(3), 13, 14, 16, 18, 21 Consumer Reporting Act, R.S.P.E.I. 1988, c. C-20 Consumer Reporting Agencies Act, R.S.N. 1990, c. C-32 Credit Reporting Act, R.S.B.C. 1996, c. 81 Credit Reporting Agencies Act, R.S.S. 1978, c. C-44 [page581] Human Rights Code, R.S.O. 1990, c. H.19, s. 1 Ministry of Consumer and Business Services Act, R.S.O. 1990, c. M.21 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 21, 21.01(1)(b) Authorities referred to Feldthusen, D."Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1990-91), 17 Can. Bus. L.J. 356 Feldthusen, D., Economic Negligence: The Recovery of Pure Economic Loss, 4th ed. (Scarborough: Carswell, 2000)

Peter R. Jervis, Joel Vale and Melanie D. Schweizer, for appellant. John Chapman and Michelle Wong, for respondent, Equifax Canada Inc. Michael Petrocco, for respondent, Equifax Inc. Lawrence E. Ritchie and Andrea Laing, for respondents, Trans Union of Canada Inc. and Trans Union LLC.

The judgment of the court was delivered by

[1] FELDMAN J.A.: -- The appellant is a representative plaintiff in two proposed class actions brought against the respondent credit reporting agencies. The appellant's actions were struck out on a motion under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 ("Rule 21") as disclosing no reasonable cause of action. On the original motion, the motion judge dealt with three theories of liability: breach of fiduciary duty, invasion of privacy and negligence. After dismissing the first two theories, the motion judge dealt with the negligence claim by holding that although the respondents could owe the appellant a duty of care, there were policy reasons for declining to consider a cause of action in negligence. On the appeal, the appellant did not challenge the first two rulings, but limited his claimed cause of action to negligence. For the reasons which follow, I would set aside the order of the motion judge and allow the appellant to proceed with the action at this stage against the Canadian respondents, as a claim in negligence.

[2] As this is an appeal on a Rule 21 motion, the "facts" are contained in the Statement of Claim, and are taken to be true for the purpose of the analysis. [page582]

[3] The appellant has an M.B.A. and is a real estate broker in Toronto. He was obliged to make a voluntary assignment in bankruptcy in the early 1990s when third parties breached their financial obligations to him during the recession. Both prior to the circumstances which caused his bankruptcy and since his discharge in November 1996, the appellant has met all of his financial obligations. He was discharged from bankruptcy without conditions as his trustee was satisfied that his bankruptcy resulted from circumstances beyond his control.

[4] However, since his discharge, the appellant has applied for and been denied credit despite the fact that he had an uninterrupted earning record averaging in excess of $75,000 per year, has been current on all debt, rent and car lease obligations and has had significant net worth from his post- bankruptcy earnings.

[5] The appellant's claim is against two Canadian credit reporting agencies, Equifax Canada Inc. and Trans Union of Canada Inc., and their respective American parent companies, Equifax Inc. and Trans Union LLC. The appellant claims that he has been denied credit from credit grantors in Canada because the two Canadian respondent credit reporting agencies "have improperly and illegally included information in [the appellant's] credit report which they are not entitled to report and which is inaccurate". It is because of these actions by the respondents that the appellant has not been freed of the consequences of his bankruptcy, notwithstanding his discharge. The impugned information is of two related types: (1) pre- bankruptcy debts that are released as a consequence of the discharge (pursuant to s. 178(2) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3); and (2) accruing interest on those debts.

[6] The reason this reporting is alleged to be illegal is because of s. 9(3)(a) and (f) of the Consumer Reporting Act, R.S.O. 1990, c. C.33 which provides:

9(3) A consumer reporting agency shall not include in a consumer report,

(a) any credit information based on evidence that is not the best evidence reasonably available;

(f) information regarding any judgments, collections or debts that on their face are statute barred unless it is accompanied by evidence appearing in the file that recovery is not barred by the expiration of a limitation period;

[7] In respect of the proposed class action, the Statement of Claim goes on to claim that in Canada there are approximately 80,000 individuals per year who have debts that are effectively [page583] statute barred by the Bankruptcy and Insolvency Act or other applicable legislation. The respondents routinely report this information in their credit reports for a minimum of seven years. The respondents report the statute-barred debts using a classification system that labels them as "R-5""R-7", or "R-9". The appellant says that credit grantors routinely deny credit when one of these classifications appears on the report and that this is often done without giving the affected person an opportunity to explain his or her circumstances. The respondents also allow those debts to appear to accrue interest, which they do not, but which has the effect of making the individual's debt load appear larger than it was or is.

[8] The appellant claims that the respondents are negligent and in breach of their duty to the appellant and the class members in failing to comply with the statutory requirement not to report statute barred debts and in failing to implement procedures to remove the prohibited information from their reports. In consequence, that negligence has caused harm to the members of the class, as credit has been denied to them by credit grantors as a result of this improperly reported information. Furthermore, because it is very difficult for an individual to have the credit report corrected, the class members are often obliged to incur expenses by retaining counsel or a credit rehabilitation company to have the record corrected. The appellant claims that the damages suffered by the class members include mental suffering, anguish, embarrassment, humiliation and injury to reputation. The appellant also claims punitive damages.

[9] In respect of the parent companies of the Canadian respondents, the claim is that they wholly own the subsidiaries and that they mandate their practices. Furthermore, they take the earnings from the Canadian respondents thereby making the Canadian respondents financially unable to redress the wrongs alleged by the class members. The claim also alleges that the appellant's information has been reported worldwide, although there is no allegation that he has applied for or been rejected by any non-Canadian credit grantor. The appellant relies on any relevant U.S. legislation that is comparable to the Canadian and provincial legislation referred to in the claim.

The Motion

[10] Although this matter is pleaded as a class action, the Rule 21 motion was brought in the ordinary course before the delivery of a Statement of Defence or a certification motion in the class action proceeding. Therefore, the motion claims that the pleading discloses no cause of action that can be asserted by the individual appellant as well as by the members of the proposed class. [page584]

[11] The motion judge dealt with all of the causes of action asserted in the Statement of Claim and articulated by counsel, including breach of fiduciary duty, invasion of privacy and negligence. The motion judge held that there could be no fiduciary relationship between the appellant and the respondents, and that the Statement of Claim disclosed no reasonable cause of action for invasion of privacy. There is no appeal from those findings.

[12] The motion judge then turned to whether the action could proceed as a negligence claim. He first noted that the action is not pleaded as a negligent misrepresentation claim, nor is it an action for defamation. Again there is no dispute in this court with respect to those observations.

[13] The motion judge articulated the test for determining whether the facts as pleaded can sustain a claim in negligence, referring to the two-part test from Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492 (H.L.), approved by the Supreme Court of Canada in Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 10 D.L.R. (4th) 641, at p. 10 S.C.R.:

(1) a sufficient relationship of proximity to make it reasonably foreseeable that carelessness by one party may cause damage to the other;

(2) if so, do policy considerations either negative or limit the scope of the duty, the class of persons to whom the duty is owed, or the damages caused by a breach of the duty?

[14] The motion judge referred to La Forest J.'s articulation of the first branch of the test in Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, 146 D.L.R. (4th) 577, at p. 190 S.C.R., p. 591 D.L.R. which reads as follows:

[D]etermining whether "proximity" exists on a given set of facts consists in an attempt to discern whether, as a matter of simple justice, the defendant may be said to have had an obligation to be mindful of the plaintiff's interests in going about his or her business.

Applying this branch of the test to the facts before him, the motion judge concluded that in the circumstances there could be the necessary relationship of proximity to create a duty of care [at para. 58]:

With respect to the first part of the test, on the facts pleaded, in my view there is arguably a sufficient proximity between the consumer reporting agency and the consumer plaintiff (even though they may have no direct communications) such that the agency could reasonably foresee that carelessness on its part in the reporting of inaccurate information might cause harm and loss to the consumer. The provisions of the Act may be seen as providing a reasonable standard to inform a common law prima facie duty of care. [page585]

[15] However, the motion judge went on to hold that because the appellant's claimed losses are "pure economic" losses which are only recoverable in limited circumstances, the claim could not proceed unless it fit within or was analogous to one of the recognized categories which allows recovery for pure economic loss. The motion judge determined that the only possible recognized exceptional category of economic loss that could be pertinent to the pleaded facts was negligent misrepresentation upon which a person relies to his or her detriment; however, that cause of action did not apply because the representations made here were to third parties and not to the appellant.

[16] The motion judge also rejected the claim at the second stage of the analysis based on two policy concerns. The first was the concern of potential indeterminate liability in terms of time, amount and class, which he viewed as a serious risk.

[17] The second policy concern was that there are alternative statutory routes within the Consumer Reporting Act to address the problem, including: (a) methods for disputing the accuracy or completeness of reported information and for having the file corrected (s. 13); (b) procedures for an aggrieved consumer to seek the assistance of the Registrar and to appeal any decision to a tribunal for a hearing (ss. 14, 16); and (c) provisions empowering the Director, as defined by the Ministry of Consumer and Business Services Act, R.S.O. 1990, c. M.21, to investigate and take action against transgressions of the Consumer Reporting Act (ss. 18, 21). The motion judge noted that the appellant had not pleaded any attempt to obtain relief under any of the statutory routes.

[18] The motion judge concluded that it was plain and obvious that the appellant had no reasonable cause of action against the respondents in negligence.

THE ISSUES

[19] There are two issues on the appeal:

(1) Can the action proceed at this stage as a claim in negligence?

(2) If so, can the action, as pleaded, proceed against the two respondent American parent corporations?

ANALYSIS

I. Can the Action Proceed as a Claim in Negligence?

(i) Legal framework

[20] The Supreme Court of Canada recently revisited the Anns/ Kamloops two-stage test for determining if a duty of care [page586] exists and will found a cause of action in negligence in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, 206 D.L.R. (4th) 193 and Edwards v. Law Society of Upper Canada, 2001 SCC 80, [2001] 3 S.C.R. 562, 206 D.L.R. (4th) 211. The court confirmed that the two-stage test remains the applicable test and analysis in Canada. In so doing, the court clarified the role of policy considerations at both stages of the application of the test. I quote from Cooper [at para. 30]:

In brief compass, we suggest that at this stage in the evolution of the law, both in Canada and abroad, the Anns analysis is best understood as follows. At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant's act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care. It may be, as the Privy Council suggests in [Yuen Kun Yeu v. Attorney General of Hong Kong, [1988] 1 A.C. 562] that such considerations will not often prevail. However, we think it useful expressly to ask, before imposing a new duty of care, whether despite foreseeability and proximity of relationship, there are other policy reasons why the duty should not be imposed.

[21] The first part of the test includes both reasonable foreseeability of harm and the concept of "proximity". The court stated that the term proximity is used to characterize "the type of relationship in which a duty of care may arise", and that "sufficiently proximate relationships are identified through the use of categories" (para. 31). The categories are not closed and new ones may be identified as they arise. The use of categories provides certainty on the one hand, but on the other hand also allows the law to evolve with the introduction of new categories to fit novel situations as they arise.

[22] The court lists the recognized categories at para. 36, concluding that: "[w]hen a case falls within one of these situations or an analogous one and reasonable foreseeability is established, a prima facie duty of care may be posited." The recognized categories the court listed are:

(a) the defendant's act foreseeably causes physical harm to the plaintiff or the plaintiff's property, including nervous shock;

(b) negligent misstatement;

(c) misfeasance in public office; [page587]

(d) duty to warn of the risk of danger;

(e) a municipality owes a duty to prospective purchasers of real estate to inspect housing developments without negligence;

(f) governmental authorities which have undertaken a policy of road maintenance owe a duty of care to execute that maintenance without negligence;

(g) relational economic loss, related to the performance of a contract in situations such as where the claimant has a proprietary interest in property, the general averaging cases and joint venture cases (see for example Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 105 (SCC), [1992] 1 S.C.R. 1021, 91 D.L.R. (4th) 289; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 307 (SCC), [1997] 3 S.C.R. 1210, 153 D.L.R. (4th) 385). [See Note 1 at end of document]

[23] At the second stage of the Anns/Kamloops test, a court must consider residual policy considerations. The residual considerations do not concern the relationship between the parties, but rather, look to the broader effect that recognition of the duty of care will have ". . . on other legal obligations, the legal system and society more generally" (para. 37). The policy issues at the second stage concern broader societal and legal interests and include more specific questions such as: "[d]oes the law already provide a remedy? Would recognition of the duty of care create the spectre of unlimited liability to an unlimited class? Are there other reasons of broad policy that suggest that the duty of care should not be recognized" (Cooper, para. 37)?

[24] On a Rule 21 motion, the court applies this two-stage analysis to the facts as pleaded in the Statement of Claim in order to determine not whether a duty of care will be recognized, but whether it is plain and obvious that no duty of care [page588] can be recognized. If it is not plain and obvious then the action can proceed and the issue will be determined at a trial. See Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321, at p. 980 S.C.R. In that context, the court may well recognize potential policy concerns at the second stage but should be circumspect in using those policy concerns to determine, without a Statement of Defence and without any evidence, that it is plain and obvious that there is no cause of action: Hughes v. Sunbeam Corp. (Canada) (2002), 2002 45051 (ON CA), 61 O.R. (3d) 433, 219 D.L.R. (4th) 467 (C.A.) at para. 35; Anger v. Berkshire, 2001 24141 (ON CA), [2001] O.J. No. 379 (Quicklaw), 141 O.A.C. 301 (C.A.) at para. 8.

(ii) The prima facie duty of care

[25] At the first stage, the motions judge concluded that there was a relationship of sufficient proximity to make it reasonably foreseeable that inaccurate reporting of information by the credit agency could cause harm to the subject of the credit report. He also referred to the provisions of the Consumer Reporting Act as providing a reasonable standard to inform a common law duty of care. This conclusion follows the approach set out in Canada v. Saskatchewan Wheat Pool, 1983 21 (SCC), [1983] 1 S.C.R. 205, 143 D.L.R. (3d) 9, which holds that although a statutory directive does not, by implication, create a cause of action for breach of the statute, it can inform a common law duty of care.

[26] I agree with the conclusion reached by the motion judge on the first stage of the test, based on the analysis set out by the Supreme Court in Cooper and Edwards:

(1) the relationship of the parties is one of proximity and damage was reasonably foreseeable from the respondents' conduct;

(2) the policy of the law should be to recognize the relationship as one of proximity;

(3) the cause of action is analogous to the recognized category of negligent misrepresentation, or it is novel and ought to be recognized as a new category of negligence.

I do not agree with the conclusion of the motion judge on the second stage of the test, again, applying the Supreme Court analysis:

(4) there are no policy reasons for limiting or denying the duty of care and any potential policy issues do not make it plain and obvious at this stage that the cause of action cannot be recognized. [page589]

(1) Relationship of proximity

[27] The relationship between the credit reporting agency and the appellant is that he is the subject of one or more credit reports prepared and published by the respondents. It is the respondents who have chosen to provide information about the appellant to third party credit grantors. It is reasonably foreseeable that if the respondents are negligent in the way they gather and report the information, and if they report inaccurate information, their actions could cause credit grantors to either deny credit or to charge more than they otherwise would. To the extent that a person such as the appellant authorizes, either expressly or impliedly, the gathering and reporting of credit information -- and at this stage of the action we do not yet have evidence on that issue -- it is fair to say that any such authorization would normally be limited to accurate and non-negligent reporting.

(2) Policy issues relating to proximity

[28] In considering the proximity issue at the first stage of the Anns/Kamloops test, one must also address whether, as a matter of policy, it is appropriate to find these parties to be in a relationship of proximity giving rise to a duty of care. In my view, the first stage policy analysis also supports recognition of the duty of care.

[29] Credit is an integral part of everyday life in today's society. Not only people seeking loans, mortgages, insurance or car leases, but those who wish, for example, to rent an apartment or even obtain employment may be the subject of a credit report, [See Note 2 at end of document] and its contents could well affect whether they are able to obtain the loan, the job or the accommodation. Credit cards are a basic form of payment but their availability is also limited by one's creditworthiness. Without credit, one is unable to conduct any financial transactions over the telephone or on the internet. As credit is so ubiquitous, there is nothing exceptional about consumer reliance on credit reporters to carry out their function not only honestly, but accurately, with skill and diligence and in accordance with statutory obligations.

[30] The importance of the role of credit reporting agencies is reflected in legislation enacted specifically to regulate and govern [page590] their operations -- in Ontario, the Consumer Reporting Act. [See Note 3 at end of document] Section 9 of the Act limits the information which can be reported in a consumer report. The overall purpose of the limitations imposed appears to be to try to ensure that credit grantors will treat consumers fairly based on the information they receive. For example, the prohibition against reporting information more than seven years old attempts to ensure that credit grantors are acting on current information about a consumer. There is also a prohibition on reporting information as to race, creed, colour, sex, ancestry, ethnic origin, or political affiliation (s. 9(3) (l)). This prohibition is in accordance with the Ontario Human Rights Code, R.S.O. 1990, c. H.19, s. 1, and exists to protect consumers from a denial of credit based on discriminatory factors. The fact that fairness to the consumer is a clear legislative imperative within this legislation further supports the policy basis for recognition of a relationship of proximity and a duty of care on consumer reporting agencies to consumers about whom reports are made.

(3) Analogous category or new category

[31] The relationship of a credit reporting agency to the consumers about whom reports are made is not the type of relationship which fits exactly into one of the recognized categories. However, in my view, the situation in this case is analogous to the relationship that founds a cause of action for negligent misrepresentation and a prima facie duty of care may be posited on that basis. Otherwise, this is a novel situation in which a new duty of care could be recognized.

[32] The traditional elements for a successful negligent misrepresentation claim were set out in the seminal case of Hedley Byrne & Co. v. Heller & Partners Ltd., [1963] 2 All E.R. 575, [1964] A.C. 465 (H.L.) and were affirmed by the Supreme Court in Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87, 99 D.L.R. (4th) 626, at p. 110 S.C.R.:

The required elements for a successful Hedley Byrne claim . . . (1) there must be a duty of care based on a "special relationship" between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have [page591] relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted.

[33] On the issue of reliance, Dean Feldthusen, in his book Economic Negligence: The Recovery of Pure Economic Loss, 4th ed. (Scarborough: Carswell, 2000) at p. 131, makes the point that reliance on the representation by the plaintiff is not a necessary factor per se, but is required in the analysis to demonstrate the causal sequence leading to liability, and the effective assumption of responsibility by the representor.

[34] In this case we have the elements of negligent misrepresentation without reliance by the affected consumer,4 [See Note 4 at end of document] but where the representor has effectively assumed responsibility for the accuracy of the information because of the potential harm which could be caused to the consumer if the contents are inaccurate. This makes the case one that arguably does not fit exactly within negligent misrepresentation, but one that is analogous to it.

[35] An example of a duty of care found to be owed to the subject of a negligent misstatement in analogous circumstances is in the case of Spring v. Guardian Assurance plc, [1994] 3 All E.R. 129, [1994] 3 W.L.R. 354 (H.L.), where the House of Lords considered the issue of liability to subject employees for the negligent preparation of letters of reference for employment. It held that there was a duty of care owed to the subject of the reference by the provider of the reference not to prepare the reference negligently. In their analyses, both Lord Goff and Lord Woolf referred to the case of Hedley Byrne, supra, in holding that the relationship was one which gave rise to a duty of care. Lord Goff opined that a duty of care arises not only where the recipient of a statement acts in reliance upon it, but also where employees who do not receive the representation nevertheless rely upon the employer to exercise care in preparing the reference before making it available to the recipient (pp. 146-47 All E.R.). In this regard, he wrote [at p. 146 All E.R.]:

The fact that the inquiry in Hedley Byrne itself was directed . . . to whether the maker of the statement was liable to a recipient of it who had acted in reliance upon it, may have given the impression that this is the only way in which liability can arise under the principle in respect of a mis-statement. But, having regard to the breadth of the principle as stated in Hedley Byrne itself, I cannot see why this should be so. [page592]

Applying these observations to the case before him, Lord Goff wrote [at pp. 146-47 All E.R.]:

. . . when the employer provides a reference to a third party in respect of his employee, he does so not only for the assistance of the third party, but also, for what it is worth, for the assistance of the employee . . . when such a reference is provided by an employer, it is plain that the employee relies upon him to exercise due skill and care in the preparation of the reference before making it available to the third party. In these circumstances, it seems to me that all the elements requisite for the application of the Hedley Byrne principle are present.

[36] This analysis can be applied to credit reporting agencies. They make statements to third parties about consumers, knowing that the third parties are going to rely on those statements in making important decisions that will affect the particular consumers. They also therefore assume responsibility for the contents of those statements because of the consequences of the reliance by the representee, not to the representee itself, but to the subject of the report, who can be denied credit, a job, or a place to live.

[37] However, even if the facts of the present case do not fit the existing category of negligent misrepresentation, or are not analogous to it, that does not end the matter. As the Supreme Court recently affirmed in Cooper and in Edwards, the categories of negligence are not closed, and courts may make reference to the appropriate analytic criteria for determining whether a novel situation gives rise to a duty of care.

[38] In Robinson v. Ontario New Home Warranty Program (1994), 1994 7260 (ON SC), 18 O.R. (3d) 269, 13 B.L.R. (2d) 288 (Gen. Div.), MacPherson J. was also obliged to analyze whether a claim for pure economic loss arose where a negligent misrepresentation was made but caused harm to a third party who did not rely on it to his detriment. There the holder of a letter of credit had called on the letter improperly, knowing that the plaintiff was a guarantor to the bank of the letter that was called on.

[39] In performing the two stage analysis, MacPherson J. first ruled out negligent misrepresentation as a category for the cause of action because there was no reliance by the third party guarantor on the improper statement to the bank. He then considered whether the situation was a novel one where a duty of care was owed. To determine proximity, he applied [at p. 286 O.R.] the proximity analysis from the judgment of McLachlin J. in Norsk Pacific Steamship, supra, at p. 1153 S.C.R. which identified two components of proximity: sufficient proximity of relationship and proximity of causation of harm:

In determining whether liability should be extended to a new situation, courts will have regard to the factors traditionally relevant to proximity such [page593] as the relationship between the parties, physical propinquity, assumed or imposed obligations and close causal connection. And they will insist on sufficient special factors to avoid the imposition of indeterminate and unreasonable liability.

[40] MacPherson J. concluded that there was both relational and causal proximity between the parties in the case before him: the parties were neighbours in the Donoghue v. Stevenson, 1932 536 (FOREP), [1932] A.C. 562, 48 T.L.R. 494 (H.L.) sense, who knew of each other's interests, and the action of the person who called on the letter of credit improperly directly harmed the third party guarantor. Similarly, in this case, the relationship between the credit reporting agency and the consumer who is the subject of the report is one of proximity both in the relational and causal sense, if the facts alleged in the Statement of Claim are proved to be true.

[41] In my view, whether as an analogous category to negligent misrepresentation or as a new category, on the proximity analysis there is the basis to find a duty of care owed in this case.

(4) Stage two policy issues

[42] In the Cooper and Edwards cases, the Supreme Court has narrowed the applicability of the second stage of the Anns/ Kamloops test. The court explained that the second stage of the test generally arises only where a new category is asserted and not where the case falls within either an established or analogous category. This is because where the category is already recognized, the policy considerations that might negative recognition of such a duty have already been considered and rejected as a bar to recognition.

[43] Although I view the circumstances here as analogous to the recognized category of negligent misrepresentation, so that it is unnecessary to consider the second branch of the Anns/ Kamloops test, in my view it is nevertheless appropriate to consider and weigh the policy issues which concerned the motion judge, on the basis that the circumstances could be viewed as a new category. It is particularly useful to canvass these concerns at this stage, as we are not deciding the issue definitively, but only determining whether the action must be struck out as clearly unavailable.

[44] Both policy issues that concerned the motion judge have been identified by the Supreme Court of Canada as matters which might militate against recognition of a duty of care. The first is indeterminate liability. The motion judge concluded that to extend liability in this case "would create a serious risk of imposing liability in an indeterminate amount for an indefinite time to an indeterminate class." [page594]

[45] I do not agree with that conclusion. First, the class of persons to whom the duty would be owed is a group that is not only wholly within the knowledge, but also the control, of the respondents. It is the consumers about whom reports are made. La Forest J. dealt conclusively with this point in Hercules Management, supra, where he held that the defendant's knowledge of the plaintiff is critical to the policy issue of indeterminate liability, and that the issue of indeterminacy becomes of no concern when the plaintiff's identity is known and the defendant's statements are used for their intended purpose (para. 37). See also NBD Bank, Canada v. Dofasco Inc. (1999), 1999 3826 (ON CA), 46 O.R. (3d) 514, 181 D.L.R. (4th) 37 (C.A.) at para. 59. In this case, although the group may potentially be a large one, it is not indeterminate in any way.

[46] Second, the timing of the potential harm and therefore of liability is not indefinite. Generally, a credit report is made for a particular purpose and would be acted upon in the normal course. If errors are corrected by the credit reporting agency for future reports, then normally the adverse effect of the inaccurate report would be spent.

[47] Finally, the amount of liability is also limited by the purposes for which the report is sought, which purposes are known to the credit agency. The Supreme Court made a similar analysis in Martel, supra, noting that while the quantum of damages "may be quite high, it is limited by the nature of the transaction being negotiated" (at para. 59). Furthermore, although there is a claim for consequential damages, it is by no means clear that such damages would be recoverable as reasonably foreseeable rather than too remote or otherwise not legally available.

[48] In my view, this is not a case like Hercules Management, where the Supreme Court refused to recognize a duty of care owed by auditors to all shareholders in their individual capacities as investors, because it would "create the spectre of unlimited liability to an unlimited class" (Cooper at para. 37).

[49] The second policy issue recognized by the Supreme Court in Cooper and considered by the motion judge was whether the plaintiff has recourse to alternative legal remedies. The motion judge was of the view that there was no need to recognize the cause of action because the legislation provides alternative means to deal with the problem. The Consumer Reporting Act provides a mechanism for a consumer to determine the data being kept about him or her, for disputing the accuracy of the data, for seeking the assistance of the Registrar to investigate and order that information be deleted or amended, and appeal to the tribunal under the Act for a hearing. There is also provision in the Act for the Director (as defined by the Ministry of Consumer [page595] and Business Services Act) to investigate a contravention of the Consumer Reporting Act and seek a restraining order.

[50] In my view, these provisions, although potentially helpful to a consumer, should not bar recognition of a cause of action in damages, at least at this stage. I take this view for four reasons. First, and most significantly, these provisions do not provide a remedy in damages to a consumer. As the loss to a consumer could be significant and cannot be overcome by the corrective measures available, the alternative means may not be equivalent to recognition of the cause of action. In this regard, I also note that the Act does not purport to bar any civil cause of action. Second, and related to the first, the Act does not provide for punitive damages, a remedy that can be potentially useful in the context of class actions where one of the purposes of the action is deterrence of illegal conduct. See Hollick v. Metropolitan Toronto (Municipality), 2001 SCC 68, [2001] 3 S.C.R. 158, 205 D.L.R. (4th) 19 (para. 27).

[51] Third, the appellant has pleaded the difficulties, expense and inconvenience of attempting to use the statutory procedures. This pleading can be explored at a trial and, if substantiated, could weigh significantly in the policy analysis against recognizing the statutory procedures as an acceptable alternative and therefore a complete bar to a cause of action.

[52] Fourth, and related to the third, at trial the parties will be able to lead evidence on the effectiveness of the statutory procedures, how often they are used, how quickly they proceed and with what results. This information will be available from the Ministry and can form the factual background necessary to weigh the necessary policy considerations. A court should be reluctant to dismiss a claim as disclosing no reasonable cause of action based on policy reasons at the motion stage before there is a record on which a court can analyze the strengths and weaknesses of the policy arguments. See Anger v. Berkshire Investment Group Inc., supra, at para. 15 and Hughes v. Sunbeam Corporation (Canada) Ltd., supra, at para. 35.

[53] Another issue raised by the respondents in opposing recognition of a duty of care in these circumstances is, I believe, best addressed at this stage of the analysis in the context of policy considerations. The issue was also raised and addressed by the Law Lords in Spring, supra: that recognition of such a cause of action would be an encroachment on the law of defamation and would preclude reliance on certain defences available in that cause of action such as qualified privilege. The argument is that the policy of the law should be to preserve the common law cause of action for defamation which has been developed, and, in many ways has become, in effect, codified within the common law. The [page596] Law Lords rejected this argument. Lord Woolf reasoned that the subject of an inaccurate letter of reference is not protected by the law of defamation because where qualified privilege applies, the person would have to prove malice, placing a disproportionate burden on the employee. He concluded that the law of defamation provided an inadequate remedy to such an employee and therefore, extending the law of negligence was justified in the circumstances (p. 172 All E.R.).

[54] I agree that, at least at this stage of the proceedings, the law of defamation should not preclude recognition of the relationship of proximity between credit reporting agencies and consumers who are the subjects of credit reports. At issue is not a person's general reputation in the community, but specific facts which affect a consumer's credit worthiness in the context of a specific inquiry. Furthermore, in this case the statutory prohibition at issue is in respect of reporting certain information post-bankruptcy, which may arguably be viewed as true, depending on how the information is reported, that is, the existence of outstanding judgments even though they have been released by the order of discharge from bankruptcy. In the defamation context, truth is a complete defence to an action. However, where the prohibition in the statute informs the common law duty of care, the cause of action in negligence could encompass reporting of such arguably "true" information.

[55] A thorough analysis of other policy considerations which could defeat the extension of negligence in economic loss situations was recently conducted by the Supreme Court in Martel, supra, where the court was not prepared to extend the law to recognize a duty of care in the context of alleged negligence in the conduct of commercial negotiations. Even in the absence of serious potential for indeterminate liability, a number of secondary policy considerations led the court to decline to extend the tort of negligence into commercial negotiations. I note that this is not a case like that one, where the law is being asked to regulate a commercial situation between two parties after the fact. There are no social or economic benefits to be preserved by precluding consumers from obtaining compensation for losses they suffered caused by improperly based credit reports by credit reporting agencies.

Conclusion on the negligence issue

[56] In my view, the motion judge erred in concluding that it was plain and obvious that the appellant has no cause of action against the respondents in negligence and that the action must be struck out at this stage. I would allow the appeal on that issue. [page597]

[57] In reaching this conclusion, I wish to make it clear that this finding in no way speaks to the issue of the suitability of this action as a class action. To strike the action at this stage would mean that no individual consumer could bring an action against a credit reporting agency for damages suffered as a result of a harmfully false credit report. However, whether the action can meet the tests for certification of a class action including appropriate common issues, the determination of preferable procedure and damages is left for another day. In respect to common issues, clearly every denial of credit to the persons in the proposed class may not be attributable to the inclusion of the information identified in this action but could be attributable to other contents of the report. Proof of causation is an issue both for an individual claim and in the class action context.

[58] The appellant has asked for an opportunity to amend the Statement of Claim to remove the causes of action that were struck out by the motion judge and were not pursued on appeal and to clarify the pleading in negligence. In this regard, the respondent Equifax Canada Inc. also submits that the claim could have been struck out for failure to plead the necessary material facts to ground a claim in negligence, including what information was published concerning the appellant, when and to whom the impugned report(s) were made, whether and, if so, when, credit was denied on that basis and the loss suffered. I would therefore grant the appellant's request for an opportunity to amend the pleading to properly plead the negligence claim.

II. The Action Against the American Respondents

[59] The motion judge did not have to deal with this issue as he dismissed the entire claim. The American parent companies say that if the claim can proceed against the Canadian corporations, it must still be struck out against the parent corporations for three reasons: (1) the pleading does not plead material facts necessary to support a cause of action against them; (2) there is no cause of action against a parent company for failing to control a subsidiary company; and (3) the pleading does not plead facts that would allow a court to pierce the corporate veil and on that basis attribute liability for the conduct of the subsidiary.

[60] As to the first issue, the pleading is clearly deficient in setting out the material facts on which the claim against the parent company is based. The only allegation involving the appellant is in para. 18 of the Statement of Claim which says that the American parent corporations have reported the same prohibited and inaccurate information about the appellant "worldwide". There is no allegation that the appellant has applied for or been denied [page598] credit "worldwide" as a result of this action by the American parent corporations. Further, counsel for the appellant conceded in oral argument that the reference to unspecified American legislation analogous to the Canadian statutes referred to should be struck out.

[61] The second and third issues can be dealt with together. The pleading not only claims that the parent companies failed to control the actions of the subsidiaries, but goes further and asserts that it is the parent companies which mandate the policy of the subsidiaries to report the post-bankruptcy information the way they do in the face of the relevant legislation. In order to found liability by a parent corporation for the actions of a subsidiary, there typically must be both complete control so that the subsidiary does not function independently and the subsidiary must have been incorporated for a fraudulent or improper purpose or be used by the parent as a shield for improper activity: 642947 Ontario Ltd. v. Fleischer (2001), 2001 8623 (ON CA), 56 O.R. (3d) 417, 209 D.L.R. (4th) 182 (C.A.) at pp. 439-40 O.R.; Gregorio v. Intrans-Corp. (1994), 1994 2241 (ON CA), 18 O.R. (3d) 527, 115 D.L.R. (4th) 200 (C.A.) at p. 536 O.R., p. 208 D.L.R.; Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423, 2 O.T.C. 146 (Gen. Div.), affd [1997] O.J. No. 3754 (Quicklaw) (C.A.).

[62] The pleading falls short of suggesting that the relationship of the respective related respondent corporations is that of a conduit to avoid liability, nor is there an allegation that the parent company controls the subsidiary for an improper purpose.

[63] For the above reasons, the claims against the companies as pleaded must be struck out as disclosing no reasonable cause of action.

Conclusion on the second issue

[64] I would strike out the portion of the pleading that asserts a claim against the American parent corporations.

COSTS

[65] The appellant shall have his costs of the appeals as against the Canadian respondents Equifax Canada and Trans Union of Canada. The U.S. respondents, Equifax Inc. and Trans Union LLC, shall have their costs of the appeal against the appellant. Counsel may provide bills of costs within seven days of release of these reasons, and brief responding submissions on costs may be provided within seven days thereafter.

Appeal allowed.

[page599]

Notes

Note 1: I do not take this list as intended to be exhaustive. This list includes both the traditional basic category of damage arising from physical harm to personal property as well as some of the developed categories for recognizing a cause of action when the loss is purely economic. However, previous Supreme Court cases approved the list of five recognized categories to recover for pure economic loss, first articulated by Dean Feldthusen in "Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1990-91), 17 Can. Bus. L.J. 356 at pp. 357-58, which includes negligent performance of a service (see B.D.C. Ltd. v. Hofstrand Farms Ltd. and R. in Right of British Columbia, 1986 51 (SCC), [1986] 1 S.C.R. 228, 26 D.L.R. (4th) 1) and negligent provision of shoddy goods or workmanship (see Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, 193 D.L.R. (4th) 1, at pp. 876-78 S.C.R.).

Note 2: These and other uses of credit reports are listed in s. 8(1)(d) of the Consumer Reporting Act.

Note 3: Similar legislation in some other provinces regulates and governs the operations of credit reporting agencies. See: Credit Reporting Act, R.S.B.C. 1996, c. 81; Credit Reporting Agencies Act, R.S.S. 1978, c. C-44; Consumer Reporting Act, R.S.N.S. 1989, c. 93; Consumer Reporting Agencies Act, R.S.N. 1990, c. C-32; Consumer Reporting Act, R.S.P.E.I. 1988, c. C-20.

Note 4: The reliance is by the credit grantor who receives the report.