CITATION: Sauer v. Canada (Attorney General), 2007 ONCA 454
DATE: 2007-06-22
DOCKET: C45064 and C45568 and C45575
COURT OF APPEAL FOR ONTARIO
CATZMAN, GOUDGE AND LAFORME JJ.A*
BETWEEN:
BILL SAUER
Plaintiff (Appellant)
and
THE ATTORNEY GENERAL OF CANADA on behalf of HER MAJESTY THE QUEEN IN RIGHT OF CANADA as represented by THE MINISTER OF AGRICULTURE, JOHN DOE, JANE ROE, RIDLEY INC. and RIDLEY CORPORATION LIMITED
Defendants (Respondent)
AND BETWEEN:
BILL SAUER
Plaintiff (Respondent)
and
THE ATTORNEY GENERAL OF CANADA on behalf of HER MAJESTY THE QUEEN IN RIGHT OF CANADA as represented by THE MINISTER OF AGRICULTURE, JOHN DOE, JANE ROE, RIDLEY INC. and RIDLEY CORPORATION LIMITED
Defendants (Appellant)
BILL SAUER
Plaintiff (Respondent)
and
THE ATTORNEY GENERAL OF CANADA on behalf of HER MAJESTY THE QUEEN IN RIGHT OF CANADA as represented by THE MINISTER OF AGRICULTURE, JOHN DOE, JANE ROE, RIDLEY INC. and RIDLEY CORPORATION LIMITED
Defendants (Appellant)
Proceeding under the Class Proceedings Act, 1992
Cameron Pallett, Gilles Gareau, Clinton G. Docken and Reynold Robertson for the appellant/respondent Bill Sauer
Robert B. Bell and Barry L. Glaspell for the appellant/respondent Ridley Inc.
Dale L. Yurka and Joseph Cheng for the appellant the Attorney General of Canada
Heard: February 13 and 14, 2007
On appeal from the order of Regional Senior Justice Warren K. Winkler of the Superior Court of Justice dated, January 5, 2006, with reasons reported at (2006), 2006 74 (ON SC), 79 O.R. (3d) 19.
GOUDGE J.A.:
INTRODUCTION
[1] On May 18, 2003, a cow in Alberta was diagnosed with Bovine Spongiform Encephalopathy (“BSE”) or “mad cow disease”. As a consequence, the borders to the United States, Mexico and Japan were immediately closed to Canadian cattle and beef products, with catastrophic economic consequences for the commercial cattle industry in Canada.
[2] The plaintiff, Bill Sauer, an Ontario cattle farmer, has commenced a proposed class action on behalf of commercial cattle farmers in seven provinces.
[3] He claims against Ridley Inc. (“Ridley”) for negligence in making the feed contaminated with BSE that is alleged to have infected the Alberta cow.
[4] He also claims that Ridley breached its duty to him by failing to warn the owner of the Alberta cow that its feed might be contaminated.
[5] Finally, he claims against the government of Canada (“Canada”) for negligent regulation of the cattle industry in a number of respects.
[6] Ridley moved to strike both claims against it, arguing a want of proximity with Sauer. Canada attacked two of the particular claims of negligence against it, namely that it was negligent in passing a regulation in 1990 that permitted the inclusion of the contaminant in cattle feed, and in failing until 1997 to pass a regulation prohibiting that contaminant. It argued that it cannot be liable in negligence for either a legislative action or inaction.
[7] The motion judge found that it was not plain and obvious that the claim of negligent manufacture would fail for want of proximity. However, he struck out the claim for failure to warn. He also found that the claim against Canada should not be struck out at this stage because a more complete evidentiary record was necessary to decide if Canada’s decisions were operational or policy in nature.
[8] Ridley appeals from the failure to strike out the claim of negligent manufacture.
[9] Sauer appeals from the dismissal of his claim against Ridley for breach of duty to warn.
[10] Canada appeals from the failure to strike out Sauer’s claim of negligence against it for the regulation it passed in 1990 and the regulation it failed to pass until 1997.
[11] Sauer’s appeal was properly brought in this court. The other two appeals were properly brought in the Divisional Court, but were transferred to this court and consolidated with the Sauer appeal pursuant to the Rules of Civil Procedure.
[12] For the reasons that follow, I agree with the conclusions reached by the motion judge, and would dismiss all three appeals.
THE BACKGROUND
[13] These proceedings began as motions pursuant to rule 21.01(1)(b) by Ridley and Canada to strike out parts of Sauer’s statement of claim as disclosing no reasonable cause of action. No statements of defence have been filed, and the motion judge properly proceeded on the basis that the material facts pleaded in the claim are to be taken as established for present purposes.
[14] These facts begin with the plaintiff Sauer, one of approximately 100,000 cattle farmers in the proposed class. His cattle business suffered severe economic losses because of the closing of the foreign borders caused by the infection of the Alberta cow with BSE. However, his cattle consumed no feed manufactured by Ridley and had no contact with the Alberta cow.
[15] Ridley is a manufacturer of cattle feed. Until 1997, its feed manufactured in Alberta included ruminant meat and bone meal (“RMBM”). RMBM consists of the remains of cattle and other ruminants. It is alleged that the feed manufactured by Ridley was contaminated with BSE because it contained RMBM from infected cattle. This feed was fed to the Alberta cow and is the most likely source of its disease, since BSE is transmitted when healthy cattle eat the remains of infected cattle or other ruminants.
[16] Following a serious outbreak of BSE in the United Kingdom in the 1980s, Canada introduced a requirement in 1987 that all cattle imported from the UK be from herds certified to be free of BSE. In 1990, this was elevated to a ban on the importation of live cattle from the UK and Ireland, and all remaining cattle imported from the UK were placed in a government monitoring program. Of the 191 cattle imported from the UK between 1982 and 1990, at least 80 could have entered the feed system through rendering.
[17] In 1990, Canada also enacted a regulation to the Feeds Act, R.S.C. 1985, c. F-9, specifically permitting the continued incorporation of RMBM in cattle feed.
[18] In 1993, one of the monitored cattle tested positive for BSE in Alberta.
[19] In early 1994, Canada ordered the remainder of the original 191 imported cattle to be destroyed or exported.
[20] In April 1996, the World Health Organization issued a recommendation that all countries should ban the use of ruminant tissues in ruminant feed.
[21] In August 1997, Canada enacted a regulation pursuant to the Health of Animals Act, S.C. 1990, c. 21, prohibiting the feeding of protein derived from mammals to ruminants. This ban went into effect in October 1997.
[22] Sauer alleges that one or more of the eighty cattle from the UK that could have entered the cattle feed system were infected with BSE, were rendered and incorporated into the cattle feed, and thus infected other cattle. One of these infected cattle died, and was rendered in the fall of 1996. Its remains were incorporated into feed manufactured by Ridley, and that feed was fed to the Alberta cow in the spring of 1997. That cow was diagnosed with the disease in May 2003 and the border closings followed immediately.
ANALYSIS
[23] This factual matrix gives rise to Sauer’s negligence claims against Ridley and Canada for his economic losses. Sauer alleges that each owed him a duty of care which they breached, thereby causing him harm.
[24] Ridley and Canada each deny owing Sauer a duty of care in the circumstances of this case and therefore argue that his claim discloses no reasonable cause of action.
[25] The motion judge correctly noted that, to succeed in this, Ridley and Canada must demonstrate that it is plain and obvious that Sauer’s claim to be owed a duty of care by each of them cannot succeed. See Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959.
[26] The general test to determine whether a duty of care arises in a particular case was clearly laid out by the Supreme Court of Canada in Cooper v. Hobart, [2001] 1 S.C.R. 643. It was reiterated most recently in Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643. The test uses the two-stage approach derived from Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.), that is now well known.
[27] At the first stage, the plaintiff must establish that the harm that occurred was the reasonably foreseeable consequence of the defendant’s act, and in addition that there was sufficient proximity between the plaintiff and defendant that it would be just and fair to impose the cost of the plaintiff’s loss on the defendant. If the plaintiff can do this, a prima facie duty of care arises.
[28] Then at the second stage, the evidentiary burden shifts to the defendant to establish countervailing policy considerations beyond the relationship between the parties that are sufficient to negative the imposition of a duty of care.
[29] In this case, the proximity analysis at the first stage is of central importance. In Childs, the Supreme Court of Canada made clear that proximity will not always be satisfied by reasonable foreseeability. Rather, it requires an assessment of factors arising from the relationship between the parties other than foreseeability, but including questions of policy in the broad sense. In Cooper, the court described the task as follows, at para. 34:
Essentially, these are factors that allow us to evaluate the closeness of the relationship between the plaintiff and the defendant and to determine whether it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant.
[30] This assessment can be short circuited where the relationship falls within a category that has previously been recognized as having sufficient proximity such that, if the risk of harm was foreseeable, a prima facie duty of care would arise. However, as in this case, where the plaintiff concedes that the relationship does not come within a previously recognized category, it is necessary to carefully consider the circumstances of the particular relationship to determine if it is sufficiently close and direct to ground a prima facie duty of care.
[31] The question in each of these appeals is whether it is plain and obvious that Sauer’s claim that Ridley and Canada each owed him a duty of care will not succeed. I will deal with each appeal in turn.
THE RIDLEY APPEAL
[32] Sauer’s primary claim against Ridley is that it was negligent in manufacturing the contaminated feed that caused the Alberta cow to develop BSE, which resulted in an immediate closing of foreign borders to Canadian cattle, causing severe economic damage to Sauer and other class members. He claims that in this context Ridley owed him a duty of care.
[33] The motion judge concluded that it was not plain and obvious that Sauer’s assertion of such a duty of care would fail. At the first stage of the analysis, he found that the harm alleged by Sauer was a reasonably foreseeable consequence of Ridley’s conduct, and that there was sufficient proximity between them that it was not plain and obvious that Sauer’s claim of a prima facie duty of care would fail. At the second stage, the motion judge found that no general policy considerations existed so as to make it plain and obvious that the prima facie duty of care could be negated.
[34] In this court, Ridley does not seriously contend that Sauer’s losses were not the reasonably foreseeable consequence of its manufacture of contaminated feed. Indeed, Sauer pleads that Ridley was in fact aware of the risk of transmission of BSE to healthy cattle from their incorporation of contaminated RMBM into their feed, and that a confirmed diagnosis of the disease in a single Canadian cow would lead to border closings. At this point, that must be taken as fact.
[35] Ridley argues that Sauer’s claim must fail because Sauer admits that his claim falls outside the established categories of relationship in which proximity has been previously accepted, and his attempt to establish a new category cannot withstand the greater scrutiny reserved for claims of economic loss.
[36] Ridley’s claim for greater scrutiny is easily answered. The Supreme Court of Canada makes clear in both Cooper, supra (which itself was about economic loss) and Childs, supra, that where a duty of care is alleged in a novel situation the principled approach of the two-stage analysis is to be applied. Creating special hurdles for a claim of economic loss is not warranted.
[37] Ridley’s main argument is that there is simply no proximity between it and Sauer and therefore it is plain and obvious that it owes no prima facie duty of care in these circumstances. Ridley’s position is that since Sauer did not purchase or use its feed, it and Sauer are strangers to each other for the purposes of the proximity analysis.
[38] I do not agree. In essence, Sauer argues that the proximity examination must be done keeping in mind the circumstances relevant to the cause of action being alleged. The relationship of commercial cattle farmers and cattle feed manufacturers must be examined in the context of the manufacture of feed contaminated with BSE.
[39] In this light, Sauer says that he and Ridley are part of one integrated industry, from the supply of feed through to the sale of cattle. Beyond this economic link, Sauer points out that there is a regulatory link: the feed component of the industry is regulated nationally in the interests of the participants in it and the public. Most importantly, the catastrophic economic consequences of BSE contamination due to a single infected cow are shared by all commercial cattle farmers. Foreign sales are eliminated for all. This economic catastrophe dwarfs the impact of the loss of one cow on the cattle farmer who purchased the Ridley feed. In this critical way, all commercial cattle farmers are linked to Ridley as the victims of feed contaminated by BSE.
[40] Where it is reasonably foreseeable to Ridley that manufacturing contaminated feed will cause catastrophic losses, Sauer argues that it is just and fair to impose the cost of those losses on Ridley. After all, Ridley derives its business success from selling its feed to commercial cattle farmers.
[41] Sauer claims that these circumstances demonstrate sufficient linkages between commercial cattle farmers and cattle feed manufacturers to satisfy the proximity needed to impose a prima facie duty of care on Ridley in manufacturing its feed.
[42] On this issue, I think the case of Hoffman v. Monsanto Canada Inc., 2007 SKCA 47, released May 2, 2007, is of little assistance. The finding in that case of insufficient proximity to give rise to a prima facie duty of care turns on the particular facts pleaded and on the test for certifying a class action, which was found to be different from the “plain and obvious” test applicable here.
[43] In my view, it is not plain and obvious that Sauer’s claim in this regard will fail. In some ways, it responds to the language of Lord Atkin in the case that gave birth to the concept of proximity, Donoghue v. Stevenson, 1932 536 (FOREP), [1932] A.C. 562 at 596:
The nature of the thing may very well call for different degrees of care, and the person dealing with it may well contemplate persons as being within the sphere of his duty to take care who would not be sufficiently proximate with less dangerous goods; so that not only the degree of care but the range of persons to whom a duty is owed may be extended.
[44] Ridley also argues that even if Sauer establishes a prima facie duty of care, it is plain and obvious that Sauer’s claim will fail at the second stage of the duty of care analysis. It says that there are residual policy considerations which mandate this result.
[45] Again, I disagree. It is to be remembered that at this point we have only the statement of claim. Ridley has not filed a defence. In Childs, supra, the court said that at the second stage, the defendant (in this case Ridley) bears the evidentiary burden of showing countervailing policy considerations sufficient to negate the prima facie duty of care. It is for this reason that this court has said that it should be circumspect in determining so early in an action that residual policy considerations make it plain and obvious that there is no duty of care. See Haskett v. Equifax Canada Inc. (2003), 2003 32896 (ON CA), 63 O.R. (3d) 577 at para. 24.
[46] Ridley nonetheless argues that the claim raises the spectre of unlimited liability to an unlimited class. However, this is hard to sustain given that the statement of claim quantifies both the size of the class and the quantum of the loss of each class member. If this argument really is that the economic consequences of the contaminated feed ripple out beyond commercial cattle farmers to others in a way that cannot be circumscribed, that will be for Ridley to establish.
[47] Ridley also argues that to recognize this duty of care will necessarily impact all legal relationships between manufacturers and product users. However, the proximity analysis that underpins the duty of care claimed by Sauer depends very much on the circumstances of the case. Without some demonstrated foundation, Ridley’s concern remains speculation.
[48] Finally, Ridley raises as a residual policy consideration the fact that federal government regulations expressly permitted it to do what it did and argues that this would negate any prima facie duty of care. However, it is not an answer for Ridley that its use of RMBM in the feed it manufactured was permitted under federal regulations. The legislative policy reflected in those regulations relates to the standard of care that may be required to meet an existing duty of care, not to the question of whether a duty of care exists in the first place. See Ryan v. Victoria (City), 1999 706 (SCC), [1999] 1 S.C.R. 201 at para. 27. So far as Hoffman, supra, applies a similar government policy to negate a prima facie duty of care, I would respectfully decline to follow it. The two-stage analysis of the duty of care issue does not concern itself with government policy that may well be relevant to the conduct required to meet an existing duty, but does not speak to the existence of the duty itself.
[49] In summary therefore, I conclude that it is not plain and obvious that Sauer will fail in establishing that Ridley owed him a duty of care in the manufacture of its feed. I would therefore dismiss Ridley’s appeal.
THE SAUER APPEAL
[50] Sauer pleads that, whether or not Ridley was negligent in manufacturing the contaminated feed, it owed him a duty to warn purchasers that its feed might be contaminated with BSE. Sauer further pleads that if Ridley had done so, the owner of the Alberta cow would not have fed it the contaminated feed. Sauer appeals the finding of the motion judge striking out this claim.
[51] I agree with the motion judge that Sauer’s claim neither fits within nor is analogous to the categories of cases where courts have previously sustained a duty to warn. Sauer was neither a purchaser nor a user of Ridley’s product. No case has imposed on a manufacturer a duty to someone who neither purchased nor used its product to warn others who might do so.
[52] In my view, there are two related reasons why the claim for such a duty of care is bound to fail at the first stage of the analysis. Apart from foreseeability, Sauer cannot establish sufficient proximity between Ridley and himself when that assessment is made in the context of this cause of action, namely the duty to Sauer to warn purchasers and users of feed manufactured by Ridley that it could be contaminated with BSE.
[53] First, any warning by Ridley would have had no impact on Sauer’s conduct. Since he neither purchased nor used Ridley’s product, a warning would never have come to his attention. The basis upon which the law imposes a duty to warn simply cannot be served because of the insufficient proximity, for the purposes of this cause of action, between Sauer and Ridley. In other words, when a duty to Sauer to warn others is being considered, the relationship between Ridley and commercial cattle farmers in Ridley’s position is not sufficiently close that the policy basis for imposing a duty to warn can be served. In Economic Negligence: The Recovery of Pure Economic Loss, 4th ed. (Toronto: Thomson Canada, 2000) at 190, Professor Feldthusen described that rationale this way:
A manufacturer’s duty to warn of known dangers associated with its products is premised on safety concerns. The premise of the duty ought to control its ambit. Thus, the duty should extend to those persons who are in a position to respond to the warning, and hence to reduce the safety risk. [Footnote omitted.]
[54] Second, the duty to warn is designed to reduce the safety risk through voluntary compliance. No warning can compel perfect compliance. Yet in circumstances like these, a single noncompliant cattle farmer feeding a single cow can produce catastrophic economic consequences for commercial cattle farmers in Sauer’s position. Since a warning cannot compel compliance by all, the risk of harm to commercial cattle farmers would hardly be different whether or not Ridley was obliged to warn. Thus, in these circumstances, imposing a duty on Ridley to commercial cattle farmers to warn purchasers and users would have little, if any, impact on the harm suffered by those farmers. In my view, it would be irrational for the law to do so. It would be neither just nor fair where the duty imposed is so unrelated to the harm suffered. Sauer’s claim cannot therefore survive the first stage of the proximity analysis.
[55] In summary, I would conclude that it is plain and obvious that Sauer’s claim of a duty to warn cannot succeed on the facts as pleaded. I would therefore dismiss his appeal.
CANADA’S APPEAL
[56] Sauer alleges that Canada breached a number of private law duties owed to him and that he was harmed as a result. The two claims of negligence that Canada attacks are that it was grossly negligent in designing and promulgating the 1990 regulation that permitted the continued incorporation of RMBM into cattle feed, and that it was negligent in failing to impose a ruminant feed ban by regulation before 1997.
[57] The motion judge dismissed both challenges. He found that it was not plain and obvious that these two claims were based on policy decisions rather than operational decisions, and that this central question required a more complete evidentiary record for proper determination. He therefore dismissed Canada’s motion.
[58] Canada bases its appeal on the proposition that both of Sauer’s claims attack legislative decisions – one to regulate in a certain way, and one not to regulate until a certain date – and that, as such, it is plain and obvious that neither can attract tort liability.
[59] I disagree that, at this stage of the proceedings, this conclusion is plain and obvious and that Sauer’s claims must fail.
[60] There is no doubt that Sauer’s assertion of a private law duty of care on Canada must meet the two-stage test derived from Anns, supra.
[61] At the first stage, Canada does not seriously contest the foreseeability requirement. However, it does argue that there can be no relationship of sufficient proximity between commercial cattle farmers in Canada when Canada makes legislative decisions.
[62] On the other hand, Sauer argues that he has pleaded the facts required to show sufficient proximity between Canada and commercial cattle farmers to raise a prima facie duty of care. In particular, he points to the many public representations by Canada that it regulates the content of cattle feed to protect commercial cattle farmers among others. He says this shows that Canada was acting with their interests in mind rather than the broad public interest. Sauer says that Canada’s public assumption of a duty to Canadian cattle farmers to ensure the safety of cattle feed yields the conclusion that it is not plain and obvious that his claim of a prima facie duty of care will not succeed. I agree.
[63] Moving to the second stage of the analysis, Sauer pleads that these were not policy decisions but were operational, and that this therefore negates Canada’s major reason for saying that Sauer’s complaints cannot survive this stage of the duty of care analysis. Given that the evidentiary onus at this stage is on Canada, and that at this early point in the proceedings it has brought forward nothing, I agree.
[64] Furthermore, Sauer argues that, even if Canada’s two decisions are taken to be policy decisions, they were exercises of the discretion to regulate or not given to it by the governing legislation in each case. He then pleads in detail why these two decisions must be taken to have been made in bad faith. That notion was described in Entreprises Sibeca v. Frelighsburg (Municipality), 2004 SCC 61, [2004] 3 S.C.R. 304 at para. 26, as encompassing legislative decisions so markedly inconsistent with the relevant legislative context that it cannot be concluded that they were performed in good faith. On the basis of this case, Sauer argues that as a result of bad faith, Canada’s decisions cannot claim the immunity that might otherwise attach to an exercise of legislative power.
[65] Given Sauer’s pleadings in this respect, I do not think that it is plain and obvious that these two claims against Canada will fail at the second stage of the duty of care analysis.
[66] In summary, I agree with the motion judge that Canada’s attack on these two claims must fail. It is not plain and obvious at this early point in the litigation that the claims will not succeed.
[67] I have therefore concluded that all three appeals should be dismissed. This leaves undisturbed the disposition of costs at first instance. As to costs in this court, I invite all parties to exchange and file written submissions of no more than eight pages within three weeks of the release of this decision.
RELEASED: June 22, 2007 “STG”
“S.T. Goudge J.A.”
“I agree H.S. LaForme J.A.”
- Justice Catzman took no part in the decision.