SCC Decisions: Grover and Domtar

The Supreme Court of Canada (“SCC”) released two decisions this morning. Perhaps the justices were feeling festive, on this first snowy day of the year? The first decision was in the matter of R v Grover, [2007] 3 SCR 510; this short judgment dealt with the ability of an appellate court to unseat a trial judge’s rulings on matters of fact. The second decision, ABB Inc v Domtar Inc, [2007] 3 SCR 461, is a Quebec civil law case involving a seller’s duty to inform and the seller’s warranty against latent defects imposed by statute.

R v Grover

In a brief three paragraph decision, the unanimous SCC reinstated Mr. Grover’s conviction for attempted obstruction of justice. Mr. Grover had tampered with fire inspection records after a property he owned and managed had a serious fire. Mr. Grover exercised his right to testify at trial. His explanations of the false records and his knowledge of their falsification were rejected by the trial judge. Mr. Grover also stated that he visited several tenants who suffered injuries during the fire, and did so for solely compassionate reasons. One of the tenants testified that, on the contrary, she was asked to sign a document indicating that all of the fire inspections had occurred. On this evidence, he was convicted.

On appeal, the Saskatchewan Court of Appeal overturned the conviction, arguing that Mr. Grover may not have known of the various fire inspection requirements, and wanted his tenant to sign the form merely to maintain perfect records for the inevitable inspection following the fire. On that basis, the Court of Appeal ruled (in heavy jargon) that a properly instructed jury, acting judiciously, could not reasonably have rendered a conviction.

The SCC ruled quite forcefully that, after having considered the theory advanced by the defence and the testimony of the accused (which flatly contradicted the theory advanced by the Court of Appeal), the finder of fact’s conclusions are to be respected. It is not open to an appellate court to substitute its own theory of events in place of those found by the trial judge. In this case the finder of fact properly considered all the relevant evidence, and therefore the conviction was restored.

ABB Inc v Domtar Inc

At 121 paragraphs, this case is considerably more complicated than the other released today. However, the reader will have to bear with my somewhat incomplete summary of the case. Only the headnote is currently available in English; the judgment itself is so far only available in French.

The facts of the case are relatively straightforward: Domtar purchased a defective boiler from ABB Inc. for approximately $13 million dollars. After the boiler’s defects became apparent, Domtar sued ABB Inc. for $13 million, sued ABB Inc.’s insurer Chubb, and sued its own insurers, Lloyd’s and Arkwright. Before trial, Lloyd’s settled for $1.5 million.

At trial, the Quebec Superior Court rejected the latent defect claim, but found for Domtar on the duty to inform claim; the court ruled that ABB must pay the $13 million, but that Lloyd’s payment ought to be deducted from the sum as they had been subrogated to Domtar’s rights after the settlement. Chubb only insured ABB Inc. against latent defects, so the claim against it was dismissed.

The Court of Appeal and the SCC largely agreed, so I will only summarize the SCC’s ruling.

Under the Civil Code of Quebec, LRQ, c C-1991 there is an onerous duty imposed on sellers to provide products free from latent defects. The manufacturer is presumed to be the consummate expert with respect to its own products. Therefore, products supplied with latent defects are not subject to the usual limitations on liability. In order for the buyer to prove that a product has a latent defect, he/she must prove four things:

1. it must be latent

2. it must be sufficiently serious

3. it must have existed at the time of the sale; and
4. it must have been unknown to the buyer

The SCC determined that all of these elements were made out by Domtar. The SCC defined the second element as follows: “A defect will be considered to be serious if it renders the good unfit for its intended use or so diminishes its usefulness that the buyer would not have bought it at the price paid.” The SCC further clarified that, though Domtar was a sophisticated buyer and was in fact aided by an expert, that does not excuse ABB Inc. from failing to make known a latent defect to the buyer. Things would have been different, of course, if Domtar had in fact been aware of the defect; it would not have been “latent” in such a case.

After establishing each of the above conditions, the SCC discussed the defences available to ABB Inc. ABB Inc. had argued that it had acted in the utmost good faith throughout the sale process, and that it was ignorant of the defect. The SCC rejected such a low threshold:

The manufacturer must show that it did not know about the defect and that its lack of knowledge was justified, that is, that it could not have discovered the defect even if it had taken every precaution that the buyer would be entitled to expect a reasonable seller to take in the same circumstances. To absolve a manufacturer from liability will be justified only if the manufacturer shows that it had full knowledge of the technology in its field at the time the good was designed and that the defect in question cannot be attributed to it.

Having established the much narrower claim of latent defect, the SCC did not go on to analyze the duty to inform claim. They said that, in any event, it was subsumed into the latent defect claim.

With respect to the army of insurers, the SCC changed the liability set out by the trial judge. Because Lloyd’s policy explicitly exempted latent defects, the SCC argued that the settlement could not have been in respect of latent defects. Therefore ABB Inc. was responsible for the full $13 million and Domtar received an apparent windfall of $1.5 million. Because Chubb insured ABB Inc. against latent defects, they were liable with ABB Inc. to pay Domtar its damages. Arkwright’s policy also exempted latent defects, so it was excluded from the web of payments altogether.