Correia v. Canac Kitchens, 2008 ONCA 506

Correia et al. v. Canac Kitchens et al. [Indexed as: Correia v. Canac Kitchens]

91 O.R. (3d) 353

Court of Appeal for Ontario,

O'Connor A.C.J.O., Rosenberg and Feldman JJ.A.

June 24, 2008

Torts -- Inducing breach of contract -- Employer retaining private investigation firm to conduct investigation into suspected thefts and drug dealing at employer's plant -- Employer and investigation firm aware that police would not be conducting independent investigation -- Plaintiff confused with another, much younger employee with similar name who was identified as thief by investigation firm's undercover officer -- Plaintiff summarily dismissed and arrested for theft -- Motions judge not erring in granting summary judgment dismissing claim of inducing breach of contract against investigation firm and employer's parent company -- Neither defendant intending that employer breach its employment contract with plaintiff -- Investigation firm and parent company intending that plaintiff would be lawfully terminated for cause.

Torts -- Intentional infliction of mental distress -- Employer retaining private investigation firm to conduct investigation into suspected thefts and drug dealing at employer's plant -- Employer and investigation firm aware that police would not be conducting independent investigation -- Plaintiff confused with another, much younger employee with similar name who was identified as thief by investigation firm's undercover officer -- Plaintiff summarily dismissed and arrested for theft -- Motions judge erring in dismissing claim for intentional infliction of mental distress against investigation firm and against employer's head of human resources -- Motions judge properly permitting claim against employer to proceed.

Torts -- Intentional interference with economic relations -- Employer retaining private investigation firm to conduct investigation into suspected thefts and drug dealing at employer's plant -- Employer and investigation firm aware that police would not be conducting independent investigation -- Plaintiff confused with another, much younger employee with similar name who was identified as thief by investigation firm's undercover officer -- Plaintiff summarily dismissed and arrested for theft -- Motions judge properly granting summary judgment dismissing claim of intentional interference with economic relations against investigation firm and employer's parent company -- Neither defendant intending to cause harm to plaintiff by conducting negligent investigation.

Torts -- Negligent investigation -- Duty of care -- Employer retaining private investigation firm to conduct investigation into suspected thefts and drug dealing at employer's plant -- Employer and investigation firm aware that police would not be conducting independent investigation -- Plaintiff confused with another, much younger employee with similar name who was identified as thief by investigation firm's undercover officer -- Plaintiff summarily dismissed and arrested for theft -- Motions judge erring in dismissing claim against investigation firm for [page354] negligent investigation but properly dismissing claim for negligent investigation against employer -- Private actors possibly owing duty of care in negligence to suspects being investigated -- Residual policy considerations telling against recognizing duty of care on part of employer but favouring recognizing duty of care on part of private investigators.

Canac and its parent company Kohler, suspecting that theft and drug dealing were taking place at the Canac plant, retained Aston, a private investigation firm. Aston placed an undercover agent in the plant. The agent identified several employees as engaging in wrongdoing, including a young man with a name similar to that of the plaintiff, a 62-year-old long-term employee of Canac. Because of a confusion between that young man and the plaintiff, the plaintiff was summarily dismissed and was immediately arrested by police officers for theft. The police conducted no independent investigation. Four months later, the Crown dropped the charge after the plaintiff's counsel was able to demonstrate the mistake. The plaintiff sued, among others, Canac, Canac's Head of Human Resources ("MS"), Kohler, Aston and the police. On motions for summary judgment dismissing the action brought by all of the defendants except the police, the motions judge dismissed claims for negligent investigation, malicious prosecution, false arrest, intentional infliction of mental distress, inducing breach of contract and intentional interference with contractual relations. The plaintiff appealed and the defendants cross- appealed.

Held, the appeal should be allowed in part; the cross-appeal should be dismissed.

The motions judge erred in dismissing the claim for negligent investigation on the basis that the plaintiff did not stand in a relationship with Aston which could fall within a category analogous to one in which a duty of care has been recognized. Private actors, and not just police officers, may owe a duty of care in negligence to suspects being investigated. In this case, Aston, together with Canac and Kohler, did a complete investigation. To the knowledge of those parties, the police were not intending to do any further investigation. After a trial, a court could conclude that it was reasonably foreseeable in the circumstances that negligence by Aston, Canac and Kohler in identifying the real perpetrator of the crime would cause harm to the plaintiff. The plaintiff had extremely high interests at stake, and existing remedies were inadequate to fully compensate him for his injuries. There existed a triable issue whether the relationship between the plaintiff and Aston, Kohler and Canac disclosed sufficient foreseeability and proximity to establish a prima facie duty of care. Residual policy considerations did not tell against recognizing a duty of care on the part of Aston. The fact that private investigation firms perform public policing functions with limited oversight or clear lines of redress to those injured by their activities strongly favoured extending tort liability. Existing alternative remedies were not sufficient. There were two policy reasons for refusing to recognize a duty of care on the part of Canac and Kohler. First, to do so would be inconsistent with the principle that an employer is not required to have good faith reasons for dismissal and that there is no independent head of damages for breach of a duty of good faith. Second, it would have a potential chilling effect on reports of criminality to the police. The motions judge properly dismissed the claim of negligent investigation against Canac and Kohler. The claim against Aston should be allowed to proceed.

The motions judge erred in dismissing the claim of intentional infliction of mental distress against Aston and MS. With respect to Aston, the motions judge did not consider their conduct sufficiently outrageous to meet the first prong of the test for that tort: that the conduct of the defendant must be flagrant or [page355] outrageous. If it was found that Aston was negligent in its investigation, in the context where it knew the serious consequences of a wrongful charge of criminal conduct against an employee, its conduct might well be found to be outrageous. With respect to MS, the motions judge dismissed the claim on the basis that an action could not be brought against her personally because she was acting in the course of her employment. An employee acting in the context or course of employment can be personally responsible in law for his or her tortious conduct. The claim against MS was not for terminating the plaintiff's employment on behalf of Canac. The claim was that MS herself made the error that caused blame to be falsely cast on the plaintiff. MS could be held personally liable for that conduct. The motions judge did not err in refusing to dismiss the claim of intentional infliction of mental distress against Canac. Canac's conduct could be found to meet the three-pronged test for that tort: it was flagrant and outrageous; it was calculated to cause the distress it did because it was clearly foreseeable that it would; and it caused the plaintiff significant mental distress. There was a triable issue in respect of the intentional infliction of mental distress claim against Canac. There was no basis for distinguishing Kohler's role in the investigation and actions taken against the plaintiff for the purpose of considering the claim for intentional infliction of mental distress. The claim should be allowed to proceed as against Kohler.

The motions judge did not err in dismissing the plaintiff's claims for inducing breach of contract and intentional interference with economic relations against Kohler and Aston. The claim of inducing breach of contract failed to meet the requirement that the defendants' conduct was intentional in the sense that the defendants intended to procure a breach of contract. Neither Kohler nor Aston intended that Canac breach its contract of employment with the plaintiff. Their intent was that the plaintiff would be lawfully terminated for cause. A similar analysis applied to the tort of intentional interference with economic relations. Neither Kohler nor Aston intended to cause harm to the plaintiff by conducting a negligent investigation. At most, their conduct was negligent. To the extent that they were reckless as to the consequences of their negligent conduct, recklessness does not amount to an intention to cause harm sufficient to make out the tort.

APPEAL and CROSS-APPEAL from decision of Low J., 2007 691 (ON SC), [2007] O.J. No. 143, 56 C.C.E.L. (3d) 209 (S.C.J.), granting partial summary judgment.

Cases referred to

Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492, [1977] 2 W.L.R. 1024 (H.L.); Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, [1984] S.C.J. No. 29, 10 D.L.R. (4th) 641, 54 N.R. 1, [1984] 5 W.W.R. 1, J.E. 84-603, 66 B.C.L.R. 273, 11 Admin. L.R. 1, 29 C.C.L.T. 97, 8 C.L.R. 1, 26 M.P.L.R. 81, 26 A.C.W.S. (2d) 453, apld Drouillard v. Cogeco Cable Inc. (2007), 86 O.R. (3d) 431, [2007] O.J. No. 1664, 2007 ONCA 322, 282 D.L.R. (4th) 644, 223 O.A.C. 350, 57 C.C.E.L. (3d) 14, 48 C.C.L.T. (3d) 119, [2007] CLLC Â210-034, 157 A.C.W.S. (3d) 213; Hill v. Hamilton-Wentworth Regional Police Services Board, [2007] 3 S.C.R. 129, [2007] S.C.J. No. 41, 2007 SCC 41, 285 D.L.R. (4th) 620, 368 N.R. 1, J.E. 2007-1867, 230 O.A.C. 253, [2007] R.R.A. 817, 64 Admin. L.R. (4th) 163, 50 C.C.L.T. (3d) 1, 50 C.R. (6th) 279, 40 M.P.L.R. (4th) 1, 160 A.C.W.S. (3d) 573, EYB 2007-124525; OBG Ltd. v. Allan; Douglas v. Hello! Ltd.; Mainstream Properties Ltd. v. Young, [2007] U.K.H.L. 21, [2008] A.C. 1 (H.L.); Prinzo v. Baycrest Centre for Geriatric Care (2002), 2002 45005 (ON CA), 60 O.R. (3d) 474, [2002] O.J. No. 2712, 215 D.L.R. (4th) 31, 161 O.A.C. 302, 17 C.C.E.L. (3d) 207, [2002] CLLC Â210-027, 115 A.C.W.S. (3d) 801 (C.A.); Reach M.D. Inc. v. Pharmaceutical Manufacturers Assn. of Canada (2003), 2003 27828 (ON CA), 65 O.R. (3d) 30, [2003] O.J. No. 2062, 227 D.L.R. (4th) 458, 172 O.A.C. 202, 17 C.C.L.T. (3d) 149, 25 C.P.R. (4th) 417, 123 A.C.W.S. (3d) 411 (C.A.); Said v. Butt, [1920] All E.R. Rep. 232, [1920] 3 K.B. 497, 90 L.J.K.B. 239, 124 L.T. 413, 36 T.L.R. 762 (K.B.); [page356] Wallace v. United Grain Growers Ltd. (c.o.b. Public Press), 1997 332 (SCC), [1997] 3 S.C.R. 701, [1997] S.C.J. No. 94, 152 D.L.R. (4th) 1, 219 N.R. 161, [1999] 4 W.W.R. 86, J.E. 97-2111, 123 Man. R. (2d) 1, 3 C.B.R. (4th) 1, 36 C.C.E.L. (2d) 1, 97 CLLC Â210-029, 74 A.C.W.S. (3d) 788, consd BMG Canada Inc. v. Antek Madison Plastics Recycling Corp., [2006] O.J. No. 4577, 153 A.C.W.S. (3d) 487 (C.A.); Elliott v. Insurance Crime Prevention Bureau, [2005] N.S.J. No. 323, 2005 NSCA 115, 256 D.L.R. (4th) 674, 236 N.S.R. (2d) 104, 26 C.C.L.I. (4th) 1, 141 A.C.W.S. (3d) 878, distd

Other cases referred to

ADGA Systems International Ltd. v. Valcom Ltd. (1999), 1999 1527 (ON CA), 43 O.R. (3d) 101, [1999] O.J. No. 27, 168 D.L.R. (4th) 351, 117 O.A.C. 39, 41 B.L.R. (2d) 157, 39 C.C.E.L. (2d) 163, 44 C.C.L.T. (2d) 174, 85 A.C.W.S. (3d) 320 (C.A.) [Leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 124]; Alper Development Inc. v. Harrowston Corp. (1998), 1998 2237 (ON CA), 38 O.R. (3d) 785, [1998] O.J. No. 1199, 107 O.A.C. 318, 36 C.C.E.L. (2d) 173, 78 A.C.W.S. (3d) 255 (C.A.); Bank Leu Ag v. Gaming Lottery Corp., 2003 28360 (ON CA), [2003] O.J. No. 3213, 231 D.L.R. (4th) 251, 175 O.A.C. 143, 37 B.L.R. (3d) 1, 124 A.C.W.S. (3d) 679 (C.A.), affg [2001] O.J. No. 4715, [2001] O.T.C. 854, 29 B.L.R. (3d) 68, 110 A.C.W.S. (3d) 283 (S.C.J.); Cooper v. Hobart, [2001] 3 S.C.R. 537, [2001] S.C.J. No. 76, 2001 SCC 79, 206 D.L.R. (4th) 193, 277 N.R. 113, [2002] 1 W.W.R. 221, J.E. 2001-2153, 160 B.C.A.C. 268, 96 B.C.L.R. (3d) 36, 8 C.C.L.T. (3d) 26, 110 A.C.W.S. (3d) 943; D.C. Thomson & Co. v. Deakin, [1952] Ch. 646, [1952] 2 All E.R. 361, [1952] W.N. 359 (C.A.); Dimbleby & Sons Ltd. v. National Union of Journalists, [1984] 1 All E.R. 117, [1984] 1 W.L.R. 67, [1984] I.C.R. 386, [1984] I.R.L.R. 67 (H.L.); Garret v. Taylor (1620), Cro. Jac. 567 (Eng. K.B.); GWK Ltd. v. Dunlop Rubber Co. Ltd. (1926), 42 T.L.R. 376 (H.L.); Keays v. Honda Canada Inc., [2008] S.C.J. No. 40, 2008 SCC 39, J.E. 2008-1354, 66 C.C.E.L. (3d) 159, [2008] CLLC Â230-025, 166 A.C.W.S. (3d) 685, EYB 2008-135085, varg (2006), 2006 33191 (ON CA), 82 O.R. (3d) 161, [2006] O.J. No. 3891, 274 D.L.R. (4th) 107, 216 O.A.C. 3, 52 C.C.E.L. (3d) 165, [2006] CLLC Â230-030, 151 A.C.W.S. (3d) 612 (C.A.); London Drugs v. Kuehne & Nagel International Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299, [1992] S.C.J. No. 84, 97 D.L.R. (4th) 261, 143 N.R. 1, [1993] 1 W.W.R. 1, J.E. 92-1650, 18 B.C.A.C. 1, 73 B.C.L.R. (2d) 1, 43 C.C.E.L. 1, 13 C.C.L.T. (2d) 1, 36 A.C.W.S. (3d) 669; Lumley v. Gye (1853), 2 E. & B. 216, [1843-1860] All E.R. Rep. 208 (Q.B.); Meditrust Healthcare Inc. v. Shoppers Drug Mart, a division of Imasco Retail Inc., 1999 2316 (ON CA), [1999] O.J. No. 3243, 124 O.A.C. 137, 90 A.C.W.S. (3d) 690 (C.A.); Merkur Island Shipping Corp. v. Laughton, [1983] 2 A.C. 570 (H.L.); Millar v. Bassey, [1993] E.W.J. No. 5409, [1994] E.M.L.R. 44 (C.A.); Mirra v. Toronto Dominion Bank, [2004] O.J. No. 1804, [2004] O.T.C. 365, 130 A.C.W.S. (3d) 877; Mortensen v. Laing; South Pacific Manufacturing Co. v. New Zealand Security Consultants & Investigations Ltd., [1992] 2 N.Z.L.R. 282 (N.Z.C.A.); Quinn v. Leathem, [1900-03] All E.R. Rep. 1, [1901] A.C. 495, [1901] 2 I.R. 705, 70 L.J.P.C. 76, 85 L.T. 289, 65 J.P. 708, 50 W.R. 139, 17 T.L.R. 749; Rahemtulla v. Vanfed Credit Union, 1984 689 (BC SC), [1984] B.C.J. No. 2790, [1984] 3 W.W.R. 296, 51 B.C.L.R. 200, 4 C.C.E.L. 170, 29 C.C.L.T. 78, 25 A.C.W.S. (2d) 193 (S.C.); Tarleton v. M'Gawley (1794), 1 Peake N.P.C. 270 (Eng. K.B.); Torquay Hotel Co. v. Cousins, [1969] 2 Ch. 106, [1969] 1 All E.R. 522, [1969] 2 W.L.R. 289 (C.A.); Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18, 209 D.L.R. (4th) 257, 283 N.R. 1, J.E. 2002-405, 156 O.A.C. 201, 20 B.L.R. (3d) 165, 35 C.C.L.I. (3d) 1, [2002] I.L.R. I-4048, 111 A.C.W.S. (3d) 935, REJB 2002-28036

Statutes referred to

Canadian Charter of Rights and Freedoms [page357]

Authorities referred to

Law Commission of Canada, In Search of Security: The Roles of Public Police and Private Agencies (Ottawa: Law Commission of Canada, 2002)

Rebecca Nelson, for appellants. J. Murray Davison, Q.C., and Matthew Biderman, for respondents York Regional Police, Gordon Smyth, Paul Carey, Brad Law, Bryan Shea, Kerry Vincent and Michael Godber. Brett Harrison and Lisa Brost, for respondents Canac Kitchens, Kohler and Marilyn Smith. Lisa La Horey and Laurie Murphy, for respondents Aston Associates Investigations Ltd., Farshid Dhanji, Gord Osborne and Teresa Speciale.

[1] ROSENBERG and FELDMAN JJ.A. (O'CONNOR A.C.J.O. concurring): -- This appeal from the decision of Low J. granting partial summary judgment dismissing a number of aspects of the fired employee's claim concerns the legal implications when an employer embarks on an investigation of the criminal conduct of its employees.

[2] In 2002, Joao Correia's employer Canac Kitchens and its parent company Kohler Ltd. suspected that there was theft and drug dealing occurring at the Canac plant. They therefore retained a private investigation firm to conduct an investigation. The firm placed an undercover agent in the firm and he identified several employees engaged in theft and drug dealing. The firm kept the local police force apprised of the investigation, but the police force did little if any independent investigation.

[3] On October 24, 2002, Mr. Correia, a long-time employee aged 62 years, was brought into his employer's human resources office, accused of theft and fired for cause. He was then taken to another office and arrested by police officers for theft. The only problem is that Mr. Correia was innocent. Through a series of mistakes, he was confused with another employee with a similar name but who was almost 40 years younger. Eventually, the mistake was discovered, but by then Mr. Correia claims to have suffered serious injury.

[4] Mr. Correia and his family sued his employer, the parent company, the private investigation firm, the police force and several individuals. The plaintiffs claim damages under various causes of action. On summary judgment motions brought by all [page358] the defendants except the police defendants, the motions judge dismissed several of those causes of action including claims for negligent investigation, malicious prosecution, false arrest, intentional infliction of mental distress, inducing breach of contract and intentional interference with contractual relations.

[5] For the following reasons we would allow the appeal in part and in particular set aside the dismissal of the claim for negligent investigation against the private investigation firm and for intentional infliction of mental distress against Kohler and Marilyn Smith and the Aston defendants.

The Facts

[6] It may be helpful to begin by identifying and providing a short description of the various persons involved in the case.

(1) Canac Kitchens The employer

(2) Marilyn Smith Head of Human Resorces at Canac

(3) Kohler Canac's parent company

(4) Phil Sunstrom Head of Security at Kohler (now deceased)

(5) Aston Private investigation firm retained by Kohler to conduct an investigation at Canac

(6) Teresa Speciale Part owner of Aston and in charge of this investigation for Aston

(7) Farshid Dhanji Employee of Aston and undercover agent placed at Canac

(8) York Regional Police Made the arrests

(9) Bryan Shea Drug squad officer became involved to handle any drugs obtained by Dhanji [page359]

(10) Paul Carey Officer with Criminal Investigations Branch, became involved to effect arrests of employees involved in theft

[7] Canac is a manufacturing company and a subsidiary of a United States company, Kohler. Canac employs over 800 people at its facility. By 2002, Canac was having a serious problem with theft and drug dealing at its plant. With the assistance of Kohler, Canac decided to attempt to identify the employees involved and dismiss them. Kohler retained Aston to conduct an investigation. In June 2002, Canac added Fashid Dhanji, an employee of Aston, to its payroll, and he was put on the factory floor. Because Aston anticipated that Dhanji would come in contact with illegal drugs, it contacted the York Regional Police to obtain advice about handling the drugs.

[8] In addition to Dhanji's undercover work, Aston set up surveillance in the plant that was carried out by other persons. The sequence of events that led to misidentification of Mr. Correia is summarized in the following chronology:

September 17, 2002 Report from Aston describing a theft suspect as "Joe Portuguesse 5'11" . . . 180 lbs, mid 20's".

September 23, 2002 Report refers to "Joel".

October 1, 2002 Report refers to "Joao Correio" (note the plaintiff's name is Joao Correia).

October 7, 2002 Smith of Canac prepares "Authorized Corporate Transaction" seeking Kohler's approval to dismiss ten employees including "J. Correia Supvr" (This is the first time the plaintiff's name is mentioned. The real suspect turns out to be Joao Corriero.) Smith claims she asked Phil Sunstrom of Kohler to check her work. Kohler approved the dismissals. [page360]

October 15, 2002 Report from Aston includes a surveillance tape of Corriero and a photocopy of his identification badge.

October 15, 2002 The police meet with Aston representative Speciale to discuss the arrests. Speciale provided the police with a suspect's list. The first list includes the name Corriero. The police ask for further details of identification.

October 22, 2002 The police again meet with Aston representative Speciale and with Sunstrom. The suspect is now identified as "Joao Correia", i.e., the plaintiff, with his date of birth of June 7, 1940.

October 24, 2002 The final meeting with the police takes place and the final suspect list includes the plaintiff's name. Speciale and Sunstrom are present at the meeting.

[9] The plaintiff's arrest and dismissal took place later on October 24. Sunstrom of Kohler first took the plaintiff to Smith's office where she gave him a termination letter. Sunstrom then took the plaintiff to another office at the Canac premises where he was arrested. Although the police had asked that Dhanji be present at the arrests, Aston refused. No one showed Dhanji pictures of the employees to be dismissed, although pictures of all employees were in the Canac files.

[10] The plaintiff spent about three hours in jail before being released. Four months later the Crown dropped the charge after the plaintiff's counsel was able to demonstrate the mistake. Canac offered to reinstate the plaintiff but he was too devastated to return to employment.

[11] As the motions judge observed at paras. 25-27 of her comprehensive reasons, had Smith or Speciale taken the time to carefully read the Aston investigative reports it would have been apparent that the 20-something-year-old suspect was not the plaintiff, a 62-year-old long-time employee whose name is spelled differently. [page361]

[12] Staff Sergeant Carey reviewed Aston's reports and formed the view that there were grounds to arrest the plaintiff. The police carried out no other independent investigation. The police deny that they were provided with any surveillance videotapes, identification badges or photographs of the suspects.

The Claims

[13] The motions judge disposed of the various claims as follows:

(1) Negligent investigation: -- Motions judge allowed motion all defendants summary judgment by all of the defendants except the police defendants, who did not move for summary judgment.

-- The plaintiffs appeal against this disposition.

(2) Intentional infliction -- Motions judge dismissed mental distress: Conac, motion for summary judgment Marilyn Smith, Kohler, by Canac but allowed the Aston and Aston's motion by Marilyn Smith and employees the Aston defendants. She did not expressly deal with Kohler.

-- Canac cross-appeals this disposition; the plaintiffs appeal inrelation to Marilyn Smith, Kohler and the Aston defendants.

(3) Intentional interference -- Motions judge allowed motion with economic relations for summary judgment by all and inducing breach of defendants. contract: Aston and Kohler defendants -- The plaintiffs appeal against (including individuals) this disposition [page362]

(4) False arrest and false -- Motions judge allowed motion imprisonment: all for summary judgment by all defendants of the defendants, except the police defendants who did not move for summary judgment.

-- The plaintiffs do not appeal against this disposition.

(5) Malicious prosecution: -- Motions judge allowed motion all defendants for summary judgment by all of the defendants, except the police defendants who did not move for summary judgment.

-- The plaintiffs do not appeal againstthis disposition.

(6) Vicarious liability -- Motions judge found Kohler not bound by Phil Sunstrom's deemed admissions. The plaintiff appeals the effect of this finding.

[14] The plaintiffs also claimed against Canac for wrongful dismissal. Canac did not seek summary judgment on that claim.

Analysis

A. Negligent investigation

(a) The reasons of the motions judge

[15] The motions judge found that the plaintiff did not stand in a relationship with any of the moving defendants (i.e., everyone except the police defendants) which could fall within a category or in a position analogous to an established category in which a duty of care has been recognized. She held that the plaintiff was a stranger to Aston and to all of the individual defendants. While he [page363] had a contract of employment with Canac, that did not create a duty of care contemplated by the claim. An employer has a right to terminate employment and the fact that "in coming to its decision the employer acted on misinformation negligently gathered does not augment the employee's rights; nor is the employer's obligation diminished if it acts without negligence". In the absence of a duty of care, no action for negligent investigation lies.

[16] The motions judge particularly relied upon the reasons of this court in BMG Canada Inc. v. Antek Madison Plastics Recycling Corp., [2006] O.J. No. 4577, 153 A.C.W.S. (3d) 487 (C.A.), where it was held that no duty of care existed because of lack of foreseeability. As she said, at para. 53:

In my view, the same reasoning and considerations apply in the case at bar as in BMG. Notwithstanding that Aston and Canac represented to the police that they would arrange for the right persons to be available for arrest as suspects, it is nevertheless not foreseeable that the police would undertake no investigation of their own in circumstances where the information they were receiving by way of the Aston reports was a compilation of second and third hand hearsay. There was neither obligation nor practical compulsion to make the arrests on October 24 as opposed to some later date. There was no impediment to the police doing its own checking with the actual witnesses (the undercover and the videographer) and no impediment to the police reviewing the videotape of the theft occurrence before proceeding with the arrest.

[17] The motions judge further held that there were compelling reasons to not impose a duty of care on private actors, as opposed to the police. She was concerned that to impose tort liability would have a chilling effect on the willingness of citizens to report criminal behaviour and she saw no reason to distinguish in this regard between "amateur" informants and professionals like Aston. She was also of the view that adequate alternative remedies exist such as an action in defamation and, in this case, an action for wrongful dismissal.

(b) Analysis of the negligent investigation claims

[18] In Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129, [2007] S.C.J. No. 41, the Supreme Court of Canada recognized the tort of negligent investigation as applied to police officers. Speaking for the majority, McLachlin C.J.C. held that the police owe a duty of care in negligence to suspects being investigated. The question posed by this case is whether the reasoning in Hill can be extended to recognize a duty of care on private actors.

[19] The test for determining whether a person owes a duty of care to another as laid down in Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492 (H.L.) has been [page364] accepted by the Supreme Court of Canada in a number of decisions including Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, [1984] S.C.J. No. 29. The test involves two questions:

(1) Does the relationship between the plaintiff and the defendant disclose sufficient foreseeability and proximity to establish a prima facie duty of care?

(2) Are there any policy considerations that should nevertheless negate or limit that duty of care?

(1) Foreseeability and proximity

[20] The motions judge found against the appellants in this case on the issue of foreseeability, relying on this court's decision in BMG. BMG concerned a motion to strike a counterclaim as disclosing no cause of action. The motion was therefore dealt with on the basis of the allegations in the Statement of Counterclaim. The claim of negligent investigation against BMG was brought by the defendant James Angelopoulos, who was a director and officer of the defendant Antek. The claim of negligent investigation arose out of the prosecution of Angelopoulos based on information supplied to the police by BMG.

[21] While there is a superficial similarity between this case and BMG, there are critical differences. The relevant allegations by Angelopoulos in the counterclaim were as follows:

44. In June 2000, BMG on its own and through its agents, commenced an investigation into misappropriation and fraud which they alleged, without having completed an investigation, were perpetrated by Angelopoulos.

45. BMG contacted the York Regional Police to report an allegation of fraud committed upon BMG by Angelopoulos and Antek. BMG's report was based on incomplete, inaccurate and misleading information.

46. BMG provided to the York Regional Police various memos, notes and statements that were compiled by BMG and/or its investigative delegate.

47. On or about September 19, 2000, George Skrba was in police custody having been found in possession of BMG product. Skrba provided a statement to the police, which he knew was false. He made this statement for the purpose of misleading the police to cause them to prosecute criminal charges against Angelopoulos and not himself. Skrba's false statement was motivated by his attempt to secure his own release from custody and to avoid criminal charges and prosecution.

48. Skrba told the police that he knew Angelopoulos, he did business with Angelopoulos and he purchased compact discs from Angelopoulos. All of these assertions were false.

[22] Sachs J., in reasons reported at 2006 CarswellOnt 8663 (S.C.J.), held that it was plain and obvious that the claim could [page365] not succeed. She applied the reasoning of the Nova Scotia Court of Appeal in Elliott v. Insurance Crime Prevention Bureau, 2005 NSCA 115, [2005] N.S.J. No. 323, 236 N.S.R. (2d) 104 (C.A.), which we will discuss below, and found that there was not a sufficiently proximate relationship and that, in any event, a duty of care should not be recognized for policy reasons.

[23] On appeal, this court, in a brief endorsement, dismissed the appeal solely on the basis of lack of foreseeability. The court's reasons are found in paras. 2-3:

For the police to arrest someone, they are, as a matter of law, required to determine for themselves that reasonable and probable grounds exist to do so.

In our view it cannot be said to be reasonably foreseeable that the police would take the information supplied to them by the respondent, however false or sloppily prepared, and proceed to charge the appellant without doing the job required of them by law. (Emphasis added)

[24] In our view, this court was not laying down as a matter of law that in no case where a party provides information to the police can it be said that the requisite foreseeability does not exist. The authorities make it clear that reasonable foreseeability depends upon the circumstances and the context; the court looks at the relationship between the plaintiff and the defendant. As McLachlin C.J.C. said in Hill, the first question is "whether it was reasonably foreseeable that the actions of the alleged wrongdoer would cause harm to the victim". In BMG, the alleged wrongdoer had conducted an incomplete investigation which was supplemented by information from a person in police custody. BMG was not "in the business" of conducting investigations and did not have any special expertise in doing so. In those circumstances, it was not foreseeable that the police would not conduct a proper investigation.

[25] This case, in our view, is different from BMG. Aston together with Canac and Kohler did a complete investigation. They gathered all of the information of the criminal offences and handed a completed case to the police. To the knowledge of Aston, Canac and Kohler, the police were not intending to do any further investigation. To the contrary, the identified employees were to be dismissed and then immediately turned over to the police who were on the Canac property for arrest. It would be open to a trier of fact to find that to the knowledge of the defendants, the police had limited, if any, ability to conduct a further investigation. Aston had decided not to make the undercover employee available at the time of the arrests. Again, a trier of fact could find that Canac, Kohler and Aston had to [page366] have known that the police would rely completely on their investigation. It may be that the police should have done more; that will be an issue to be determined at trial. After a trial, however, a court could conclude that it was reasonably foreseeable in the circumstances existing here that negligence by Aston, Canac and Kohler in identifying the real perpetrator of the crime would cause harm to Mr. Correia.

[26] The second element of the first part of the Anns/ Kamloops test to establish a prima facie duty of care is whether there is a close and direct relationship of proximity or neighbourhood. In Hill, at para. 24, McLachlin C.J.C. explains that the proximity relationship requires consideration of factors such as "expectations, representations, reliance and property or other interests involved". In Hill, McLachlin C.J.C. was careful to point out that a very particular relationship was involved, namely the relationship between a police officer and a specific suspect whom the officer is investigating. She was not suggesting that the proximity element is made out in respect to every person with whom the police come in contact.

[27] Similarly, in considering the proximity element in this case, it is important to consider the nature of the particular relationship. This case does not involve all persons who may provide information to the police or be investigated by the authorities. It involves the duty of care owed by an employer to its employee and the duty of care owed by a professional investigator, hired by that employer, to a particular employee.

[28] In Hill, at para. 29, McLachlin C.J.C. stated that the "most basic factor upon which the proximity analysis fixes" is whether there is a "close and direct" relationship. She described the nature of this relationship in these terms:

This factor is not concerned with how intimate the plaintiff and defendant were or with their physical proximity, so much as with whether the actions of the alleged wrongdoer have a close or direct effect on the victim, such that the wrongdoer ought to have had the victim in mind as a person potentially harmed. A sufficiently close and direct connection between the actions of the wrongdoer and the victim may exist where there is a personal relationship between alleged wrongdoer and victim. However, it may also exist where there is no personal relationship between the victim and wrongdoer. (Emphasis in original)

[29] In Hill, McLachlin C.J.C. found that the relationship between the plaintiff and the police was personal, close and direct. The police had identified the plaintiff as a particularized suspect in a series of robberies and had begun to investigate him. This created a close and direct relationship. Another consideration was the interests engaged. In Hill, at para. 34, McLachlin C.J.C. [page367] found that even though there were no personal representations and consequent reliance, the plaintiff had a critical personal interest in the conduct of the investigation:

At stake are his freedom, his reputation and how he may spend a good portion of his life. These high interests support a finding of a proximate relationship giving rise to a duty of care. The same may be said here: the plaintiff had similar high interests at stake.

[30] McLachlin C.J.C. also took into consideration several other factors in dealing with the proximity analysis. She noted that existing remedies for wrongful prosecution such as false arrest, false imprisonment and malicious prosecution do not provide an adequate remedy for negligent acts. The same considerations apply in this case. The motions judge dismissed the claim of false arrest against the Canac, Kohler and Aston defendants because of the absence of evidence of a total deprivation of Mr. Correia's liberty, and no evidence that the police could not exercise their independent discretion. The claim of malicious prosecution was likewise dismissed as there was no basis in the evidence for a finding of malice.

[31] The respondents submit, however, that the contractual remedy of wrongful dismissal including the availability of Wallace damages (Wallace v. United Grain Growers Ltd. (c.o.b. Public Press), 1997 332 (SCC), [1997] 3 S.C.R. 701, [1997] S.C.J. No. 94) and punitive damages provide adequate remedies. The appellants produced evidence of the serious consequences to Mr. Correia flowing from the dismissal and arrest, including major depressive disorder and symptoms of post-traumatic stress disorder, to the point where he may never be able to work again. The appellants argue that damages for wrongful dismissal would not fully compensate for injuries, such as loss of future income, that the appellants submit flow from the negligent investigation. We agree with that submission. [See Note 1 below] Wallace damages could add to the length of the notice period and provide some compensation for the manner in which the appellant was terminated but may not fully compensate for the losses suffered by Mr. Correia and his family in this type of case.

[32] Similarly, the objective of punitive damages "is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed)": Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, at p. 617 S.C.R. Since the purpose of punitive damages is not to compensate, [page368] there can be no assurance that even if awarded they would, together with damages for wrongful dismissal, fully compensate the plaintiff for the alleged negligence. We also note that punitive damages have been relatively modest in wrongful dismissal cases. See Keays v. Honda Canada Inc. (2006), 2006 33191 (ON CA), 82 O.R. (3d) 161, [2006] O.J. No. 3891 (C.A.), at para. 104 [vard [2008] S.C.J. No. 40, 2008 SCC 39].

[33] In Hill, McLachlin C.J.C. pointed out that the personal interest of the suspect in the conduct of the investigation is enhanced by a public interest. In that respect, she referred to the role that negligent police investigation has had as a significant contributor to wrongful convictions. She also noted that recognizing a duty of care by police officers to suspects is consistent with the values and spirit underlying the Canadian Charter of Rights and Freedoms, especially liberty and fair process. All these considerations led her to conclude at para. 39 of Hill that "an investigating police officer and a particular suspect are close and proximate such that a prima facie duty should be recognized".

[34] While these same public interest considerations are either not applicable or do not apply with the same force to recognizing a duty of care in employers and private security companies, we do not understand Hill as holding that these broader concerns are pre-requisites to recognizing a duty of care. Rather, the question is whether the nature of the particular relationship is such that, for policy reasons, a duty of care should be recognized. These public-interest considerations can be analyzed under the rubric of the second stage of the Anns/Kamloops test where the court is concerned with "the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally": Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, [2001] S.C.J. No. 76, at para. 37. Accordingly, we will discuss these considerations further below.

[35] To conclude, we are satisfied that there exists a triable issue whether the relationship between the plaintiff and the Aston, Kohler and Canac defendants discloses sufficient foreseeability and proximity to establish a prima facie duty of care.

(2) Residual policy considerations with respect to Aston

[36] In the following discussion, we intend to deal first with the policy considerations that apply to Aston. We will then deal separately with Canac and Kohler.

[37] In Cooper, at para. 37, the court suggested a number of questions to be asked in considering whether residual policy considerations tell against recognizing a duty of care: [page369]

Does 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?

[38] We propose to analyze the second stage of the Anns/ Kamloops test in light of these questions. Before doing so, however, we note that on a policy level, the case for recognizing a duty of care in respect of private investigation firms may be stronger than for the police in several respects. The policy considerations that the defendants put forward in Hill, aside from the potential chilling effect on investigation of crime, have no application to the private actors involved in this case. Those policy considerations were advanced by the Attorneys General of Ontario and Canada and various police associations as negating a duty of care, and can be summarized as follows:

-- the "quasi-judicial" nature of police work;

-- the potential for conflict between a duty of care in negligence and other duties owed by police;

-- the need to recognize a significant amount of discretion present in police work;

-- the need to maintain the standard of reasonable and probable grounds applicable to police conduct;

-- the potential for a chilling effect on the investigation of crime; and

-- the possibility of a flood of litigation against the police.

[39] Private security firms are not engaged in quasi-judicial work. There is no conflict between a duty of care in negligence and other duties that the private security firm may owe to the public. While the firm may have contractual obligations to the party that has retained it, it is not apparent how those obligations would conflict with a duty of care to the person being investigated. The other policy considerations mentioned such as the impact on police discretion and the standard of reasonable and probable grounds have no application to the potential liability of a private security firm.

[40] We therefore turn to the other policy considerations suggested by the motions judge and Aston in this case.

(i) The chilling effect

[41] The motions judge was concerned about the chilling effect of recognizing a duty of care in private security firms [page370] and other private citizens. She made the following observations, at paras. 55 and 56:

I would agree also with the court's view in Elliot, supra, that there are compelling reasons to negative the imposition of a duty of care and I would add to the list of countervailing considerations the public interest in not casting a chill over the willingness of citizens, whether in the business of fact investigation or not, to provide law enforcement authorities with information and cooperation.

It is argued on behalf of the plaintiffs that a duty should be imposed on persons like Aston who are in the business of gathering information even if no duty is imposed on "amateur" informants -- that is, ordinary citizens. In this regard, I see no valid reason to draw a distinction between "amateur" informants and persons who are in the business of fact gathering. There is a built-in inhibition against carelessness on the part of the professional fact gatherer in that his livelihood depends on the reliability of the information he provides to his client; he stands to lose credibility, clientele, and the ability to stay in business should his sloppiness cause his clients loss or embarrassment. Professional fact gatherers are not, however, the only persons who experience such a built-in deterrent to carelessness -- the same deterrent applies to a panoply of professional and other persons who have a vested interest in maintaining their credibility in the community, and it is fallacious to conflate reliability qua information source, which is a function of ability, with duty, which is a function of proximity.

[42] In Hill, McLachlin C.J.C. pointed out, at para. 48, that "policy concerns raised against imposing a duty of care must be more than speculative; a real potential for negative consequences must be apparent".

[43] The motions judge was concerned about a chilling effect from recognizing a duty of care, and that even professional investigators like Aston would be less willing to provide law enforcement authorities with information or cooperate with the police. In our view, this is too speculative. There is no empirical evidence to support this suggestion; the Aston defendants provided no information about their relationship with the police or how it would be affected if a duty of care were recognized. There is a good argument that the potential disadvantage from curbing the flow of information between the private security firm and the police would be substantially outweighed by the advantage of encouraging greater care. To apply what McLachlin C.J.C. said in Hill, at para. 56, to this case, it is conceivable that the private firm might become more careful in the kinds of information that they pass on to the police but "this is not necessarily a bad thing".

[44] Private investigation firms occupy an increasingly important role in society. As the Law Commission of Canada said in its discussion paper In Search of Security: The Roles of Public Police and Private Agencies (Ottawa: Law Commission of Canada, 2002), at p. 5: [page371]

Something quite remarkable has been happening to the organization of policing in Canada over the last 30 years. Many functions that were once the exclusive domain of public police forces are now being performed by private agencies. In some instances, this means that private security is doing things that the public police used to do. In other instances, it means that whole new areas of activities -- services that did not exist or were not widely available -- can now be purchased. (Emphasis added)

[45] This case is an example. It is difficult to imagine that 30 years ago a private investigation firm would be conducting an investigation into drug dealing, but that is what Aston was doing at Canac. Yet, as the Law Commission points out at p. 11 of the same discussion paper, these firms and their clients operate largely unregulated; certainly they are not obviously governed by the many checks and balances that constrain the public police. Put simply, they can often exercise functionally equivalent powers but without the same constraints:

Private security officers also have ostensibly considerable authority to deprive individuals of their liberty. Like the public police, private security officers arrest, detain and search individuals on a regular basis. But, for the most part, private security officers do not operate under the same constraints as the public police . . . in many facets of their work private security officers are not subject to the Canadian Charter of Rights and Freedoms.

[46] At pp. 15-16, the discussion paper draws attention to the fact that there is little effective public oversight of private policing and that injured persons have limited avenues of redress: "There exists in Canada a regulatory system for monitoring the performance of the public police. The problem, however, is that there is little effective oversight of private security." Finally at p. 19, the paper points out that the public police and private investigation firms often cooperate; this "contributes to the blurring of the relationship between public and private". Again, this case is an example. The investigation was carried out by Aston, but with the knowledge and cooperation of the York Regional Police.

[47] In our view, the fact that private investigation firms perform public policing functions but with limited oversight or clear lines of redress to those injured by their activities strongly favours extending tort liability. Where, as here, the private firm performs a function analogous to the public police, they ought to be subject to similar liability.

(ii) Availability of an alternative remedy

[48] All of the respondents, but especially the Aston defendants, placed considerable emphasis on the decision of the Nova [page372] Scotia Court of Appeal in Elliott. Elliott was an insurance case. The plaintiffs' home was destroyed by fire. The insurer retained an independent adjusting firm which in turn retained a number of private investigators. The insurer denied coverage on the basis of arson because of the report from the investigators. The plaintiffs sued the insurer and recovered damages to cover the loss. The judge, however, refused to compensate for mental distress and refused to award aggravated and punitive damages because he found that the insurer had not acted in bad faith by denying the claim.

[49] The plaintiffs then brought an action against the adjusters and investigators and against the deputy fire marshall. The plaintiffs alleged that the adjusters and investigators were negligent and they sought to recover from them for the injuries that had been left uncompensated in the action against the insurer. The trial judge found that the defendants owed the plaintiffs no duty of care and dismissed the action for that reason and because of the doctrine of witness immunity.

[50] Writing for the court, Cromwell J.A. found that the trial judge erred in respect of witness immunity but that he properly held that the defendants did not owe the plaintiffs any duty of care. The respondents rely upon Cromwell J.A.'s analysis as it relates to the private investigation firms. The questions of witness immunity and liability of the deputy fire marshall are not germane to this appeal.

[51] Cromwell J.A. found that the first step of the Anns/ Kamloops analysis was satisfied that the adjusters and investigators working for the insurer could foresee that they would create a risk of harm if they were negligent in their investigation and reporting. Particularly relying upon the decision of the New Zealand Court of Appeal in Mortensen v. Laing; South Pacific Manufacturing Co. v. New Zealand Security Consultants & Investigations Ltd., [1992] 2 N.Z.L.R. 282 (N.Z.C.A.), Cromwell J.A. was satisfied that there was also sufficient proximity. Accordingly, an investigator retained to investigate the cause of loss on behalf of an insurer owed a prima facie duty of care. However, the action against the investigators failed at the second stage because of broader policy considerations.

[52] Two policy considerations led the Elliott court to find against imposing a duty of care on the investigators. They are (1) the insured had a substantial and meaningful remedy in contract against the insurer, and (2) imposing the duty would distort the legal relationships among the insured, the insurer and the investigators and undermine the ability of the insured and the insurer to properly deal with insurance claims. The respondents in this appeal submit that similar policy considerations tell [page373] against imposing a duty of care on the investigator and the employer for negligence. We will consider both of these policy considerations as explained in Elliott and explain why, in our view, they do not apply as against the Aston defendants. As indicated, we will deal separately with Canac and Kohler.

[53] In Elliott, Cromwell J.A. noted that in an action on the insurance contract, not only can the insured recover for the loss, but breach of the duty of good faith can sound in punitive damages as recognized in Whiten v. Pilot Insurance Co., supra. Thus, while not all heads of damages may be available in an action on the insurance contract, the availability of a remedy in contract was a significant policy reason not to expand tort liability. As he put it, at para. 84, the contractual remedy "is a substantial, if not always complete, alternative remedy which strongly works against the expanded liability in negligence proposed by the appellants".

[54] The respondents in this case make much the same argument. They submit that the contractual remedy of wrongful dismissal and the potential suit against the police for malicious prosecution and negligent investigation are sufficient remedies. We disagree. In our view, there are important differences between the nature and scope of the remedies available in the insurance context as compared to the employment context.

[55] We begin with the contractual remedy. The scope of the remedy for wrongful dismissal is described in Wallace. The fundamental principle that underlies that remedy is the right of both the employer and the employee to terminate the relationship at will, absent contractual terms to the contrary, subject to the requirement of giving notice or in the case of the employer salary in lieu of notice. In Wallace, the court therefore rejected the submission that there exists a requirement of good faith reasons for dismissal, as well as the possibility that there could be an independent action or head of damages for breach of this duty either in contract or in tort. However, the court held, at para. 88, that bad faith conduct in the manner of dismissal is a factor that is properly compensated by an extension of the notice period.

[56] There are limits, however, to Wallace damages. The only compensation to which the employee is entitled is for loss of salary and benefits during the period of notice that should have been given. The employee is not compensated for the loss of the job, because the employer always had the right to terminate the employee. The employment contract is thus fundamentally different from the insurance contract. The discharged employee may not recover the full extent of his or her actual loss. On the contrary, subject to contractual terms such as a deductible and bargained-for limit on compensation, the insurer is ordinarily [page374] required to fully compensate the insured for the actual loss. In our view, therefore, unlike in Elliott, the availability of the contractual remedy in the employment context does not tell strongly against expanded liability in negligence. There may be significant additional losses left uncompensated in a wrongful dismissal claim, such as loss of the job or non-pecuniary damages which, as in a case such as this, may be the direct result of the negligent investigation by a private firm that led to the dismissal.

[57] As for the availability of actions for malicious prosecution and negligent investigation against the police, there are two answers. First, the fact that an action may lie against one wrongdoer is not generally a basis for relieving another wrongdoer from liability. For one thing, such a state of affairs may be unfair to the other alleged tortfeasors. Second, the court in Hill held, at para. 35, that the intentional torts such as malicious prosecution "do not provide an adequate remedy for negligent acts". As in Hill, recognition of the tort of negligent private investigation would "complete the arsenal of already existing common law and statutory remedies". As to the availability of punitive damages, we have already dealt with that issue in the context of proximity and the first branch of the Anns/Kamloops test.

[58] For these reasons, we would not place the same weight on the existence of alternative remedies as did the court in Elliott.

(iii) Distortion of legal relationships

[59] In Elliott, Cromwell J.A. explained the several ways in which recognition of a duty of care on insurance investigators would distort the various legal relationships among the insured, the insurer and the investigators. First, the insured and the investigators have defined their relationships with the insurer contractually. Where contracts cover relationships, public policy favours holding that the contracts control "unless special reasons are shown to warrant a direct suit in tort": Elliott, at para. 86. Cromwell J.A. concluded that far from there being special reasons warranting expansion of tort liability on insurance investigators, recognition of a duty of care could lead to legal incoherence. The possibility that investigators retained by the insurer could have greater liability to the insured for carelessness than the insurer itself, would set up a scheme inconsistent with the primacy of the insurer's obligation to the insured. Further, such a negligence claim could be used as a means of avoiding the determination of the real issue of what caused the loss as between the insured and the insurer. In his view, this inconsistency should be avoided. [page375]

[60] We do not share the same concerns in the context of the employer, employee and investigator relationships. While the primary relationship is between the employer and employee, we see no reason why different or even greater liability cannot be imposed upon the private investigator for its carelessness, which allegedly led to the kind of damages claimed in this case, including post-traumatic stress disorder. Further, recovery of damages from a negligent private investigator would not serve as a means of avoiding determination of the wrongful dismissal claim against the employer, as the kinds of damages available under each cause of action do not overlap.

[61] Cromwell J.A. also held that permitting liability would interfere with settled principles in other areas such as the law of defamation and malicious prosecution. As to the former, according to Cromwell J.A., an investigator reporting to its principal would generally benefit from a qualified privilege and thus a defamation suit could only succeed upon proof of malice. Similarly, reports of arson not infrequently lead to prosecution, but again a suit for malicious prosecution could succeed only upon proof of malice. It seems to us, however, that the decision in Hill, which was decided after Elliott, tells against this policy consideration. Again, as pointed out earlier, it was the very fact that the plaintiff might be denied compensation because of the inability to prove malice that led McLachlin C.J.C. to favour recognition of liability for negligence.

[62] Cromwell J.A. had a second concern with respect to the distortion of legal relationships. He expressed this concern in several ways. First, he saw "a real possibility of conflict between the contractual and the tortious duties which could undermine the ability of the insurer to administer insurance contracts in a cost effective and expeditious manner": Elliott, at para. 90. A similar argument was made in Hill where the defendants argued that recognizing a duty of care to a suspect would interfere with the legitimate exercise of discretion by police and lead to confusion with the respect to the legal standard applicable to police work. McLachlin C.J.C. held that those concerns could be answered by recognizing a "flexible standard of care appropriate to the circumstances": Hill, at para. 55. She went on to hold that the appropriate standard of care is that of a reasonable police officer in like circumstances: Hill, at paras. 67-73. Such a standard would give due recognition to the discretion inherent in police investigation.

[63] Third, Cromwell J.A. in Elliott, at para. 91, was concerned that recognizing a duty of care in the insurance context would be unacceptably indeterminate: "it would be difficult to justify not extending the proposed duty of care to anyone who, in the course of a contractual engagement, carelessly investigates and reports [page376] on the conduct of a third party". Again, we think the answer to this particular concern is now found in Hill, at para. 60:

Recognizing sufficient proximity in the relationship between police and suspect to ground a duty of care does not open the door to indeterminate liability. Particularized suspects represent a limited category of potential claimants. The class of potential claimants is further limited by the requirement that the plaintiff establish compensable injury caused by a negligent investigation. Treatment rightfully imposed by the law does not constitute compensable injury. These considerations undermine the spectre of a glut of jailhouse lawsuits for negligent police investigation. (Emphasis added)

[64] For similar reasons, we are of the view that the spectre of indeterminate liability is not a consideration in this case. The universe of potential claimants is circumscribed first by the necessity of the employment relationship and second by the requirement that the duty is owed by the private investigator or firm to particularized suspects who are being investigated for the employer.

[65] Fourth, Cromwell J.A. was concerned about the problem of divided loyalties if the investigator were found to owe a duty of care to the insured and a contractual duty to the insurer. Referring to Mortensen, he said, at para. 92, that "imposing a duty of care in relation to the insured might inhibit the investigators' ability to discharge their primary duty to the insurer". A similar consideration loomed large in Hill and was relied upon by the dissenting members of the court for refusing to recognize a duty of care for negligence, albeit on the basis of lack of proximity: see the reasons of Charron J., at paras. 140-48. The argument is that imposing a duty of care to the individual suspect would interfere with the performance of the officer's public duty: see the example posited by Charron J., at para. 141. But McLachlin C.J.C. reached the opposite conclusion, at para. 36:

The personal interest of the suspect in the conduct of the investigation is enhanced by a public interest. Recognizing an action for negligent police investigation may assist in responding to failures of the justice system, such as wrongful convictions or institutional racism. The unfortunate reality is that negligent policing has now been recognized as a significant contributing factor to wrongful convictions in Canada. While the vast majority of police officers perform their duties carefully and reasonably, the record shows that wrongful convictions traceable to faulty police investigations occur. Even one wrongful conviction is too many, and Canada has had more than one. Police conduct that is not malicious, not deliberate, but merely fails to comply with standards of reasonableness can be a significant cause of wrongful convictions.

[66] Similar concerns apply to private investigations. As the private sector becomes more and more involved in activities that were traditionally within the sphere of public policing, the greater the likelihood that their negligence could lead to wrongful arrests [page377] and even convictions. We see no incoherence in requiring a private investigator to be careful in its investigation; surely the client would expect nothing less from the investigator. In our view, to the extent there may be a potential problem of divided loyalties, it is not sufficiently important to negate the prima facie duty of care, at least outside the insurance context. This court should not be taken to have decided the question of a private investigation firm's liability in the context of an insurance claim, as the matter is not before us in this case.

(iv) Analogous circumstances

[67] Finally, in Elliott, at para. 94, Cromwell J.A. noted that the duty of care contended for in that case was not supported by authority and had not been recognized in "two roughly analogous situations". The two situations were claims by parents against professionals who have been retained by opposite parties or statutory authorities to assess children for child welfare or custody proceedings, and claims against medical assessors retained by insurers and employers to report to them concerning another person's physical or psychiatric condition.

[68] However, when he was writing in Elliott, Cromwell J.A. did not have the advantage of the Supreme Court of Canada's decision in Hill. The circumstances of the private investigation firm are roughly analogous to the police investigators in Hill where the Supreme Court of Canada has recognized a duty of care.

(v) Conclusion with respect to Aston

[69] In our view, the policy considerations discussed above favour recognizing a duty of care in respect of a private investigation firm retained by an employer to investigate criminal wrongdoing. We emphasize that this conclusion applies only to the liability of private investigation firms in this specific context: when a relationship is created between a private investigator hired by an employer and a specific employee who is being investigated. The question whether there existed such a duty on the facts of the case is a matter that should be determined after a trial.

[70] Accordingly, we would allow the appeal and set aside the dismissal in respect of the claim for negligent investigation against Aston.

(3) Residual policy considerations with respect to Canac and Kohler

[71] In the discussion above, we have reviewed the various policy considerations as they apply to the private investigation firm, [page378] Aston. One of the strongest considerations favouring recognizing a duty of care for Aston is that it is in the business of investigation, performing functions analogous to those performed by the police. However, different considerations apply when considering the potential liability of an employer such as Canac, even one that embarks upon a criminal investigation of its employee. We rely on two of the considerations referred to by Cromwell J.A. in Elliott. The first is the possibility of legal incoherence; the second is the potential chilling effect on non-professional investigators.

[72] The fundamental premise of the employer-employee relationship in Canada is the right, subject to contractual terms to the contrary, of either party to terminate the relationship. Thus, in Wallace, the Supreme Court of Canada rejected the submission that an employer must have good faith reasons for dismissal or that there could be an independent action or head of damages for breach of such alleged duty of good faith, either in contract or in tort. In our view, it would be inconsistent to nevertheless recognize a duty on an employer not to conduct a negligent investigation regarding an employee. To do so would be to do indirectly what the Supreme Court expressly rejected in Wallace.

[73] The Supreme Court, for policy reasons explained in Wallace, has refused to recognize an action in tort for breach of a good-faith and fair-dealing obligation. In this case, Canac fired the plaintiff for cause. It concedes that it was wrong in doing so and it may have been negligent. But, in our view, to recognize a tort of negligent investigation for an employer would be inconsistent with the holding in Wallace. It would, in effect, carve out an exception from the broad holding in Wallace where the reason for the dismissal was an allegation of criminality. We can see no principled reason for so doing.

[74] The second reason that we would not recognize a duty of care on Canac lies in the potential chilling effect on reports of criminality by honest citizens to the police. Unlike Aston, Canac was not in the business of investigation. It was in many ways in the same position as any other citizen who reports criminal activity to the police. Public policy favours encouraging the reporting of criminality to the police. Someone not in the business of private investigation who honestly, even if mistakenly, provides information of criminal activity should be protected: see Mirra v. Toronto Dominion Bank, [2004] O.J. No. 1804, [2004] O.T.C. 365 (S.C.J.).

[75] We take a similar view of Kohler and would likewise not recognize a duty of care on Kohler. Kohler was simply assisting its related company. It was more sophisticated than Canac but it was not in the business of investigation as was Aston. [page379]

B. Intentional infliction of mental distress

(a) The reasons of the motion judge

[76] Mr. Correia claims intentional infliction of mental distress against each of Canac, its employee Marilyn Smith, Kohler, Aston and its employees Teresa Speciale and Farshid Dhanji. The motion judge addressed this issue only in respect of Canac and Marilyn Smith in her initial reasons, and as against the Aston defendants in clarifying reasons released one week later. The motion judge never specifically dealt with the issue as against Kohler. However, on the appeal, the parties appear to treat the decision of the motion judge on this point as a finding in favour of Kohler as well as Smith.

[77] The motion judge refused to grant summary judgment dismissing the claim against Canac. Canac cross-appeals this finding. The motion judge referred to this court's decision in Prinzo v. Baycrest Centre for Geriatric Care (2002), 2002 45005 (ON CA), 60 O.R. (3d) 474, [2002] O.J. No. 2712 (C.A.), at paras. 41-43, for the constituent elements of the cause of action for intentional infliction of mental distress:

(1) flagrant or outrageous conduct on the part of the defendants;

(2) which is calculated to produce harm or in circumstances where it is known that harm will ensue; and

(3) actual damage to the plaintiff as a result of the conduct.

[78] Because the facts necessary (a) to prove aggravated and punitive damages in the wrongful dismissal claim, and (b) to prove this tort, would overlap and because the former claims were proceeding to trial against Canac, the motion judge reasoned that no resources would be saved by granting summary judgment with respect to the claim for intentional infliction for mental distress against Canac.

[79] The motion judge did, however, grant summary judgment dismissing the claim against Marilyn Smith personally, although she was the employee at Canac who carried out the dismissal. The claim was dismissed against her on the basis that she was acting only in her capacity as human resources manager of Canac, and the principle in Said v. Butt, [1920] 3 K.B. 497, [1920] All E.R. Rep. 232 (K.B.), was applicable.

[80] In her clarifying reasons, the motion judge held that the claim for intentional infliction of mental distress would be dismissed as against the Aston defendants because their conduct could not be characterized as "outrageous or flagrant". [page380]

(b) Analysis of the intentional infliction of mental distress claims

[81] In Prinzo v. Baycrest, supra, at paras. 34-64, this court confirmed (a) the three-pronged test to establish the tort of intentional infliction of mental distress and (b) that if it is established as an actionable wrong that is separate from wrongful dismissal, then damages for the tort of intentional infliction of mental distress can be awarded in the context of a wrongful dismissal action. Therefore, a claim for intentional infliction of mental distress should not be struck or dismissed only because it is raised in a wrongful dismissal context or because the facts giving rise to the claim may overlap with those that form the basis for aggravated or punitive damages from the wrongful dismissal.

[82] In Prinzo, this court, at paras. 44-46, adopted the formulation of the three-pronged test for the tort of intentional infliction of mental distress as set out by McLachlin J., as she then was, in the British Columbia Supreme Court decision Rahemtulla v. Vanfed Credit Union, 1984 689 (BC SC), [1984] B.C.J. No. 2790, 51 B.C.L.R. 200 (S.C.). That case was somewhat similar to this one because it involved the abrupt termination of an employee based on a wrongful charge of theft. There, a bank teller was accused of stealing $2,000 that another teller could not account for and was summarily dismissed. She suffered mental distress and sued for wrongful dismissal, claiming separately for the damages she suffered for her mental anguish caused by the false allegation of theft and the fallout from that false accusation.

[83] McLachlin J. first analyzed the mental distress claim as part of the damages for breach of the contract of employment. She concluded that the damage did not flow from the failure to give adequate notice of dismissal, but from the employee's termination for theft without an opportunity to clear her name, which was not a breach of her contract of employment. Although the employee could not recover these damages as part of her damages from the wrongful dismissal, she could recover in tort. McLachlin J. found, at p. 214 B.C.L.R., that the bank manager "acted with a reckless disregard as to whether or not shock would ensue from his accusation" and that this was sufficient to make the infliction of mental distress willful. She had no trouble concluding, at p. 215 B.C.L.R., that the bank's conduct was outrageous: "Allegations of theft should not be made recklessly, without proper care for whether they are true or not."

[84] Finally, McLachlin J. concluded, at p. 215 B.C.L.R., that the bank's conduct was calculated to produce the effect it did because[page381]

. . . [i]t was clearly foreseeable that the accusations of theft which the defendant made against the plaintiff would cause her profound distress. That distress could only be exacerbated by the defendant's failure to conduct a proper investigation or allow the plaintiff to defend herself.

[85] In Prinzo, at para. 45, this court used similar language noting that this element is made out "if the consequences are known to be substantially certain to follow". It is implicit in the reasons of the motion judge that she was satisfied on the facts before her that Canac's conduct could be found to meet the three-pronged test. It was flagrant and outrageous; it was calculated to cause the distress it did because it was clearly foreseeable that it would; and it caused Mr. Correia significant mental distress. We agree with this conclusion and that there is therefore a triable issue in respect of the intentional infliction of mental distress claim against Canac.

[86] It is also implicit in her reasons that the motion judge would have allowed the claim to go ahead against Marilyn Smith, but believed that an action could not be brought against her personally because she was acting in the course of her employment. The motion judge erred in law in this respect. An employee acting in the context or course of employment can be personally responsible in law for his or her tortious conduct: see: London Drugs v. Kuehne & Nagel International Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299, [1992] S.C.J. No. 84; Alper Development Inc. v. Harrowston Corp. (1998), 1998 2237 (ON CA), 38 O.R. (3d) 785, [1998] O.J. No. 1199 (C.A.); ADGA Systems International Ltd. v. Valcom Ltd. (1999), 1999 1527 (ON CA), 43 O.R. (3d) 101, [1999] O.J. No. 27 (C.A.); Meditrust Healthcare Inc. v. Shoppers Drug Mart, a division of Imasco Retail Inc., 1999 2316 (ON CA), [1999] O.J. No. 3243, 124 O.A.C. 137 (C.A.).

[87] Carthy J.A. explained in ADGA Systems, supra, at p. 106 O.R., that the effect of the rule in Said v. Butt is not that it grants immunity for any wrongdoing to employees acting in the course of their employment, but that it grants an exception from personal liability for employees or officers of companies who terminate contracts on behalf of their corporate employers:

[The rule in Said v. Butt] provides an exception to the general rule that persons are responsible for their own conduct. That exception has since gained acceptance because it assures that persons who deal with a limited company and accept the imposition of limited liability will not have available to them both a claim for breach of contract against a company and a claim for tortious conduct against the director with damages assessed on a different basis. The exception also assures that officers and directors, in the process of carrying on business, are capable of directing that a contract of employment be terminated or that a business contract not be performed on the assumed basis that the company's best interest is to pay the damages for failure to perform. By carving out the exception for these policy reasons, the court has emphasized and left intact the general liability of any individual for personal conduct. [page382]

[88] Marilyn Smith was the person who terminated Mr. Correia and facilitated turning him over to the police to be charged with criminal offences following the negligent investigation, in which she herself made the error that caused blame to be falsely cast on him. In law she may be held personally liable for her conduct. The rule in Said v. Butt does not apply here because we are talking about responsibility for a separate actionable tort, not for the wrongful termination of the contract of employment itself.

[89] A similar analysis must be applied to the Aston defendants as to the Canac defendants. The motion judge did not consider their conduct sufficiently outrageous to meet the first prong of the test for intentional infliction of mental distress. That conduct will now be the subject at trial of an action for negligent investigation. If it is found that Aston was negligent in its investigation, in the context where it knew the serious consequences of a wrongful charge of criminal conduct against an employee, its conduct may well be found to be outrageous and to meet the requirement for intentional infliction of mental distress. When the motion judge's reasons for dismissing the claims for intentional infliction of mental distress against the Aston defendants are viewed in light of this possibility, as well as the motion judge's decision to permit this claim to proceed against Canac, we find that her clarifying reasons do not provide a sufficient basis for granting summary judgment in favour of Aston or its employees on this cause of action.

[90] The final defendant is Kohler. It appears that Kohler was not separately considered by the motion judge. There is no basis at this stage to distinguish Kohler's role from Canac's role in the investigation and the actions taken against Mr. Correia for the purpose of considering the claim for intentional infliction of mental distress. For the reasons that the claim can proceed against Canac and Smith, it can also proceed to trial as against Kohler.

C. Inducing breach of contract and intentional interference with economic relations against Kohler and Aston

(a) The reasons of the motion judge

[91] The motion judge granted summary judgment dismissing the plaintiffs' claims for inducing breach of contract and intentional interference with economic relations against Kohler and Aston. The basis of the claims was that Mr. Correia was terminated by Canac because the actions of Kohler and Aston in conducting and implementing a negligent investigation caused Canac to wrongly terminate him. The motion judge analyzed the elements of each tort and concluded that neither tort could be proved at trial. [page383]

(b) Analysis

[92] These two torts were the subject of significant judicial consideration in 2007, both in this court in the case of Drouillard v. Cogeco Cable Inc. (2007), 2007 ONCA 322, 86 O.R. (3d) 431, [2007] O.J. No. 1664, 282 D.L.R. (4th) 644 (C.A.), and in the House of Lords in its joint disposition of OBG Ltd. v. Allan; Douglas v. Hello! Ltd.; Mainstream Properties Ltd. v. Young, [2007] U.K.H.L. 21, [2008] A.C. 1 (H.L.) ("OBG"), which was released the day after Drouillard. Both courts sought to reconcile confusing historical case law and to clarify and rationalize the elements of each tort.

[93] In Drouillard, Cogeco used its influence with a contractor in the Windsor area to ensure that Drouillard, a competent cable installer, was not hired for one position and was fired from another one. At trial, Cogeco was found liable for wrongful interference with economic relations. On appeal, it was held that although Cogeco's actions in speaking to the contractor caused Drouillard to lose his employment, those actions did not amount to "unlawful means", as required for the tort of wrongful interference. However, Cogeco was liable for inducing breach of contract, as its actions satisfied four criteria: (1) Drouillard had a valid and enforceable employment contract; (2) Cogeco was aware of the contract; (3) Cogeco intended to and did procure the breach of that contract because Drouillard was terminated without proper notice; (4) Drouillard suffered damage as a result: see paras. 26-38.

[94] In OBG, the House of Lords confirmed that despite some historical confusion of the two causes of action, they are distinct in their genesis, purpose and effect. The action for inducing breach of contract began with the decision in Lumley v. Gye (1853), 2 E. & B. 216, [1843-1860] All E.R. Rep. 208 (Q.B.), where a theatre owner convinced a noted singer to break her exclusive contract with a rival theatre. Lord Hoffman characterized this tort action as based on the concept that someone "who procures another to commit a wrong incurs liability as an accessory": OBG, at para. 3. The third party has committed an actionable breach of contract. The tortfeasor has acted to procure that breach, and on that basis becomes liable as an accessory to the wrongful conduct.

[95] In contrast, the intentional interference action traces its history to cases such as Garret v. Taylor (1620), Cro. Jac. 567 (Eng. K.B.) (defendant liable for driving away customers of a quarry by threatening them with mayhem and vexatious lawsuits) and Tarleton v. M'Gawley (1794), 1 Peake N.P.C. 270 (Eng. K.B.) (master of trade ship liable for using cannons to drive away a canoe that was approaching a rival trade ship with the [page384] intention to sell cargo), in which the defendant's liability was based on the defendant's commission of an independent wrong against a third party. In each of these cases, although the actions of the third party in submitting to the defendant's threats provided the immediate cause of the plaintiff's loss, the third party's actions were in no way wrongful. As such, liability for intentional interference is not accessory liability, but rather primary liability "for intentionally causing the plaintiff loss by unlawfully interfering with the liberty of others": OBG, at para. 6.

[96] Over the years, the elements of the torts had come to be confused. [See Note 2 below] Furthermore, the courts had begun to recognize, as part of the inducing breach of contract action, an action for wrongful interference with economic relations that was applicable to situations where a defendant prevented a third party from fully carrying out its contractual obligations with the plaintiff, even though no actual breach of contract occurred, and the impugned conduct was not independently unlawful.

[97] In OBG, the House of Lords determined to clarify and specifically define the elements of each tort. In doing so, the Lords corrected and, where necessary, overruled formerly precedential cases that, in hindsight, had introduced confusion and error into the definition of the two torts. [See Note 3 below] The result is a clear definition of the two torts and their elements. The Lords were unanimous in all aspects of their definition of the two torts except one -- Lord Nicholls disagreed on the scope of the concept of "unlawful means" in the tort of intentionally causing loss by unlawful interference with economic relations.

[98] In defining the two torts, the Lords emphasized that both are intentional torts that aim to give redress in the context of deliberate commercial wrongdoing: see OBG, at paras. 141-43, 145, 191 (Nicholls L.). Where the impugned conduct is merely negligent, then it must be actionable using negligence principles, [page385] and if it is not, it cannot be made actionable by recharacterizing it as wrongful commercial interference.

[99] The Lords defined the elements of the tort of inducing breach of contract as follows: (1) the defendant had knowledge of the contract between the plaintiff and the third party; (2) the defendant's conduct was intended to cause the third party to breach the contract; (3) the defendant's conduct caused the third party to breach the contract; (4) the plaintiff suffered damage as a result of the breach (see OBG, at paras. 39-44 (Hoffman L.)). The Lords confined the tort to cases where the defendant actually knew that its conduct would cause the third party to breach (it is not enough that the defendant ought reasonably to have known that its conduct would cause the third party to breach); the defendant must have intended the breach (it is not enough that a breach was merely a foreseeable consequence of the defendant's conduct); and there must be an actual breach (it is not enough for the conduct to merely hinder full performance of the contract).

[100] The elements of the tort of causing loss by unlawful means are: (1) wrongful interference by the defendant with the actions of a third party in which the plaintiff has an economic interest; (2) an intention by the defendant to cause loss to the plaintiff: see OBG, at para. 47 (Hoffman L.). Again, the intentionality of the defendant's conduct is critical: it is not enough that the loss was a foreseeable consequence of the defendant's conduct; to be actionable under this tort, the loss must have been the intended result. Furthermore, intentional conduct that causes loss but is not unlawful is not actionable. That is considered permissible competitive commercial behaviour.

[101] We note that the requirement for intentionality may be stricter for these economic torts than for the tort of intentional infliction of mental distress, where, at least when a person is accused of criminal conduct, the foreseeability of the inevitable consequences of reckless conduct can amount to intent. The difference of approach is justified in this case. The two economic torts are strictly limited in their purpose and effect in the commercial world, where much competitive activity is not only legal but is encouraged as part of competitive behaviour that benefits the economy. In contrast, intentional infliction of mental distress is a personal tort that regulates improper activity that causes mental suffering, which is never socially beneficial. What degree of intent is required may depend on the nature of the conduct that causes the mental distress. As held in Rahemtulla, when a person is accused of criminal activity, the potential for mental distress consequences is clearly foreseeable. [page386]

[102] The question of what amounts to "unlawful means" is the one that has caused the most difficulty for judges and scholars. The majority of the Lords agreed with the following definition found at para. 51 of Lord Hoffman's reasons:

Unlawful means therefore consists of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant. It does not in my opinion include acts which may be unlawful against a third party but which do not affect his freedom to deal with the claimant.

[103] Lord Hoffman summarized his definition of unlawful means as acts against a third party that are actionable by that third party, or would have been actionable if the third party had suffered a loss. This excludes criminal conduct that is not directed at the third party and is not otherwise actionable by that party. In contrast, Lord Nicholls of Birkenhead views the breadth of conduct under the rubric of "unlawful means" as encompassing any conduct that is deliberately intended to harm the plaintiff and in breach of a legal or equitable obligation under either civil or criminal law. He views the true rationale of the tort as providing a remedy for intentional economic harm "caused by unacceptable means", which includes all means that would violate an obligation under the law: para. 153.

[104] Lord Nicholls' approach may be viewed as similar to the one espoused by the decision of this court in Reach M.D. Inc. v. Pharmaceutical Manufacturers Assn. of Canada (2003), 2003 27828 (ON CA), 65 O.R. (3d) 30, [2003] O.J. No. 2062 (C.A.), which adopted Lord Denning's characterization of unlawful means in Torquay Hotel, supra, note 2, at p. 530 All E.R., as acts which the tortfeasor "is not at liberty to commit". In Reach M.D., the defendant association made a ruling that was beyond its powers against one of its members, which the court found to constitute "unlawful means". However, Rouleau J.A. in Drouillard, supra, at paras. 19-25, distinguished Reach M.D. and limited its scope, when he concluded that Cogeco's conduct in not following its internal corporate policy or acting in bad faith did not amount to unlawful means and that the tort of intentional interference with economic relations was therefore not made out in that case.

[105] With the background of this recent judicial consideration of the two torts, we turn to the application of the relevant principles to this case. Dealing first with the tort of inducing breach of contract, the plaintiffs' claims fail to meet the requirement that the defendants' conduct was intentional in the sense that the defendants intended to procure a breach of contract. Neither Kohler nor Aston intended that Canac breach its contract of [page387] employment with the appellant. To the contrary, their intent was not that his employment would be wrongfully terminated, but that it would be lawfully terminated for cause.

[106] A similar analysis applies to the tort of intentional interference with economic relations. Neither Kohler nor Aston intended to cause harm to the appellant by conducting a negligent investigation. Their conduct was not intentional -- at most it was negligent. To the extent that they were reckless as to the consequences of their negligent conduct, recklessness does not amount to an intention to cause harm sufficient to make out the tort.

[107] We note that it is not necessary to fully define the scope of the "unlawful means" component of the tort of intentional interference with economic relations to resolve this case. The contention of the appellant is that the negligent investigation conducted by Aston and Kohler constituted the unlawful means. As discussed above, although Aston may be held responsible in law for such negligence, Kohler may not. Therefore, on any definition, Aston's conduct could amount to unlawful means if it was intended to cause harm to the appellant. The same conduct by Kohler could not. However, again as discussed above, Aston's alleged negligence is directly actionable by the appellant, based on duty of care and foreseeability principles. There is no need to interpose the tort of intentional interference to obtain redress against Aston. The intentional torts exist to fill a gap where no action could otherwise be brought for intentional conduct that caused harm through the instrumentality of a third party.

[108] In the result, for these reasons, we agree with the conclusion reached by the motion judge that the claims based on these two causes of action must be dismissed.

D. Kohler's vicarious liability for the conduct of its deceased employee in default

[109] The appellants contend that the motion judge's decision erroneously relieved Kohler of vicarious liability for the conduct of Phil Sunstrom merely because Mr. Sunstrom has passed away. The appellants' argument, however, mischaracterizes the motion judge's decision. The motion judge held only that Canac and Kohler cannot be bound by the deemed admissions of facts resulting from the failure of Mr. Sunstrom's estate to enter a defence to the appellants' suit. In so holding, the motion judge did not relieve Kohler of possible vicarious liability for Mr. Sunstrom's conduct.

[110] We see no error in the motion judge's decision on this point. The motion judge was correct in reasoning that a deemed [page388] admission of facts resulting from a failure to defend is a legal fiction that does not bind other defendants, and that the admissions of a former employee have no authority to bind the employer: see Bank Leu Ag v. Gaming Lottery Corp., 2003 28360 (ON CA), [2001] O.J. No. 4715, 29 B.L.R. (3d) 68 (S.C.J.), at paras. 88-89, affd [2003] O.J. No. 3213, 231 D.L.R. (4th) 251 (C.A.). As such, we would not give effect to this ground of appeal.

Conclusion

[111] We would allow the appeal to the following extent: the claim for negligent investigation may proceed as against the Aston defendants; the claim for wrongful infliction of mental distress may proceed as against Canac, Marilyn Smith, Kohler and the Aston defendants. The claims over by the York Police respondents in respect of the claims that have been reinstated are also reinstated. We would dismiss the balance of the appeal and the cross-appeal.

Costs

[112] While success has been divided, the plaintiffs have been largely successful, especially against the Aston defendants, and on important issues. Accordingly, the plaintiffs are entitled to their costs as against the Aston defendants in the amount of $15,000 inclusive of disbursements and GST, and as against the Canac and Kohler defendants in the amount of $5,000 inclusive of disbursements and GST. There will be no costs for or against the York Regional Police defendants.

Appeal allowed in part; cross-appeal dismissed.

Notes

Note 1: The same argument allows a claim for intentional infliction of mental distress in an appropriate case. See infra, at paras. 76-90.

Note 2: The Lords said this confusion began with GWK Ltd. v. Dunlop Rubber Co. Ltd, (1926), 42 T.L.R. 376 (H.L.).

Note 3: The Lords held that the following cases were wrongly decided and should not be followed with respect to aspect of their holdings concerning the two economic torts: Merkur Island Shipping Corp. v. Laughton, [1983] 2 A.C. 570 (H.L.); Millar v. Bassy, [1993] E.W.J. No. 5409, [1994] E.M.L.R. 44 (C.A.); Torquay Hotel Co. v. Cousins, [1969] 1 All E.R. 522, [1969] 2 Ch. 106 (C.A.); D.C. Thomson & Co. v. Deakin, [1952] Ch. 646, [1952] 2 All E.R. 361 (C.A.). The Lords in OBG also stated that aspects of the reasoning in the following cases should not be followed: Dimbleby & Sons Ltd. v. National Union of Journalists, [1984] 1 W.L.R. 67, [1984] All E.R. 117 (H.L.); GWK Ltd. v. Dunlop Rubber Co. Ltd. supra; Quinn v. Leathem, [1901] A.C. 495, [1900-03] all E.R. Rep. 1 (H.L.), at p. 510 A.C.