Ratych v. Bloomer, 1990 CanLII 97 (SCC), [1990] 1 SCR 940

Ratych v. Bloomer, [1990] 1 S.C.R. 940

James Wavell Bloomer Appellant

v.

Donald Ratych Respondent

indexed as: ratych v. bloomer

File No.: 21152.

1990: January 30; 1990: May 3.

Present: Dickson C.J. and Lamer, Wilson, La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory and McLachlin JJ.

on appeal from the court of appeal for ontario

Torts -- Negligence -- Damages -- Whether plaintiff can recover damages for loss of earnings when he has been paid his full salary under his contract of employment.

The respondent, a police officer, was injured in a motor vehicle accident involving the police cruiser he was driving and a vehicle driven by the appellant. He was unable to work for several months because of his injuries but continued to be paid pursuant to the terms of his collective agreement and did not lose any accumulated "sick credits". The respondent successfully sued the appellant for damages for lost wages. The trial judge and the Divisional Court both found that they were bound by a decision of the Ontario Court of Appeal (Boarelli v. Flannigan). The Court of Appeal refused leave to appeal without written reasons. The central issue here was whether payments made by an employer during the period when a plaintiff could not work should be brought into account in assessing his damages for loss of earnings.

Held (Dickson C.J. and Wilson, Gonthier and Cory JJ. dissenting): The appeal should be allowed.

Per Lamer, La Forest, L'Heureux-Dubé, Sopinka and McLachlin JJ.: The general principles underlying our system of damages suggest that a plaintiff should receive full and fair compensation, calculated to place him in the same position as he would have been had the tort not been committed, in so far as this can be achieved by a monetary award. In calculating damages under the pecuniary heads the measure of the damages should be the plaintiff's actual loss. The plaintiff, therefore, should not recover unless loss has been demonstrated, and then only to the extent of that loss. Double recovery violates this principle. It follows that where a plaintiff sustains no wage loss as a result of a tort because his employer has continued to pay his salary while he was unable to work, he should not be entitled to recover damages on that account.

Wages paid by an employer pursuant to a contract of employment are not akin to insurance and therefore do not fall within the principle that they should not be deducted from a monetary award because of their being akin to insurance. No loss arises in such a case and the underlying assumption that the employee has in fact suffered a loss or actually contributed to the fund from which the earnings were paid is not self-evident in the absence of evidence.

Without placing them in a determinative role, considerations relating to loss distribution generally support the view that wage benefits paid to a plaintiff while he or she is off work should be deducted from damages awarded for loss of earnings. Other methods of avoiding double recovery, such as subrogation, direct action by third parties, and the device of declaring a trust in favour of third parties, fail to provide a solution in many cases.

The following rule applies. Wage benefits paid while a plaintiff is unable to work must be brought into account and deducted from the claim for lost earnings. An exception to this rule may lie where the court is satisfied that the employer or fund which paid the wage benefits is entitled to be reimbursed for them on the principle of subrogation. This is the case where a statute expressly provides for payment to the benefactor of any wage benefits recovered or where the person who paid the benefits establishes a valid claim to have them repaid out of any damages awarded. Absent legislation or a third party claim, the only device available to the court to effect transference to the third party is a trust. Given that the third party has effective ways of enforcing his claim apart from trust, the trust doctrine applied in Arnold v. Teno and Thornton v. Prince George School Board should not be applied to collateral benefits in the usual case. A judge, however, might use this device to transfer payment to a third party where he or she is satisfied that this is both necessary and appropriate in the interests of justice. Some sort of obligation, moral if not legal, to repay the third party would need to be established to permit application of the trust device.

These comments did not extend to types of collateral benefits other than lost earnings, such as insurance paid for by the plaintiff and gratuitous payments made by third parties.

Per Dickson C.J. and Wilson, Gonthier and Cory JJ. (dissenting): Funds which a plaintiff recovers under an insurance policy and for which he or she has paid the premiums are not deductible. Workmen's compensation and sick benefits are compensation in the nature of insurance payments. Although their purpose is to make up for loss of wages to some extent, they are not themselves wages. They do not differ from benefits paid under a private insurance plan, except that they are organized collectively by the employees through their union, and fairness requires that they be treated in the same manner. The member of the group has paid for his or her insurance coverage just as much as the individual with a private contract of insurance.

In the context of labour negotiations, an employer would not agree to pay the wages of an employee who is absent from work due to illness or injuries without receiving in return certain concessions from the employees through their union. It may be next to impossible, however, for the plaintiff to prove this. Any benefit provided for the employee by the employer will come through the efforts of the union. The employee involved in a law suit with an insurer is the party least able to bear the burden of proving some cost paid for the benefit.

It is inequitable and unrealistic to require, as a pre-requisite for non-deductibility, that the plaintiff employee prove he or she has given something in exchange for obtaining the sick leave benefit from his employer. There is no reason why insurance payments should become deductible simply because they are bargained for and structured collectively by the employer and the union on behalf of the employee rather than individually by each employee.

Cases Cited

By McLachlin J.

Considered: Boarelli v. Flannigan (1973), 1973 CanLII 690 (ON CA), 36 D.L.R. (3d) 4; Chan v. Butcher, 1984 CanLII 536 (BC CA), [1984] 4 W.W.R. 363; Lavigne v. Doucet (1976), 1976 CanLII 1581 (NB CA), 14 N.B.R. (2d) 700; Hussain v. New Taplow Paper Mills Ltd., [1988] 1 All E.R. 541; Parry v. Cleaver, [1969] 1 All E.R. 555; referred to: Graham v. Baker (1961), 106 C.L.R. 340; Andrews v. Grand & Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229; Thornton v. Prince George School Board, 1978 CanLII 12 (SCC), [1978] 2 S.C.R. 267; Arnold v. Teno, 1978 CanLII 2 (SCC), [1978] 2 S.C.R. 287; Phillips v. South Western Railway Co. (1879), 4 Q.B.D. 406; Browning v. War Office, [1962] 3 All E.R. 1089; Bradburn v. Great Western Rail. Co., [1874-80] All E.R. 195; Tubb v. Lief, 1932 CanLII 229 (SK CA), [1932] 3 W.W.R. 245; Dell v. Vermette (1964), 1963 CanLII 150 (ON CA), 42 D.L.R. (2d) 326, allowing in part an appeal from (1963), 1963 CanLII 320 (ON SC), 37 D.L.R. (2d) 101; Parsons v. Saunders (1963), 1963 CanLII 568 (NS SC), 39 D.L.R. (2d) 190; Woodworth v. Farmer (1963), 1963 CanLII 586 (NS SC), 39 D.L.R. (2d) 179; Rados v. Neumann, 1970 CanLII 345 (ON SC), [1971] 2 O.R. 269; Massia v. Allen, 1972 CanLII 598 (ON SC), [1973] 1 O.R. 419; Brazier v. Humphreys (1973), 1973 CanLII 1263 (ON SC), 38 D.L.R. (3d) 201; McCready v. Munroe (1965), 1965 CanLII 475 (BC SC), 55 D.L.R. (2d) 338; Menhennet v. Schoenholz, 1971 CanLII 565 (ON CA), [1971] 3 O.R. 355; Canadian Pacific Ltd. v. Gill, 1973 CanLII 2 (SCC), [1973] S.C.R. 654; Guy v. Trizec Equities Ltd., 1979 CanLII 232 (SCC), [1979] 2 S.C.R. 756; Dennis v. London Passenger Transport Board, [1948] 1 All E. R. 779; Myers v. Hoffman (1955), 1955 CanLII 161 (ON SC), 1 D.L.R. (2d) 272; Rawson v. Kasman (1956), 1956 CanLII 371 (ON CA), 3 D.L.R. (2d) 376.

By Cory J. (dissenting)

Bradburn v. Great Western Rail. Co., [1874-80] All E.R. 195; Boarelli v. Flannigan (1973), 1973 CanLII 690 (ON CA), 36 D.L.R. (3d) 4; Shearman v. Folland, [1950] 1 All E.R. 976; Browning v. War Office, [1962] 3 All E.R. 1089; Parry v. Cleaver, [1969] 1 All E.R. 555; Hussain v. New Taplow Paper Mills Ltd., [1988] 1 All E.R. 541; Tubb v. Lief, 1932 CanLII 229 (SK CA), [1932] 3 W.W.R. 245; Dawson v. Sawatzky, 1945 CanLII 185 (SK CA), [1946] 1 W.W.R. 33; Bourgeois v. Tzrop (1957), 1957 CanLII 339 (NB CA), 9 D.L.R. (2d) 214; Chan v. Butcher, 1984 CanLII 536 (BC CA), [1984] 4 W.W.R. 363; Canadian Pacific Ltd. v. Gill, 1973 CanLII 2 (SCC), [1973] S.C.R. 654; Guy v. Trizec Equities Ltd., 1979 CanLII 232 (SCC), [1979] 2 S.C.R. 756; Lavigne v. Doucet (1976), 1976 CanLII 1581 (NB CA), 14 N.B.R. (2d) 700; Menhennet v. Schoenholz, 1971 CanLII 565 (ON CA), [1971] 3 O.R. 355; Re U.E.W., Local 523, and Welland Forge Ltd. (1970), 1970 CanLII 1630 (CA LA), 21 L.A.C. 1.

Statutes and Regulations Cited

Family Law Reform Act, R.S.O. 1980, c. 152, s. 60.

Authors Cited

Brown, Donald J. M. and David M. Beatty. Canadian Labour Arbitration. Agincourt, Ont.: Canada Law Book, 1977.

Cooper-Stephenson, Kenneth D. and Iwan B. Saunders. Personal Injury Damages in Canada. Toronto: Carswells, 1981.

Goldsmith, Daena A. "A Survey of the Collateral Source Rule: The Effects of Tort Reform and Impact on Multistate Litigation" (1988), 53 J. Air L. & Com. 799.

McLachlin, B. M. "What Price Disability? A Perspective on the Law of Damages for Personal Injury" (1981), 59 Can. Bar Rev. 1.

New York (State). Governor's Advisory Commission on Liability Insurance. Insuring our Future: Report of the Governor's Advisory Commission on Liability Insurance. New York: The Commission, 1986.

Ontario. Inquiry into Motor Vehicle Accident Compensation in Ontario. Report of Inquiry into Motor Vehicle Accident Compensation in Ontario. (Coulter Commission.) Toronto: Ministry of the Attorney General, 1988.

Ontario. Law Reform Commission. Report on Compensation for Personal Injuries and Death. Toronto: The Commission, 1987.

Palmer, Earl E. Collective Agreement Arbitration in Canada, 2nd ed. Toronto: Butterworths, 1983.

Sanderson, John P. The Art of Collective Bargaining. Toronto: De Boo, 1979.

United Kingdom. Royal Commission on Civil Liability and Compensation for Personal Injury. Report of the Royal Commission on Civil Liability and Compensation for Personal Injury (1978), Cmnd. 7054, I-III.

United States of America. Attorney General. Report of the Tort Policy Working Group on the Causes, Extent and Policy Implications of the Current Crisis in Insurance Availability and Affordability. February, 1986.

APPEAL from a judgment of the Ontario Court of Appeal refusing leave to appeal a judgment of the Divisional Court (1988), 1988 CanLII 4779 (ON SC), 63 O.R. (2d) 544, 48 D.L.R. (4th) 576, affirming a judgment of the Ontario Supreme Court (1987), 1987 CanLII 4355 (ON SC), 60 O.R. (2d) 181, 40 D.L.R. (4th) 180, 16 C.C.E.L. 245. Appeal allowed, Dickson C.J. and Wilson, Gonthier and Cory JJ. dissenting.

James M. Flaherty and J. M. Chadwick, for the appellant.

James E. Lewis, Q.C., for the respondent.

Reasons of Cory J. (Dissenting)

The reasons of Dickson C.J. and Wilson, Gonthier and Cory JJ. were delivered by

//Cory J.//

Cory J. (dissenting) -- I have had the advantage of reading the reasons so cogently expressed by my colleague, Justice McLachlin. While I agree with much of what she has said, I have come to a different conclusion.

The issue raised in this case is whether sick leave benefits provided to the respondent under a collective agreement should be deducted from damages for loss of income awarded to him against the appellant tortfeasor. The essential question to be resolved is whether benefits provided pursuant to a collective agreement can be distinguished from those awarded under a private insurance contract. The appellant has not questioned the validity of the rule established in Bradburn v. Great Western Rail. Co., [1874-80] All E.R. 195 (Ex. Div.), that benefits awarded under a private insurance contract should not be deducted from damages awarded against a tortfeasor.

My colleague found that sick leave benefits provided under a collective agreement could not be equated with those obtained under a contract of private insurance, unless the employee can prove that he or she gave up something in exchange for the employer's assurance of continued wages in the event of injury. I find that I cannot distinguish between benefits paid pursuant to a collective agreement and those provided under a private insurance contract. In my view, the provision of sick leave benefits in a collective agreement is part of the package of wages and benefits arrived at through the give and take of bargaining. It is unfair to require the employee to prove that he or she furnished consideration to the employer in exchange for receiving these benefits.

Factual Background

Factual Background

On February 21, 1982, the appellant, James Bloomer, while driving his car, collided with a police vehicle driven by the respondent, Donald Ratych, a police constable employed by the Peel Regional Board of Commissioners of Police. As a result of the accident the respondent suffered injuries that kept him off work from February 21 to June 3, 1982. During his absence from work, he received from his employer a sum equivalent to his lost wages in accordance with Article 21.01 of the 1981-82 Collective Agreement between the Peel Regional Board of Commissioners of Police and the Peel Regional Police Association. Article 21.01 states:

21.01When a member of the Force is absent by reason of illness or injury occasioned by, or as a result of his duties within the meaning of the Workmen's Compensation Act, he will be entitled to his full pay and benefits while he is thereby incapacitated, and there shall be no loss of accumulated sick credits. "Full pay" shall be interpreted so as to preclude the possibility of members receiving a greater net pay while on Compensation than while working.

In his action against the appellant, the respondent sought to recover $7,987.38 in special damages, representing his wages during the period he was unable to work. At trial, Ewaschuk J. found for Mr. Ratych, stating that he was bound by the decision of the Ontario Court of Appeal in Boarelli v. Flannigan (1973), 1973 CanLII 690 (ON CA), 36 D.L.R. (3d) 4. The appellant's appeal to the Divisional Court was dismissed on the same ground. The Court of Appeal refused to grant leave to appeal.

The Non-Deductibility of Private Insurance Proceeds

The Non-Deductibility of Private Insurance Proceeds

The interrelationship of the tort system and other forms of compensation from private or public collateral sources has become a complex problem with the growth of legislation providing benefits for injured workers. Commentators have complained that the development of the law in this area has been characterized by instability, recurrent shifts in judicial thinking and the absence of underlying principle: McLachlin (prior to her appointment to the bench), "What Price Disability? A Perspective on the Law of Damages for Personal Injury" (1981), 59 Can. Bar Rev. 1, at p. 44; Cooper-Stephenson and Saunders, Personal Injury Damages in Canada (1981), pp. 469-74. Yet despite any confusion that may have beset this issue, no court in Canada or England has questioned the principle enunciated in Bradburn, supra, that benefits awarded under a private insurance contract should not be deducted from damages awarded against a tortfeasor.

In Bradburn, the plaintiff had been awarded damages for injuries he had sustained due to the negligence of the defendant railway company. The defendant moved to have these damages reduced by an amount the plaintiff had received from a private insurer to compensate him for the income he had lost as a result of the accident. The Court of Appeal held that the plaintiff was entitled to receive both the amount payable by the insurer and the damages for loss of income recoverable from the defendant. Pigott B. held at p. 197:

I think that there would be no justice or principle in setting off an amount which the plaintiff has entitled himself to under a contract of insurance, such as any prudent man would make on the principle of, as the expression is, "laying by for a rainy day". He pays the premiums upon a contract which, if he meets with an accident, entitles him to receive a sum of money. It is not because he meets with the accident, but because he made a contract with, and paid premiums to, the insurance company, for that express purpose, that he gets the money from them.

The reasoning applied in Bradburn and other early cases was based primarily on the principle that the accident was not the causa causans, but merely a causa sine qua non of the receipt of the collateral benefit. However, by the middle of this century this justification had been superceded by the argument that the tortfeasor should not benefit from the plaintiff's foresight. As Asquith L.J. stated in Shearman v. Folland, [1950] 1 All E.R. 976 (C.A.), at p. 978:

What in a given case is, and what is not, "collateral"? Insurance affords the classic example of something which is treated in law as collateral. Where X is insured by Y against injury which comes to be wrongly inflicted on him by Z, Z cannot set up in mitigation or extinction of his own liability X's right to be recouped by Y or the fact that X has been recouped by Y: Bradburn v. Great Western Ry. Co. [supra] and Simpson v. Thomson [(1877), 3 App. Cas. 279; 38 L.T. 1; 29 Digest 290, 2355]. There are special reasons for this. If the wrongdoer were entitled to set-off what the plaintiff was entitled to recoup or had recouped under his policy, he would, in effect, be depriving the plaintiff of all benefit from the premiums paid by the latter and appropriating that benefit to himself.

While the English courts have reduced the scope of the rule of non-deductibility, they have never questioned the Bradburn rule as it applied to private insurance. In Browning v. War Office, [1962] 3 All E.R. 1089, the Court of Appeal held that a plaintiff's disability pension should be deducted from his damages for loss of earnings, but both Lord Denning M.R. and Diplock L.J. cited the Blackburn rule as a well-recognized exception to the general principle that a plaintiff should not be compensated for more than he or she has lost.

In Parry v. Cleaver, [1969] 1 All E.R. 555, the House of Lords reversed the Browning decision, holding that an officer's pension should not be deducted from his damages for loss of earnings. In the course of their judgments, their Lordships affirmed the importance of the rule in Bradburn. Lord Pearce stated at pp. 575-76:

One must, I think, start with the firm basis that Bradburn v. Great Western Ry. Co. [supra] was rightly decided and that the benefits from a private insurance by the plaintiff are not to be taken in account.

The Australian cases have accepted Bradburn's case [supra] as correct. So, too, the Canadian cases. It has never been criticised in our courts. It accords with the view of the AMERICAN RESTATEMENT. And counsel for the respondent has not assailed it here.

The Bradburn case was also used by Lord Reid to support his decision that the proceeds of insurance should never be deducted from damage awards. He stated at p. 558:

As regards moneys coming to the plaintiff under a contract of insurance, I think that the real and substantial reason for disregarding them is that the plaintiff has bought them and that it would be unjust and unreasonable to hold that the money which he prudently spent on premiums and the benefit from it should enure to the benefit of the tortfeasor. Here again I think that the explanation that this is too remote is artificial and unreal. Why should the plaintiff be left worse off than if he had never insured?

In the recent decision of Hussain v. New Taplow Paper Mills Ltd., [1988] 1 All E.R. 541, the House of Lords moved English law once more towards deductibility, holding that a plaintiff's sick pay benefits must be deducted from the damage award he had received in a suit against his employer. However, their Lordships affirmed the importance of the Bradburn rule. As Lord Bridge stated at pp. 544-45:

... where a plaintiff recovers under an insurance policy for which he has paid the premiums, the insurance moneys are not deductible from damages payable by the tortfeasor....

Since the early part of this century, the Bradburn rule has been consistently applied by Canadian courts. It has been affirmed by appellate courts in Saskatchewan (Tubb v. Lief, 1932 CanLII 229 (SK CA), [1932] 3 W.W.R. 245 (Sask. C.A.), Dawson v. Sawatzky, 1945 CanLII 185 (SK CA), [1946] 1 W.W.R. 33 (Sask. C.A.)), New Brunswick (Bourgeois v. Tzrop (1957), 1957 CanLII 339 (NB CA), 9 D.L.R. (2d) 214 (N.B.S.C., App. Div.)), Ontario (Boarelli v. Flannigan, supra), and British Columbia (Chan v. Butcher, 1984 CanLII 536 (BC CA), [1984] 4 W.W.R. 363). In addition, this Court in both Canadian Pacific Ltd. v. Gill, 1973 CanLII 2 (SCC), [1973] S.C.R. 654, at p. 668, and Guy v. Trizec Equities Ltd., 1979 CanLII 232 (SCC), [1979] 2 S.C.R. 756, at p. 763 has cited, with approval, the following statement of Lord Pearce in Parry v. Cleaver, supra:

If one starts on the basis that Bradburn's case (1874), L.R. 10 Ex. 1, decided on fairness and justice and public policy, is correct in principle....

Thus it can be seen that the principle that the funds that a plaintiff recovers under an insurance policy, for which he or she has paid the premiums, are not deductible is firmly established. It is a principle said to be based upon fairness and justice.

The Application of the Bradburn Rule to Insurance Benefits Paid Pursuant to a Collective Agreement

The Application of the Bradburn Rule to Insurance Benefits Paid Pursuant to a Collective Agreement

While courts in Canada and England have consistently applied the Bradburn principle with respect to private insurance proceeds, they have encountered difficulties in developing a uniform approach for dealing with collateral benefits provided by an employer to an employee. In England, the House of Lords in Hussain, supra, has developed a distinction between disability pensions and sick leave payments. Disability pensions are equated with insurance and are therefore non-deductible in accordance with the principles enunciated in Bradburn. On the other hand, sick leave payments are regarded as wages and are considered to be deductible.

This approach was not adopted unanimously by the House of Lords until the decision was rendered in Hussain, supra. It appears to be based upon obiter statements by Lord Reid in Parry v. Cleaver, supra, where he commented generally on the subject and stated at p. 560 that "wages are a reward for contemporaneous work but that a pension is the fruit, through insurance, of all the money which was set aside in the past in respect of his past work." According to Lord Reid, the wages paid to an individual while he or she is off work do not differ in kind from the wages paid while he or she is working. Yet he found that the money paid as a disability pension is a benefit that the individual would never have received but for the accident.

In Canada, courts have applied Parry v. Cleaver to support the non-deductibility of pension and sick leave benefits, devoting very little attention to the distinction enunciated by Lord Reid. This Court has held that Canada Pension Plan payments and payments from an employer's private pension plan should not be deducted from a plaintiff's damages: see Canadian Pacific Ltd. v. Gill, supra; Guy v. Trizec Equities Ltd., supra. But the Court's reliance and citation of Parry v. Cleaver extends only to statements made by Lord Reid and Lord Pearce which indicate the manner in which pensions can be equated with insurance. They should not be regarded, in my opinion, as approving the obiter distinctions between pensions and accident and sick leave benefits set out by Lord Reid.

The New Brunswick Court of Appeal in Lavigne v. Doucet (1976), 1976 CanLII 1581 (NB CA), 14 N.B.R. (2d) 700 (C.A.), has held that a police officer who had received full salary from his employer during his period of disability could not recover damages for lost earnings. But the court in that case appears to have relied only on the English Court of Appeal's decision in Browning, without considering Parry v. Cleaver.

In British Columbia and Ontario, on the other hand, the appellate courts have relied on Parry v. Cleaver to hold that accident and sick pay benefits cannot be deducted from the award of damages. In Chan v. Butcher, supra, the British Columbia Court of Appeal held that payments received by an employee under a "short-term disability plan" funded by her employer could not be applied to mitigate damages. The court stated that these benefits should be regarded as akin to insurance benefits and not wages. Macfarlane J.A. commented at pp. 367-68:

... the plan under which the benefits are payable need not necessarily resemble the ordinary contract of insurance.... as Lord Pearce observed in Parry v. Cleaver, at p. 37, it is sufficient if the character of the payments is the same as those derived from private insurance, namely, "they are intended by the payor and the payee to benefit the workman and not to be a subvention for wrongdoers who will cause him damage".

Adopting the same approach, I would say that the benefits in this case were intended to insure the employee against the risk of unemployment caused by illness or accident, and not for the advantage of the wrongdoer who caused the employee to become unemployable. Surely when the risk becomes reality and benefits are paid to relieve the employee from the burden of unemployment, then such benefits ought to be regarded as in the nature of insurance.

The appellate decisions in Ontario are perhaps most apposite, not so much because they reflect the dramatic swing back towards a general policy of non-deductibility that followed the Parry v. Cleaver decision, but rather because they focus on the evidentiary issue central to the case at bar. In Menhennet v. Schoenholz, 1971 CanLII 565 (ON CA), [1971] 3 O.R. 355, the court held in a brief decision that in the absence of evidence to the contrary, sick pay received by a plaintiff from his employer should be regarded as a gratuitous payment by the employer that was deductible from a damage award.

Less than two years later, in Boarelli v. Flannigan, supra, the Ontario Court of Appeal delivered a lengthy decision endorsing in broad terms the principle of non-deductibility and explicitly reversing the court's decision in Menhennet. On the subject of benefits obtained pursuant to collective bargaining agreements, Dubin J.A., as he then was, held at p. 14:

Therefore, with respect to collateral benefits obtained, pursuant to collective bargaining agreements or private contracts of employment, I would view such benefits as part of the wage package and the benefits received as having been paid for by the employee, and I do not think that they should be treated any differently than a benefit received from a private insurance plan.... I think it safe to assume in present society that such benefits are included in the wages which the employee receives and for which he must work, rather than requiring proof of such facts in every case. It is well known that in the determination of a remuneration to be paid to employees "fringe benefits" are considered in arriving at a total wage benefit package, and the amount of the weekly salary or wage is dependent upon the cost of the totality of the benefits. [Emphasis added.]

In addition, he decided that even if the payments in Menhennet had been made ex gratia by the employer, they should still be non-deductible. He stated at pp. 15-16:

That brings me to consideration of the judgment of this Court in Menhennet v. Schoenholz, supra. In that case the injured party received a payment from his employer which was described as sick pay. The Court was of the opinion that there was no evidence to show that this was a payment obligatory on the employer's part, payment for which benefit had been negotiated or accepted by the union for an employee in lieu of an increase in his hourly wage. It is to be observed that it is implicit in that judgment that, if it had been shown that the payment therein was a fringe benefit as part of the total wage package, the said sum would not have been deducted, which is consistent with the views that I have heretofore expressed. However, relying on the principles in Browning v. War Office, supra, on the assumption that the payment was ex gratia, the Court held that the amount should be deducted.

As pointed out in Parry v. Cleaver, supra, the source of the payment is no longer relevant and, therefore, the fact that it is the employer in one case and a friend in another, who is the donor, should not affect the result. In my opinion, therefore, such ex gratia payments made by an employer should not be deducted from the award of damages which would otherwise prevail.

In her reasons, my colleague has not accepted Lord Reid's distinction between wages and pensions. Instead, she states that benefits of the kind at issue in this case might be regarded as akin to insurance. However, she holds that this inference can be drawn only if the employee can prove that he or she has given up something in exchange for the wage benefit received.

Like my colleague, I am unable to accept the distinction between pensions and wages relied upon in Hussain, supra. While the distinction may have some relevance within the particular structure of English labour relations law, I hesitate to apply it in the Canadian context. It is noteworthy, I believe, that the manner in which sick benefits have traditionally been characterized by Canadian labour law experts appears to run contrary to the approach taken by the House of Lords. In both Brown and Beatty, Canadian Labour Arbitration (1977), at p. 467, and Palmer, Collective Agreement Arbitration in Canada (2nd ed. 1983), at pp. 670-71, the authors state that the majority of Canadian labour arbitrators have held that an employee who is in receipt of sick benefits may properly claim payment for statutory holidays that occur during the period of his or her illness. The arbitrators' conclusion on this point is based on the fact that sick benefits are regarded as insurance rather than wages. According to both texts, the majority view is expressed in the arbitral decision of Re U.E.W., Local 523, and Welland Forge Ltd. (1970), 1970 CanLII 1630 (CA LA), 21 L.A.C. 1, at p. 5 (Christie), where the Board stated:

Workmen's Compensation and sick benefit are not wages; they are compensation in the nature of insurance payments, flowing from injury or sickness as the case may be. The purpose of such payments is to make up for loss of wages to some extent, but they are not themselves wages.

I am in complete agreement with this statement. In my opinion, sick leave benefits such as those at issue in this case are no different than benefits paid under a private insurance plan, except that they are organized collectively by the employees through their union.

The provision of sick leave benefits in a collective agreement is part of the package of wages and benefits arrived at through the give and take of bargaining. An individual member of the collective bargaining group, such as the respondent, is bound to accept the group insurance coverage. There is no alternative.

The group insurance will operate on the same principle as any private insurance scheme. All members of the bargaining unit will be obtaining coverage based on the actuarily calculated expectations of loss of time at work due to accident and illness of all members of the bargaining unit during the term of the insurance. Thus it can be seen that my colleague's concern that an employee with only one day's employment may be covered and unfairly compensated by a tortfeasor is of no relevance. A private insurance contract will cover an accident which occurs one day after the contract is in place. It is a risk taken into account by the insurer in writing the terms of the policy and fixing the premium. Precisely the same principle is applicable to group insurance. Some members of the group will never have to avail themselves of the coverage in 35 or 40 years of employment. Others will not be so fortunate. Depending on the circumstance, a group policy may cost just the same amount as private insurance. The individual employee will pay for that coverage in reduced wages or by the other provisions of the collective agreement.

There is no difference in operating principle between private and collective insurance. The worker within a collective unit should not be punished for his membership in the group or for his or her payment of the insurance premium or its equivalent through the group. It has been held that it would be unfair to deduct the wages recovered by an individual through a private contract of insurance. It is equally unfair to deduct these wages from the individual who, as a member of a group, receives group insurance coverage for wages lost due to accident or illness. The member of the group has paid for his or her insurance coverage just as much as the individual with a private contract of insurance. Fairness requires that the member of the group be compensated in the same manner as the individual with the private contract of insurance.

The negotiation of a collective agreement is a painstaking process of bargaining and compromise. While both sides recognize that an amicable agreement is in the best interests of both union and management, the spirit of negotiations is characteristically one of self-interest, not altruism. As Sanderson states, at p. 1, in The Art of Collective Bargaining (1979), the collective agreement:

... represents the compromises, the victories and defeats, large and small, of one group of negotiators over the other.

It is written and agreed upon by a number of individuals acting largely in a representative capacity. The collective bargaining process in essence is adversary in nature and represents the manner in which two opposite parties arrive at a ceasefire agreement for a specified period of time.

In the context of labour negotiations, it strains common sense to imagine that an employer would agree to pay the wages of an employee who is absent from work due to illness or injuries received in an accident without receiving in return certain concessions from the employees through their union. Nothing is given gratuitously. Usually benefits are only acquired by hard bargaining. But it may be next to impossible for the plaintiff to prove this. Any benefit provided for the employee by the employer will come through the efforts of the union. They will flow from the union as a collective unit and the cost of or the consideration given for the group insurance may be extremely difficult to calculate. The exchange may be a simple one of lower wages for higher benefits or it may involve factors that are more intangible. Union and employer representatives may be reluctant or unable to provide an exact description of the nature of the bargain. The employee involved in a law suit with an insurer, a professional litigant, is the party least able to afford to pay for the opinion of lawyers, or the expert evidence of economists, union negotiators and others required to satisfy the burden of proof that my colleague would place upon him or her. It is difficult to imagine that the group coverage of police officers would be any less expensive than a private contract of insurance. Although there is no evidence on the point, I think it should be recognized that the police face job-related risks of accident and injury that must be much higher than almost any other category of employment. It may well be impossible to calculate what the individual police officer is paying for his or her disability coverage. Yet as surely as night follows day, payment is being made.

In light of all these factors, I believe that it is inequitable and unrealistic to require, as a pre-requisite for non-deductibility, that the plaintiff employee prove he or she has given something in exchange for obtaining the sick leave benefit from his employer. In my view, there is no reason why insurance payments should become deductible simply because they are bargained for and structured collectively by the employer and the union on behalf of the employee rather than individually by each employee. I would adopt the words of Lord Reid, at p. 558, in Parry v. Cleaver, supra, on this point, but extend them to the employee accident sick leave provisions considered in the case at bar:

Then I ask -- why should it make any difference that he insured by arrangement with his employer rather than with an insurance company? In the course of the argument the distinction came down to be as narrow as this: if the employer says nothing or merely advises the man to insure and he does so, then the insurance money will not be deductible; but if the employer makes it a term of the contract of employment that he shall insure himself and he does so, then the insurance money will be deductible. There must be something wrong with an argument which drives us to so unreasonable a conclusion.

The Need for Legislative Reform

The Need for Legislative Reform

In her reasons, my colleague has observed that the focus of tort law is shifting inexorably away from concerns of moral culpability and punishment toward those of compensation and the efficient distribution of loss. She has noted the conclusions of the Royal Commission on Civil Liability and Compensation for Personal Injury in England, the Osborne Commission in Ontario and two American reports, all of which have recommended the legislative reform or abolition of the collateral benefits rule. While her comments focus on the problems in the law relating to collateral benefits, I believe they highlight the need for broad and creative legislative solutions that will promote values of compensation and efficient cost-sharing in fields such as motor vehicle accident law.

But the task of reform is primarily that of the legislatures. As the evolution of the collateral benefits rule in England and Canada has demonstrated, judicial efforts to create exceptions and distinctions have not been entirely successful. Far better, in my opinion, is the approach taken in the United States, where the collateral benefits rule has remained relatively untouched by the courts but has been widely revised or abolished by state legislatures.

Conclusion

Conclusion

In my opinion, the benefits obtained by Mr. Ratych from his employer pursuant to the collective agreement should not be deducted from the special damages for loss of income he has been awarded. These benefits are merely a collective form of private insurance, and should be treated in accordance with the rule in Bradburn, supra. The benefits form part of the package of wages and benefits arrived at through struggle and tough bargaining between the union and the employer. It is unfair and unrealistic to require the employee to furnish proof that he or she has provided a specific quid pro quo in exchange for the benefits. If the Bradburn rule is abolished by the legislature, then it would follow that the entire category of benefits that are equivalent to insurance would become deductible. However, in the absence of such legislation, there seems to me to be no reason why in all fairness the courts should treat benefits paid pursuant to a collective agreement differently from benefits received under a private insurance contract.

For these reasons, I would dismiss the appeal with costs.

Reasons of McLachlin J. (Majority)

The judgment of Lamer, La Forest, L'Heureux-Dubé, Sopinka and McLachlin JJ. was delivered by

//McLachlin J.//

McLachlin J. -- This case raises a single question: can a plaintiff who has lost work as a result of injuries caused by a tortfeasor recover from the tortfeasor damages for loss of earnings, where he has been paid his full salary pursuant to his contract of employment?

The issue raises the broader question of the interrelation of the tort system with other systems of compensation. The essential question is one of basic policy: how far is it right that a person should be compensated for the same loss from more than one source?

Facts

Facts

Mr. Ratych, a police officer, was injured in a motor vehicle accident involving the police cruiser he was driving and a vehicle driven by Mr. Bloomer. Mr. Bloomer was impaired at the time. It is not disputed that the accident was caused solely by Bloomer's negligence.

As a result of his injuries, Ratych was unable to work from February 21 to June 3, 1982. While on sick leave, he continued to be paid pursuant to the terms of his collective agreement and did not lose any accumulated "sick credits".

Decisions of the Ontario Courts

Decisions of the Ontario Courts

Ratych commenced an action in the Supreme Court of Ontario against Bloomer seeking damages in the amount of $7,987.38, which represented his wages during the period he was unable to work.

The trial judge (1987), 1987 CanLII 4355 (ON SC), 60 O.R. (2d) 181, allowed the action and awarded the amount sought, stating he was bound by the decision of the Ontario Court of Appeal in Boarelli v. Flannigan (1973), 1973 CanLII 690 (ON CA), 36 D.L.R. (3d) 4. The Divisional Court (1988), 1988 CanLII 4779 (ON SC), 63 O.R. (2d) 544, dismissed an appeal from the trial judgment on the same ground. The Court of Appeal refused leave without written reasons.

Arguments

Arguments

The appellant submits that all payments in the nature of an indemnity for the loss should be taken into account in assessing the damages to which the plaintiff is entitled. The plaintiff should be compensated only for his actual loss, and should not recover twice for the same loss, which will be the result if such payments are not deducted. This is in accordance with the basic principles governing compensation for loss in tort as laid down by this Court, and in particular the concepts of full and functional compensation, the appellant submits. In his view, the question asked should not be whether the defendant obtains a windfall by reason of the indemnity payment from which the plaintiff benefits, but rather whether the plaintiff has established a loss for which he or she is entitled to be compensated. From the point of view of policy, the appellant submits that the collateral fact rule as applied in this case is not only unjustifiable in principle, but is wasteful in practice and should be overturned.

The appellant submits that the view taken in Boarelli v. Flannigan and Chan v. Butcher, 1984 CanLII 536 (BC CA), [1984] 4 W.W.R. 363 (B.C.C.A.), to the effect that wage benefits should not be taken into account in calculating damages, is contrary to these principles and should be rejected. The preferred view, he submits, is that taken by the New Brunswick Court of Appeal in Lavigne v. Doucet (1976), 1976 CanLII 1581 (NB CA), 14 N.B.R. (2d) 700 (C.A.), where collateral benefits were taken into account. This is the view, he points out, which has been adopted in the United Kingdom (Hussain v. New Taplow Paper Mills Ltd., [1988] 1 All E.R. 541 (H.L.)) and Australia (Graham v. Baker (1961), 106 C.L.R. 340 (H.C.))

The respondent submits that it has long been accepted that the proceeds of private insurance policies need not be brought into account by a plaintiff seeking damages for wrongful injury. The same view should be taken of wage benefits paid during the period an injured person cannot work. To do otherwise would be to give the defendants a windfall which flows from a contract unrelated to the tort. Relying on the obiter dicta of Dubin J.A. in Boarelli v. Flannigan, the respondent asserts that benefits obtained pursuant to collective bargaining agreements or private contracts of employment are part of the wage package and should be regarded as having been paid for by the employee. He submits that there is no double indemnity in the case at bar because the same item of loss is not paid for twice. The damages redress the plaintiff for his inability to earn the wages, while the amounts paid under the contract compensate him for his pecuniary loss on account of such wages. Because the benefits are different in source (one from the operation of tort law and the other from a contract with a third party) there is no duplication. Finally, the respondent argues that if the law is to be changed, it is the legislature and not the courts that should do it.

The respondent submits that Boarelli v. Flannigan and Chan v. Butcher should be followed. He would confine the Hussain narrowly to its facts, and urges that in any event it should not be applied in Canada.

The Issues

The Issues

The central issue -- whether payments made by an employer during the period when a plaintiff could not work should be brought into account in assessing his damages for loss of earnings -- gives rise to the following considerations.

A.Should Collateral Benefits be Brought into Account in Calculating Damages?

(1) General legal principles

(2) The Authorities on Collateral Benefits

(3) The Insurance Argument

(4) Economic considerations

(5) Methods of avoiding double recovery

(6) Conclusion

B.Application of the Rule to the Case at Bar

I will address each of these issues in turn.

Analysis

A.Should Collateral Benefits be Brought into Account in Assessing Damages?

(1) General Legal Principles

Analysis - General Legal Principles

It is a fundamental principle of tort law that an injured person should be compensated for the full amount of his loss, but no more. This is implicit in the principles governing the recovery of damages for personal injury set forth by this Court in the trilogy of Andrews v. Grand & Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229, Thornton v. Prince George School Board, 1978 CanLII 12 (SCC), [1978] 2 S.C.R. 267, and Arnold v. Teno, 1978 CanLII 2 (SCC), [1978] 2 S.C.R. 287.

In the trilogy this Court affirmed that the purpose of awarding damages in tort is to put the injured person in the same position as he or she would have been in had the tort not been committed, in so far as money can do so. The plaintiff is to be given damages for the full measure of his loss as best that can be calculated. But he is not entitled to turn an injury into a windfall. In each case the task of the Court is to determine as nearly as possible the plaintiff's actual loss. With respect to non-pecuniary damages, the task is necessarily imprecise, and resort must often be had to conventional figures. But where pecuniary damages are at issue, it is the actual pecuniary loss sustained by the plaintiff which governs the amount of the award.

The functional rational for the award of damages adopted in the trilogy of Andrews, Thornton and Teno underlines the necessity of using the plaintiff's actual loss as the basis of his or her damages. The award is justified, not because it is appropriate to punish the defendant or enrich the plaintiff, but because it will serve the purpose or function of restoring the plaintiff as nearly as possible to his pre-accident state or alternatively, where this cannot be done, providing substitutes for what he has lost.

The trilogy follows the modern trend in the law of damages away from a punitive approach which emphasizes the wrong the tortfeasor has committed. The link between the moral culpability of the tortfeasor and his obligation to pay damages to the person he injures is frequently tenuous in our technological and mechanical era. A moment's inattention is all that is required to trigger astronomical damages. The risks inherent in such activities as the use of our highways by motorists are increasingly recognized as a general social burden. In this context, the maxim that compensation must be fair to both the plaintiff and the defendant seems eminently reasonable: Phillips v. South Western Railway Co. (1879), 4 Q.B.D. 406 (C.A.) That fairness is best achieved by avoiding both undercompensation and overcompensation.

The trend away from a moralistic view of tort suggests that the process of assessing damages should focus not on how the tortfeasor may be appropriately punished, but rather on what the injured person requires to restore him to his pre-accident state. To focus on the alleged "benefit" to the tortfeasor resulting from bringing collateral payments into account is to misconstrue the essential goal of the tort system. The law of tort is intended to restore the injured person to the position he enjoyed prior to the injury, rather than to punish the tortfeasor whose only wrong may have been a moment of inadvertence.

I conclude that the general principles underlying our system of tort law suggest that the damages awarded to the plaintiff should be confined to his or her actual loss, as closely as that can be calculated. The damages should be in an amount which will restore the plaintiff to his pre-accident position. Where pecuniary losses, such as loss of earnings, are at stake, the measure of damages is normally the plaintiff's actual financial loss. Unless the plaintiff can demonstrate such loss, he or she is not entitled to recover. This is because an essential element of tortious liability is lacking in the absence of loss. As Lord Diplock stated in Browning v. War Office, [1962] 3 All E.R. 1089, at pp. 1094-95: "A person who acts without reasonable care does no wrong in law; he commits no tort. He only does wrong, he only commits a tort, if his lack of care causes damage to the plaintiff."

(2) The Authorities

The United Kingdom

The Authorities

The award of damages in England has long rested on the compensatory principle that a plaintiff can recover only what he or she has actually lost and that there should not be double recovery. Certain cases, however, have introduced exceptions to this general principle.

In Bradburn v. Great Western Rail. Co., [1874-80] All E.R. 195 (Ex. Div.), it was held that damages for personal injury should not be reduced by amounts payable to the plaintiff by a private insurer. For some time this was treated as a case of general application and used to support the non-deductibility of all types of benefits. The reasoning used in these early cases to support non-deductibility was primarily causal -- the accident was not the causa causans but merely the causa sine qua non, it was reasoned, and hence the benefits were too remote to be brought into account. A further justification sometimes raised was that the wrongdoer should not benefit from the generosity of a third party or the plaintiff's foresight.

A different stance was taken in Browning v. War Office, supra. Browning, while serving in the U.S. Air Force in England, was severely injured in a motor vehicle accident. Because of his injuries he was discharged from the air force and became entitled to a "veteran's benefit" of approximately one-half of his pay. The Court of Appeal, Donovan L.J. dissenting, held that the amount of the veteran's benefit should be deducted from the damage award. Lord Denning M.R. stated, at p. 1091:

The general principle undoubtedly is that the plaintiff should be compensated, so far as money can do it, for the pecuniary loss or loss of earnings ... which he has suffered or will suffer by reason of the injury. He should recover for his loss, but for no more than his loss. If he can earn money elsewhere, he should do so. The award of damages is made to compensate him, not to punish the wrongdoer ....

In dicta, Lord Denning made the following statement about wage, at p. 1091:

Take wages, for instance, that his employer pays him during his incapacity, being under an obligation to do so. The typical case is the policeman, who is entitled to his full wages whilst disabled. He gets them from his employer, and he cannot claim the self-same wages again from the wrongdoer. He cannot be allowed to get them twice over. He must give credit for the wages that he has received and is entitled to receive.

The House of Lords, while maintaining the view that wages must be brought into account, took a different view of pensions in Parry v. Cleaver, [1969] 1 All E.R. 555 (H.L.), holding by a bare majority that a policeman's pension should not be deducted from his damages for loss of earnings. Bradburn's case was approved, although the causal reasoning which had often been used to justify it was discredited. Instead, Lord Reid introduced what has come to be known as the "source of benefit" theory of collateral benefits. Certain benefits, such as gifts and the proceeds of insurance, are not deducted because of their source. In the case of insurance, Lord Reid emphasized that the plaintiff had "paid for" it, and should not be deprived of the benefit for which he had paid. The same sort of argument was used to justify deduction of only a part of the value of social security benefits from tort damages.

Lord Reid contrasted non-deductible benefits such as insurance and social security benefits with other benefits such as sick pay, which in his view would be deductible. At page 560 he stated:

Then it is said that instead of getting a pension he may get sick pay for a time during his disablement - perhaps his whole wage. That would not be deductible, so why should a pension be different? But a man's wage for a particular week is not related to the amount of work which he does during that week. Wages for the period of a man's holiday do not differ in kind from wages paid to him during the rest of the year. And neither does sick pay; it is still wages. So during the period when he receives sick pay he has lost nothing. We never reach the second question of how to treat sums of a different kind which he would never have received but for his accident. [Emphasis added.]

Lord Reid went on to distinguish wage benefits from pension benefit, at p. 560:

A pension is intrinsically of a different kind from wages.... [T]he true situation is that wages are a reward for contemporaneous work but that a pension is the fruit, through insurance, of all the money which was set aside in the past in respect of his past work.

The same view of the deductibility of sick pay benefits was taken by the House of Lords in Hussain v. New Taplow Paper Mills Ltd., supra, The plaintiff had been injured at work. His contract with his employer called for the payment of sick benefits while he was unable to work. His employer, who was also the defendant, paid his full salary for 15 months. The House had little difficulty in concluding that the salary paid must be brought into account. After citing Lord Reid's view in Parry v. Cleaver that sick pay is deductible, Bridge L.J. noted, at p. 547:

In this jurisdiction there is no authority directly in point, perhaps because it has always been assumed as axiomatic that an employee who receives under the terms of his contract of employment either the whole or part of his salary or wages during a period when he is incapacitated for work cannot claim damages for a loss which he has not sustained....

Lord Bridge expressly disapproved of the contrary approach which had been taken by the British Columbia Court of Appeal in Chan v. Butcher, supra.

The jurisprudence in England on the question before this Court may be summarized as follows. While some benefits, like private insurance, remain non-deductible, wages or sick benefits paid during the period the plaintiff is unable to work have always been required to be brought into account in calculating the plaintiff's damages. This was affirmed by Lord Reid in obiter dicta in Parry v. Cleaver and applied by the House of Lords in Hussain v. New Taplow Paper Mills Ltd.

Australia

Australian courts have adopted the same approach to the deductibility of wage payments as has been adopted in England. In Graham v. Baker, supra, the High Court held that in assessing personal injury damages, payments made to the plaintiff by his employer during the period of sick leave, to which the plaintiff was entitled under an industrial agreement, should be taken into account in assessing his damages.

The United States

In 1854 the Supreme Court of the United States announced the "collateral source rule", which requires that the defendant bear the full cost of the injury he caused the plaintiff, regardless of any compensation the plaintiff receives from an independent or "collateral" source. This rule extended to wage benefits. The rule has in recent years come under much criticism. Typical are the conclusions contained in two 1986 reports: Report of the Tort Policy Working Group on the Causes, Extent and Policy Implications of the Current Crisis in Insurance Availability and Affordability, commissioned by the Government of the United States, and Insuring our Future: Report of the Governor's Advisory Commission on Liability Insurance (April 1986), a report commissioned by the Governor of the State of New York on the insurance availability crisis. Both reports recommended abolition of the collateral benefits rule, finding that it overcompensated plaintiffs and imposed unnecessary costs on society. The matter has effectively been taken out of the hands of the courts in most states, where legislation provides for the deduction of an array of different benefits. In 1987, only 45 states applied the rule, and of those, only 17 applied it without exception: Goldsmith, "A Survey of the Collateral Source Rule: The Effects of Tort Reform and Impact on Multistate Litigation" (1988), 53 J. Air L. & Com. 799.

Canada

Many early Canadian cases, under the influence of Bradburn, took a general non-deductibility approach to all types of collateral benefits. This approach led to a denial of the deductibility of sick leave benefits in Tubb v. Lief, 1932 CanLII 229 (SK CA), [1932] 3 W.W.R. 245 (Sask. C.A.) Nevertheless, it would be gross overstatement to say the question was regarded as settled.

As a consequence of Browning's case, Canadian courts shifted to deductibility. They deducted from damages salary continuation payments, both ex gratia (Dell v. Vermette (1963), 1963 CanLII 320 (ON SC), 37 D.L.R. (2d) 101 (Ont. H.C.); Parsons v. Saunders (1963), 1963 CanLII 568 (NS SC), 39 D.L.R. (2d) 190 (N.S.S.C.)) and contractual (Dell v. Vermette on appeal (1963), 1963 CanLII 150 (ON CA), 42 D.L.R. (2d) 326 (Ont. C.A.); Woodworth v. Farmer (1963), 1963 CanLII 586 (NS SC), 39 D.L.R. (2d) 179 (N.S.T.D.)) Sickness and accident insurance benefits from employers were deducted, (Rados v. Neumann, 1970 CanLII 345 (ON SC), [1971] 2 O.R. 269 (H.C.); Massia v. Allen, 1972 CanLII 598 (ON SC), [1973] 1 O.R. 419 (Co. Ct.); Brazier v. Humphreys (1973), 1973 CanLII 1263 (ON SC), 38 D.L.R. (3d) 201 (Ont. H.C.)), as was sick pay (Dell v. Vermette, supra; McCready v. Munroe (1965), 1965 CanLII 475 (BC SC), 55 D.L.R. (2d) 338 (B.C.S.C.); Menhennet v. Schoenholz, 1971 CanLII 565 (ON CA), [1971] 3 O.R. 355 (C.A.)) Again, the practice cannot be described as universal, some judges still refusing to deduct benefits.

In Boarelli v. Flannigan, supra, the Ontario Court of Appeal pronounced on the deductibility of collateral benefits. The issue was the deductibility of welfare payments. However, the Court took it upon itself to pronounce on a wide variety of other benefits. The Court's earlier pronouncement in Menhennet v. Schoenholz, where sick pay had been held to be deductible, was considered afresh and disapproved. Boarelli adopted a broad non-deductibility approach. Neither welfare payments, moneys from private or public benevolence, unemployment insurance benefits, private insurance moneys, employment insurance benefits pursuant to collective bargaining agreements or private contracts of employment, ex gratis payments nor pensions should be deducted from a plaintiff's damages. While citing Parry v. Cleaver with approval, Boarelli in fact went much further in holding that wages received during the period of disability need not be brought into account, contrary to Lord Reid's view of the matter in Parry.

Another 1973 decision may be noted, although it did not deal with the question of the deductibility of wage benefits. In Canadian Pacific Ltd. v. Gill, 1973 CanLII 2 (SCC), [1973] S.C.R. 654, this Court, in dealing with a fatal accidents problem expressly approved the principles set out in Parry and held that Canada Pension Plan payments should not be deducted from the plaintiff's damages.

In 1979, this Court in Guy v. Trizec Equities Ltd., 1979 CanLII 232 (SCC), [1979] 2 S.C.R. 756, again affirmed the principles enunciated in Parry and held that payments from an employer's private pension plan should not be deducted.

It can be argued that in affirming the principles adopted in Parry v. Cleaver, in Canadian Pacific Ltd. v. Gill and in Guy v. Trizec Equities Ltd., this Court approved Lord Reid's view that wage benefits should be deducted from the plaintiff's claim for loss of earnings.

Two other Canadian cases, both touching directly on the issue of the deductibility of wage benefits, must be mentioned. In Lavigne v. Doucet, supra, the New Brunswick Court of Appeal held that a police officer who had received full salary from his employer during his period of disability could not recover damages for lost earnings. However, the Court did allow compensation for loss of accumulated sick leave benefits.

In Chan v. Butcher, supra, the British Columbia Court of Appeal took the opposite view, holding that a bank employee could claim loss of earnings from the defendant even though she had been paid her entire salary during her convalescence pursuant to bank policy. The Court of Appeal held that the benefits were intended to insure the employee against the risk of unemployment and not to confer advantage on the tortfeasor.

The situation in Canada on the deductibility of wage benefits may be summarized as follows. At the provincial level the Courts of Appeal are divided, Ontario and British Columbia favouring non-deductibility, New Brunswick deductibility. The Supreme Court of Canada has not pronounced on the question, although in twice expressing approval for the principles set out in Parry v. Cleaver, it may be taken to have tacitly approved Lord Reid's view that wage benefits paid to a plaintiff during his absence from work should be deducted from his or her claim for lost earnings.

(3) The Argument by Analogy to Insurance

The Argument by Analogy to Insurance

The House of Lords in Parry v. Cleaver held that benefits in the nature of proceeds of insurance should not be deducted from a plaintiff's damages, on the principle that the plaintiff has paid for these benefits and should not be deprived of the consideration for which he has contracted. This Court has approved the principles enunciated in Parry v. Cleaver. The plaintiff argues that the contract by which his employer paid his loss of earnings during his period of disability was the equivalent of an insurance policy to which he had contributed, and therefore should not be brought into account.

One response to this submission is that given by Lord Reid in Parry v. Cleaver -- the wages paid to a person while he is off work do not differ in kind from the wages paid while he is working, with the result that we never reach the question of how we treat sums he would never have received but for the accident.

But it is argued that this is unconvincing. It must be assumed, it is submitted, that if an employee receives wages when he is not working, he has given up a quid pro quo for that benefit. In some cases, the quid pro quo is explicit, as where the contract of employment provides a certain number of sick days which the employee uses up as a consequence of the accident. In other cases, the exchange is less obvious, but, it is submitted, equally real.

I accept that if an employee can establish that he or she has suffered a loss in exchange for obtaining wages during the time he or she could not work, the employee should be compensated for that loss. Thus in Lavigne v. Doucet the New Brunswick Court of Appeal quite rightly allowed damages for loss of accumulated sick benefits. I also accept that if an employee can establish that he or she directly paid for a policy in the nature of insurance against unemployment, equivalent to a private insurance, he or she may be able to recover the benefits of that policy, although I would leave resolution of this question for another case.

The difficulty in this case is that neither a loss nor a contribution equivalent to payment of an insurance policy is established in this case. The question thus is essentially this -- must the plaintiff demonstrate a loss or contribution in order to recover, or is the court permitted to assume that because he was paid his earnings throughout his absence from work, he has in fact paid a quid pro quo and consequently suffered an equivalent loss?

In my view, it is inconsistent with the principles governing the recovery of damages in tort that the court should assume that because a benefit has been conferred by a third party, the plaintiff has suffered an equivalent loss. I know of no principle which could support such an assumption. The rule remains as it has always been -- a plaintiff is obliged to prove his or her loss.

The situation might be otherwise if the only inference which could be drawn from the payment of wages during the period in which the plaintiff is unable to work is that the plaintiff has given up a benefit in exchange for the wage benefit received. But this is manifestly not the case. A plaintiff may obtain the wage benefit even though he or she has only been on the job a few days and hence had contributed little or nothing to the hypothetical "pool" from which the benefits are drawn. Moreover, the provision of the benefit may have little or no relation to the employee's contribution. It may be the result of legislation. It may stem from some consideration given by the union unrelated to the plaintiff's contribution, such as settlement of past claims of other persons. It may be the result of increased profits due to windfall or the employer's sheer generosity. In short, one cannot infer simply from the fact that an employee receives a wage benefit that the employee has suffered loss or that the employee has contributed the equivalent of an insurance premium in exchange for the benefit.

This situation may be distinguished from the case where the employee can demonstrate a loss or a contribution equivalent to payment of an insurance premium or where the payment is gratuitous. In such cases, recovery of damages for loss of earnings might be entirely appropriate. Those questions, as I have observed, are not before us.

The foregoing comments rest primarily on evidentiary considerations. Approaching the problem from a substantive point of view, it may be that there is a valid distinction between cases where a person has prudently obtained and paid for personal insurance and cases where the benefits flow from the employer/employee relationship. The law has long recognized that in the first situation an exception should be made to the usual rule against double recovery. The existence of such an exception does not mean it should be extended to situations where personal prudence and deprivation are not demonstrated. In the latter case there is little to be weighed in the balance against the general policy of the law against double compensation.

(4) Economic Considerations

Economic Considerations

It has been asserted that "[t]here is no question but that appropriate solution to the collateral benefits problem must have reference to the function of loss distribution in providing personal injury compensation": Cooper-Stephenson and Saunders, Personal Injury Damages in Canada (1981), at p. 479.

The tortfeasor seldom bears the burden of an award of damages against him. Through the mechanism of insurance his loss is spread throughout a wide section of the community. If a motorist causes an accident, co-insured motorists contribute to the damages paid. If a doctor or lawyer causes a client loss by his or her negligence, other doctors or lawyers typically contribute to make it good. As claims mount, so do premiums. Often these increased costs are passed on to the public.

Other "loss pools" contribute to collateral benefits. Insurance, whether held by the plaintiff or his employer, may provide disability benefits. Employers and employees may contribute, directly or indirectly, to wage benefits. The taxpayer may pay through the social security system and publicly funded hospital and medical benefits.

Those who have considered the question of loss distribution in the context of collateral damages generally agree that economic considerations favour deductibility, although the results may vary somewhat with the nature of the benefit. Thus Cooper-Stephenson and Saunders write at p. 481:

Perception of the collateral benefits problem as one primarily of alternative remedies, and acceptance of the validity of large-scale no-fault social insurance schemes to cushion misfortune, leads one to question the correctness of imposing too great a burden on tortfeasors, risk-creating enterprises, and their loss spreading mechanisms.

The Report of the Royal Commission on Civil Liability and Compensation for Personal Injury (1978), Cmnd. 7054, I-III, in England recommended that all statutory benefits be brought into account in assessing damages against a tortfeasor, on the principle that it is cheaper and better to have the state as a whole bear this loss than to shift it to the tortfeasor and liability insurers. Cooper-Stephenson and Saunders arrive at the same conclusion (pp. 481-82). Many of the arguments they cite apply to contractually provided collateral benefits as well:

(1) The third party [benefit donor] will normally be in at least as good a position to spread the loss as the tortfeasor. Very often the third party will be in a better position. The two alternative channels through which the loss might be spread have already been outlined. It is true that the defendant may be himself a loss-spreading agency (such as an employer) or be insured against third party risk (as motorists must be). But this will not always be so. Defendants are not selected only on the basis of their loss-spreading ability. On the other hand the third party is almost certain to be in a position to spread the loss. The very essence of most benefit schemes is that they spread losses amongst contributors. It is their business. Statutory benefits are usually financed by the community at large. Contractual schemes will normally be undertaken only by those who can either absorb the loss themselves (such as employers) or organize a loss-spreading system (such as insurers). If, therefore, the third party is burdened with the loss to the relief of the tortfeasor the impact is unlikely to be noticed by any individual; but if the contrary, it may fall solely on the shoulders of the defendant tortfeasor.

(2) The use of one or other of the devices mentioned must normally mean a retransfer of the loss. Benefits are usually paid more speedily than damages from a tortfeasor. Indeed, one of their chief advantages is that they are received by the victim of an accident in the immediate post-accident period when they may be most needed. Therefore there will normally be an initial transfer of the loss from the victim to the third party loss distributing agency. A further transfer of the loss to a defendant is cumbersome and unnecessary in most cases. The view has been advanced that the loss should lie with the initial loss distributing agency and not be shifted from one to another. Shifting the loss will normally involve either another legal action, or the joining of another party in the victim's claim against the tortfeasor, depending on which device is adopted. But the law has sensibly set its face against a duplication of legal actions in respect of a single accident - particularly actions for pure economic loss - and the joining of third parties in claims against tortfeasors is likely to make recovery of compensation in respect of accidents more complex.

(3) There is a strong economic argument against readjusting the loss. The operating costs of running any compensation scheme are heavy. It appears that social insurance is least expensive in this respect, so that, for example, the cost of shifting the burden of medical expenses to the National Health or of recouping a portion of lost earnings through unemployment benefit is minimal. The overheads involved in private (plaintiff) insurance are greater, but still far below the cost of tort law. To employ two of these media in the process of compensating a single pecuniary loss is economically ludicrous, and it is the second transfer of the loss over to the defendant tortfeasor which is the expensive process....

(4) Finally, a readjustment or retransfer of the loss will in most cases be of little consequence to those who eventually pay. It would merely mean that the cost of third party liability insurance would be marginally raised and that of the various forms of plaintiff insurance reduced. Since most members of society contribute in one way or another to both, then a reshifting of the loss is from their point of view virtually irrelevant and therefore almost totally unnecessary.

These arguments suggest that deduction of collateral benefits from damage awards, including wage benefits, can be justified on a loss-distribution basis.

I have earlier alluded to the criticism of the non-deductibility collateral benefits rule in the United States and its perceived relationship to the so-called insurance crisis. In Canada, Justice Osborne in the Report of Inquiry into Motor Vehicle Accident Compensation in Ontario (1988) reviewed the issue of the deductibility of collateral benefits and in particular the effect of the wide non-deductibility rule in Boarelli v. Flannigan and concluded at p. 438 that the "collateral source rule as presently applied in Ontario is wasteful in practice and cannot be justified in principle. It ought to be changed."

I would not wish to be taken as suggesting that considerations such as these can or should replace legal principle in determining whether collateral benefits should be brought into account in calculating damages for personal injuries. It may be that in particular cases other considerations may outweigh these policy considerations. Moreover, the legislatures are generally better equipped than the courts to evaluate such factors. For the purposes of these reasons, I am content with the conclusion that considerations relating to allocation of loss do not negate and indeed tend to support the deductibility of wage benefits, where that deductibility is otherwise properly founded in legal principle.

(5) Methods of Avoiding Double Recovery

Methods of Avoiding Double Recovery

There are two ways in which double recovery can be avoided. The first is to deduct the value of the benefit from the plaintiff's damages. The plaintiff keeps the benefit and the damages are assessed on the basis of his or her net loss taking into account the benefit.

The second way of avoiding double recovery is by readjustment of the loss, usually involving transferring the benefit to the third party. This can occur in a variety of ways.

The most common is subrogation. Indemnity insurance is subject to the insurer's right to claim back payments to the extent the plaintiff recovers damages. Many statutory benefits, such as workers' compensation, are subject to legislative indemnity provisions.

A second way in which the benefit can be returned to the third party to avoid double recovery is by a court imposed trust or direction to pay. This device was used by Lord Denning to avoid double recovery in connection with collateral benefits in Dennis v. London Passenger Transport Board, [1948] 1 All E.R. 779, and was subsequently applied in Myers v. Hoffman (1955), 1955 CanLII 161 (ON SC), 1 D.L.R. (2d) 272 (Ont. H.C.), and Rawson v. Kasman (1956), 1956 CanLII 371 (ON CA), 3 D.L.R. (2d) 376 (Ont. C.A.) These cases depended on the plaintiff's having volunteered, by way of an undertaking to the court, to pay the damages in question over to the third party. This no longer appears to be necessary. In Arnold v. Teno, supra, and Thornton v. Prince George School Board, supra, this Court approved the practice of awarding damages to the injured plaintiff to be held in trust for persons who had furnished nursing services. This device may be viewed as an aspect of the indemnity doctrine of insurance law, where subrogated rights are protected by the imposition of a trust. It must recognized, however, that Teno and Thornton represent an exceptional application of the doctrine of trust, given that no obligation from trustee to cestui que trust exists until the moment the court creates it. The justification for the extension may be seen as a moral obligation on the part of the injured plaintiff to repay those who rendered services to him gratuitously, coupled with the desirability of avoiding the injustice which would result from the inability to otherwise compensate the persons who rendered services, given that they had no independent cause of action.

A third method of shifting the payment to the third party benefactor is by giving him or her a separate right of action. The causes of action for actio per quod servitium amisit (the action of a master for his servant's services), actio per quod consortium amisit (the action of a husband for deprivation of his wife's society or services), and the statutory action under s. 60 of Ontario's Family Law Reform Act, R.S.O. 1980, c. 152, (a claim for injuries or death of a related person) are examples. Much doubt exists about the right to recover damages for injury to another under the first two actions: see Cooper-Stephenson and Saunders, at pp. 484-85. In so far as third persons can recover directly against the tortfeasor, it seems clear that there must be deduction of that sum from the victim's personal injury damages. The result, as Cooper-Stephenson and Saunders point out, is a reallocation of the loss sustained by the victim to the tortfeasor through the third party's direct claim.

It is suggested in the case at bar that wage benefits should not be deducted from the plaintiff's damages, and that the proper means of avoiding double recovery is by allocation of the double benefit to the third party benefactor. In principle, this solution is attractive. In practice, however, it presents considerable difficulty.

Subrogation and independent action by the third party require that the benefactor make a claim against the plaintiff in the first case, against the tortfeasor in the second. Very often this is not done. The case at bar is in point. It has been suggested by the Ontario Law Reform Commission Report on Compensation for Personal Injuries and Death, at p. 189, "that the costs involved in pursuing such claims outweigh the benefit to be derived from them, with the result that the claim is never brought". Many statutes make deduction for subrogated claims mandatory, and in these cases there appears to be little difficulty, provided the source of the payment and its amount are clear on the evidence.

The next question is whether, where no claim is made, the court should impress the damages with a trust in favour of the benefactor. The question here is whether the limited application of this device espoused in Teno and Thornton should be extended to wage benefits where the third party has a claim but has not shown enough interest to pursue the claim. Generally the law does not help those who make no claim. In Teno and Thornton the only way for the persons providing the nursing services to obtain recovery was by imposition of a trust. In these circumstances, and at the request of the plaintiff, the device of trust was used to avoid injustice. The situation is quite different, it can be argued, where the third party has a legal remedy but, for whatever reason, declines to pursue it.

It thus appears that the avoidance of double recovery by transference of benefits to the third party benefactor, while it may function in some cases, does not provide a solution for all situations. What is required if double recovery is to be avoided is a rule which allows transfer to third parties wherever appropriate, while preventing double payment where such transfer is impractical or impossible.

(6) Conclusion as to the Appropriate Rule

Conclusion as to the Appropriate Rule

The general principles underlying our system of damages suggest that a plaintiff should receive full and fair compensation, calculated to place him or her in the same position as he or she would have been had the tort not been committed, in so far as this can be achieved by a monetary award. This principle suggests that in calculating damages under the pecuniary heads, the measure of the damages should be the plaintiff's actual loss. It is implicit in this that the plaintiff should not recover unless he can demonstrate a loss, and then only to the extent of that loss. Double recovery violates this principle. It follows that where a plaintiff sustains no wage loss as a result of a tort because his employer has continued to pay his salary while he was unable to work, he should not be entitled to recover damages on that account.

The authorities which have considered the question of whether wage benefits paid by an employer should be brought into account in calculating the plaintiff's damages support the position suggested by the fundamental principles underlying our tort law. The highest courts in England and Australia have held that salary benefits paid during the period in which the plaintiff was unable to work must be deducted from any claim for loss of earnings; and in the United States, which early on embraced a rule of non-deductibility of collateral benefits, state legislation has effected a significant retreat from this position in recent years. In Canada, courts have veered between deductibility and non-deductibility of wage benefits over the years. The Supreme Court of Canada has on two occasions indicated its approval of the principles set out by the House of Lords in Parry v. Cleaver, among them the view that wage benefits received by the plaintiff must be deducted from any claim for loss of earnings.

The argument that wages paid by an employer pursuant to a contract of employment are akin to insurance and hence should not be deducted on the principle in Parry v. Cleaver cannot prevail, in my view. First, it is rejected in Parry itself, Lord Reid stating that in such a case, no loss ever arises. Second, the argument rests on the assumption that the employee has in fact suffered a loss or actually contributed to the fund from which the earnings are paid, an assumption which, in the absence of evidence, is far from self-evident.

Without placing them in a determinative role, it appears that considerations relating to loss distribution generally support the view that wage benefits paid to a plaintiff while he or she is off work should be deducted from damages awarded for loss of earnings.

Finally, other methods of avoiding double recovery, such as subrogation, direct action by third parties, and the device of declaring a trust in favour of third parties, valuable as they may be, fail to provide a solution in many cases. The need, as I observed earlier, is for a rule which will permit transference of benefits to third parties where appropriate, and at the same time avoid the double recovery of monies on account of lost earnings which general principle and the case law suggest is inappropriate.

These considerations suggest the following rule. As a general rule, wage benefits paid while a plaintiff is unable to work must be brought into account and deducted from the claim for lost earnings. An exception to this rule may lie where the court is satisfied that the employer or fund which paid the wage benefits is entitled to be reimbursed for them on the principle of subrogation. This is the case where statutes, such as the Workers' Compensation Act, expressly provide for payment to the benefactor of any wage benefits recovered. It will also be the case where the person who paid the benefits establishes a valid claim to have them repaid out of any damages awarded. Absent legislation or a third party claim, the only device available to the court to effect transference to the third party would be trust. Given that the third party has effective ways apart from trust of enforcing the claim, I would not extend the trust doctrine applied in Teno and Thornton to collateral benefits in the usual case. At the same time, I would not rule out that a judge might use this device to transfer payment to a third party where the judge is satisfied that this is both necessary and appropriate in the interests of justice. Generally speaking, however, some sort of obligation, moral if not legal, to repay the third party would need to be established to permit application of the trust device.

These comments should not be taken as extending to types of collateral benefits other than lost earnings, such as insurance paid for by the plaintiff and gratuitous payments made by third parties. Those issues are not before the Court and must be left for another day.

B. Application of the Rule to the Case at Bar

Application of the Rule to the Case at Bar

In this case the plaintiff was paid his full salary during the period he was off work as a result of his injuries. The principles to which I have alluded suggest that in these circumstances his claim against the tortfeasor for loss of earnings on the ground that the plaintiff has not established a loss, should be dismissed unless a valid claim is established on the part of the employer who paid the benefits.

The employer has not advanced a claim in the nature of subrogation. Moreover, no obligation to repay the employer, moral or otherwise, is raised by the plaintiff. These considerations negate the suggestion that the doctrine of trust can properly be utilized to shift the loss to the employer and allow the plaintiff to recover in this case. Indeed, the plaintiff does not seriously contend that any sum awarded for lost earnings would be paid over to his employer.

Nor, for the reasons discussed earlier, can the payment of wages to the plaintiff be likened to the payment of proceeds of an insurance policy.

In these circumstances, the plaintiff has failed to establish a loss compensable in damages.

Conclusion

Conclusion

I would allow the appeal and set aside the judgment for damages for loss of earnings with costs.

Appeal allowed with costs, Dickson C.J. and Wilson, Gonthier and Cory JJ. dissenting.

Solicitors for the appellant: Gilbert, Wright & Flaherty, Toronto.

Solicitors for the respondent: Keyser Mason Ball & Lewis, Mississauga.