M.B. v. British Columbia, [2003] 2 S.C.R. 477, 2003 SCC 53

Her Majesty The Queen in Right of the Province of British Columbia Appellant/respondent on cross‑appeal

v.

M.B. Respondent/appellant on cross‑appeal

and

Attorney General of Canada, Nishnawbe Aski Nation, Insurance Corporation of British Columbia, Patrick Dennis Stewart, F.L.B., R.A.F., R.R.J., M.L.J., M.W., Victor Brown, Benny Ryan Clappis, Danny Louie Daniels, Robert Daniels, Charlotte (Wilson) Guest, Daisy (Wilson) Hayman, Irene (Wilson) Starr, Pearl (Wilson) Stelmacher, Frances Tait, James Wilfrid White, Allan George Wilson, Donna Wilson, John Hugh Wilson, Terry Aleck, Gilbert Spinks, Ernie James and Ernie Michell Interveners

Indexed as: M.B. v. British Columbia

Neutral citation: 2003 SCC 53.

File No.: 28616.

2002: December 5, 6; 2003: October 2.

Present: McLachlin C.J. and Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour, LeBel and Deschamps JJ.

on appeal from the court of appeal for british columbia

Torts — Liability — Intentional torts — Sexual assault — Foster child sexually assaulted by foster father — Whether government vicariously liable for sexual abuse — Whether government breached non-delegable duty.

Torts — Damages — Prejudgment interest — Intentional torts — Sexual assault — Foster child sexually assaulted by foster father — Whether government liable for sexual assault — Whether Court of Appeal erred in varying trial judge’s assessment of damages — Whether trial judge correct in deducting social assistance benefits from award for loss of past opportunity to earn income — Whether Court of Appeal adopted proper approach in calculating prejudgment interest on award for loss of earning capacity — Whether Court of Appeal correct to reduce damage award.

The respondent was apprehended by the Ministry of Social Services at the age of thirteen. She had come from a severely troubled home. Her father was frequently violent and had abused the respondent for eight years beginning when she was four years old. The respondent was made a temporary ward of the Superintendent of Child Welfare, and placed in the foster home of Mr. and Mrs. P. Mr. P. engaged in sexually inappropriate behaviour during this time and sexually assaulted the respondent near the end of June 1976. The respondent brought claims against the Crown for negligence, vicarious liability, breach of non-delegable duty and breach of fiduciary duty. The trial judge found that although the respondent’s social workers were negligent in their monitoring and supervision of the placement, this negligence was not a cause of the abuse. However, the trial judge held that the Crown was vicariously liable to the respondent for Mr. P.’s tort, and also for Mr. P.’s breach of his fiduciary duty to her. She also held that his tort constituted a breach of the Crown’s non-delegable duty to look after the welfare of foster children. A majority of the Court of Appeal dismissed the Crown’s appeal, but reduced the award for non-pecuniary loss on the basis that the trial judge had failed to exclude the effects of the abuse that the respondent received from her biological father before entering foster care. A five-member panel of the court subsequently concluded by a majority that social assistance payments should not have been deducted from the respondent’s award for past loss of earnings, but it lowered the award on the basis that due consideration should be given to the effects of the prior abuse by the respondent’s biological father. It also held that prejudgment interest on the award should be calculated by treating the award as a stream of income received evenly in six-month intervals over the pre-trial period. The Crown appealed to this Court on the question of liability, and on the question of whether the Court of Appeal was correct in ruling that social assistance payments are not deductible from awards for past loss of earnings. The respondent cross-appealed on whether the Court of Appeal was correct to reduce the damage award and whether it adopted the proper method for calculating prejudgment interest on the award.

Held (Arbour J. dissenting in part): The appeal should be allowed and the cross-appeal dismissed.

Per McLachlin C.J. and Gonthier, Iacobucci, Major, Bastarache, Binnie, LeBel and Deschamps JJ.: The government is not vicariously liable for torts committed by foster parents against foster children in their care on the ground that foster parents are not, in their daily affairs, acting “on account of” or on behalf of the government. For this reason, it would be inappropriate to hold the Crown vicariously liable for the sexual abuse of the respondent by her foster father. On the issue of non-delegable duty, there is no provision in the Protection of Children Act that suggests that the Superintendent stands under a general non-delegable duty to ensure that no harm comes to children through the abuse or negligence of foster parents, such as would render the Superintendent liable for their tortious conduct. While the Crown’s appeal is accordingly allowed and it is therefore not necessary to decide the three issues pertaining to damages, they should be canvassed briefly in the interest of providing guidance.

The trial judge was correct in deducting social assistance benefits from the respondent’s award for loss of past opportunity to earn income. Nothing has been put forward to displace the common sense proposition that social assistance benefits are a form of wage replacement. It follows that the only way in which they can be non-deductible at common law is if they fit within the charitable benefits exception, or if this Court carves out a new exception. Otherwise, retention of them would amount to double recovery. Social assistance does not fit within the charitable benefits exception. Neither of the rationales for the exception — that individuals who wish to help those who are in need should not be discouraged from doing so and that it is difficult to assess the monetary value of certain forms of private charity — seems to apply in the case of social assistance benefits made by the government. The Court should not carve out a new policy-based exception for social assistance. Given that social assistance benefits come out of public funds, and given that taxpayers contribute to these funds in the belief that they will be used for legitimate purposes such as relieving genuine need, it seems unfair to taxpayers to allow certain plaintiffs to recover from these funds and then receive a duplicative payment from a tort award.

The Court of Appeal adopted the proper approach in holding that the award for loss of earning capacity should be treated as compensation for the loss of a stream of income received evenly over the pre-trial period, and that prejudgment interest was therefore calculable in six-month intervals under s. 1(2) (b) of the Court Order Interest Act. The Court of Appeal erred, however, in substituting its own assessment of the appropriate quantum of damages. The trial judge’s assessment of what proportion of the damage sustained by the respondent was caused by the foster father’s assault is a judgment of fact, which an appellate court cannot set aside absent “palpable and overriding error”, and there was no such error in the trial judge’s approach.

Per Arbour J. (dissenting in part): Vicarious liability is made out in this case. The relationship between the state and foster parents is sufficiently close that the relationship is capable of attracting vicarious liability. In addition, the wrongful act is so closely associated with the power and intimacy created by the foster care relationship that it can fairly be said that the government’s empowerment of foster parents materially increased the risk of sexual abuse of foster children. There is no breach of non-delegable duty for the reasons set out by the majority in K.L.B. There was agreement with the majority on the damages issues.

Cases Cited

By McLachlin C.J.

Applied: K.L.B. v. British Columbia, [2003] 2 S.C.R. 403, 2003 SCC 51; referred to: E.D.G v. Hammer, [2003] 2 S.C.R. 459, 2003 SCC 52; M. (M.) v. F. (R.) (1997), 1997 CanLII 14477 (BC CA), 52 B.C.L.R. (3d) 127; Cunningham v. Wheeler, 1994 CanLII 120 (SCC), [1994] 1 S.C.R. 359; Bustard v. Boucher, [1997] N.B.J. No. 39 (QL); Cockerill v. Willms Transport (1964) Ltd. (2001), 284 A.R. 256, 2001 ABQB 136; Ramsay (Tichkowsky) v. Bain (1995), 1995 CanLII 18034 (AB KB), 170 A.R. 298; M.S. v. Baker (2001), 309 A.R. 1, 2001 ABQB 1032; Krangle (Guardian ad litem of) v. Brisco, [2002] 1 S.C.R. 205, 2002 SCC 9; Lincoln v. Hayman, [1982] 2 All E.R. 819; Hodgson v. Trapp, [1989] 1 A.C. 807; Andrews v. Grand & Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229; The Queen v. Jennings, 1966 CanLII 11 (SCC), [1966] S.C.R. 532; Earnshaw v. Despins (1990), 1990 CanLII 596 (BC CA), 45 B.C.L.R. (2d) 380; Palmer v. Goodall (1991), 1991 CanLII 384 (BC CA), 53 B.C.L.R. (2d) 44; Pallos v. Insurance Corp. of British Columbia (1995), 1995 CanLII 2871 (BC CA), 100 B.C.L.R. (2d) 260; Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33.

By Arbour J. (dissenting in part)

K.L.B v. British Columbia, [2003] 2 S.C.R. 403, 2003 SCC 51.

Statutes and Regulations Cited

BC Benefits (Income Assistance) Act, R.S.B.C. 1996, c. 27.

Court Order Interest Act, R.S.B.C. 1996, c. 79, s. 1(1), (2).

Guaranteed Available Income for Need Act, R.S.B.C. 1979, c. 158.

Health and Other Services (Compensation) Act 1995 (Cth.).

Protection of Children Act, R.S.B.C. 1960, c. 303 [am. 1968, c. 41], ss. 8(8), 11(1), 11A(1) [am. 1973, c. 71, s. 6], 15(3).

Social Security (Recovery of Benefits) Act 1997 (U.K.), 1997, c. 27.

Authors Cited

Cooper-Stephenson, Kenneth D. Personal Injury Damages in Canada, 2nd ed. Scarborough, Ont.: Carswell, 1996.

Fleming, John G. The Law of Torts, 9th ed. Sydney, Australia: LBC Information Services, 1998.

Great Britain. Royal Commission on Civil Liability and Compensation for Personal Injury. Report, vol. I. London: Her Majesty’s Stationery Office, 1978.

Lewis, Richard. “Deducting collateral benefits from damages: principle and policy” (1998), 18 Legal Studies 15.

APPEAL and CROSS-APPEAL from a judgment of the British Columbia Court of Appeal (2001), 2001 BCCA 227, 197 D.L.R. (4th) 385 (sub nom. B. (M.) v. British Columbia), [2001] 5 W.W.R. 6, 151 B.C.A.C. 70, 249 W.A.C. 70, 87 B.C.L.R. (3d) 12, 4 C.C.L.T. (3d) 163, [2001] B.C.J. No. 586 (QL), 2001 BCCA 227, with supplementary reasons (2002), 10 C.C.L.T. (3d) 76, 99 B.C.L.R. (3d) 256, 164 B.C.A.C. 247, 268 W.A.C. 247, 211 D.L.R. (4th) 295, [2002] 5 W.W.R. 327, [2002] B.C.J. No. 390 (QL), 2002 BCCA 142, varying a decision of the British Columbia Supreme Court, [2000] B.C.J. No. 909 (QL), 2000 BCSC 735. Appeal allowed and cross-appeal dismissed, Arbour J. dissenting in part.

John J. L. Hunter, Q.C., Thomas H. MacLachlan, Q.C., and Karen Horsman, for the appellant/respondent on cross‑appeal.

Gail M. Dickson, Q.C., Karen E. Jamieson and Cristen L. Gleeson, for the respondent/appellant on cross‑appeal.

David Sgayias, Q.C., and Kay Young, for the intervener the Attorney General of Canada.

Susan M. Vella and Elizabeth K. P. Grace, for the intervener the Nishnawbe Aski Nation.

Christopher E. Hinkson, Q.C., and Guy P. Brown, for the intervener the Insurance Corporation of British Columbia.

David Paterson and Diane Soroka, for the interveners Patrick Dennis Stewart et al.

The judgment of McLachlin C.J. and Gonthier, Iacobucci, Major, Bastarache, Binnie, LeBel and Deschamps JJ. was delivered by

[1] The Chief Justice — The main issue in this appeal is whether the government is liable for the sexual assault of a foster child by her foster father, under the doctrines of vicarious liability or breach of non-delegable duty. Issues also arise on the trial judge’s damage awards.

[2] The appeal was heard together with K.L.B. v. British Columbia, [2003] 2 S.C.R. 403, 2003 SCC 51, and E.D.G. v. Hammer, [2003] 2 S.C.R. 459, 2003 SCC 52. In K.L.B., this Court considered in detail whether the government should be held liable for the abuse of foster children by foster parents, and on what basis. The principles established in that case are determinative of this appeal.

[3] On the basis of the principles established in K.L.B., and for the reasons that follow, I would allow the appeal.

I. Background

[4] The respondent, M.B., was apprehended by the British Columbia Ministry of Social Services in May 1975, at the age of 13. She had come from a severely troubled home. Her mother was chronically ill and suffered from ongoing drug dependency. Her father was frequently violent and had abused M.B. for eight years beginning when she was four years old. He was eventually convicted of a number of criminal offences relating to his sexual abuse of her.

[5] In July 1975, M.B. was made a temporary ward of the Superintendent of Child Welfare, and placed in the foster home of Mr. and Mrs. P. The couple had been foster parents for many years. Mrs. P. was ill at the time that M.B. lived with them, and so Mr. P. assumed primary care for her and for the two other foster children who lived in the home from 1975 to 1976.

[6] Mr. P. engaged in sexually inappropriate behaviour during this time. This included masturbating in public areas of the home where the foster girls could observe him; engaging in physical contact with M.B. and one other foster girl that caused them discomfort; and offering M.B. a ring and use of a car in exchange for sex, an offer that she rejected. According to the trial judge, neither Mr. P.’s friends nor the children’s social workers were in a position to observe this inappropriate behaviour on their visits to the home, since he did not engage in it while adults were visiting. M.B. did not tell anyone about Mr. P.’s inappropriate behaviour while she was living in the home.

[7] During this time, M.B.’s social worker took few if any steps to supervise and monitor the placement. The trial judge found no evidence that she visited the P. home or had any direct contact with M.B. during the time that she was there. She did offer M.B. counselling for her prior experience of sexual abuse by her father. However, M.B. either refused or did not continue with this counselling.

[8] Mr. P. sexually assaulted M.B. near the end of June 1976. She left the home immediately, and returned to her mother’s house. The trial judge found that she did not tell her social worker that the assault had taken place. She also found that the lack of a good relationship between M.B. and her social worker would have made it highly unlikely that further counselling would have induced M.B. to go to a new foster home.

[9] M.B.’s life at home with her mother and brother was chaotic. Although her father had stopped visiting the home and was no longer a threat, her mother was still addicted to prescription drugs and was hospitalized from time to time for overdoses. M.B. became primarily responsible for the care of her mother and her brother. She did not finish Grade 9 and was expelled from school in Grade 10. Although social workers attempted to provide help to the family, most of this help was directed towards M.B.’s mother and younger brother. Her mother received drug counselling; and social workers were assigned to her brother to try to motivate him to attend school. Her mother committed suicide in 1983.

[10] Both Mr. and Mrs. P. had died by the time that M.B. initiated her action in 1997. M.B. brought claims against the Crown for negligence, vicarious liability, breach of non-delegable duty and breach of fiduciary duty. She initially joined her biological father as a defendant, but a settlement with him was reached prior to trial.

[11] At trial, Levine J. found that although M.B.’s social workers were negligent in their monitoring and supervision of the placement, this negligence was not a cause of the abuse ([2000] B.C.J. No. 909 (QL), 2000 BCSC 735). In Levine J.’s assessment, more frequent visits to the P. home would not have enabled social workers to detect the sexually inappropriate behaviour of Mr. P., or to suspect that he would assault M.B. Although regular contact with her social worker and a more trusting and intimate relationship with her might have led M.B. to tell her what was going on, Levine J. felt that this possibility was too speculative to support a finding of causation. However, Levine J. held that the Crown was vicariously liable to M.B. for Mr. P.’s tort, and also for Mr. P.’s breach of his fiduciary duty to her. She also held that his tort also constituted a breach of the Crown’s non-delegable duty to look after the welfare of foster children. She held that there was no breach of the Crown’s fiduciary duty, on the grounds that the Crown did not take advantage of M.B.’s trust for its own personal advantage.

[12] The Crown appealed to the British Columbia Court of Appeal on the issues of vicarious liability and breach of non-delegable duty ((2001), 87 B.C.L.R. (3d) 12, 2001 BCCA 227). A majority of the Court of Appeal dismissed the Crown’s appeal, but reduced the award for non-pecuniary loss on the basis that Levine J. had failed to exclude the effects of the abuse that M.B. received from her biological father before entering foster care. Both Prowse J.A. and Mackenzie J.A. upheld the conclusion that the Crown had breached a non-delegable duty. Prowse J.A. also upheld the conclusion that vicarious liability was appropriate. However, Mackenzie J.A. rejected it, on the grounds that the foster parents were not employees of the Crown. McEachern C.J.B.C., in dissent, would have allowed the appeal. In his view, the Crown’s lack of control over the day-to-day activities in foster homes rendered vicarious liability inappropriate; and the applicable statute did not, in his mind, impose a non-delegable duty on the Crown to guarantee that no harm came to foster children.

[13] After the Court of Appeal delivered its judgment, it convened a five-member panel to consider two further issues relating to damages. These were whether the social assistance payments received by M.B. should be deducted from her award for past loss of earnings and how prejudgment interest should be calculated on her award for past loss of earnings. The Court of Appeal concluded by a majority of 3-2 that social assistance payments should not have been deducted; but it lowered the award for past loss of earnings on the basis that due consideration should be given to the effects of the prior abuse by M.B.’s biological father ((2002), 99 B.C.L.R. (3d) 256, 2002 BCCA 142). It also held that pre-judgment interest on the award for past loss of earnings should be calculated, not on the entire sum from the time of the tort, as the trial judge had done, but by treating the award as a stream of income received evenly in six-month intervals over the pre-trial period.

[14] The Crown now appeals to this Court on the question of liability, and on the question of whether the Court of Appeal was correct in ruling that social assistance payments are not deductible from awards for past loss of earnings. M.B. cross-appeals on two further issues relating to damages: first, whether the Court of Appeal was correct to reduce the awards for non-pecuniary loss and past loss of earnings on the basis that the trial judge failed to factor in the effects of the pre-foster-care abuse, and second, whether the proper method for calculating prejudgment interest on an award for past loss of earnings is by treating the award as a stream of income received evenly in six-month intervals over the pre-trial period.

II. Issues

[15] The issues are:

(1) Is the Crown vicariously liable for the sexual abuse of M.B. by her foster father?

(2) Did the Crown breach a non-delegable duty?

(3) Did the Court of Appeal err in varying the trial judge’s assessment of damages, on the basis of its own judgment regarding apportionment; on the basis that social assistance payments are not deductible; or on the basis that prejudgment interest should be calculated incrementally?

III. Analysis

1. Is the Crown Vicariously Liable for the Sexual Abuse of M.B. by Her Foster Father?

[16] This issue is answered in K.L.B., where it is held that the government is not vicariously liable for torts committed by foster parents against foster children in their care on the ground that foster parents are not, in their daily affairs, acting “on account of” or on behalf of the government. For this reason, discussed more fully in K.L.B., it would be inappropriate to hold the Crown vicariously liable for the sexual abuse of M.B. by her foster father. I would therefore allow the Crown’s appeal on this issue.

2. Did the Crown’s Conduct Amount to a Breach of a Non-Delegable Duty?

[17] The applicable statute in the case at bar is the same statute that was considered in K.L.B., albeit with certain amendments which do not affect the substance of the provisions at issue: Protection of Children Act, R.S.B.C. 1960, c. 303 (am. S.B.C. 1968, c. 41). (The relevant legislative provisions are reproduced in the Appendix.) As noted in K.L.B., at para. 34, the Act imposes a number of non-delegable duties upon the Superintendent, including: a duty to care for the physical well-being of the child before the child is placed in foster care (s. 8(8)); a duty to place the child in such a place as best meets his or her needs, or to deliver the child to a children’s aid society (ss. 11(1) and 11A(1)); and a duty to make a report to the Minister if at any time it appears to the Superintendent that any children’s aid society or foster home is not in the best interests of a child in its custody or care (s.15(3)). These are all non-delegable duties to ensure that certain quite specific actions are performed in connection with the children’s care. However, there is no provision in the Act that suggests that the Superintendent stands under a general non-delegable duty to ensure that no harm comes to children through the abuse or negligence of foster parents, such as would render the Superintendent liable for their tortious conduct.

[18] For these reasons, laid out in full in K.L.B., I would allow the Crown’s appeal on the issue of non-delegable duty.

3. Was the Court of Appeal Correct to Reduce the Awards for Non-Pecuniary Loss and Past Loss of Earnings?

[19] Given my conclusion that the Crown is not liable to M.B., it is not necessary to decide the three issues pertaining to damages. However, in the interest of providing guidance on the issues raised, I will briefly canvass them.

[20] The three issues concerning damage assessment are:

(a) Was the trial judge correct in deducting social assistance benefits from M.B.’s award for “loss of past opportunity to earn income”?

(b) What is the appropriate method for calculating interest on this loss? Should interest be awarded on the full amount of this part of the damage award from the time that the cause of action arose, or should this part of the damage award be treated as a stream of income received evenly over the pre-trial period?

(c) Was the Court of Appeal correct to lower the damage award, on the grounds that Levine J. had failed to exclude the effects of the prior abuse by M.B.’s biological father?

(a) Deductibility of Social Assistance Benefits

[21] At trial, Levine J. awarded M.B. damages in the amount of $172,726.04. This included damages for “loss of past opportunity to earn income” in the net amount of $10,000. She arrived at the latter figure by deducting social assistance benefits which M.B. had received from a gross award of approximately $132,000. She did not expand on her reasons for deducting the social assistance benefits, save by citing M. (M.) v. F. (R.) (1997), 1997 CanLII 14477 (BC CA), 52 B.C.L.R. (3d) 127, a decision of the British Columbia Court of Appeal in which that court held that social assistance benefits were deductible.

[22] In its initial judgment on the merits of the case, the Court of Appeal substituted an award of $50,000 for past loss of opportunity to earn income, without deduction of social assistance benefits. Mackenzie J.A. stated, at para. 106, that “the income assistance arrangement is a collateral matter between the plaintiff and the provincial government that should not influence the quantum of the tort award”, but did not further elaborate upon the court’s reasons for not deducting social assistance benefits.

[23] Counsel applied in writing to the court for clarification of the court’s decision concerning the damages award. As a result, the court convened a five-member panel to decide the issues of deductibility of social assistance payments and prejudgment interest. A 3-2 majority held that income assistance benefits should not be deducted from the award for past loss of earnings.

[24] The first question is whether social assistance is a form of income replacement. If it is not, no duplication arises. If it is, the further question arises of whether social assistance can be excluded from the non-duplication rule under an existing or new exception.

(i) Is Social Assistance a Form of Income Replacement?

[25] It is argued that social assistance is not a form of income replacement, because it is given on the basis of need for the purpose of relieving poverty.

[26] In my view, this argument is mistaken. It is true that social assistance benefits are intended to relieve poverty, and that need is the relevant criterion. However, as Smith J.A. pointed out in his dissenting judgment in the Court of Appeal in the case at bar, this does not mean that they are not intended as wage replacement. On the contrary, it suggests that they are intended to replace that part of employment income that would normally be spent on meeting basic needs (para. 162). Most people who require welfare require it because they lack sufficient income to meet their basic needs, and the normal source of sufficient income is employment of one sort or another. Social assistance therefore replaces income that most people would have obtained through employment. It does not purport to replace all of the income they would have obtained if they had a job. It only replaces enough to satisfy basic needs. But it is no less “wage replacement”, simply because it only replaces a portion of the income a person might otherwise have had.

[27] The arguments to the contrary do not, with respect, withstand scrutiny. Prowse J.A. argued that neither the Guaranteed Available Income For Need Act, R.S.B.C. 1979, c. 158 (“GAIN Act”), nor the BC Benefits (Income Assistance) Act, R.S.B.C. 1996, c. 27 — the legislation under which M.B. received social assistance — describes social assistance as “wage replacement” or “income replacement”. However, that is not determinative. Prowse J.A. also argued that past employment and future employability are not prerequisites for obtaining social assistance under this legislation. This too does not seem determinative, since part of the legislature’s intent may be to provide a substitute income for those who are unable to work. Prowse J.A.’s third argument, that the legislation nowhere contemplates repayment of social assistance from the proceeds of a future tort award, again says nothing on the issue of whether social assistance is partial income replacement. Mackenzie J.A. argued that social assistance benefits do not duplicate damages received for a tort because “[t]hey are independent of any loss”, such as a loss caused by a tort (para. 104). However, an inability to earn an income through employment is a loss. It is not a loss that is invariably caused by a tort, to be sure. But the test for whether a certain category of collateral benefit “duplicates” a certain head of damages is not whether the benefit was intended as compensation for a loss caused by a tort but simply whether the benefit was of the same type as the particular head of damages in tort law — i.e., in this case, wage replacement. Mackenzie J.A.’s second argument was that the social assistance benefits received by M.B. could not possibly duplicate her entire tort award, because the tort award was made for a much longer period. But an award for loss of earning capacity is really compensation for the loss of the use of that capacity over time. It does not matter, for this purpose, for how much of this period M.B. was on social assistance.

[28] I conclude that nothing has been put forward to displace the common sense proposition that social assistance benefits are a form of wage replacement. It follows that the only way in which they can be non-deductible at common law is if they fit within the charitable benefits exception, or if this Court carves out a new exception. Otherwise, retention of them would amount to double recovery.

(ii) Does Social Assistance Fit Within the Charitable Benefits Exception?

[29] Both Prowse J.A. and counsel for M.B. argue in the alternative that social assistance benefits fit within the charitable benefits exception to the rule against double recovery, because they are analogous to charitable benefits in their purpose, which is to relieve need.

[30] Although superficially attractive, this argument misconstrues the rationale behind the charitable benefits exception. The rationale for the charitable benefits exception does not concern the purpose of charitable donations. It is therefore irrelevant whether social assistance benefits share the same purpose as charitable donations made by private individuals. The rationale for the exception lies in the effect that a rule of deductibility might have on individuals who wish to help those who are in need: the idea is that they should not be discouraged from doing so. A further rationale is that it is difficult to assess the monetary value of certain forms of private charity — for instance, the value of companionship; the value of assistance with daily errands; or the value of raising and training a “helper dog” to perform tasks that a person who has been rendered disabled can no longer perform (see Cunningham v. Wheeler, 1994 CanLII 120 (SCC), [1994] 1 S.C.R. 359, at p. 370, per McLachlin J.).

[31] Neither of these rationales for the charitable benefits exception seems to apply in the case of social assistance benefits made by the government, as indeed the Court of Appeal recognized in M. (M.) v. F. (R.), supra, where social assistance benefits were deducted from the damage award. It is not difficult to value social assistance benefits. Moreover, since the governmental schemes are already in place, and since individuals are entitled to receive these benefits if they meet the specified criteria, there is no possibility that the government will be discouraged from offering the benefits at all, or will use discretion to deny them to people who may in the future receive a damage award. As for counsel for M.B.’s suggestion that taxpayers will balk at the thought of their money “subsidizing” people who engage in sexual assaults, it seems doubtful that anyone would favour denying social assistance to someone who was genuinely needy on the grounds that if social assistance were given, a tortfeasor might later benefit from the deduction of this sum from a damage award.

(iii) A Policy-Based Exception for Social Assistance?

[32] The remaining possibility is that this Court endorse a new exception for social assistance payments from the general rule of deductibility.

[33] It is difficult to find a principled rationale for carving out a new policy-based exception for social assistance. Given that social assistance benefits come out of public funds, and given that taxpayers contribute to these funds in the belief that they will be used for legitimate purposes such as relieving genuine need, it seems unfair to taxpayers to allow certain plaintiffs to recover from these funds and then receive a duplicative payment from a tort award. A policy-based exception creating a rule of non-deductibility for social assistance payments does not, then, seem justifiable on grounds of fairness. Moreover, a rule of non-deductibility of social assistance payments might also lead to inefficient results. If the courts were to affirm such a rule, then legislatures might move to institute schemes to recoup social assistance funds from successful plaintiffs. Current scholarship suggests that such legislative schemes result in less efficient loss distribution than does a simple rule of deductibility of social assistance benefits: see below. It therefore seems difficult to justify creating a new policy-based exception for social assistance, whether on the basis of fairness or on the basis of efficiency.

[34] A further reason for not creating a new exception to the rule of deductibility is the virtually unanimous view of those who have studied the matter that deductibility should prevail.

[35] John Fleming argues in The Law of Torts (9th ed. 1998) that, because social assistance is based upon need and comes out of public funds, there is “no justification for allowing a claimant to recover in the aggregate from that source [public funds] and the tortfeasor more than an indemnity for his net loss” (p. 280).

[36] Ken Cooper-Stephenson, in Personal Injury Damages in Canada (2nd ed. 1996), at p. 581, raises economic considerations and concludes that deduction of the benefits from a tort award is “the most satisfactory loss-distribution mechanism”, and that it is preferable to allowing the government to recover the value of the social assistance afterwards.

[37] Richard Lewis, in “Deducting collateral benefits from damages: principle and policy” (1998), 18 Legal Studies 15, likewise favours deductibility. He points out that a simple rule of deductibility “avoids the wasteful litigation and administrative cost sometimes associated with recoupment” (p. 17).

[38] In the courts, as well, a general principle of deductibility is becoming increasingly entrenched. In particular, lower courts have held that the rationale for the charitable benefits exception does not apply to social assistance benefits, and that social assistance benefits should be deducted from tort awards for lost earning capacity: see M. (M.) v. F. (R.), supra; Bustard v. Boucher, [1997] N.B.J. No. 39 (QL) (Q.B.); Cockerill v. Willms Transport (1964) Ltd. (2001), 284 A.R. 256, 2001 ABQB 136; Ramsay (Tichkowsky) v. Bain (1995), 1995 CanLII 18034 (AB KB), 170 A.R. 298 (Q.B.); M.S. v. Baker (2001), 309 A.R. 1, 2001 ABQB 1032.

[39] A rule of deductibility is also consistent with this Court’s recent judgment in Krangle (Guardian ad litem of) v. Brisco, [2002] 1 S.C.R. 205, 2002 SCC 9. This case concerned a claim for the costs of future care in a group home once the respondent reached age 19. The trial judge had declined to award damages for these costs on the grounds that in the future, the respondent would be eligible for monthly social security benefits paid under the very same legislation that is at issue in the case at bar — the GAIN Act — which would cover these costs. The Court deemed this the correct conclusion. Although the Court’s reasoning turned on the issue of whether it was the parents’ or the state’s obligation to absorb the costs of their child’s disabilities once the child reached adulthood, the case has relevance to the case at bar in that it was clearly an underlying aim of the Court to avoid double recovery in such a situation. If it is appropriate to deduct social assistance benefits that might be received in the future from a damage award, in order to eliminate the risk of double recovery, then it seems it must also be appropriate to deduct social assistance benefits that have been received in the past.

[40] Finally, other jurisdictions are increasingly moving toward a policy of deductibility. In England, the Pearson Commission concluded in 1978 that:

. . . the time has come for full co-ordination of the compensation provided by tort and social security. An injured person, or his dependants, should not have the same need met twice, not only because it is inequitable, but because it is wasteful.

(Report of the Royal Commission on Civil Liability and Compensation for Personal Injury (1978), vol. I, p. 107, at para. 475)

Parliament followed this advice in 1989, introducing a recoupment scheme whereby the state may recoup the value of a number of benefits paid out to those who subsequently receive damage awards. The scheme is now in force through the Social Security (Recovery of Benefits) Act 1997 (U.K.), 1997, c. 27. Public benefits that fall outside the recoupment scheme are subject to a common law rule of deductibility.

[41] Prior to the enactment of this legislation, both the English Court of Appeal and the House of Lords had recommended deductibility of social assistance benefits (reversing the earlier common law rule of non-deductibility). In Lincoln v. Hayman, [1982] 2 All E.R. 819, the Court of Appeal held that a statutory income support payment received by the plaintiff was deductible from an award for past loss of earnings. Lord Waller, at p. 823, gave a helpful statement of why deductibility was necessary to avoid double recovery. The rationale that he put forward there seems also to apply to the case at bar:

When he [the plaintiff] became unemployed he did not lose the total of his wages because part of that loss was replaced by supplementary benefit. If the supplementary benefit is not taken into account and deducted the plaintiff will recover more damages than he has suffered. It will be a fortuitous windfall.

Similarly, in Hodgson v. Trapp, [1989] 1 A.C. 807, the House of Lords stated that statutory benefits in the form of mobility and attendance allowances were deductible from a tort damage award, on the grounds that “[t]o allow double recovery . . . at the expense of both taxpayers and insurers seems to me incapable of justification on any rational ground” (p. 823, per Lord Bridge).

[42] Australia, too, has now enacted legislation to compel reduction or repayment of all social security benefits upon receipt of any form of compensation for the injury, under the Health and Other Services (Compensation) Act 1995 (see Fleming, supra, at p. 280).

[43] I conclude that this Court should not carve out a policy-based exception to the rule of deductibility.

(b) Calculation of Prejudgment Interest

[44] A second issue pertaining to damages is whether the Court of Appeal adopted the proper approach in calculating prejudgment interest on the award for loss of earning capacity. The Court of Appeal held that this award should be treated as compensation for the loss of a stream of income received evenly over the pre-trial period, and hence, that prejudgment interest was calculable in six-month intervals under s. 1(2) (b) of the Court Order Interest Act, R.S.B.C. 1996, c. 79 (“COIA”).

[45] Section 1(1) of the COIA establishes a general rule that prejudgment interest at a rate that the court considers appropriate must be added to pecuniary damages. Section 1(2) of the COIA provides an exception for this rule in the case of “special damages”, the interest for which must be calculated on an incremental basis. It stipulates that:

1 . . .

(2) Despite subsection (1), if the order consists in whole or part of special damages, the interest on those damages must be calculated from the end of each 6 month period in which the special damages were incurred to the date of the order on the total of the special damages incurred

(a) in the 6 month period immediately following the date on which the cause of action arose, and

(b) in any subsequent 6 month period.

[46] Counsel are agreed that the damage award for loss of earning capacity constitutes “special damages”. They disagree, however, over how to characterize this loss, and consequently, over when these damages were incurred, for the purposes of s. 1(2). Counsel for M.B. argues that loss of earning capacity is the loss of a capital asset. She contends that it was therefore incurred entirely in “the 6-month period immediately following the date on which the cause of action arose”. Consequently, on her view, s. 1(2) requires that the interest on this award be calculated on the full amount of the award from the end of the first six months after the tort. Counsel for the Crown argues that the loss for which these damages compensate is not the loss of a capacity per se, but rather the loss of the earnings that this capacity would have yielded — earnings that would have been received in a steady stream over the pre-trial period. In his view, s. 1(2) therefore requires that the interest be calculated in six-month increments, beginning six months after the commission of the tort.

[47] There is considerable case law establishing that an award for loss of earning capacity is intended to compensate for the loss of an asset, the capacity to earn. In Andrews v. Grand & Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229, at p. 251, Dickson J. (as he then was), following The Queen v. Jennings, 1966 CanLII 11 (SCC), [1966] S.C.R. 532, stated that:

It is not loss of earnings but, rather, loss of earning capacity for which compensation must be made: The Queen v. Jennings, supra. A capital asset has been lost: what was its value?

Subsequent decisions have followed this approach: see Earnshaw v. Despins (1990), 1990 CanLII 596 (BC CA), 45 B.C.L.R. (2d) 380 (C.A.), at p. 399; Palmer v. Goodall (1991), 1991 CanLII 384 (BC CA), 53 B.C.L.R. (2d) 44 (C.A.), at p. 59; Pallos v. Insurance Corp. of British Columbia (1995), 1995 CanLII 2871 (BC CA), 100 B.C.L.R. (2d) 260 (C.A.), at para. 27. As Finch J.A. noted in Pallos, these cases “all treat a person’s capacity to earn income as a capital asset, whose value may be lost or impaired by injury”.

[48] This does not, however, settle the issue of how interest is to be calculated under s. 1(2) of the COIA. As Dickson J. noted in Andrews, supra, there is a further question that must be asked — namely, how do we determine the value of the lost asset?

[49] As Cooper-Stephenson notes, supra, at p. 138, damages under this head are universally quantified on the basis of what the plaintiff would have earned, had the injury not occurred.

As far as concerns lost income, the courts fluctuate between the notion of “loss of earnings” and “loss of earning capacity”, not for the most part intending any aspect of the substance of an assessment to depend on the particular wording, since damages are universally quantified on the basis of what the plaintiff would have, not what he or she could have earned absent the injury. [Emphasis in original.]

[50] These damages are not, then, based on a fixed value that has been assigned to an abstract capacity to earn. Rather, the value of a particular plaintiff’s capacity to earn is equivalent to the value of the earnings that she or he would have received over time, had the tort not been committed. It follows that the loss of this value — the loss that the plaintiff has sustained, and that the damage award is intended to compensate for — should be treated as a loss sustained over time, rather than as a loss incurred entirely at the time that the tort was committed. Section 1(2) of the COIA therefore requires that interest be calculated in six-month increments, beginning six months after the commission of the tort.

[51] A further consideration supporting this approach, as Mackenzie J.A. noted, is the desirability of avoiding overcompensation for the effects of inflation. Since the loss in this case occurred 20 years prior to the trial and inflation was considerable over the interim, an award of interest of the full amount of the damages from the time of the tort would give M.B. more than is necessary to compensate her for her loss, and would vastly overcompensate her for the effects of inflation. While this consideration alone might not provide sufficient reason to calculate interest in six-month increments, it shows that the approach we have recommended on conceptual grounds, far from having objectionable policy implications, seems to be the only adequate approach from the standpoint of policy.

(c) The Court of Appeal’s Reduction of the Damage Award

[52] It remains to consider whether the Court of Appeal was correct to reduce the damage award. The court did so on the grounds that because the damage award was at the high end of the spectrum, Levine J. must have failed to exclude the effects of the abuse that M.B. had received at the hands of her biological father, prior to entering foster care.

[53] When assessing damages, Levine J. explicitly acknowledged that M.B.’s “‘original position’ must be taken into account in awarding damages” (para. 265). She then went on to note that “[t]his does not relieve J.P. [the foster father] of his measure of responsibility for the plaintiff’s injuries” (para. 266). With respect to the foster father’s contribution to M.B.’s injuries, she concluded that “[t]he plaintiff’s condition was significantly exacerbated by the repetition of a type of behaviour that could only serve to reinforce a distrustful and flawed view of human relationships” (para. 266 (emphasis added)). It was this damage for which she held the Crown liable.

[54] The trial judge’s assessment of what proportion of the damage sustained by M.B. was caused by the foster father’s assault is a judgment of fact, which an appellate court cannot set aside absent “palpable and overriding error”: Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33. I can find no palpable and overriding error in the trial judge’s approach. The Court of Appeal therefore erred in substituting its own assessment of the appropriate quantum of damages.

IV. Conclusions

[55] For the reasons given above, I would allow the appeal and dismiss the cross-appeal.

The following are the reasons delivered by

[56] Arbour J. (dissenting in part) — This case, like its companion case K.L.B. v. British Columbia, [2003] 2 S.C.R. 403, 2003 SCC 51, raises the issue of whether, and on what grounds, the government can be held liable for abuse committed by a foster parent against a child in foster care. Specifically, this case requires the Court to consider whether the government can be held liable for the sexual assault of the respondent by her foster father while she was living in foster care based on the doctrines of vicarious liability and breach of non-delegable duty.

[57] I find that vicarious liability is made out in this case, substantially for the reasons I provide in K.L.B. In brief, it is my view, the relationship between the state and foster parents is sufficiently close that the relationship is capable of attracting vicarious liability. In addition, the wrongful act is so closely associated with the power and intimacy created by the foster care relationship that it can fairly be said that the government’s empowerment of foster parents materially increased the risk of sexual abuse of foster children.

[58] I am in agreement with the Chief Justice, however, that there is no breach of non-delegable duty for the reasons she set out in K.L.B. and I would dispose of the damages issues as she does. I would accordingly dismiss the appeal on the issue of liability and allow the appeal on the issue of damages. I would allow the cross-appeal in part.

APPENDIX

Relevant Legislative Provisions

Protection of Children Act, R.S.B.C. 1960, c. 303 (am. S.B.C. 1968, c. 41)

8. . . .

(8) Subject to subsection (7), from the time that a child is apprehended under section 7 until final disposition of the case by the Judge, the person who apprehends the child is responsible for the care, maintenance, and physical well-being of the child, and no liability shall attach either to such person or to any duly qualified physician or surgeon by reason only that the child is provided with necessary medical or surgical care during such time.

11A. (1) Where a child is committed to the care and custody of the Superintendent by an order, or delivered to him pursuant to subsection (2) of section 11, the Superintendent is thereupon the legal guardian of the person of the child, and he is authorized to take, and shall receive, the child into his custody. The Superintendent shall make arrangements as soon as may be for the placement of the child in a foster home, or such other place as will best meet the needs of the child.

(2) Where a child is committed to the care and custody of a society by an order, or delivered to a society pursuant to subsection (1) or (2) of section 11, the society is thereupon the legal guardian of the person of the child, and the society is authorized to take, and shall receive, the child into its custody.

(3) It is the duty of the society to use special diligence in providing suitable foster homes for such children as are committed to its care, and the society is hereby authorized to place such children in foster homes on a written agreement, during minority, or for any less period in the discretion of the society. . . .

14. Every society to whose care any child is committed under the provisions of this Act, and every person entrusted with the care of the child by any such society, shall from time to time permit the child to be visited, and any place where the child may be, or reside, to be inspected by the Superintendent or by any person authorized by the Superintendent for the purpose.

15. (1) Every organization that deals with or cares for children . . . shall, in addition to all other requirements of this Act, upon request of the Superintendent or of any person authorized by the Minister,

(a) furnish to the Superintendent or person so authorized full information and particulars concerning every child with whom the organization has dealt, or to whom the organization has given care, or of whom the organization has had the custody; and

(b) permit the Superintendent or person so authorized to have access to all parts of the premises and buildings of the organization . . . and to all children therein, and to all books and records of the organization.

(3) If it appears to the Superintendent that the management of any organization referred to in subsection (1) is not such as to be in the best interests of the children in its care or custody . . . the Superintendent shall report the circumstances to the Minister . . . .

Appeal allowed and cross-appeal dismissed, Arbour J. dissenting in part.

Solicitor for the appellant/respondent on cross‑appeal: Ministry of Attorney General of British Columbia, Victoria.

Solicitors for the respondent/appellant on cross‑appeal: Dickson Murray, Vancouver.

Solicitor for the intervener the Attorney General of Canada: Deputy Attorney General of Canada, Ottawa.

Solicitors for the intervener the Nishnawbe Aski Nation: Goodman and Carr; Lerner & Associates, Toronto.

Solicitors for the intervener the Insurance Corporation of British Columbia: Harper Grey Easton, Vancouver.

Solicitors for the interveners Patrick Dennis Stewart et al.: David Paterson Law Corp., Surrey, B.C.; Hutchins, Soroka & Grant, Vancouver.