BUSINESS LAW APPLIED QUESTIONS CHAPTER 4

1. a) The test the courts will apply is reasonable foreseeability to establish whether Seel
owed a duty to Kuz. Reasonable foreseeability is a question of fact, not of law. Opinions will
vary. Another way of asking the test of reasonable foreseeability is whether the event was
surprising or unexpected. In jurisdictions where there is jury, this would be a question for the
jury. You could take a vote of the class and see if there is any consensus as to whether the
presence of Kuz was reasonably foreseeable. There is no absolute answer. This finding will
vary with the judge or jury.

In spite of the word formula, there is a tendency by courts to increase liability. This is
particularly so when a judge is making a decision, as a judge will assume there is insurance.
Judges also know the lawyers who represent insurance companies.

b) If the presence of Kuz is foreseeable, then the type of injury, i.e., burning, is fore- seeable.
This question foreshadows the discussion of limitation because of the unexpected type of injury
later.

2. a) Again, this calls for the application of reasonable foreseeability. Since the other
driver was driving illegally, that may be a factor that makes the second driver unforeseeable.
However, this will be a matter of opinion.

b) If the second driver was foreseeable, then it was foreseeable that the driver would have a
family. In Oke v.Weide Transport Ltd., (1963) 41 D.L.R. (2d) 53 (Man. C.A.), the court held
that this was a freakish accident and that the defendant could not have anticipated that someone
would endeavor to pass a car when it was wrong to do so.

3. a) The court would apply the test of reasonable foreseeability. Was it reasonably fore-
seeable that a child would go to the back of a gas station? Our answer is yes.

b) The court would apply the test of what a reasonable person would have done, knowing
that a child might go wandering to the back of the gas station.

c) This is a question of fact, not of law. The finding of a court in any particular
circumstance is not a binding precedent but is, of course, a guideline. You can use this situation
to have the class assume that it is a jury and ask it what they think a rea- sonable person would
have done. There will likely be a consensus that there should have been a fence put around the
cesspool and that the fence should be at least eight feet high.You can point out that this is how
the jury system works. There is a consensus about certain standards of care. Most will agree
that a warning sign or a low fence would not be sufficient.

4. a) This, again, is a question of fact. There will likely be some division of opinion on
this. The argument for the contractor would be that it was good for 25 years and also that the
owner got a lower price. The cold spell was a freak and hadn’t happened for 50 years.
Contractors don’t look at weather records back 50 years but judge by their own lifetime
experience. The homeowner’s argument is given in the next question.

b) The homeowner would argue that freak cold spells were known and therefore reasonably
foreseeable, even if only every 50 years.
5. a) Kwan will not be successful because she was the one who was inattentive and
caused the accident.

i) Linden owed a duty to Kwan because it was foreseeable that any lack of care on
Linden’s part might involve hitting another driver on the road.
ii) Linden was probably in breach of the standard of care by driving when he had been
pronounced unfit to drive because of previous careless acts. It is arguable that on this day,
however, he did nothing wrong and so was not in breach of any standard. He was driving
within the speed limit on his side of the road. It was Kwan who was careless.
iii) No, even if Linden breached the standard of care, that breach did no cause the accident.

b) Linden will probably be successful in suing Kwan in negligence.

i) Kwan owed him a duty of care because it was foreseeable that her actions might injure
another driver on the road.
ii) Kwan breached the standard of care because her mind wandered.
iii) Kwan caused the accident because her car crossed over the center of the road into Lindens’
lane.

c) Even though Linden might very well escape an action based on negligence because his
action did not cause the damage, he would still be subject to prosecution under the criminal law
for driving while his licence was under suspension. Students may feel strongly that because he
was driving without a licence, he should be fully responsible for all the loss. However, his
conduct at the time was not the cause of the loss. That important element of causation was
missing and so Linden was not negligent even though he broke the law.

d) Kwan did not breach the standard of care even though she caused the accident. Keeping
the windows rolled down would not be a breach of standard practice in driving. See case
Sinclaire v. Nyehold, [1972] 5 W.W.R. 461 (B.C.C.A.).

6. a) The court would ask whether the damage to the school was reasonably foreseeable.
In the reported case, the court did find that damage to the school should have been reasonably
foreseen by the boy. (Hoffer v. School Division of Assiniboyne South, [1973] W.W.R., 765
(S.C.C.)). The father was also held liable for failure to supervise.

b) The court held that it was reasonably foreseeable by the gas company that if they left a
defective pipe in front of the school window, an accident could happen, causing gas to escape
into the school. So, it was held partly responsible along with the father and son.

7. a) In terms of causation, the ship captain’s actions did cause a change of events that
lead to the death of the patient.

b) This question draws the students’ attention to the fact that the chain of causation alone is not
enough. The courts don’t make the defendant liable for all acts in the chain of causation, but
draw the line. In the text, we have suggested the test of reasonable foreseeability. Of course,
this test is only one of several that have been used by the courts, others being: possibility; real
risk; proximate cause; or direct cause. All of these word formulas have been found to be
inadequate. It is a question of value and it is hard to predict at what point the courts will draw
the line. In a U.S. case, the court posed the present situation as hypothetical and said that few
judges would impose liability on the ship captain. (Kinsman No. 1, (1964) 338 F. (2d) 708.)
However, most businesses would have insurance and that may influence judge to impose
liability.

8. a) The paralysis was not reasonably foreseeable.

b) This illustrates the thin skull plaintiff rule, one of the exceptions to the reasonable
foreseeability or proximate cause test. The courts say that tortfeasors take their victims as they
find them, “. . . it is no answer to the sufferer’s claim for damage that he would have suffered
less injury or no injury at all if he had not had an unusually thin skull or an unusually weak
heart.” (Dulieu v.White & Sons [1901] 2 K.B. 669, at 679.) Homeowners insurance policies
may cover this type of incident.

In the Oak v.Weide case, the car that tried to pass illegally and got speared by the sign-post was
a Volkswagen Beetle which has no engine in the front. The defendant argued, unsuccessfully,
on this one basis, that there should be no liability because the plaintiff was driving a “thin-
skinned car” and would not have been injured if driving a regular car with an engine in the
front.

9. a) No, the spectator would not be successful. The spectator would be taken to have
known that a puck can stray into the stands and assume the risk. This is a complete defense.
(Elliott v. Amphitheatre Ltd., [1934] 3 W.W.R. 225 (Man.).)

10. a) This question focuses on the limits to a spectator’s consent. The spectator can be
taken to have consented to a stray puck or stick during play, but have they assumed the risks
created by improper conduct? The Ontario Court of Appeal held not, and awarded damages to
the spectator in this situation against a Toronto Maple Leaf player. (Payne v. Maple Leaf
Gardens et al., [1949] 1 D.L.R. 369 (C.A.).)

11. a) No, the golfer could not recover from the partner. This is the type of risk that could
ordinarily be expected. In respect of golf balls that go astray. One judge quipped, “everyone
knows that a golf ball does not always go in exactly the direc-tion intended, in fact, for most
people, it rarely does.” (Ratcliffe v.Whitehead, [1933] 3 W.W.R. 447 (Man.).)

However, if a golf ball goes wild, that is one of the risks of the sport. A golfer cannot always
control the ball even if the golfer is taking care. However, if a golfer tees off when another
party is directly in sight and range and the ball accidentally hits that person, that is a breach of a
standard golfer’s practice and would be negligence. Volenti may only apply when a party
consents to negligence, which is rare but would apply in the co-operative drinking binge cases.

12. a) This, again, demonstrates the limit on assumption of risk. A skier will not be taken to
have assumed that a ski resort has failed to mark a dangerous trail and the doctrine of volenti
non fit injuria will not prevent recovery. The skier did not know that the resort failed to mark
dangerous trail. (Wilson v. Blue Mountain Resorts Ltd., (1974) 4 O.R. (2d) 713.)
It appears the court decided the case on the principle of lack of informed consent to the volenti
defence.

13. a) This is an occupier’s liability action.

b) The issue is whether or not Giroux was an occupier. The definition of occupier is the
right to supervise and control the premises, i.e., the right to admit or exclude entry of others.
Giroux would not have enough control to be considered the occupier. The supermarket
certainly was an occupier. Since he was not an occupier, he did not have a duty to keep the
premises reasonably safe. The supermarket had that duty.

c) The store could have made sure that a store employee regularly monitored the testing
area and told Giroux to inform the store immediately if there was a spill. Adequate garbage
cans and cleaning products for spills should have been given to Giroux and he should have been
told to be on the lookout for spills. It should have specific store policies for how safety could be
maintained when market testing was conducted in the store. Most super markets do have these
policies.

14. a) This is an occupier’s liability action. The business has a duty to the customer to
protect the customer from other dangerous customers.

b) Because the business was on notice that Klee was aggressive and did not ban him completely
from the club, the business would be liable for the injuries. Gardiner v. McConnell, [1945] 1
D.L.R. 730 (Ont. H.C.).

15. a) Yes, under occupier’s liability, a business that sells alcohol has a duty to make
certain that the customer is not so drunk that they would injure themselves because of this
drunkenness when they leave. (Menow v. Hansburger, [1974] S.C.R. 239. This was decided
under common law and not under Liquor Licence Act provisions.)

Occupiers are only liable for their own premises and not for abutting public property. For
example, if a business has a sidewalk that goes from the public side- walk to its entrance, it is
liable only for that sidewalk as it is on the property. It is not liable for the public sidewalk.
Municipal by-laws require abutting land occu- piers to clear the ice and snow from public
sidewalks. This does not create a tort responsibility for the public sidewalk. Commerford v.
Halifax School Commissioners [1950] 2 D.L.R. 207 (N.S.). If someone slips and falls on the
public sidewalk, they cannot sue the adjoining occupier.

16. a) Oakley has grounds on the basis that a business which supplies liquor has a duty to
its patrons. The issue here would be: Was Oakley so drunk that the business would have
realized that she would injure herself? Also, would they have realized that she might try and
jump-start a car? Today the standard requires monitoring patrons’ consumption and preventing
them from driving if drinking. So although the way the damage was caused was unusual,
(unforeseeable), the fact that she might do harm while drunk is likely sufficient in today’s
values.

b) A business owes a duty to someone who was injured by a patron who got drunk on the
business’s premises. Of course, the question would be whether the damage was foreseeable.
The same argument as in (a) would apply.

17. a) Rob would definitely be liable for negligence for the deaths and injuries. Laura and
William may possibly also be liable under social host liability. They provided all the alcohol
that Rob drank and they knew he was drunk by the way he spoke and when he knocked over
the lamp. They didn’t take any steps to prevent him from driving and they knew he was drunk.
The court may rule that they “created and exacerbated” the situation so this may be the type of
fact situation that results in liability being imposed on a social host.
b) They will look at how much Rob drank, whether the hosts knew he was drunk and
whether the hosts took reasonable care to prevent him from driving and creating a reasonably
foreseeable accident. The standard is likely to get higher as there is increasing intolerance to
allowing people to drink and drive.

c) Punitive damages are not usually awarded in drunk-driving cases, the exception being
the McIntyre v. Grigg case, so it is unlikely here. But if the court wanted to deter other drunk
drivers and even social hosts from this behavior, it could be a possibility if the court finds they
showed a conscious disregard for the life and safety of others.

18. a) This is a review of the principle of Donoghue v. Stevenson with a slight variation. By tort
liability, Mbele owes a duty to Rumi.

b) This is a practical matter. People often feel that if they get a judgment, somehow it will be
paid. It must be stressed that there is no magic in obtaining one, it does not pay itself. If the
person sued is insolvent, the judgment is worthless. The plaintiffs have to look for a deep
pocket.
c) This is a review of Donoghue v. Stevenson which is the foundation of product liability law.

19. This question focuses the students’ attention on the difference between suing for the cost of
repair and personal injury. If you wish, you can use this to draw attention to the fact that
contract law respecting business products was developed historically on the basis of actions for
costs of repair, while tort was developed on the basis of personal injury. In contract, there
would be the Sale of Goods Act implied condition of merchantability. In the present time, the
distinction between tort and contract is disappearing. There is now precedent for personal injury
damages arising out of a breach of an implied condition of merchantability.

b) This question distinguishes between the purchaser’s and a third party’s right for personal
injury. It is reasonably foreseeable by a manufacturer and a dealer that a defective bike would
injure a passer-by.

c) There is no special rule. The previous doctrine of res ipsa loquitor, would have automatically
shifted the proof burden to the defendants. Now the plaintiff has to rely on the evidentiary
principle of circumstantial evidence. That requires the plaintiff to prove that there is no other
reasonably likely cause of the accident than a manufacturing or an assembly defect. This is a
matter of a finding of fact. A trial judge, or the jury, would first have to make this funding. It is
likely that this would be found against the retailer, who may have either been the assembler or
charged with responsibility for checking the bike before selling, and the manufacturer. Also,
there is the unwritten rule, that judges are sympathetic to consumers and usually try to make
findings (and influence juries) that assist the consumer against manufacturers.

A consumer in a position of the pedestrian, here, faces legal fees of at least

$200,000, including expert fees, to pursue a case against 3 defendants. Although a products
liability lawyer can likely be found to take it on a contingency basis, there would still be
considerable legal expense given the value of the claim as to make it unprofitable to pursue.
Judges recognize this and that the retailer and manufacturer will have insurance. So these are
also factors that will influence the judge who will know that every such case gives a message to
business people about product safety.
d) If the defendants cannot determine how the accident occurred, they will be unable to prove
they were not at fault. In this case, liability will be placed on all three equally.

20. a) Mark can sue New-Lite for manufacturer’s negligence even though there is no con- tract
between them as Mark bought the fan from a store. New-Lite is liable for all component parts
provided by outside suppliers included in the product.The court can divide up the liability
among the parts supplier and the manufacturer. Since the fuse was made in China, Mark will
probably collect from New-Lite. Mark must show on the balance of probabilities that the fan
caused the fire, causation and fault must be established.

b) Strict liability does not apply in Canada for defective products and manufacturer’s lia- bility.
Mark will have to try to succeed in a negligence action proving causation and fault by New-
Lite.

21. a) Electro may fail in its claim against Chemtar for negligence as Chemtar had taken rea-
sonable care. It had new proper storage tanks and a working alarm system so it had met its duty
of care to its neighbor.

b) Electro may also sue Chemtar under the tort of strict liability. Chemtar had brought onto its
property dangerous chemicals and they had escaped through no fault of Chemtar’s. Even
though Chemtar had done nothing wrong, under strict liability Chemtar would probably be held
liable for Electro’s damages. The courts would expect Chemtar to have insurance for all perils
including unexpected incidents such as the one in question.

22. a) What the auditor believes is not really relevant. To succeed the buyer has to first
establish that the auditor owed the buyer a duty of care. Was the buyer someone that the auditor
should reasonably have foreseen would be affected by the auditor’s actions? Since the auditor
knew the business was up for sale the buyer may be a “neighbour” to the auditor, so a duty of
care is owed.

b) If the court believes that the auditor owed the buyer a duty of care, then the next question is
did the auditor meet a reasonable standard of care? The buyer will claim that just getting a letter
from the bank on a blank sheet of paper was not adequate care. They will insist that the bank’s
opinion should have been on proper letterhead and done properly. The bank will insist that it is
not liable as the statement was not done on its letterhead. The accountant will insist that it had
met a reasonable stan- dard of care as it had asked for the amount from the bank and it was the
bank’s carelessness that caused the wrong value to be on the financial statements. The auditor
will insist that the letterhead is irrelevant, and the bank manager had signed the letter so that
was all that was required. The buyer will insist that the standard practice requires a bank
statement to be written on proper letterhead and the audi- tor failed to obtain that.

c) The buyer may not necessarily be successful as the court may rule that the financial
statements were not prepared for the buyer and the buyer was not a direct client of the auditor.
For policy reasons as outlined in Hercules Management, the court limits the liability of
accountants to people they had a close proximate relationship with. However, if the auditor had
prepared these financial statements for the purpose of selling the business, then the buyer could
say that they were within that close proximate category and the auditor is liable. Note; In
practice auditors usually have a cluse saying only the client can rely on the audit opinion.

23. a) The customer does not have a contract with the engineer. However, the customer could
bring an action based on tort. It is reasonably foreseeable by an engineer that if an inferior
covering is used, a member of the public will slip on it.

b) The exemption clause is contained in the contract between the business owner and the
engineer. The customer is not a party to that contract and is not suing on it; therefore, the
engineer cannot rely on the exemption clause.

24. a) Rowshan can state clearly on his report that the information is to be used by Takach only
and it cannot be given to any other party without his express consent. He can also insert a very
clear and broad disclaimer to state that he is not responsi- ble for any losses that could result
from the use of his opinion. He also should have malpractice insurance.
b) If he was an accountant and if he follows the standard practice of the profession, it may
protect him even if he makes a negligent error, as often, but not always, the standard practice is
considered a reasonable standard of care. He also can try to use the Hercules Management
decision to say that he only owes a duty to those people in a direct proximate relationship with
him (Takach) and for policy reasons, his liabil- ity should not be extended to a limitless number
of people for an unlimited amount of money. He should also be aware though that the court
could follow Kripps and say he is liable for negligence even if he followed the industry
standard. The decision in Micron Construction v. Hong Kong Bank could also be used to say
that there was a reasonable or justified reliance and that way Rowshan could still be held liable
for negligence.

25. a) The auditor’s belief is not relevant. This is not an action for fraud, but negligence.

b) The test the court would apply is: What would a careful accountant have done in the
circumstances? The envelope returned was on plain paper which obviously no auditor would
accept. The students should be able to recognize that that is below the accepted practice of what
an auditor would accept.

The auditor’s practice is to have the client send the request to the bank but to ask the bank to
mail the response directly to the auditor so that the client cannot tamper with it. Most students
will not know that this is the auditor’s standard of practice. The way it would be established is
to have another auditor testify in court and give an account of what the auditor would do in this
situation.