IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Foresters Life Insurance Company v. Bingham Group Services Corp., |
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2019 BCSC 556 |
Date: 20190411
Docket: S175722
Registry: Vancouver
Between:
Foresters Life Insurance Company
Plaintiff
And
Bingham Group
Services Corp., Mathew Bingham, Jana Fenton, Mark Stowe,
and Rebecca St-Louis, also known as Rebecca St. Louis
Defendants
- and -
Docket: S175749
Registry: Vancouver
Between:
The Equitable Life Insurance Company of Canada
Plaintiff
And
Bingham Group Services Corp., Mathew Bingham, Jana Fenton, Mark Stowe, and Rebecca St-Louis, also known as Rebecca St. Louis
Defendants
Corrected
Judgment: the second page was corrected to change the counsel name from D. Yule, Q.C. to D.K. Yule as Counsel
for Defendant, Rebecca St-Louis
on April 16, 2019.
Before: The Honourable Madam Justice Jackson
Reasons for Judgment
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Counsel for the Plaintiff, Foresters Life Insurance
Company, |
M. Andrews, QC G. Cameron R. Dhindsa A/S |
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Counsel for the Plaintiff, The Equitable Life Insurance
Company of Canada, |
M.D. Adlem |
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Counsel for the Defendant, Bingham Group Services Corp.: |
K. Paciorek |
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Counsel for Defendants, Jana Fenton and Mark Stowe: |
H.A. Bromley |
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Counsel for Defendant, Matthew Bingham: |
N.R. MacLean |
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Counsel for Defendant, Rebecca St-Louis: |
D.K. Yule |
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Place and Date of Trial: |
Vancouver, B.C. November 26 and 27, 2018 |
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Place and Date of Judgment: |
Vancouver, B.C. April 11, 2019 |
Table of Contents
1. Arguments of the Individual Defendants
VI. IS IT PLAIN AND OBVIOUS THE INDIVIDUAL DEFENDANTS DO NOT OWE A DUTY OF CARE TO THE PLAINTIFFS?
1. Arguments of the Individual Defendants
1. Is it plain and obvious the Individual Defendants do not owe the Plaintiffs a duty of care?
a) Stage one of the Anns/Cooper test: does a prima facie duty of care exist?
[1] These four applications were brought under Supreme Court Civil Rules [Rules], R. 9-5(1)(a) by three of the individual defendants in these two actions: Jana Fenton (“Fenton”), Mark Stowe (“Stowe”) and Rebecca St. Louis (“St. Louis”) (collectively the “Individual Defendants”). The Individual Defendants seek to strike the notices of civil claim against them on the basis that they disclose no reasonable cause of action. The applications were opposed by both plaintiffs, Foresters Life Insurance Company (“Foresters”) and The Equitable Life Insurance Company of Canada (“Equitable) (collectively the “Plaintiffs”). The defendants Bingham Group Services Corp. (“BGS”) and Matthew Bingham (“Bingham”) took no position on the applications. Any references to the “parties” in these reasons exclude BGS and Bingham.
[2] On applications to strike a pleading as disclosing no reasonable cause of action, I am to assume “all of the facts alleged will be established in evidence”: Kripps v. Touche Ross & Co. (1992), 69 B.C.L.R. (2d) 62 (C.A.) at para. 6. The following facts arise from the pleadings.
[3] The Plaintiffs are insurance companies providing creditors’ group insurance, which is a form of life, disability, and critical illness insurance available to individual borrowers where the lender is the beneficiary. The defendant BGS, a licensed insurance agency, is now bankrupt. Fenton was a director and officer of BGS and its Director of Compliance. Stowe was a director and vice-president of BGS. St. Louis was BGS’s Regional Director for the Province of Quebec.
[4] The Plaintiffs and BGS entered into a series of written professional services agreements whereby BGS was appointed as the Managing General Agent for each of the Plaintiffs’ creditors’ group insurance programs (the “Professional Services Agreements”). The Individual Defendants acted on behalf of the Plaintiffs in carrying out the professional services under the Professional Services Agreements. Under the authorization of the Professional Services Agreements, BGS contracted with dealers and sub-agents to assist in the performance of the professional services. These sub-agents and dealers were responsible for soliciting applicants and selling the Plaintiffs’ creditors’ group insurance policies, which BGS then administered.
[5] Among the dealers and sub-agents appointed by BGS were Michel Bernard (“Bernard”) and his company BGA Groupe Financier Inc. (“BGA”), which operated in and around Gatineau, Quebec. Between August of 2013 and September of 2015, Bernard and BGA submitted approximately 200 fraudulent applications, which were analyzed and accepted by BGS, as well as one or more of the Individual Defendants. Acceptance by BGS meant a commission was payable by the Plaintiffs to BGS. The Plaintiffs paid the commissions to BGS, but because the applications were fraudulent, commissions were not actually due or payable. The Plaintiffs paid more than $18,000,000 in commissions to BGS, from which more than $10,000,000 was then paid to BGA, almost all of which was not validly due or payable.
[6] The Individual Defendants argue there are two grounds to strike the pleadings as disclosing no reasonable cause of action:
1. the pleadings do not establish independent tortious actions by the Individual Defendants; and
2. the claims are for economic loss and the pleadings do not establish the Individual Defendants owed a duty of care to the Plaintiffs.
[7] The second ground was not identified in the notices of application, but was raised by the Individual Defendants during oral submissions at the hearing before me. I will begin by briefly outlining the general principles applicable for a motion to strike on the basis of no reasonable cause of action. I will then address each of the grounds relied on by the Individual Defendants in turn.
[8] On applications to strike under R. 9-5(1)(a) of the Rules, the court can only strike a claim where the applicants establish it is “plain and obvious” the pleadings disclose no reasonable cause of action, has “no reasonable prospect of success” or is “certain to fail”: Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at 980; R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 25; and International Taoist Church of Canada v. Ching Chung Taoist Association of Hong Kong Limited, 2011 BCCA 149 at paras. 20-21. A plaintiff is not to be prevented from proceeding with their case because of the length and complexity of the issues, the novelty of the cause of action, or the potential for a defendant to present a strong defence: Hunt, at para. 36. If there is a chance the plaintiffs might succeed, they are not to be “driven from the judgment seat”: Hunt, at para. 36. I have undertaken my consideration of the applications with those principles in mind.
[9] The Individual Defendants make two points with respect to the first ground of the applications to strike. First, relying on the rule in Said v. Butt, [1920] 3 K.B. 497, they argue the law precludes a finding of liability against directors, officers or employees of a company for actions undertaken within the course of that employment or relationship. Their view is that the law insulates the Individual Defendants unless they have committed “independent” torts.
[10] The Individual Defendants argue “independent” in this context is behaviour outside the employee, director or officer’s usual corporate duties. The Individual Defendants submit the allegations must be “apart from any corporate liability” (The Owners, Strata Plan No. VIS3578 v. John A. Neilson Architects Inc., 2010 BCCA 329 at para. 71), must involve conduct that is “distinct from that of the corporation” (Craik v. Aetna Life Insurance Co. of Canada, [1995] O.J. No. 3286 (C.J.) at para. 20), and not be “substantially the same” as the allegations against the company “such that the two causes of action relate to the same underlying factual foundation and no significant differences between the two causes of action emerge”: Normart Management Ltd. v. West Hill Redevelopment Co., [1998] O.J. No. 391 (C.A.) at para. 16; Hogarth v. Rocky Mountain Slate Inc., 2013 ABCA 57 at para. 130. The Individual Defendants submit that in order to sustain the claims against them, the Plaintiffs must allege they undertook activity outside of their roles as the directing minds or employees of BGS and exhibited a “separate identity or interest”: Merit Consultants International Ltd. v. Chandler, 2014 BCCA 121 at para. 23.
[11] The Individual Defendants argue the claims against them are a disguised attempt to make them responsible for the Plaintiffs’ claims against a bankrupt BGS. They submit claims against individual employees can only be pursued in limited situations, as set out by Justice Cronk in Piedra v. Cooper Mesa Mining Corporation, 2011 ONCA 191 at para. 73:
[73] The circumstances in which directors and officers of a corporation may be held personally liable in negligence for the acts of the company they serve are limited. As Carthy J.A. of this court explained in ADGA Systems International Ltd. v. Valcom Ltd. (1999), 43 O.R. (3d) 101 (Ont. C.A.), at p. 112, leave to appeal refused, (2000), [1999] S.C.C.A. No. 124 (S.C.C.), citing Montreal Trust Co. of Canada v. ScotiaMcLeod Inc. (1995), 26 O.R. (3d) 481 (Ont. C.A.), at pp. 720-21, leave to appeal refused, [1996] S.C.C.A. No. 40(S.C.C.):
Absent allegations which fit within the categories described above [for instance, cases where the use of a corporate structure was a sham from the outset or cases involving findings of fraud, deceit, dishonesty or want of authority on the part of employees or officers], officers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.
See also Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 37 O.R. (3d) 97 (Ont. C.A.), at p. 102.
[Emphasis in original.]
[12] The second argument advanced by the Individual Defendants on this ground is that the pleadings do not set out the material facts sufficient to establish “independent” tortious actions because they contain undifferentiated allegations against BGS and the Individual Defendants. The Individual Defendants say the pleadings do not distinguish between them and BGS as exemplified by numerous references to “the defendants, or one or more of them”. They argue it is not enough to plead undifferentiated allegations against the company, its directors and employees: John A. Neilson Architects Inc., at para. 71.
[13] In response, the Plaintiffs agree claims against an individual director, officer or employee “must be based on the breach of a duty of care action that would support an action against the individual personally”: John A. Neilson Architects Inc., at para. 66. However, the Plaintiffs deny that “independence” requires them to allege that the actions of the Individual Defendants were outside their corporate duties. They further deny that the rule in Said v. Butt insulates the Individual Defendants from civil liability.
[14] The Plaintiffs acknowledge the pleadings must contain allegations that the Individual Defendants committed independent torts, but say they have pled material facts sufficient to satisfy that requirement. The Plaintiffs submit they have not claimed against the Individual Defendants merely because of their status as directors, officers or employees of BGS, but rather because the Individual Defendants themselves committed tortious acts. The Plaintiffs argue the requirement for alleging independent tortious actions by the Individual Defendants has been satisfied.
[15] The modern starting point with respect to the liability of employees carrying out the acts of and for their corporate employers is London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299. In London Drugs, the Court held that employees acting in the course of their employment and performing the very essence of their employer’s contractual obligations to customers owe a duty of care to those customers. Writing for the majority, Justice Iacobucci referred to the reasons of the trial judge (at 394):
After a review of the relevant jurisprudence, the trial judge held that there is no general rule in British Columbia barring an employee from being sued for a tort committed in the course of carrying out the very services for which the plaintiff had contracted with his or her employer. This was said in answer to the respondents' argument that they should be given the protection of the limitation of liability clause since their negligence was not an "independent tort" in itself, but rather negligence in the very course of performing the contract between their employer and the appellant.
[16] After referencing the five separate judgments of the British Columbia Court of Appeal, most of which affirmed the trial judge’s view on this point, Iacobucci J. continued (at 405-406):
In my opinion, the [employees] unquestionably owed a duty of care to the [employer’s customer] when handling the transformer. I arrive at this conclusion with as little difficulty as the judges in the courts below. I do not base my conclusion on the terms of the contract of storage or on s. 2(4) of the Warehouse Receipt Act but on well established principles of tort law. In all the circumstances of this case, it was reasonably foreseeable to the respondent employees that negligence on their part in the handling of the transformer would result in damage to the [employer’s customer’s] property. In sum, there was such a close relationship between the parties as to give rise to a duty on the respondents to exercise reasonable care. [Emphasis added.]
[17] Framed in the context of this case, the starting point is that in British Columbia, there is no general rule insulating the Individual Defendants from claims of negligence or negligent misrepresentation they committed in the course of carrying out the very services for which the Plaintiffs had contracted with BGS. In order to succeed on this ground, the Individual Defendants must establish that post‑London Drugs, the law in British Columbia has developed in a way that negates this principle. In an effort to do so, they relied on a number of cases, as did the Plaintiffs in response. I will address those cases in chronological order.
[18] The issue of personal liability of corporate employees arose in Hildebrand v. Fox, 2008 BCCA 434. In Hildebrand, a teacher brought an action against a principal for gross negligence, and against the school board alleging its vicarious liability for the principal’s gross negligence. The chambers judge dismissed the claim against the principal under the former R. 19(24) on the basis that it disclosed no reasonable cause of action. The principal argued the common law held employees harmless for acts done in the course of their employment unless they committed a tortious act which demonstrates an identity or interest separate and apart from their employer (at para. 46). The Individual Defendants make the same argument.
[19] In his reasons, Justice Tysoe discussed the case of Said v. Butt. In that case the plaintiff sued an opera company for breach of contract when he was denied entrance to a performance for which he had purchased a ticket. The plaintiff also sued the employee who had denied him entrance, for wrongfully inducing the opera company’s breach. At para. 49, Tysoe J.A. set out the following passage from Justice McCardie’s judgment in Said v. Butt:
…
But the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and, in my view an action against the agent under the Lumley v. Gye [2 E. & B. 216] principle must therefore fail, just as it would fail if brought against the master himself for wrongfully procuring a breach of his own contract. …
I hold that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken. … Nothing that I have said today is, I hope, inconsistent with the rule that a director or a servant who actually takes part in or actually authorizes such torts as assault, trespass to property, nuisance, or the like may be liable in damages as a joint participant in one of such recognized heads of tortious wrong.
[20] In allowing the plaintiff’s appeal, Tysoe J.A. remarked at paras. 70-71:
I have reviewed these authorities at some length to demonstrate that there does not appear to be a clear consensus as to what the law is or should be in connection with personal liability of employees. The law is relatively clear that, based on Said v. Butt, an employee of a company which has breached a contract is not personally liable for the tort of inducing breach of contract or for another claim that is a disguised attempt to make a non-party liable on a contract. That is not the situation in this case. Based on London Drugs and ADGA Systems, it is at least arguable that the principle in Said v. Butt does not extend to the tort of negligence even where the negligent act or omission occurred in the performance by the employee of a contract between the employee’s corporate employer and the plaintiff.
On the basis of my review of these authorities, it is my view that it is not plain and obvious that the statement of claim does not disclose a cause of action against Mr. Fox on the ground that it fails to demonstrate that he had an identity or interest separate and apart from the Board.
[21] Framed in the context of this case, based on Hildebrand it is at least arguable the principle in Said v. Butt does not extend to insulate the Individual Defendants from liability for negligence for their actions, even where the negligent act or omission occurred during the performance of a contract between BGS and the Plaintiffs.
[22] This issue arose again in John A. Neilson Architects Inc. in the context of an appeal involving a joinder application. In that case Justice Neilson had to consider whether a possible cause of action had been pled justifying the addition of several individuals as defendants who had been principals of the proposed corporate defendants. In considering the issue, Neilson J.A. affirmed the principle articulated in London Drugs and the limited exception carved out in Said v. Butt:
[66] Similarly here, it is not plain and obvious that claims in negligence against the individual respondents personally would be excluded under the Said v. Butt exception to the general principle outlined in London Drugs. The fact that a director, officer or employee was acting within the course of employment and the corporation is vicariously liable for his negligence does not preclude a claim in negligence against the employee personally. However, in my view, the London Drugs principle requires that claim against the individual must be based on the breach of a duty of care that would support an action against the individual personally.
…
[69] …London Drugs lays down the general rule that personal claims in tort, at least for the tort of negligence, may be advanced against employees, officers and directors. The negligence of the defendant employees in that case in physically damaging the plaintiff’s transformer illustrates the breach of duty personal to them. As emphasized in the passage from ScotiaMcLeod quoted above, the facts giving rise to personal liability must be specifically pleaded.
[23] In XY, LLC v. Zhu, 2013 BCCA 352, leave to appeal ref’d [2013] S.C.C.A. No. 376, the Court again considered the question of whether an “employed” status shields employees from the consequences of what would otherwise constitute tortious conduct. At the outset of her reasons on this issue, Justice Newbury noted that “the case law concerning the liability of employees who on the orders of or at the request of their employer commit torts or other wrongful acts that injure a third party, is not fully developed”, noting also that one reason for this was that “many of the cases have arisen only in the context of applications to strike out pleadings and have not been decided on the merits”: XY, at para. 57. After considering a number of the same authorities relied on by the Individual Defendants, Newbury J.A. wrote:
[73] Nevertheless, it appears to be the law in Canada that as long as tortious conduct on the part of an employee or agent of a corporation (or any other employer) is properly pleaded and proven as an “independent” tort by the employee or agent, the wrongdoer can be held personally liable notwithstanding that he or she may have been acting in the best interests of (and at the behest of) the employer or principal. I see no reason in principle or policy why such liability should be restricted to cases involving physical damage (as Said v. Butt may have suggested in 1920), or to claims in negligence (as referred to in London Drugs, Hildebrand and Neilson.) Certainly the Ontario Court of Appeal did not so restrict it in ADGA. (See also Hogarth v. Rocky Mountain Slate Inc. 2013 ABCA 57 at para. 103; Schembri v. Way 2012 ONCA 620 at para. 30; Correia v. Canac Kitchens, 2008 ONCA 506 at paras. 86-8; and Unisys Canada Inc. v. York Three Associates Inc. (2001) (ON CA), 150 O.A.C. 49 (Ont. C.A.) at para. 11.)
[24] The Individual Defendants also relied on Merit Consultants International Ltd. v. Chandler, 2014 BCCA 121 as support for the proposition they could not be held liable for tortious conduct on the basis of their status as directors. However, in Merit, Newbury J.A. did not attempt to “reconcile all the case law” because she was able to dispose of the issues on the basis of the specific facts of the case. She found the case before her to be “at the far ‘no liability’ end of the spectrum of directors’ personal liability”: Merit, at para. 23.
[25] Many of the other cases relied on by the Individual Defendants were from Ontario and Alberta. While these cases may assist in providing a definitive answer to the question of director liability if it becomes necessary to do so at trial, they are not binding in British Columbia and therefore do not assist in answering the question before me, namely whether it is plain and obvious no reasonable cause of action exists in British Columbia.
[26] It has been acknowledged that the personal liability of corporate officers, directors, and employees is a complex topic: John A. Neilson Architects Inc., at para. 66. It is not my role on these applications to determine whether the law permits a cause of action against the Individual Defendants for actions undertaken as part of their corporate duties, but rather to determine whether the Individual Defendants have proven it is plain and obvious that the answer to that question is no. In my view, it is at least arguable that the principle in Said v. Butt does not extend to the circumstances of this case. It is not plain and obvious the law in British Columbia insulates directors, officers, and employees against claims involving negligence even where the complained of behaviour is the very essence of their company’s contractual obligations to its customers.
[27] I turn to the second argument of the Individual Defendants with respect to this ground of their applications. In my view, it cannot be said that the alleged acts and omissions do not constitute “independent” tortious activity such that the Plaintiffs’ claims are certain to fail: Holmes v. United Furniture Warehouse Limited Partnership, 2012 BCCA 226 at para. 20. The pleadings do not pursue claims against the Individual Defendants based on their status as directors, officers or employees of BGS, which I accept might be precluded: Merit, at para. 14. The pleadings are replete with references to responsibilities of and actions taken by the Individual Defendants themselves. For example, the Foresters’ notice of civil claim states:
· NOCC para. 31(b) - “Bingham, Stowe, Fenton, and St. Louis, or one or more of them, were responsible for overseeing the vetting and analysis applications submitted by BGA”;
· NOCC para. 31(c) - “Each of Bingham, Stowe, Fenton, and St. Louis were responsible for ensuring that BGA and its senior leadership complied with all applicable rules, regulations, and best practices in soliciting, preparing, and submitting applications for creditors group insurance”;
· NOCC para. 31(e) - “Bingham, Stowe, Fenton, and St. Louis, or one or more of them, were responsible for reviewing the business provided by BGA and taking reasonable care that it was honest and genuine business”;
· NOCC para. 31(f) - “Bingham and St. Louis had direct discussions and involvement with Bernard and did, or in the alternative, could and should have accessed detailed information from Bernard at any material time regarding the business, affairs, and practices of BGA, including all applications for creditors’ group insurance obtained by BGA”;
· NOCC para. 33 - “Foresters Life relied entirely on BGS and its representatives Bingham, Stowe, Fenton, and St. Louis to take reasonable care to see that BGA was acting in an ethical and proper manner, and that applications submitted by BGA were valid and bona fide”;
· NOCC para. 38 - “The Certificate Applications were analyzed and accepted by BGS and one or more of its representatives Bingham, Stowe, Fenton, and St. Louis”;
· NOCC para. 47 - “Between August 2013 and September 2015, the Defendants, or one or more of them, represented to Foresters Life that the Certificate Applications were valid applications for insurance from actual individuals who wished to obtain insurance and pay premiums therefore”;
· NOCC para. 48 - “Further, in 2012, 2014, and 2015, through the provision of written BGS “Procedure Guides” to Foresters Life, the Defendants, or one or more of them, made representations to Foresters Life that BGS had internal programs in place to ensure that applications for certificates of insurance, including the Certificate Applications: Had legitimate banking information for applications; had legitimate conduct and identifying information for applicants and creditors including telephone numbers and addresses, and if such information was missing or did not appear accurate or legitimate, BGS would contact the Dealer, Sub-Agent or Sub-Contractor who had submitted the application to ensure the application was legitimate and complete”;
· NOCC para. 49 - “The Defendants, or one or more of them, made the Representation of Validity and the Representations of Oversight in the course of performing the MGA Professional Services”;
· NOCC para. 52 - “The Defendants were negligent in making the Representation of Validity and the Representations of Oversight, which were false, inaccurate, and misleading, in that the Certificate Applications were fictitious and fraudulent, and the Defendants did not take reasonable or any care to determine whether the Certificate Applications were valid or contained legitimate information or otherwise contained the information required of an application before a policy of insurance ought to have issued”; and
· NOCC para. 53 - “The Defendants ought reasonably to have foreseen that Foresters Life would rely on the Representation of Validity and the Representations of Oversight because of BGS’ appointment as Foresters Life’s exclusive managing agent for its creditors group insurance programme”.
[28] Equitable made virtually the same factual allegations in its amended notice of civil claim.
[29] With respect to the Individual Defendants’ argument regarding a lack of particularization of the allegations, a lack of precision is not a proper basis to strike the pleading. As noted by Justice Frankel in Chang Estate v. Chang, 2010 BCCA 111 at para. 50:
…Rule 19(11) [now Rule 9-5(1)] must be read in light of Rule 19(11.1) which states that “particulars need only be pleaded to the extent that they are known at the date of pleading, but further particulars may be delivered after they become known”...
[30] This case before me is distinguishable from Marshall v. United Furniture Warehouse Limited Partnership, 2013 BCSC 2050, aff’d 2015 BCCA 252, upon which the Individual Defendants relied. In that case, as noted at para. 65 by Justice Fisher, several of the defendants had been included in the notice of civil claim solely on the basis of their ownership interest in other corporate defendants. The pleadings in Marshall did not identify specific acts alleged to have been undertaken by the individuals, providing a basis for their liability.
[31] This case is also distinguishable from Digital.Doc Services (Canada) Inc. v. Future Shop Ltd., [1997] B.C.J. No. 1689, cited by the Individual Defendants. That case involved a claim against directors and officers for negligence in causing the corporate defendant to breach its contract with the plaintiff, which is a recognized exception to Said v. Butt referred to in Hildebrand.
[32] In Piedra, also relied on by the Individual Defendants, the plaintiffs did not plead the material facts necessary to anchor the imposition of private law duties of care and to establish breaches of those duties. I will address the duty of care issue in the next section of these reasons.
[33] After a review of the related case law, in my view, it cannot be said that the Plaintiffs’ claims are certain to fail because the alleged acts and omissions do not amount to “independent” tortious activity. It is not plain and obvious the pleadings fail to establish independent tortious actions by the individual Defendants. I will turn now to my analysis of the duty of care arguments raised by the Individual Defendants in support of their applications to strike.
[34] With respect to the second ground to strike the pleadings as disclosing no reasonable cause of action, the Individual Defendants make two arguments: first, they say the Plaintiffs’ claims are for economic loss, which requires a close and direct relationship between the parties in order to establish a duty of care. They argue the relationship between the Plaintiffs and the Individual Defendants is novel and not analogous to previously recognized relationships where a duty of care has been found. They submit I must therefore undertake a full duty of care analysis, which will lead me to conclude there is insufficient proximity to ground a duty of care in this case and that I should strike the claims on that basis. In the alternative, the Individual Defendants argue even if I find a prima facie duty of care, imposing a duty of care in these circumstances would discourage people from serving as corporate directors and a duty of care should therefore be rejected on residual policy grounds.
[35] The Individual Defendants’ second argument in support of this ground is that the pleadings do not establish the Individual Defendants are insurance professionals who undertook responsibility for the Plaintiffs’ interests. The Individual Defendants say there are factual “gaps” in the pleadings between the standard of care and the breaches alleged, which are fatal to the Plaintiffs’ claims for negligent performance of professional services. They say that while the pleadings assert the Individual Defendants “breached the standard of care required of an insurance administration professional”, the pleadings do not allege the Individual Defendants are insurance administration professionals such that the duties pled would apply, or that the Individual Defendants undertook responsibility for the Plaintiffs’ interests. Such material facts, according to the Individual Defendants, are essential to formulate a complete cause of action and if omitted, a cause of action is not effectively pleaded: Micka v. Oliver & District Community Economic Development Society, 2008 BCSC 1623 at para.
[36] With respect to the second ground put forward by the Individual Defendants, the Plaintiffs acknowledge their claims are for economic loss, but argue these claims can be sustained. According to the Plaintiffs, there is precedent for recognizing a duty of care owed in circumstances analogous to this case. In the event I disagree, they say a full duty of care analysis leads to the conclusion that it is not plain and obvious the Individual Defendants did not owe a duty of care to the Plaintiffs with respect to the professional services they performed.
[37] In response to the Individual Defendants' second argument, the Plaintiffs argue the relational facts pled could arguably be viewed as inviting the Plaintiffs’ reasonable reliance and a corresponding duty on the Individual Defendants to take reasonable care. They argue those relational facts preclude a finding that it is plain and obvious that the Individual Defendants did not assume responsibility for the Plaintiffs’ interests. Insofar as any material facts have been omitted, according to the Plaintiffs, such deficiencies are technical drafting matters which can be easily cured by amendment.
[38] Proximity has been a consistent component of negligence throughout its history: Cooper v. Hobart, 2001 SCC 79 at paras. 22 and 32. Where a plaintiff makes a claim in negligence for physical damage, a finding that the harm was reasonably foreseeable is often sufficient to establish the proximity necessary to impose a duty of care. Justice Taylor commented on the possible reason for that correlation in Kamahap Enterprises Ltd. v. Chu’s Central Market Ltd. (1989), 40 B.C.L.R. (2d) 288 (C.A.):
[15] Perhaps that is because reasonable reliance by the one party, and knowledge of reliance by the other, can in such cases usually be assumed. It was, of course, the impossibility of intermediate examination of the product which resulted in reliance by the consumer on the manufacturer in Donoghue v. Stevenson. Reliance on the carefulness of another is reasonably to be expected as a general rule when it is foreseeable that a person may suffer personal injury or physical property damage as a result of the carelessness of another, subject, no doubt, to exception where such reliance would not be reasonable or expected, by reason, for instance, of the existence of some special knowledge, contractual arrangements, or legal relationship.
[39] While recovery for negligence causing physical damage to persons or property has long been accepted, the same cannot be said of recovery for economic loss. The relatively recent development of recovery in tort for economic loss was noted by Justice Vancise in Advanced Process Solutions Inc. v. Delta-T Canada Corp., 2011 SKCA 92 at para. 10:
… The historical reluctance of the courts to allow recovery in tort for pure economic loss is changing. The courts have more recently begun to recognize instances where pure economic loss could be recoverable. See The Law of Torts, 2nd ed. (Toronto: Irwin Law, 2003) where Philip H. Osborne discusses the current position of the courts with respect to recoverability for pure economic loss. The author states:
… the House of Lords in Hedley Byrne launched negligence law into the field of economic loss by recognizing that in certain circumstances liability may be imposed for pure economic loss caused by negligent misrepresentation. It was the first step in extending the reach of negligence law to economic loss. Since that decision, the courts have been involved in the yet unfinished task of defining the scope and extent of liability for economic loss in negligence law. In this process they have been assisted by the insight of Professor Feldthusen, who has pointed out that economic loss cases can best be analyzed by grouping them into categories that give rise to similar policy concerns and similar solutions. These categories include negligent misrepresentation, negligent performance of service, relational economic loss, and claims for economic loss arising from the supply of poor quality goods and structures. The Supreme Court has relied on both this framework of analysis and the general test of a duty of care to define the appropriate scope of negligence liability for pure economic loss.
[40] While it is now recognized that recovery is available for damage suffered as pure economic loss, the proximity requirement in the context of such a claim is not satisfied simply by finding the economic loss was reasonably foreseeable. Reasonable foreseeability and sufficient proximity, while related, involve independent inquiries: Bergen v. Guliker, 2015 BCCA 283 at para. 72. At the hearing before me the Individual Defendants did not argue the harm suffered by the Plaintiffs was not reasonably foreseeable. Instead, their submissions focussed on an insufficiently “close and direct” relationship between the parties and a corresponding lack of proximity. It is that element of the duty of care analysis to which I now turn.
[41] While McAlister (Donoghue) v. Stevenson, [1932] A.C. 562 (U.K. H.L.) launched the principle that a person could be liable for reasonably foreseeable harm they caused, “it also anticipated that not all reasonably foreseeable harm might be caught”: Cooper, at para. 21. The issue that arises on these applications is whether it is plain and obvious the law of negligence does not extend to the relationship between the Plaintiffs and the Individual Defendants. This consideration involves applying the principled framework for assessing whether an extension of the negligence principle to a “novel” situation is warranted.
[42] The need for the law to be stable and flexible to emerging or changing societal needs and expectations, while also avoiding “the spectre of unlimited damages” is well recognized: Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021 at para. 11; Kamahap, at paras. 19-22; Cooper, at para. 31. What has become known as the Anns/Cooper test, and its proximity analysis, is the law’s answer to that paradox. The question of whether a duty of care in tort exists is to be determined through an application of a two part test first articulated in Anns v. Merton London Borough Council (1977), [1978] A.C. 728 (U.K.H.L.) and affirmed by the Supreme Court of Canada in Cooper. The proximity analysis established in the Anns/Cooper test, which involves policy considerations, is the framework to be applied in determining whether the relationship between the parties is sufficiently proximate to warrant imposing a duty of care: Cooper, at paras. 25 and 30.
[43] While the Anns/Cooper analysis has often been undertaken in the context of an allegation that a public body owes a private duty of care, its application is not restricted to that situation. The Anns/Cooper framework is to be applied whenever a duty of care is being asserted in a novel relational context, whether against a public or private defendant.
[44] The Plaintiffs’ claims are for damages and loss arising from commissions paid on account of fraudulent insurance policies, unearned administration costs, loss of profits and other costs, and constitute claims for pure economic loss: Kripps v. Touche Ross & Co., [1992] B.C.J. No. 1550 (C.A.) at para. 12. The Individual Defendants argue this would be a novel application of the negligence principle. Therefore, the imposition of a duty of care will depend on the outcome of Anns/Cooper test which was set out in Cooper, at para. 30 as follows:
…At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant’s act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care…
[45] The two-stage duty of care test established in Cooper was briefly re-stated and summarized in Carhoun & Sons Enterprises Ltd. v. Canada (Attorney General), 2015 BCCA 163 at para. 50:
[50] The test for determining the existence of a private duty of care owed by a public authority is known as the “Anns/Cooper” test: Cooper v. Hobart, 2001 SCC 79. The test requires a court to address the analysis by considering the following series of questions:
1) Does a sufficiently analogous precedent exist that definitively found the existence or non-existence of a duty of care in these circumstances;
If not;
2) Was the harm suffered by the plaintiff reasonably foreseeable;
If yes;
3) Was there a relationship of sufficient proximity between the plaintiff and the defendant such that it would be just to impose a duty of care in these circumstances;
If yes, a prima facie duty arises;
4) Are there any residual policy reasons for negating the prima facie duty of care established in question/step 3, aside from any policy considerations that arise naturally out of a consideration of proximity.
If not, then a novel duty of care is found to exist.
[46] One year after deciding Carhoun, the Court of Appeal had an opportunity to address the interplay between the proximity analysis as directed in Anns/Cooper and the “plain and obvious” standard to be applied on a non-evidentiary motion to strike, in Burke v. Watson & Barnard (A Firm), 2016 BCCA 439. In allowing the appeal brought by the land surveyor from the chambers decision refusing to strike the claim, the Court cautioned that there are two separate inquiries to be undertaken when a proximity analysis arises in the context of a motion to strike: Burke, at para. 45. The first inquiry considers whether a prima facie duty of care exists and should be determined applying the two part analysis set out by the Supreme Court of Canada in Cooper. If the proximity analysis leads to the conclusion that no duty of care is owed, the claim is to be struck, since if no duty of care is owed it is plain and obvious there is no reasonable cause of action alleged. The Court in Burke at para. 45 stated:
…If the Cooper analysis leads to a conclusion that the duty of care exists or the factual matrix is insufficient to determine if such a duty exists, then the claim will not be struck, as was the case in Carhoun and cases cited therein.
[47] I do not interpret this passage as altering the onus on a motion to strike. The burden remains on the party seeking to strike the claim, here the Individual Defendants, to establish a negative, namely that no reasonable cause of action is or can be pled: Hildebrand, at para. 21. My role sitting as the chambers judge is to determine whether the Individual Defendants have discharged their burden. It is not my role on these applications to determine the question which will ultimately be decided by the trial judge, namely whether a duty of care arose in this case. I am only to consider whether it is plain and obvious it did not. With that in mind, I turn to the proximity analysis by applying the Anns/Cooper framework as summarized by the Court of Appeal in Carhoun.
[48] The first stage of the Anns/Cooper test involves an inquiry into whether the existence of a duty of care has already been conclusively determined in the context of the same or a sufficiently analogous relationship: Carhoun, at para. 52. In considering this question, more than a simple precedent is required. The duty of care “must be well-established in the jurisprudence in order to negate the need for a full duty of care analysis”: Burke, at para. 43.
[49] In certain cases, previously recognized proximate relationships have been expressed as broad categories, for example, solicitor-client and doctor-patient relationships. The duty of care owed by insurance agents and brokers to their clients is also well recognized. In Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191 at 217:
It is clear that within the insurance industry, as also within the courts, private insurance agents and brokers are viewed as more than mere salespeople… The Continuing Legal Education Society of British Columbia's 1985 Seminar on Insurance Law focused on the services they provide, (at p. 6.1.03):
The services of a competent agent or broker will include, in addition to advice on insurance, and the brokering or placing of insurance on behalf of the client, an active interest and involvement in loss prevention and a claims supervisory service to assist your client in the satisfactory settlement of the claims.
In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers. They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client.
[50] However, I must examine the relationship in the particular factual context in which the negligence principle is sought to be imposed in this case in order to examine whether a “special relationship”, one that is sufficiently proximate to warrant the imposition of a duty of care, exists. This was the direction given by the majority of the Court in Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63:
[27] This Court has on occasion defined previously established categories of proximity in broad terms. In Hill, for example, the Court listed “[t]he duty of care of the motorist to other users of the highway; the duty of care of the doctor to his patient; the duty of care of the solicitor to her client” (para. 25). Proximate relationships will not always, however, be identified so generally. In particular, whether proximity exists between two parties at large, or whether it inheres only for particular purposes or in relation to particular actions, will depend upon the nature of the particular relationship at issue (ibid., at para. 27; Haig, at p. 479). Indeed, and as we explain below, factors which support recognizing “novel” proximate relationships do so based upon the characteristics of the parties’ relationship and the circumstances of each particular case (Cooper, at paras. 34-35).
[28] It follows that, where a party seeks to base a finding of proximity upon a previously established or analogous category, a court should be attentive to the particular factors which justified recognizing that prior category in order to determine whether the relationship at issue is, in fact, truly the same as or analogous to that which was previously recognized. And, by corollary, courts should avoid identifying established categories in an overly broad manner because, again, residual policy considerations are not considered where proximity is found on the basis of an established category (Cooper, at para. 39). Analytically, this makes sense. For a court to have previously recognized a proximate relationship, second-stage residual policy considerations must already have been taken into account. When, therefore, a court relies on an established category of proximity, it follows “that there are no overriding policy considerations that would [negate] the duty of care” (ibid.). A consequence of this approach, however, is that a finding of proximity based upon a previously established or analogous category must be grounded not merely upon the identity of the parties, but upon examination of the particular relationship at issue in each case. Otherwise, courts risk recognizing prima facie duties of care without any examination of pertinent second-stage residual policy considerations.
[51] None of the parties were able to direct me to a line of authority that had conclusively determined whether or not a duty of care exists in the context of the specific relationship of directors, officers, and employees providing professional administrative insurance services to their company’s customers.
[52] The Plaintiffs relied on North Waterloo Farmers Mutual Insurance Co. v. Wylie, [1989] O.J. No. 1493 (H.C.J.) as being sufficiently analogous to this case to negate the need for a full duty of care analysis. In Wylie, Justice White described the basis for the duty owed by insurance agents in the following terms:
[135] The duty of a broker such as Mr. Wylie was, in relation to the plaintiff insurers, one of the highest: good faith. He was, in effect, the insured's application form to the insurers for insurance. His negligence in failing to make a disclosure of material information was the cause of the plaintiffs' loss…
[53] Wylie involved an action by a group of insurers against their individual insurance agents which is similar, but not identical, to the relationship between the parties in this case. Here, the Plaintiffs contracted with BGS for the professional insurance administration services which were, the claims allege, carried out by the Individual Defendants. The absence of a direct contractual relationship between Plaintiffs and the Individual Defendants does not negate the otherwise analogous circumstances of Wylie, since it is clear proximity does not require a direct contractual relationship: Norsk, at para. 49. In addition, the nature of the insurance services provided by the agents in Wylie were similar to the services provided by BGS and the Individual Defendants in this case, namely assessment, disclosure and advice about the potential risk associated with binding policies to prospective insureds. In my view, the imposition of a duty of care on licensed insurance professionals towards the insurers for whom they are carrying out professional insurance services is not dependent on the nature of the insurance product of service being provided.
[54] It may be that the relationship between the Plaintiffs and Individual Defendants in this case is analogous to the relationship between the parties in Wylie where a duty of care was recognized. However, as noted above a single non-binding precedent does not definitively answer the issue: Burke, at para. 43. Therefore, I will now undertake a full duty of care analysis as urged by the Individual Defendants by addressing the second inquiry of the first stage of the Anns/Cooper test.
[55] The next inquiry in accordance with the Anns/Cooper test involves a full duty of care analysis. As noted by Justice Smith in Bergen at para. 73:
[73] The proximity inquiry is concerned with the quality of the relationship that makes it fair to impose “an obligation [on the defendant] to be mindful of the plaintiff’s legitimate interests in conducting his or her affairs” (Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165 at para. 24). The inquiry focuses on whether the relationship between the plaintiff and the defendant was sufficiently close and direct to make the imposition of a private law duty of care fair and just. Evaluating the closeness of a relationship may involve looking at factors such as “expectations, representations, reliance, and the property or other interests involved … to determine whether it is just and fair having regard to that relationship to impose a duty of care” (Cooper at para. 34).
See also, Burke, at para. 56.
[56] The examination of whether the “necessary degree of proximity” exists is to be undertaken in the context of the causes of action that arise from the pleadings, in this case negligent misrepresentation and negligent performance of a service.
[57] In Deloitte, the Supreme Court of Canada considered proximity in the context of claims of negligent misrepresentation and negligent performance of a service. The majority judgment includes the following observation:
[30] In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are determinative in the proximity analysis: the defendant’s undertaking and the plaintiff’s reliance. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care. And, the plaintiff has a right to rely on the defendant’s undertaking to do so (W. N. Hohfeld, “Some Fundamental Legal Conceptions as Applied in Judicial Reasoning” (1913), 23 Yale L.J. 16, at pp. 49-50). These corollary rights and obligations create a relationship of proximity (Haig, at p. 477; Caparo Industries plc. v. Dickman, [1990] 1 All E.R. 568 (H.L.), at pp. 637-38; Glanzer v. Shepard, 135 N.E. 275 (N.Y. 1922) at pp. 275-76; Ultramares Corp. v. Touche, 174 N.E. 441 (N.Y. 1931), at pp. 445-46; E. J. Weinrib, “The Disintegration of Duty” (2006), 31 Adv. Q. 212, at p. 230).
[58] Therefore, proximity can be established if the relational context set out in the pleadings is sufficient to conclude the Individual Defendants “inferentially assumed responsibility” for the Plaintiffs’ interests: Burke, at para. 72. The underlying question is whether a duty of care should be imposed, taking into account all relevant factors disclosed by the circumstances: Cooper, at para. 27.
[59] In Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165 (S.C.C.), the Court addressed the indicia that support a finding of reasonable reliance, citing with approval Professor Bruce Feldthusen’s Economic Negligence (3rd ed. 1994), at para. 43 of the decision:
[43] Professor Feldthusen (at pp. 62-63) sets out five general indicia of reasonable reliance; namely:
(1) The defendant had a direct or indirect financial interest in the transaction in respect of which the representation was made.
(2) The defendant was a professional or someone who possessed special skill, judgment or knowledge.
(3) The advice or information was provided in the course of the defendant's business.
(4) The information or advice was given deliberately, and not on a social occasion.
(5) The information or advice was given in response to a specific enquiry or request.
[60] With the exception of the second general indicia/reasonable reliance, these indicia are expressly articulated in the pleadings.
[61] In my view, the allegation that the Individual Defendants were insurance professionals, with special skill, judgment, and knowledge, can be plainly inferred from the context of the pleadings, including the multiple references to the duties of insurance professionals. Even if not expressly articulated, the pleadings communicate the Plaintiffs’ claims are founded on the factual allegation that the Individual Defendants owed the duties of insurance professionals in carrying out the services BGS contracted with the Plaintiffs to provide under the Professional Services Agreements, because they were insurance professionals.
[62] On a motion to strike pleadings as disclosing no cause of action, I am to read the pleadings “as generously as possible and to accommodate any inadequacies in the form of the allegations which are merely the result of drafting deficiencies”: Operation Dismantle v. The Queen, [1985] 1 S.C.R. 441 at 451, cited with approval by Frankel J.A. in Chang Estate, para. 40. Without conceding amendment of the pleadings was necessary, counsel for Equitable provided me with a draft amended notice of civil claim which addressed the material factual gap alleged by the Individual Defendants. Counsel for Foresters indicated he could easily prepare a similar amendment to his client’s pleading. I was also advised the Individual Defendants have admitted they were insurance professionals in their responses to the notices of civil claim, although I do not rely on that advice in formulating my conclusions. In my view, any factual deficiencies in the pleadings are technical drafting errors and can easily be cured by amendment. While I do not order amendment of the pleadings, I grant the Plaintiffs leave to do so.
[63] The Plaintiffs say the nature of the relationship between the parties provides a relational context upon which the trial judge could conclude it is fair and just to impose a duty of care. I cannot conclude it is plain and obvious they are wrong.
[64] As noted by Chief Justice McLachlin in R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 47:
…where the asserted basis for proximity is grounded in specific conduct and interactions, ruling a claim out at the proximity stage may be difficult. So long as there is a reasonable prospect that the asserted interactions could, if true, result in a finding of sufficient proximity, and the statute does not exclude that possibility, the matter must be allowed to proceed to trial, subject to any policy considerations that may negate the prima facie duty of care at the second stage of the [Anns/Cooper] analysis.
[65] In my view, it is not plain and obvious the court would refuse to draw such an inference from the relational facts pled in this case. It is a matter that requires a full evidentiary basis for determination.
[66] Having found it is not plain and obvious no prima facie duty of care arises, I will now consider whether there are any residual policy reasons for negating the imposition of a duty of care on the Individual Defendants. If it is plain and obvious these policy reasons exist, the Plaintiffs’ claims should be struck: Carhoun, at para. 105.
[67] At this stage of the proximity analysis, the focus is on the policy considerations beyond the immediate relationship of the parties. The majority in Cooper described those policy considerations in the following terms (at para. 37):
…These are not concerned with the relationship between the parties, but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally. Does the law already provide a remedy? Would recognition of the duty of care create the spectre of unlimited liability to an unlimited class? Are there other reasons of broad policy that suggest that the duty of care should not be recognized?...
[68] None of these residual policy considerations were relied on by the Individual Defendants. Instead, they argued the imposition of a duty of care in these circumstances would discourage individuals from being willing to serve as corporate directors. In my view, this concern is at best speculative at this stage of the proceeding and is not a residual policy consideration I would rely on as precluding the imposition of a duty of care. If such a residual policy consideration is to be established by the Individual Plaintiffs, in my view, it would require an evidentiary foundation which is not available on these applications.
[69] For the foregoing reasons, I find it is not plain and obvious the Individual Defendants did not owe a duty of care to the Plaintiffs.
[70] In conclusion, the Individual Defendants’ applications to strike the pleadings against them as disclosing no reasonable cause of action are dismissed.
[71] I grant leave to the Plaintiffs to amend their respective pleadings within 45 days of these reasons to address any factual deficiencies asserted by the Individual Defendants during these applications.
[72] Costs will be in the cause.
“Jackson J.”