Date: 19990323
Docket: T-359-98
BETWEEN:
WESTWOOD SHIPPING LINES INC.
PLAINTIFF
AND:
GEO INTERNATIONAL INC., GARRY HUNTLEY
and COLIN FARNUM
DEFENDANTS
REASONS FOR JUDGMENT
ROTHSTEIN J.:
[1] This is an action for fraudulent misrepresentation against the defendant Garry Huntley, at the relevant time, General Manager of the defendant Geo International Inc.
[2] The plaintiff was the ocean carrier from China to Canada of three containers of hiker shoes.1 The goods reached Vancouver in early November, 1997 and were transported by rail to Toronto. Bills of lading covering the shipments were delivered to the shipper Yancheng Eagle Shoes Co. Ltd. They indicated the goods were consigned "to order" and that the "notify party" was Geo.
[3] In late October or early November 1997, Kelly Kidd, an Import Customer Services Representative of the plaintiff, called Geo to give notice that Geo's first two containers were arriving or had arrived in Canada. On November 1 or 2, 1997, Huntley called and spoke with Nikki Lawson, another Import Customer Services Representative of the plaintiff. Huntley asked Lawson what would be required to obtain release of the containers. Lawson advised that Geo would have to pay certain freight and terminal charges of $1,180.00 and provide the original endorsed bills of lading for the goods shipped. Once in possession of the original endorsed bills of lading from Yancheng in China, evidencing that payment for the goods had been made, Geo could surrender them to the plaintiff and the plaintiff, knowing that payment had been made, would provide Geo with pick up numbers which would enable Geo to obtain release of the containers from the railway company container yard in Toronto.
[4] In a second telephone conversation between Huntley and Lawson on or about November 3, 1997, Huntley asked if it would be possible to obtain release of the first two containers which had arrived in Canada if certain freight and terminal charges were paid and the original endorsed bills of lading were provided to the plaintiff when received by Geo. Lawson agreed to this arrangement. On November 3, 1997, Huntley faxed a copy of the cheque for $1,180.00 for certain freight and terminal charges with a request for the pick-up numbers. The cheque for certain freight and terminal charges was couriered to the plaintiff. On November 5, 1997, Lawson provided pick-up numbers to Huntley. With the pick-up numbers, Geo obtained release of the two containers of hiker shoes from the railway company.
[5] On or about November 12, 1997, when a third container had arrived in Canada, Huntley made the same arrangement with Lawson. A copy of a cheque for terminal charges of $590.00 was faxed to Lawson with a request for a pick-up number. The original cheque was couriered to the plaintiff. Lawson provided Geo with a pick-up number for the third container and Geo obtained release of that container from the railway company.
[6] The plaintiff's usual business practice was not to provide pick-up numbers without receipt of original endorsed bills of lading. However, on rare occasions, Lawson had made arrangements for the release of goods on a consignee's promise to forward the original endorsed bills of lading when they were received. Lawson would not have agreed to such an arrangement if she had any doubt that the original endorsed bills of lading would not be forwarded.
[7] Lawson's action in allowing release of the goods to Geo without the surrender of the original endorsed bills of lading was inconsistent with the terms of sale which were "100% D.P. at sight", meaning that Geo would have to pay 100% of the purchase price in order to obtain the original bills of lading.
[8] The original endorsed bills of lading were never provided to the plaintiff by Geo. Indeed, Geo has never received them as it did not pay Yancheng for the goods. Because the plaintiff released the goods without obtaining the original endorsed bills of lading and Yancheng did not receive payment for the goods, Yancheng claimed for its loss against the plaintiff. That claim was settled for US $155,000. The plaintiff also incurred legal costs in China pertaining to the claim in the sum of US $10,450. The plaintiff has suffered a loss in the total sum of US $165,450. This amount is not contested by Huntley.
[9] The issue is whether Huntley made a fraudulent misrepresentation to Lawson in order to induce her to release the goods to Geo.
[10] A fraudulent misrepresentation consists of a representation of fact made without belief as to its truth or made recklessly without regard to whether it is true or false and which causes the person to whom it was made to act on it. See Fridman, G.H.L., The Law of Contract in Canada, 3d ed., (Toronto: Carswell, 1994) at 295. In Derry v. Peek (1889), 14 App. Cas. 337, Lord Hershel described the requirements for fraudulent misrepresentation in the following well known passage at page 374:
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I think the authorities establish the following propositions: |
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First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made. |
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[11] Lord Hershel notes that as well as actual knowledge, willful blindness to the facts may ground an action for fraudulent misrepresentation. At page 376 he states:
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So, too, although means of knowledge are, as was pointed out by Lord Blackburn in Brownlie v. Campbell, [5 App. Cas. at p. 952] a very different thing from knowledge, if I thought that a person making a false statement had shut his eyes to the facts, or purposely abstained from inquiring into them, I should hold that honest belief was absent, and that he was just as fraudulent as if he had knowingly stated that which was false. |
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[12] While a statement about something in the future will not normally constitute a fraudulent misrepresentation of fact, i.e. a fact being something past or present, a stated intention as to the future may, in some instances, be factual. In Edgington v. Fitzmaurice (1885), 29 Ch.D. 459, Bowen L.J. stated at page 483:
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A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a misstatement of an existing fact: but the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man's mind is, therefore, a misstatement of fact. |
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[13] Huntley admits that he told Lawson that the bills of lading were being sent from China to Geo and that they would be forwarded to the plaintiff as soon as they were received. He made these statements for the purpose of inducing the plaintiff to release the goods to Geo. The question is whether, in making these representations, Huntley knew that the bills of lading were not being sent to Geo and that they would not be forwarded to the plaintiff, or at least, that he made the representations recklessly without an honest belief that the bills of lading were being sent to Geo. In either case, fraudulent misrepresentation will have been proven.
[14] The issue then is Huntley's state of mind when he made the representations. Did Huntley knowingly or recklessly make a false statement when he spoke to Lawson and obtained pick-up numbers so that the goods would be released to Geo?
[15] It is trite to say that a defendant in a contested trial will rarely, if ever, admit all the ingredients of a fraudulent misrepresentation. The evidence is usually circumstantial. In this case, Huntley does not admit that he knew that the bills of lading were not coming from China or that he had any reason to suspect that they would not be coming. What then are the circumstances from which it may be possible to find proof of fraudulent misrepresentation?
[16] Huntley was the General Manager of Geo. He admits he knew that the usual method for obtaining release of goods was for Geo to pay the necessary freight and terminal charges and surrender an original endorsed bill of lading to the shipping company. The plaintiff says that the Court should infer that Huntley must have had sufficient knowledge of the usual way in which the goods are released to know that Geo was not going to pay for the goods and that Geo would not receive the original endorsed bills of lading from China, when he induced Lawson to have the goods released to Geo.
[17] There is also evidence that Geo was in financial difficulty. Huntley admits knowing that Geo issued some N.S.F. cheques and being aware that Geo was in financial difficulty. The plaintiff says this proves that Huntley knew or should have known that the hiker shoes would not be paid for by Geo.
[18] Huntley also admits that he told Lawson that the hiker shoes were urgently required and that this was the reason he was asking her to release the goods on his representations that the bills of lading were being sent to Geo and would be surrendered as soon as they were received. However, the evidence is that the hiker shoes remained in Geo's warehouse for some four months after they were received. The plaintiff says this shows that Huntley made up the urgency story as a strategy to convince Lawson to provide him with pick up numbers to obtain release of the goods without payment.
[19] Huntley's position is that in calling Lawson and in convincing her to permit Geo to obtain release of the hiker shoes before surrender of the original endorsed bills of lading, he was simply following instructions from Geo's President, Colin Farnum. He says Farnum instructed him to call the plaintiff and ask what would be required in order to obtain release of the goods. He then called and spoke to Lawson who told him that payment of certain freight and terminal charges and surrender of endorsed original bills of lading would be required. On reporting this to Farnum, Farnum instructed him to cut a cheque for the freight and terminal charges and to ask the plaintiff if the goods could be released if the original endorsed bills of lading were forwarded to the plaintiff as soon as received by Geo. He called Lawson and told her the bills were coming from China and would be forwarded as soon as Geo received them. Lawson agreed to the arrangement and the containers were released.
[20] He then had a further conversation with Lawson pertaining to the third container. Again, Lawson agreed that this container could be released upon payment of certain freight and terminal charges and provision of the original endorsed bills of lading when it was received by Geo. In this call, he says Lawson asked if Huntley had the original endorsed bills of lading for the first two containers and he responded that Farnum was looking after the matter and that the bills would be coming from China.
[21] There is no essential conflict between Lawson's and Huntley's evidence pertaining to their discussions.
[22] Huntley testified that Farnum was a "hands on" manager and there was little or no explanation about transactions from Farnum to Huntley. Huntley said that he was only permitted to act on Farnum's express instructions and he had no discretionary decision-making power. Although he was aware generally that Geo was having financial difficulty, he had no knowledge of the details. He had no signing authority and was not privy to Geo's financial statements. Huntley said that he was not involved in transactions with Geo's suppliers or the payment arrangements between Geo and its suppliers. Geo continued to honour its payroll for six months after the incident in question. The evidence is that up to the time of the incident giving rise to this action, Geo was receiving at least fifty to sixty containers per year in the ordinary course of business.
[23] Huntley said Farnum was regularly renegotiating terms with suppliers. He said that, on occasion, goods had been released before payment had been made. Although he was aware of four containers remaining at Canadian Pacific's Vaughan container yard for between 30 and 100 days, he assumed this was because Farnum was renegotiating terms with the suppliers. Therefore, Huntley said he had no reason to be suspicious of Farnum's instructions that he try to obtain release of the Yancheng hiker shoes upon the promise to surrender the bills of lading to the plaintiff when they were received from China.
[24] As to his position as General Manager, Huntley says this was a position in name only. He says he was involved in sales and that his knowledge of arrangements with suppliers was minimal.
[25] On or about November 27, 1997, Huntley was called by Noel Asirvatham, Sales Manager for Eastern Canada of the plaintiff. He was looking for the original endorsed bills of lading for the three containers that had been released. The plaintiff had just been informed by Yancheng of "violence on the contract" between Yancheng and Geo and instructed not to release the containers. By this time the three containers had already been released to Geo. Asirvatham made an appointment to see Huntley. Asirvatham testified that Huntley said there was no need for concern and that the original endorsed bills of lading would be provided as soon as they were received by Geo. Asirvatham then said that he called Huntley, probably some time between December 2 and December 9, 1997 and was referred to Farnum. Thereafter, he had no dealings with Huntley.
[26] The matter of Huntley's state of mind when he represented to Lawson that the bills of lading would be coming from China is certainly not beyond doubt. However, on a balance of probabilities, I cannot say that I am persuaded that Huntley knew that the bills of lading would not be coming to Geo from China, that he was wilfully blind to the facts or that he made reckless statements without an honest belief in their truth.
[27] The evidence indicates that while Huntley was involved in delivery of bills of lading to shipping companies and in arranging to pick-up goods, he was not involved in dealing with suppliers. This was left to Farnum. For Huntley to have known or to have been reckless about Geo not paying Yancheng and not expecting receipt of the original endorsed bills of lading when he induced Lawson to provide him with pick-up numbers, he would have to have had information from Farnum that Geo was not willing or able to pay for the goods. Alternatively, he would have to have had sufficient knowledge to be wilfully blind to what was obvious or at least be put on guard that Geo would not pay for the goods. If Huntley was wilfully blind or at least should have been put on guard, say by Geo issuing N.S.F. cheques, or Geo's financial condition, he could be considered to be reckless and have had no honest belief in his representations to Lawson that the bills of lading were coming from China.
[28] In this respect, I do not rely on Huntley's evidence, which I consider to be self serving. Indeed, I think that while limited, he had somewhat greater involvement with the business than he admitted. However, this does not inevitably lead to the conclusion that he was sufficiently knowledgeable about Geo's specific arrangements with Yancheng and particularly that he knew or should have known that Yancheng would not be paid and that the bills of lading would not be forthcoming.
[29] The evidence of Asirvatham is that within approximately one week of communicating with Huntley over the bills of lading, he was referred to Farnum and Huntley was no longer involved. If Huntley was more involved with Farnum, such that he knew Yancheng would not be paid, one would expect he would have had a more active role in dealing with Asirvatham and the plaintiff than was the case here. On the contrary, as soon as the plaintiff seriously pressed for the original endorsed bills of lading, Farnum took over the matter.
[30] There is evidence of one other incident in mid 1996 of release of goods without the surrender of an endorsed original bill of lading. That case did not involve this plaintiff. However, in that case, the representative of the shipping company, Montreal Shipping Inc. contacted Huntley in December 1997. Huntley dealt with the matter initially, telling the Montreal Shipping representative that the original endorsed bills of lading would be with the accountant or in storage. The bill of lading was not forthcoming and again the matter was referred to Farnum and Huntley was no longer involved. Again, the inference I draw is that Huntley was an "outsider" and although employed as general manager by Geo, he was not intimately involved with the purchase of goods or the payment arrangements made between Farnum and suppliers.
[31] Should Huntley have known that payment would not be made to Yancheng and that the bills of lading would not be forwarded to Geo? Huntley knew that the usual procedure was for Geo to surrender original endorsed bills of lading in order to obtain release of goods. However, he testified that Farnum was always renegotiating with suppliers. Lawson's evidence was, that although infrequent, sometimes she authorized release of goods on the promise of a consignee to forward original endorsed bills of lading and had authority to do so. It does not follow that in inducing Lawson to release the goods before surrender of the original endorsed bills of lading, that Huntley had to have known Yancheng would not be paid or that they would not be forthcoming.
[32] Huntley admits telling Lawson that the Yancheng goods were needed urgently. I have no doubt he had to say this. Otherwise, he would have no basis for asking Lawson to permit release of the goods before the bills of lading were surrendered. However, this evidence does not lead to the implication that Huntley had to have known or suspected the bills of lading would never be received and surrendered.
[33] He was aware that Geo was in financial difficulty. He knew of some N.S.F. cheques having been issued by Geo. However, in the one specific case of an N.S.F. cheque, the details of which were before the Court, the cheque was immediately replaced by a cheque that was honoured by the bank. Geo, as far as the evidence goes, was, in November 1997, operating as a going concern. It was receiving at least fifty to sixty containers from suppliers each year. I have no evidence that shipments were not being regularly received and were not being paid for.
[34] In this context, plaintiff's counsel conceded that, contrary to what was pleaded, the evidence did not demonstrate that Huntley's communications with Lawson were "part of a pattern of fraud . . . in which the defendants . . . engaged in in order to obtain possession of goods without payment ...". Had such "pattern of fraud" been proven, I would have easily concluded that Huntley would not have held an honest belief that Yancheng would be paid and that the original endorsed bills of lading would be forwarded to Geo. When fifty to sixty containers per year were being received by Geo apparently with payment being made for them and, at the relevant time, Geo was operating as a going concern, on these facts, I have difficulty thinking that Huntley should have known that the Yancheng goods would not be paid for.
[35] As I have said, this case is not beyond doubt. However, on a balance of probabilities, I am not persuaded that the plaintiff has satisfied its onus of proving that all the components of fraudulent misrepresentation have been proven against Huntley. I have not been satisfied that Huntley knew the representations were false or was wilfully blind or that he was reckless and without belief in the truth of his representations to Lawson that the bills of lading for the Yancheng shipments would be received by Geo and forwarded to the plaintiff.
[36] Alternatively, the plaintiff says Huntley is liable in conversion. The Court has already determined that Geo and Farnum are liable in conversion. In finding that conversion was established against Geo, the Court concluded [my reasons dated June 24, 1998 in this file]:
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Geo has not paid for the goods. Nonetheless, it refused to return them when demand was made for them and later sold 90% of them and retained the proceeds. This is conclusive proof that Geo took the goods as its own and used them as its own. Conversion is therefore established. |
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[37] There is no evidence that Huntley was involved in the refusal to return the goods, in their sale, or in the receipt and retention of proceeds of the sale. It was for these reasons that Geo was found liable for conversion. In Huntley's case, a finding of conversion against him is dependent on the circumstances when he induced Lawson to provide him with the "pick-up" numbers, because there was no evidence of any later involvement by him in refusing to return the goods or in selling and not remitting the proceeds to Yancheng. While the obtaining of "pick-up" numbers might itself have amounted to conversion by Huntley personally if he acted wrongfully in obtaining them, for that to be the case, Huntley would have had to have known the goods would not be paid for or at least been wilfully blind or reckless without an honest belief that they would be paid for. However, I have already determined that the ingredients of fraudulent misrepresentation have not been proven against Huntley.
[38] The cases cited by plaintiff's counsel [Caban v. Calgary Real Estate Ltd. et al. (1968), 1 D.L.R. (3d) 69 (Alta. S.C.); Federal Business Development Bank v. T. & T. Engineering Ltd., [1982] 4 W.W.R. 126 (B.C.S.C.); Shibamoto & Co. Ltd. et al. v. Western Fish Producers Inc. (Bankrupt) et al. (1991), 43 F.T.R. 1, aff'd at (1992), 145 N.R. 91 (F.C.A.)] in which an individual was found to be liable for conversion, all refer to some knowledge by the individual of the wrongfulness of the action involved or a wilful blindness to the wrongfulness. Indeed, in Shibamoto, Rouleau J. found as a fact that the individual in that case "was the primary actor, not merely a secondary participant who was acting on behalf of the defendant company." By contrast, in the present case, while Farnum was the primary actor, Huntley was a secondary participant.
[39] As defendant's counsel has pointed out, the plaintiff's statement of claim bases the cause of action for conversion on a "fraudulent misrepresentation" by Huntley. Huntley has been found not to have made fraudulent misrepresentations. For the Court to find Huntley liable for conversion on any other basis would take the matter outside the pleadings as framed by the plaintiff and would be unfair to Huntley. He has received no notice that he should have called evidence or have addressed argument on any other basis for the conversion allegation.
[40] The action against Huntley is dismissed with costs. The parties are to contact the Court within seven days of the date of these reasons to arrange for a conference call to resolve the matter of costs.
Marshall Rothstein
J U D G E
OTTAWA, ONTARIO
MARCH 23, 1999
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1 An additional two containers were also shipped but are not the subject of this action.
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