671122 Ontario Ltd. v. Sagaz Industries
Canada Inc., [2001] 2 S.C.R. 983, 2001 SCC 59
Sagaz Industries Canada Inc., Sagaz Industries Inc. and
Joseph Kavana Appellants
v.
671122 Ontario Limited, formerly Design Dynamics Limited Respondent
Indexed as: 671122 Ontario Ltd. v. Sagaz
Industries Canada Inc.
Neutral citation: 2001 SCC 59.
File No.: 27820.
2001: June 19; 2001: September 28.
Present: McLachlin C.J. and Iacobucci, Major,
Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for ontario
Torts -- Vicarious liability -- Employee versus
independent contractor -- Original supplier suffering substantial losses when
it was replaced as supplier because of bribery scheme in large commercial transaction
-- Whether rival supplier vicariously liable to original supplier for tortious
conduct of its consultant.
Trial -- Evidence -- Re-opening of trial to admit
fresh evidence -- Trial judge declining to reopen trial to admit fresh evidence
on a motion brought after release of reasons but before formal judgment entered
-- Whether Court of Appeal erred in substituting its discretion for that of
trial judge in decision to reopen trial.
The respondent (“Design”) was Canadian Tire’s
principal supplier of synthetic sheepskin car seat covers for 30 years. In
1984, Design was advised by S, the head of Canadian Tire’s automotive division,
that the corporate appellants (“Sagaz”) would be replacing Design as Canadian
Tire’s seat cover supplier. S terminated Canadian Tire’s supply relationship
with Design in favour of Sagaz because of bribery in the form of a “kickback”
scheme. Sagaz retained American Independent Marketing Inc. (“AIM”), which was
owned and controlled by L, to assist in marketing Sagaz’s seat covers. S was
to receive two percent of all sales from L and AIM and incorporated a sham
corporation to receive this money. S’s wrongdoing was discovered and his
employment was terminated. New management at Canadian Tire determined it
preferred the seat cover products of Sagaz to those of Design and retained
Sagaz as its supplier. Having lost its major customer, Design’s manufacturing
business went into a steep decline and, in 1989, Design brought an action
alleging that AIM, L, Sagaz and K, Sagaz’s president, had bribed S and, but for
the bribes, Design would have continued as supplier to Canadian Tire. At
trial, damages were assessed against L and AIM, jointly and severally,
including punitive damages. The action was dismissed as against Sagaz and K.
After the trial judge’s reasons for judgment were released, but before formal
judgement was entered, L, who did not testify at trial, gave Design an
affidavit admitting to the conspiracy to bribe S and implicating K in it. On
the basis of the affidavit, Design brought a motion to have the trial reopened
to hear L’s fresh evidence. The trial judge dismissed the motion. The Court
of Appeal reversed the decisions of the trial judge, finding that Sagaz was
vicariously liable to Design and therefore jointly and severally liable with L
and AIM for the damages awarded, with the exception of punitive damages. A new
trial was ordered with respect to the liability of K on the basis that the
trial judge should have reopened the trial to hear L’s evidence.
Held: The appeal
should be allowed and the order of the trial judge restored.
The Court of Appeal erred in holding Sagaz vicariously
liable to Design. Although the categories of relationships in law that attract
vicarious liability are neither exhaustively defined nor closed, the most
common one to give rise to vicarious liability is the relationship between
master and servant, now more commonly called employer and employee. This is
distinguished from the relationship of an employer and independent contractor
which, subject to certain limited exceptions, typically does not give rise to a
claim for vicarious liability. The main policy concerns justifying vicarious
liability are to provide a just and practical remedy for the plaintiff’s harm
and to encourage the deterrence of future harm. Vicarious liability is fair in
principle because the hazards of the business should be borne by the business
itself; thus, it does not make sense to anchor liability on an employer for
acts of an independent contractor, someone who was in business on his or her
own account. In addition, the employer does not have the same control over an
independent contractor as over an employee to reduce accidents and intentional
wrongs by efficient organization and supervision. There is no one conclusive
test which can be universally applied to determine whether a person is an
employee or an independent contractor. What must always occur is a search for
the total relationship of the parties. The central question is whether the
person who has been engaged to perform the services is performing them as a
person in business on his own account. In making this determination, the level
of control the employer has over the worker’s activities will always be a
factor. However, other factors to consider include whether the worker provides
his or her own equipment, whether the worker hires his or her own helpers, the
degree of financial risk taken by the worker, the degree of responsibility for
investment and management held by the worker, and the worker’s opportunity for
profit in the performance of his or her tasks. Although the contract
designated AIM as an “independent contractor”, this classification is not
always determinative for the purposes of vicarious liability. Looking at the
non-exhaustive list of factors set out in Market Investigations, it is
clear, based on the total relationship of the parties, that AIM was an
independent contractor. On the totality of the evidence, AIM was in business
on its own account. Absent exceptional circumstances which are not present in
this case, it follows that the relationship between Sagaz and AIM, as employer
and independent contractor, is not one which attracts vicarious liability.
The Court of Appeal erred in substituting its
discretion for that of the trial judge in deciding to reopen the trial. Absent
an error of law, an appellate court should not interfere with the exercise by a
trial judge of his or her discretion in the conduct of a trial. Appellate
courts should defer to the trial judge, who is in the best position to decide
whether fairness dictates that the trial be reopened. The case law dictates
that the trial judge must exercise his discretion to reopen the trial
“sparingly and with the greatest care” so that “fraud and abuse of the Court’s
processes” do not result. In this case, the trial judge decided not to
exercise his discretion to reopen the trial because neither of the two steps of
the test in Scott was met to his satisfaction. First, he could not say
that the new evidence, if presented at trial, would probably have changed the
result, only that it may have changed the result. Second, the trial judge
found that L’s evidence could have been obtained before trial. L’s affidavit
evidence contradicts his sworn evidence on discovery, particularly with respect
to the existence of the bribery scheme which L avoids acknowledging on
discovery. Evidence which is not presumptively credible may fail to probably
change the result under the first branch of the test in Scott. This is
how the trial judge dealt with the affidavit evidence, and he was correct in so
doing.
Cases Cited
Referred to: London
Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299; Scott
v. Cook, [1970] 2 O.R. 769; Mayer v. J. Conrad Lavigne Ltd. (1979),
27 O.R. (2d) 129; Co-operators Insurance Association v. Kearney, [1965]
S.C.R. 106; Bazley v. Curry, [1999] 2 S.C.R. 534; Jacobi v. Griffiths,
[1999] 2 S.C.R. 570; Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C.
553; Regina v. Walker (1858), 27 L.J.M.C. 207; Hôpital Notre-Dame de
l’Espérance v. Laurent, [1978] 1 S.C.R. 605; Montreal v. Montreal
Locomotive Works Ltd., [1947] 1 D.L.R. 161; Stevenson Jordan and
Harrison, Ltd. v. Macdonald, [1952] 1 The Times L.R. 101; Market
Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732;
Lee Ting Sang v. Chung Chi-Keung, [1990] 2 A.C. 374; Hamstra
(Guardian ad litem of ) v.
British Columbia Rugby Union, [1997] 1 S.C.R. 1092; Clayton v. British
American Securities Ltd., [1934] 3 W.W.R. 257; Ladd v. Marshall,
[1954] 1 W.L.R. 1489.
Statutes and Regulations Cited
Rules of Civil Procedure, R.R.O. 1990,
Reg. 194, r. 59.06(2)(a).
Authors Cited
Atiyah,
P. S. Vicarious Liability in the Law of Torts. London:
Butterworths, 1967.
Douglas, William O.
"Vicarious Liability and Administration of Risk I" (1928-1929), 38 Yale
L.J. 584.
Flannigan, Robert. “Enterprise
control: The servant-independent contractor distinction” (1987), 37 U.T.L.J.
25.
Fleming, John G. The Law
of Torts, 9th ed. Sydney, Australia: LBC Information Services, 1998.
Fridman, Gerald Henry Louis. The
Law of Torts in Canada, vol. 2. Toronto: Carswell, 1990.
Kidner, Richard. “Vicarious
liability: for whom should the ‘employer’ be liable?” (1995), 15 Legal
Stud. 47.
APPEAL from a judgment of the Ontario Court of Appeal
(2000), 46 O.R. (3d) 760, 183 D.L.R. (4th) 488, 128 O.A.C. 46, 2 B.L.R. (3d) 1,
48 C.C.L.T. (2d) 79, 41 C.P.C. (4th) 107, [2000] O.J. No. 121 (QL), reversing
the decisions of the Ontario Court (General Division) (1998), 40 O.R. (3d) 229,
42 C.C.L.T. (2d) 50, [1998] O.J. No. 2194 (QL), and [1998] O.J. No. 4018 (QL).
Appeal allowed.
H. Lorne Morphy, Q.C.,
John B. Laskin and M. Paul Michell, for the appellants.
Martin Teplitsky, Q.C.,
and James M. Wortzman, for the respondent.
The judgment of the Court was delivered by
1
Major J. – This appeal
raises two issues: the application of vicarious liability for a bribery scheme
in a large commercial transaction and the appellate court’s review of the trial
judge’s exercise of discretion not to reopen the trial to admit fresh evidence
on a motion brought after the release of his reasons but before formal judgment
was entered.
2
Vicarious liability describes the event when the law holds one person
responsible for the misconduct of another because of their relationship. In
this case, the respondent (the original supplier) suffered substantial losses
when it was replaced as Canadian Tire’s synthetic car seat cover supplier.
This happened because a bribe was paid by a rival supplier’s consultant to the
head of Canadian Tire’s automotive division.
3
The first question is whether the appellant Sagaz (the rival automotive
supplier) is vicariously liable for the tortious conduct of its consultant who
was hired to assist in securing Canadian Tire’s business. In my opinion the
appellant Sagaz, the competitive supplier, is not vicariously liable for the
bribery scheme perpetrated by its consultant. The consultant was not an
employee of the supplier but an independent contractor. Based on policy
considerations, the relationship between an employer and independent contractor
does not typically give rise to a claim in vicarious liability.
4
On the second question, the motion to reopen the trial to adduce fresh
evidence, I conclude for the reasons that follow that the Court of Appeal erred
in substituting its discretion for that of the trial judge.
I.
Facts
5
The respondent, 671122 Ontario Limited, formerly Design Dynamics Limited
(“Design”), was Canadian Tire Corporation’s principal supplier of synthetic
sheepskin car seat covers for 30 years. Canadian Tire was the party in the
position of strength in the relationship. This is so as it represented more
than 60 percent of the Canadian seat cover market and, by 1983, was Design’s
largest customer accounting for over 50 percent of its sales.
6
In June 1984, Design lost Canadian Tire’s business. Robert Summers, the
head of Canadian Tire’s automotive division, advised Design that another
company, the appellants Sagaz Industries Canada Inc. and Sagaz Industries Inc.
(collectively “Sagaz”), would be replacing Design as Canadian Tire’s seat cover
supplier. Sagaz is a Florida corporation and the appellant, Joseph Kavana, is
its president. Sagaz Industries Inc. continues to supply Canadian Tire and
Sagaz Industries Canada Inc. is inactive.
7
Summers terminated Canadian Tire’s supply relationship with Design in
favour of Sagaz because of bribery in the form of a “kickback” scheme. Sagaz
retained American Independent Marketing Inc. (“AIM”), a New York corporation,
to assist in marketing Sagaz’s seat covers to Canadian Tire. AIM was owned and
controlled by Stewart Landow. It was later determined that Summers accepted a
bribe from Landow and AIM in relation to the Sagaz seat cover contract.
Specifically, Summers incorporated a sham corporation, International Marketing
Consultants (“IMC”), to receive the bribery money. Summers employed a
surrogate, Anthony Brathwaite, as a token manager of IMC. Brathwaite was the
puppet of Summers who received all the profits of IMC. Summers entered into an
agreement with Landow whereby Landow (through AIM) would pay Summers (through
IMC) two percent of all sales by Sagaz to Canadian Tire of synthetic seat
covers in order to ensure the sales occurred. As a result of the bribe,
Summers terminated Canadian Tire’s relationship with Design.
8
Summers’ wrongdoing was discovered in 1985. His employment with
Canadian Tire was terminated and he was eventually convicted of corruptly
accepting benefits and went to prison. He later went bankrupt. Brathwaite
pleaded guilty to similar charges.
9
Summers was replaced by new management at Canadian Tire which
re-evaluated its purchase of synthetic seat covers. Management determined that
it preferred the seat cover products of Sagaz to those of Design. Accordingly,
Canadian Tire retained its relationship with Sagaz as its supplier.
10
Having lost its major customer, Design’s manufacturing business went into
a steep decline. It sold its assets in 1988. In 1989, Design brought an
action against some 13 defendants, including Canadian Tire, Summers,
Brathwaite, Landow, AIM, Sagaz and Kavana. At the trial, only AIM, Landow (who
did not testify), Sagaz and Kavana remained as defendants. Canadian Tire paid
Design $750,000 to settle the action against it. The action against Summers
was discontinued when he went bankrupt. Design’s action alleged that AIM,
Landow, Sagaz and Kavana had bribed Summers and, but for those bribes, Design
would have continued as supplier to Canadian Tire.
II.
Judicial History
A.
Ontario Court (General Division) (1998), 40 O.R. (3d) 229
11
The trial judge found that the decision of Canadian Tire management to
switch suppliers of seat covers had nothing to do with any belief that the
Sagaz product was superior to the Design product. Design’s business was lost
solely because of the bribe.
12
The bribery scheme was profitable to Landow as commissions on the sales
from Sagaz to Canadian Tire would be paid to his solely-owned corporation,
AIM. Landow could not hide behind the corporate veil of AIM in his use of the
corporation as his agent in the commission of an intentional tort. The trial
judge found that Landow and AIM conspired with Summers and IMC to engage in the
unlawful conduct of taking away Design’s business from Canadian Tire.
13
While the tort of civil conspiracy was sufficient to establish
liability, the trial judge found that liability was more directly addressed
through the tort of unlawful interference with economic relations, for which
Landow and AIM were liable.
14
There were suspicious business dealings raised at the trial in an
attempt to implicate Kavana, President of Sagaz, in the bribery scheme. For
instance, commissions that Landow received in respect of the sale of seat
covers from Sagaz to Canadian Tire. Before Sagaz secured the seat cover contract
with Canadian Tire, it was paying Landow a five percent commission on sales.
Sagaz then raised Landow’s commission from five to six percent. At the same
time, or close to it, Landow entered into the agreement with Summers whereby
Landow paid Summers two percent in the form of the kickback scheme. It was
Design’s theory at trial that Landow’s commission was raised from five to six
percent to fund the bribe to Summers. That implied that Kavana and Landow
agreed to share or split the payment of the two percent bribe. Kavana denied
involvement in the bribery scheme. He testified that he was misled by Landow
in agreeing to change the commission from five to six percent because Landow
told him that he was required to hire someone to provide in-store service in
Canada which would entail additional expense. Another suspicious event was the
payment of $15,000 by Kavana to Landow in March 1985 which eventually found its
way to Robin Addie, a senior buyer for Canadian Tire. Again, Kavana testified
and denied any improper conduct. He claimed that Landow told him that this
expenditure was tied to the purchase of a car as part of an intended promotion
to display the Canadian Tire seat covers. In fact, a car was never purchased.
15
These suspicious circumstances surrounding Kavana were presented at the
trial. The trial judge believed Kavana, found him credible and accepted his
evidence that he had trusted Landow and had accepted Landow’s explanation about
the commission and car purchase. As well Summers did not implicate Kavana in
his testimony. The trial judge concluded that Kavana was not involved in the
bribery scheme. He pointed out that had Kavana known of the bribe by Landow
then Kavana and Sagaz would have been held directly liable and obviously vicarious
liability would not have been an issue.
16
The trial judge was brief on the issue of whether Sagaz was vicariously
liable to Design for the wrongdoing of Landow and AIM. He held that, on the
evidence, AIM was an independent contractor to Sagaz. Citing London Drugs
Ltd. v. Kuehne & Nagel International Ltd., [1992] 3
S.C.R. 299, he held that vicarious liability could not and should not be
imposed upon Sagaz for the tortious acts of an independent contractor.
17
Damages were assessed at $1,807,500 against Landow and AIM, jointly and
severally, plus $50,000 in punitive damages, and pre-judgment interest. The
action was dismissed as against Sagaz and Kavana. The trial judge refused to
award Sagaz and Kavana their costs against Design, but awarded Sagaz and Kavana
their costs against Landow and AIM under a “Sanderson order”.
B.
Ontario Court (General Division), [1998] O.J. No. 4018 (QL)
18
After the trial judge’s reasons for judgment were released, but before
formal judgment was entered, Landow, who did not testify at the trial, gave
Design an affidavit admitting to the conspiracy to bribe Summers and
implicating Kavana in it. On the basis of the affidavit, Design brought a
motion before the trial judge pursuant to rule 59.06(2)(a) of the Rules of
Civil Procedure, R.R.O. 1990, Reg. 194, to have the trial reopened to hear
Landow’s fresh evidence. Design claimed that the fresh evidence would show
that Kavana was involved in and had knowledge of the tortious activity of
Landow, and was also liable to Design.
19
The trial judge dismissed the motion. He found that there was no direct
evidence at trial that Kavana was a party to the bribe paid to Summers.
Summers dealt directly with Landow. Summers did not implicate Kavana in his
testimony. Kavana testified and denied involvement in the bribe. He was
subjected to a thorough and rigorous cross-examination and was credible in his
testimony. Landow did not testify nor attend the trial. He was represented by
counsel throughout the trial. In the cross-examination of Landow on his
affidavit given in connection with the fresh evidence motion, Landow
acknowledged that he was aware of his right to attend the trial and to
testify. He received daily reports about the course of the trial over its
duration.
20
In dismissing the motion to reopen the trial, the trial judge applied a
two-part test from Scott v. Cook, [1970] 2 O.R. 769
(H.C.). First, would the evidence, if presented at trial, probably have
changed the result? Second, could the evidence have been obtained before trial
by the exercise of reasonable diligence?
21
The trial judge found that neither of the two steps was met. He could
not say that the new evidence, if presented at trial, would probably have
changed the result, only that it may have changed the result. As well, if the
trial were reopened, Landow’s evidence might well not be believed. His
credibility would be very much in issue. On the second part of the test, the
trial judge found that Landow’s evidence could have been obtained before
trial. Design could have compelled Landow to testify under oath at trial,
although that evidence may not have been helpful to Design. The trial judge
concluded that the court would not allow a party to correct what in hindsight
was an unsuccessful strategy at trial.
C.
Ontario Court of Appeal (2000), 183 D.L.R. (4th) 488
22
The Court of Appeal reversed the decisions of the trial judge. The gist
of its view was that Sagaz was vicariously liable to Design. Applying the
“organization test” (from Mayer v. J. Conrad Lavigne Ltd.
(1979), 27 O.R. (2d) 129 (C.A.), as previously approved by this Court in Co-operators
Insurance Association v. Kearney, [1965] S.C.R. 106), the Court of
Appeal found that Landow and AIM did their work as part of the “Sagaz sales
team”. Sagaz was therefore jointly and severally liable with Landow and AIM
for the damages awarded, with the exception of punitive damages. For this
reason, the Court of Appeal also allowed Landow’s and AIM’s cross-appeal on the
issue of costs and set aside the costs award to Sagaz and Kavana against Landow
and AIM. Design was entitled to costs against Sagaz.
23
A new trial was ordered with respect to the liability of Kavana on the
basis that the trial judge should have reopened the trial to hear Landow’s
evidence. The Court of Appeal found that the evidence, if presented at trial
and accepted as credible, would implicate Kavana and Sagaz in the bribery
scheme. Also, it held that Landow’s evidence was not discoverable by
reasonable diligence prior to trial as Design made serious efforts to no avail
to persuade Landow to co-operate and to testify against Kavana and Sagaz.
III.
Issues
24
1. Did the Court of Appeal err in holding Sagaz vicariously liable to
Design?
2. Did the Court of Appeal err by substituting
its discretion for that of the trial judge in the decision to reopen the trial?
IV.
Analysis
A. Vicarious Liability
(1) Policy Rationale Underlying Vicarious
Liability
25
Vicarious liability is not a distinct tort. It is a theory that holds
one person responsible for the misconduct of another because of the
relationship between them. Although the categories of relationships in law
that attract vicarious liability are neither exhaustively defined nor closed,
the most common one to give rise to vicarious liability is the relationship
between master and servant, now more commonly called employer and employee.
26
In general, tort law attempts to hold persons accountable for their
wrongful acts and omissions and the direct harm that flows from those wrongs.
Vicarious liability, by contrast, is considered to be a species of strict
liability because it requires no proof of personal wrongdoing on the part of
the person who is subject to it. As such, it is still relatively uncommon in
Canadian tort law. What policy considerations govern its discriminate
application?
27
As Fleming stated in an oft-quoted passage:
[T]he modern doctrine of vicarious liability cannot parade as a
deduction from legalistic premises, but should be frankly recognised as having
its basis in a combination of policy considerations....
(The Law of Torts (9th ed. 1998), at p. 410, cited in Bazley
v. Curry, [1999] 2 S.C.R. 534, at para. 26, per McLachlin
J. (as she then was); see also Jacobi v. Griffiths, [1999] 2
S.C.R. 570, released concurrently, at para. 29, per Binnie J.)
However,
McLachlin J. noted in Bazley, at para. 27 (cited in Jacobi, at
para. 29) that “[a] focus on policy is not to diminish the importance of legal
principle.”
28
The most recent discussion by this Court of the policy considerations
that justify the imposition of vicarious liability was in Bazley, at
paras. 26-36, where McLachlin J. succinctly reviewed the relevant
jurisprudence. She began with La Forest J.’s opinion (dissenting on the
cross-appeal) in London Drugs, supra, which held that vicarious
liability is generally considered to rest on one of two logical bases. The
first, known as the “master’s tort theory”, posits that the employer is
vicariously liable for the acts of his employee because the acts are regarded
as being authorized by him so that in law the acts of the employee are the acts
of the employer. The second, known as the “servant’s tort theory”, attributes
liability to the employer simply because the employer was the employee’s
superior and therefore in charge or command of the employee (G. H. L. Fridman, The
Law of Torts in Canada (1990), vol. 2, at pp. 314-15, and P. S. Atiyah, Vicarious
Liability in the Law of Torts (1967), at pp. 6-7).
29
However, La Forest J. acknowledged that neither of the logical bases for
vicarious liability succeeds completely in explaining the operation of the doctrine,
and he found that the vicarious liability regime is a response to a number of
policy considerations, including compensation, deterrence and loss
internalization (London Drugs, supra, at p. 336). McLachlin J.
noted that Fleming identified similar policies to justify the imposition of
vicarious liability, including the provision of a just and practical remedy for
the harm and the deterrence of future harm, and held that these two ideas
“usefully embrace the main policy considerations that have been advanced” (Bazley,
supra, at para. 29).
30
Identification of the policy considerations underlying the imposition of
vicarious liability assists in determining whether the doctrine should be
applied in a particular case and it is for that reason that the policy considerations
set out by this Court in Bazley should be briefly reviewed.
31
First, vicarious liability provides a just and practical remedy to
people who suffer harm as a consequence of wrongs perpetrated by an employee.
Many commentators are suspicious of vicarious liability in principle because it
appears to hold parties responsible for harm simply because they have “deep
pockets” or an ability to bear the loss even though they are not personally at
fault. The “deep pockets” justification on its own does not accord with an
inherent sense of what is fair (see also R. Flannigan, “Enterprise control: The
servant-independent contractor distinction” (1987), 37 U.T.L.J. 25, at
p. 29). Besides an ability to bear the loss, it must also seem just to place
liability for the wrong on the employer. McLachlin J. addresses this concern
in Bazley, supra, at para. 31:
Vicarious liability is arguably fair in this sense. The employer puts
in the community an enterprise which carries with it certain risks. When those
risks materialize and cause injury to a member of the public despite the
employer’s reasonable efforts, it is fair that the person or organization that
creates the enterprise and hence the risk should bear the loss. This accords
with the notion that it is right and just that the person who creates a risk
bear the loss when the risk ripens into harm.
Similarly,
Fleming stated that “a person who employs others to advance his own economic
interest should in fairness be placed under a corresponding liability for
losses incurred in the course of the enterprise” (p. 410). McLachlin J. states
that while the fairness of this proposition is capable of standing alone, “it
is buttressed by the fact that the employer is often in the best position to
spread the losses through mechanisms like insurance and higher prices, thus
minimizing the dislocative effect of the tort within society” (Bazley,
at para. 31). Finally on this point, it is noteworthy that vicarious liability
does not diminish the personal liability of the direct tortfeasor (Fleming, supra,
at p. 411; London Drugs, supra, at p. 460, per McLachlin
J.).
32
The second policy consideration underlying vicarious liability is
deterrence of future harm as employers are often in a position to reduce
accidents and intentional wrongs by efficient organization and supervision.
This policy ground is related to the first policy ground of fair compensation,
as “[t]he introduction of the enterprise into the community with its attendant
risk, in turn, implies the possibility of managing the risk to minimize the
costs of the harm that may flow from it” (Bazley, supra, at para.
34).
(2) Employee Versus Independent Contractor
33
The most common relationship that attracts vicarious liability is that
between employer and employee, formerly master and servant. This is
distinguished from the relationship of an employer and independent contractor
which, subject to certain limited exceptions (see Atiyah, supra,
at pp. 327-78), typically does not give rise to a claim for vicarious
liability. If a worker is determined to be an employee as opposed to an
independent contractor such that vicarious liability can attach to the
employer, this is not the end of the analysis. The tortious conduct has to be
committed by the employee in the course of employment. For the reasons that
follow, this second stage of the analysis is not relevant and need not be
analysed in the present appeal.
34
What is the difference between an employee and an independent contractor
and why should vicarious liability more likely be imposed in the former case
than in the latter? This question has been the subject of much debate. The
answer lies with the element of control that the employer has over the direct
tortfeasor (the worker). If the employer does not control the activities of
the worker, the policy justifications underlying vicarious liability will not
be satisfied. See Flannigan, supra, at pp. 31-32:
This basis for vicarious liability discloses a
precise limitation on the scope of the doctrine. If the employer does not
control the activities of the worker it is clear that vicarious liability
should not be imposed, for then insulated risk-taking [by the employer] does
not occur. Only the worker, authorized to complete a task, could have affected
the probability of loss, for he alone had control in any respect. Thus,
because there is no mischief where employer control is absent, no remedy is
required.
35
Explained another way, the main policy concerns justifying vicarious
liability are to provide a just and practical remedy for the plaintiff’s harm
and to encourage the deterrence of future harm (Bazley, supra, at
para. 29). Vicarious liability is fair in principle because the hazards of the
business should be borne by the business itself; thus, it does not make sense
to anchor liability on an employer for acts of an independent contractor,
someone who was in business on his or her own account. In addition, the
employer does not have the same control over an independent contractor as over
an employee to reduce accidents and intentional wrongs by efficient
organization and supervision. Each of these policy justifications is relevant
to the ability of the employer to control the activities of the employee,
justifications which are generally deficient or missing in the case of an
independent contractor. As discussed above, the policy justifications for
imposing vicarious liability are relevant where the employer is able to control
the activities of the employee but may be deficient in the case of an
independent contractor over whom the employer has little control. However,
control is not the only factor to consider in determining if a worker is an
employee or an independent contractor. For the reasons discussed below,
reliance on control alone can be misleading, and there are other relevant
factors which should be considered in making this determination.
36
Various tests have emerged in the case law to help determine if a worker
is an employee or an independent contractor. The distinction between an
employee and an independent contractor applies not only in vicarious liability,
but also to the application of various forms of employment legislation, the
availability of an action for wrongful dismissal, the assessment of business
and income taxes, the priority taken upon an employer’s insolvency and the
application of contractual rights (Flannigan, supra, at p. 25).
Accordingly, much of the case law on point while not written in the context of
vicarious liability is still helpful.
37
The Federal Court of Appeal thoroughly reviewed the relevant case law in
Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553. As
MacGuigan J.A. noted, the original criterion of the employment relationship was
the control test set out by Baron Bramwell in Regina v. Walker
(1858), 27 L.J.M.C. 207, and adopted by this Court in Hôpital Notre-Dame de
l’Espérance v. Laurent, [1978] 1 S.C.R. 605. It is expressed as
follows: “the essential criterion of employer-employee relations is the right
to give orders and instructions to the employee regarding the manner in which
to carry out his work” (Hôpital Notre-Dame de l’Espérance, supra,
at p. 613).
38
This criterion has been criticized as wearing “an air of deceptive
simplicity” (Atiyah, supra, at p. 41). The main problems are set
out by MacGuigan J.A. in Wiebe Door, supra, at pp. 558-59:
A principal inadequacy [with the control test] is its apparent
dependence on the exact terms in which the task in question is contracted for:
where the contract contains detailed specifications and conditions, which would
be the normal expectation in a contract with an independent contractor, the
control may even be greater than where it is to be exercised by direction on
the job, as would be the normal expectation in a contract with a servant, but a
literal application of the test might find the actual control to be less. In addition,
the test has broken down completely in relation to highly skilled and
professional workers, who possess skills far beyond the ability of their
employers to direct.
39
An early attempt to deal with the problems of the control test was the
development of a fourfold test known as the “entrepreneur test”. It was set
out by W. O. Douglas (later Justice) in “Vicarious Liability and
Administration of Risk I” (1928-1929), 38 Yale L.J. 584, and applied by
Lord Wright in Montreal v. Montreal Locomotive Works Ltd.,
[1947] 1 D.L.R. 161 (P.C.), at p. 169:
In earlier cases a single test, such as the presence or absence of
control, was often relied on to determine whether the case was one of master
and servant, mostly in order to decide issues of tortious liability on the part
of the master or superior. In the more complex conditions of modern industry,
more complicated tests have often to be applied. It has been suggested that a
fourfold test would in some cases be more appropriate, a complex involving (1)
control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss.
Control in itself is not always conclusive.
40
As MacGuigan J.A. notes, a similar general test, known as the
“organization test” or “integration test” was used by Denning L.J. (as he then
was) in Stevenson Jordan and Harrison, Ltd. v. Macdonald,
[1952] 1 The Times L.R. 101 (C.A.), at p. 111:
One feature which seems to run through the instances is that, under a
contract of service, a man is employed as part of the business, and his work is
done as an integral part of the business; whereas, under a contract for
services, his work, although done for the business, is not integrated into it
but is only accessory to it.
41
This decision imported the language “contract of service” (employee) and
“contract for services” (independent contractor) into the analysis. The
organization test was approved by this Court in Co-operators Insurance, supra
(followed in Mayer, supra), where Spence J. observed that courts
had moved away from the control test under the pressure of novel situations,
replacing it instead with a type of organization test in which the important
question was whether the alleged servant was part of his employer’s
organization (from Fleming, supra, at p. 416).
42
However, as MacGuigan J.A. noted in Wiebe Door, the organization
test has had “less vogue in other common-law jurisdictions” (p. 561), including
England and Australia. For one, it can be a difficult test to apply. If the
question is whether the activity or worker is integral to the employer’s
business, this question can usually be answered affirmatively. For example,
the person responsible for cleaning the premises is technically integral to
sustaining the business, but such services may be properly contracted out to
people in business on their own account (see R. Kidner, “Vicarious liability:
for whom should the ‘employer’ be liable?” (1995), 15 Legal Stud. 47, at
p. 60). As MacGuigan J.A. further noted in Wiebe Door, if the main test
is to demonstrate that, without the work of the alleged employees the employer
would be out of business, a factual relationship of mutual dependency would
always meet the organization test of an employee even though this criterion may
not accurately reflect the parties’ intrinsic relationship (pp. 562-63).
43
Despite these criticisms, MacGuigan J.A. acknowledges, at p. 563, that
the organization test can be of assistance:
Of course, the organization test of Lord Denning and
others produces entirely acceptable results when properly applied, that is,
when the question of organization or integration is approached from the persona
of the “employee” and not from that of the “employer,” because it is always too
easy from the superior perspective of the larger enterprise to assume that
every contributing cause is so arranged purely for the convenience of the
larger entity. We must keep in mind that it was with respect to the
business of the employee that Lord Wright [in Montreal] addressed the
question “Whose business is it?” [Emphasis added.]
44
According to MacGuigan J.A., the best synthesis found in the authorities
is that of Cooke J. in Market Investigations, Ltd. v. Minister
of Social Security, [1968] 3 All E.R. 732 (Q.B.D.), at pp. 737-38 (followed
by the Privy Council in Lee Ting Sang v. Chung Chi-Keung,
[1990] 2 A.C. 374, per Lord Griffiths, at p. 382):
The observations of
Lord Wright, of Denning, L.J.,
and of the judges of the Supreme Court in the U.S.A. suggest that the
fundamental test to be applied is this: “Is the person who has engaged
himself to perform these services performing them as a person in business on
his own account?”. If the answer to that question is “yes”, then the contract
is a contract for services. If the answer is “no” then the contract is a
contract of service. No exhaustive list has been compiled and perhaps no
exhaustive list can be compiled of considerations which are relevant in
determining that question, nor can strict rules be laid down as to the relative
weight which the various considerations should carry in particular cases. The
most that can be said is that control will no doubt always have to be
considered, although it can no longer be regarded as the sole determining
factor; and that factors, which may be of importance, are such matters as
whether the man performing the services provides his own equipment, whether he
hires his own helpers, what degree of financial risk he takes, what degree of
responsibility for investment and management he has, and whether and how far he
has an opportunity of profiting from sound management in the performance of his
task. [Emphasis added.]
45
Finally, there is a test that has emerged that relates to the enterprise
itself. Flannigan, supra, sets out the “enterprise test” at p. 30 which
provides that the employer should be vicariously liable because (1) he controls
the activities of the worker; (2) he is in a position to reduce the risk of
loss; (3) he benefits from the activities of the worker; (4) the true cost of a
product or service ought to be borne by the enterprise offering it. According
to Flannigan, each justification deals with regulating the risk-taking of the
employer and, as such, control is always the critical element because the
ability to control the enterprise is what enables the employer to take risks.
An “enterprise risk test” also emerged in La Forest J.’s dissent on
cross-appeal in London Drugs where he stated at p. 339 that “[v]icarious
liability has the broader function of transferring to the enterprise itself the
risks created by the activity performed by its agents.”
46
In my opinion, there is no one conclusive test which can be universally
applied to determine whether a person is an employee or an independent
contractor. Lord Denning stated in Stevenson Jordan, supra, that
it may be impossible to give a precise definition of the distinction (p. 111)
and, similarly, Fleming observed that “no single test seems to yield an
invariably clear and acceptable answer to the many variables of ever changing
employment relations . . .” (p. 416). Further, I agree with MacGuigan J.A. in Wiebe
Door, at p. 563, citing Atiyah, supra, at p. 38, that what must
always occur is a search for the total relationship of the parties:
[I]t is exceedingly doubtful whether the search for
a formula in the nature of a single test for identifying a contract of service
any longer serves a useful purpose.... The most that can profitably be done is
to examine all the possible factors which have been referred to in these cases
as bearing on the nature of the relationship between the parties concerned.
Clearly not all of these factors will be relevant in all cases, or have the
same weight in all cases. Equally clearly no magic formula can be propounded
for determining which factors should, in any given case, be treated as the
determining ones.
47
Although there is no universal test to determine whether a person is an
employee or an independent contractor, I agree with MacGuigan J.A. that a
persuasive approach to the issue is that taken by Cooke J. in Market
Investigations, supra. The central question is whether the person
who has been engaged to perform the services is performing them as a person in
business on his own account. In making this determination, the level of
control the employer has over the worker’s activities will always be a factor.
However, other factors to consider include whether the worker provides his or
her own equipment, whether the worker hires his or her own helpers, the degree
of financial risk taken by the worker, the degree of responsibility for
investment and management held by the worker, and the worker’s opportunity for
profit in the performance of his or her tasks.
48
It bears repeating that the above factors constitute a non-exhaustive
list, and there is no set formula as to their application. The relative weight
of each will depend on the particular facts and circumstances of the case.
(3) Application to the Facts
49
According to the agreement between Sagaz and AIM dated January 29, 1985,
AIM was hired to “provide assistance to Sagaz in retaining the goodwill of
[Canadian Tire]”. Although the contract designated AIM as an “independent
contractor”, this classification is not always determinative for the purposes
of vicarious liability. The starting point for this analysis is whether AIM,
while engaged to perform such services for Sagaz, was in business on its own
account. If so, AIM is an independent contractor as opposed to an employee of
Sagaz and vicarious liability likely will not follow. It is helpful to examine
the non-exhaustive list of factors from Montreal and Market
Investigations to assist in this determination.
50
There is some evidence to suggest that Landow and AIM were employees of
Sagaz. In other words, in response to the query “whose business is it?”, there
is some suggestion that Landow worked in what was characterized as a “joint
effort” with Sagaz sales managers in order to secure Canadian Tire’s business.
Specifically, although it was Landow’s duty under the contract to obtain
Canadian Tire’s business and maintain its goodwill, the first letter sent to
Canadian Tire on behalf of Sagaz was written by Canadian Tire’s national sales
manager, David English, who gave price quotations. The first meeting was
attended by Landow, English and Kavana. Following that meeting, revised price
quotations were sent by English. Landow’s role was limited to presenting prices
that were set and negotiated by Kavana and English and he required instructions
with respect to terms and various other aspects of the business that he was
conducting on Sagaz’s behalf. Quotations given to Canadian Tire did not
disclose Landow as a sales representative. Rather, the space on the invoice
for the sales representative was left blank and the account was characterized
as a “house account”.
51
There was also some issue made about the fact that in a letter dated
June 12, 1984, Landow communicated with Canadian Tire directly using Sagaz’s
letterhead. On cross-examination, Kavana admitted that Landow had been
supplied with Sagaz letterhead. The courts below speculated that these factors
came about because Canadian Tire preferred to deal with its suppliers, like
Sagaz, directly and not through external sales agents.
52
On the other hand, there are some compelling points which indicate that
AIM and Sagaz were separate legal entities, some of which are that AIM had its
own offices, located in New York, while the Sagaz head offices were located in
Florida. According to the agreement between the parties, AIM was to pay all of
its own costs of conducting its business, including travel expenses,
commissions and other compensation of salespersons employed by it. AIM remained
free to carry on other activities and represent other suppliers provided that
it did not take on any competing lines of business.
53
With respect to AIM’s responsibility for investment and management,
Sagaz did not either specify or control how much time AIM was to devote to
representing them in maintaining their goodwill with Canadian Tire, or to
performing in-store services. Similarly, it was up to AIM and Landow to decide
how many, if any, trips Landow would take to Toronto. According to the agreement
and Kavana’s testimony, AIM had no authority to bind the Sagaz company.
54
In terms of a risk of loss or an opportunity for profit, Landow and AIM
worked on commission on sales of Sagaz’s products. As such, the risk of loss
and the opportunity for profit depended on whether AIM’s expenses (such as
travel expenses) exceeded its commissions.
55
Central to this inquiry is the extent of control that Sagaz had over
AIM. While Sagaz directed the prices, terms and other conditions that AIM was
to negotiate on Sagaz’s behalf, AIM was ultimately in control of providing
assistance to Sagaz in retaining the goodwill of Canadian Tire. Again, AIM
decided how much time to devote to Sagaz and how much time to devote to its
services for other supply companies. Although Sagaz controlled what was done,
AIM controlled how it was done. This indicates that Landow was not controlled
by Sagaz.
56
In my opinion, the contravening factors such as the suggestion that the
Canadian Tire account was a “house account” and the one letter written by
Landow on Sagaz’s letterhead, while of interest, are not sufficient to show
that AIM was an employee as part of the Sagaz “sales team”. I agree with the
courts below that these factors likely came about because Canadian Tire
preferred to deal with its suppliers, like Sagaz, directly and not through
external sales agents. Looking at the non-exhaustive list of factors set out
in Market Investigations, supra, including ownership of tools,
hiring its own helpers, the degree of financial risk or opportunity for profit
by AIM and the responsibility for investment and management, it is clear to me
that, based on the total relationship of the parties, AIM was an independent
contractor.
57
On the totality of the evidence, I agree with the trial judge that AIM
was in business on its own account. Absent exceptional circumstances which are
not present in this case (see Atiyah, supra, atpp. 327-49), it follows
that the relationship between Sagaz and AIM, as employer and independent
contractor, is not one which attracts vicarious liability. In finding that AIM
was an independent contractor and not an employee in relation to Sagaz, I need
not consider the second stage of the analysis which inquires into whether the
tortious conduct of an employee was committed within the scope of
employment.
58
Design submitted that if AIM was not an independent contractor, then AIM
was an agent of Sagaz and therefore Sagaz was liable for the economic tort
committed by AIM in the scope and course of its authority. Absent evidence to
the contrary, it cannot be presumed that the scope of AIM’s authority in
providing “assistance to Sagaz in retaining the goodwill of [Canadian Tire]”
was so broad as to include unlawful means such as bribery. This is confirmed
by the finding of the trial judge at p. 241 that “Mr. Kavana was not a party to
the conspiracy of Messrs. Summers and Landow”. As well he also found at p.
245 “that it has not been proven on a balance of probabilities that Mr. Kavana
knew of the bribery by Mr. Landow”. In the result, the payment of the bribe by
AIM to Summers exceeded the actual and apparent authority of AIM as
representative of Sagaz.
B.
Motion to Reopen the Trial
59
After the trial judge’s reasons were released, but before the formal
judgment was entered, Landow, who did not testify at trial, gave Design an
affidavit admitting to the conspiracy to bribe and implicating Kavana in the
conspiracy. Design brought a motion to have the trial reopened to hear the
fresh evidence. The trial judge applied the two-part test from Scott, supra,
to assist in determining whether to exercise his discretion to reopen the
trial. First, he decided that the evidence, if presented at trial, probably
would not have changed the result. Second, he found that the evidence could
have been obtained before trial by the exercise of reasonable diligence. The
Court of Appeal overturned the trial judge’s decision, having found that he
erred on both branches of the test and that the trial should have been reopened
to hear Landow’s evidence. Was the Court of Appeal in error to reverse the
trial judge’s exercise of discretion to refuse to reopen the trial?
60
This Court provided in Hamstra (Guardian ad litem of) v. British
Columbia Rugby Union, [1997] 1 S.C.R. 1092, at para. 26:
It has long been established that, absent an error
of law, an appellate court should not interfere with the exercise by a trial
judge of his or her discretion in the conduct of a trial.
Appellate
courts should defer to the trial judge who is in the best position to decide
whether, at the expense of finality, fairness dictates that the trial be
reopened. See Clayton v. British American Securities Ltd., [1934] 3
W.W.R. 257 (B.C.C.A.), at p. 295:
[The trial judge] would of course discourage unwarranted attempts to
bring forward new evidence available at the trial to disturb the basis of a
judgment delivered or to permit a litigant after discovering the effect of a
judgment to re-establish a broken-down case with the aid of further proof.
61
Further, the case law dictates that the trial judge must exercise his
discretion to reopen the trial “sparingly and with the greatest care” so that
“fraud and abuse of the Court’s processes” do not result (see Clayton, supra,
at p. 295, cited in Scott, at p. 774).
62
In this case, the trial judge decided not to exercise his discretion to
reopen the trial because neither of the two steps of the test in Scott, supra,
was met to his satisfaction. First, he found that he could not say that the
new evidence, if presented at trial, would probably have changed the result,
only that it may have changed the result. If the trial were to be reopened,
Landow’s evidence might well not be believed. His credibility would be in
issue. Second, the trial judge found that Landow’s evidence could have been
obtained before trial. Design could have compelled Landow to testify under
oath at trial. While this carried some risk, the trial judge viewed it as a
trial strategy, a conclusion he was entitled to reach.
63
In my opinion, the Court of Appeal erred in substituting its discretion
for that of the trial judge in deciding to reopen the trial. On the first
branch of the test set out in Scott, the trial judge found that Landow’s
credibility would be in issue whereas the Court of Appeal found it difficult to
see how the trial judge could make this determination without hearing Landow
testify. In the Court of Appeal’s determination, it was not sufficiently clear
that Landow would be disbelieved. I disagree with the Court of Appeal on this
point. Landow’s affidavit evidence contradicts his sworn evidence on
discovery, particularly with respect to the existence of the bribery scheme
which Landow avoids acknowledging on discovery. To this significant extent,
Landow is akin to a recanting liar. Lord Denning’s comments in Ladd v.
Marshall, [1954] 1 W.L.R. 1489 (C.A.), at p. 1491, are applicable:
It is very rare that application is made to this court for a new trial
on the ground that a witness has told a lie. The principles to be applied are
the same as those always applied when fresh evidence is sought to be
introduced. To justify the reception of fresh evidence or a new trial, three
conditions must be fulfilled: first, it must be shown that the evidence could
not have been obtained with reasonable diligence for use at the trial;
secondly, the evidence must be such that, if given, it would probably have an
important influence on the result of the case, though it need not be decisive;
thirdly, the evidence must be such as is presumably to be believed, or in other
words, it must be apparently credible, though it need not be incontrovertible.
We have to apply those principles to the case
where a witness comes and says: “I told a lie but nevertheless I now want to
‘tell the truth’”. It seems to me that the fresh evidence of such a witness
will not as a rule satisfy the third condition. A confessed liar cannot
usually be accepted as being credible. To justify the reception of the
fresh evidence, some good reason must be shown why a lie was told in the first
instance, and good ground given for thinking the witness will tell the truth on
the second occasion. [Emphasis added.]
64
These comments, in my opinion, apply with equal force to the present
case. Landow is akin to a “recanting liar” because he failed to tell his
“truth” when he had the opportunity to do so on discovery and again when he
declined to testify at trial. Although the determination in Ladd was
made under the third branch of the test applied in that case, a branch that is
absent from the two-part test in Scott, the application of the Scott
test to the situation of a “recanting liar” has the same result in this case.
Evidence which is not presumptively credible may fail to probably change the
result under the first branch of the test in Scott. This is how the
trial judge dealt with the affidavit evidence, and in my view he was correct in
so doing. Further, it cannot be ignored that the trial decision imposing
liability on Landow and AIM provided incentive for Landow to attempt to shift
some responsibility to Kavana in order to share the liability of the
corresponding damage award. The trial judge had also seen the evidence of
Kavana in the first instance, which he found to be credible even in the face of
a vigorous cross-examination.
65
The court in Scott mandated that both branches of the test to
reopen a trial to admit fresh evidence must be met. Having failed to meet the
first branch of the test, it is unnecessary to examine whether the precluded
evidence in this case could have been obtained by the exercise of reasonable
diligence. It is sufficient to say that that too is a matter largely within
the discretion of the trial judge and, absent error by him, that finding should
not be interfered with.
V.
Disposition
66
The appeal is allowed with costs to the appellants in this Court and in
the Court of Appeal. The order of the Court of Appeal is set aside. The order
of Cumming J., dated December 23, 1998, is restored.
Appeal allowed with costs.
Solicitors for the appellants: Torys, Toronto.
Solicitors for the respondent: Teplitsky, Colson,
Toronto.