Canada: A Costly Choice (Of Law): Determining The Damages Available For An Extra-Territorial Tort

Last Updated: August 19 2014
Article by Brooke MacKenzie

Most Read Contributor in Canada, September 2018

The recent UK Supreme Court decision in Cox v Ergo Versicherung AG, [2014] UKSC 22, provides helpful commentary and a potentially persuasive precedent for Canadian courts on issues of choice of law, the distinction between substance and procedure in the conflict of laws, and legislative extraterritoriality in circumstances where a cause of action is governed by a foreign law.

Consistent with Canadian law, the UK Supreme Court held in Cox that issues of substance are governed by the law of the place where the injury was sustained, but issues of procedure must be determined by the law of the forum where the case is tried.

While this rule is clear, its application in practice can be quite complex. The Court's decision in Cox should be interesting to Canadian lawyers because it demonstrates an application of this principle to questions of damages. The Court considered whether German laws excluding damages for bereavement and permitting consideration of subsequently-accrued rights in the damages calculation (both of which would substantially reduce the damages available to the plaintiff) were substantive or procedural. On the basis that these rules determined the scope of the defendant's liability and the plaintiff's enforceable rights, the Court held the German laws were substantive and governed the case at bar.

Background

The proceedings arose out of a fatal car accident in Germany, which killed Major Christopher Cox. The driver was a German national resident, domiciled in Germany, who was insured by a German insurance company. Major Cox's widow was living with him in Germany at the time of the accident, but shortly thereafter returned to England, where she was ordinarily domiciled. In the time between the accident and the hearing, Mrs. Cox entered into a new relationship and had two children with her new partner.

It was undisputed that pursuant to the law of the European Union, Mrs. Cox was entitled to sue the insurer in the courts of the state where she is domiciled. Mrs. Cox availed herself of that right, commencing litigation in England.

Although the forum was clearly appropriate, the damages available to Mrs. Cox varied significantly depending on whether the law of Germany or England was to be applied to assess the damages to which she may be entitled. In both regards, English law was more generous to Mrs. Cox:

  • First, the English Fatal Accidents Act 1976 specifically provided that "where there fall to be assessed damages payable to a widow in respect of the death of her husband there shall not be taken account the re-marriage of the widow or her prospects of re-marriage". In contrast, the German Bürgerliches Gesetzbuch (or "BGB", the civil code of Germany) provided that in assessing damages a court should take into account any subsequent benefits received that affect the loss of dependency. In other words, Mrs. Cox stood to recover more under English law, as her damages under German law could be reduced by virtue of any maintenance received from (or right to maintenance arising from) her subsequent marriage.
  • Second, the English Fatal Accidents Act 1976 provided for damages for bereavement, while German law conferred no right to damages for bereavement unless such suffering goes beyond normal grief and amounts to a psychological disturbance comparable to physical injury.

The decision of the UK Supreme Court

Lord Sumpton, writing for the majority, outlined the parameters of choice of law issues in tort under private international law: issues of substance are to be governed by the law of the place where the injury was sustained, but issues of procedure must be determined by the law of the forum. The issue for determination before the court was whether the German laws to be applied to the outstanding damages issues were procedural (in which case English procedural law would prevail) or substantive (in which case the German laws would be determinative).

Lord Sumpton considered the leading UK authority, the decision of the House of Lords in Harding v Wealands, [2007] 2 AC 1. In Harding, the House of Lords held that questions of procedure did not solely comprise the rules governing the manner in which proceedings were conducted. The House noted that damages issues could be either substantive or procedural: questions of the kind of damage recoverable was a question of substance (to be determined under the law of the place where the injury was suffered), whereas the quantification or assessment of damages went to the extent of the remedy, and as such was a question of procedure (under the law of the forum). The kind of damage recoverable, the House held, is inexorably tied to the rules which determine liability: one is not simply liable in tort; he must be liable for something. Rules excluding a kind of damage from the ambit of liability determine whether there is liability for the damage in question, and are thus questions of substance.1

Following the reasoning in Harding, the Court in Cox concluded that the German damages rules at issue were substantive, as they determined the scope of the defendant's liability. The German law providing credit for maintenance received by a subsequent partner, the Court held, was a rule of causation, which determines the extent of the loss for which a defendant ought reasonably be held liable (the Court held it reflected the principle that a victim ought to mitigate her loss, and that credit ought to be given to the defendant by reducing damages according to such mitigation).

Similarly, the Court found that the German laws making damages for bereavement unavailable was substantive, holding that they are "paradigm examples of rules governing the recoverability of particular heads of loss, the avoidance of which lies within the scope of the defendant's duty."

The damages rules under the English Fatal Accidents Act thus could not be applied to the case at bar. Insofar as they are substantive, they would not apply because the substantive law governing the action is German law (the law of the place where the injury was sustained). In any event, the Court noted, the Fatal Accidents Act does not lay down general rules of English law for the assessment of damages, but only rules for actions brought under the Act itself. The case at bar was one to enforce liability under German substantive law, and was not commenced pursuant to the Act.

Lastly, the Court rejected the argument that the Fatal Accidents Act had extra-territorial application and should thus apply notwithstanding the aforementioned choice of law analysis. The Court noted the strong presumption against extra-territorial application of statutes, and held there was nothing in the Fatal Accidents Act, express or implied, to suggest that its provisions were intended to have extra-territorial effect and apply irrespective the ordinary principles of private international law.

Significance in Canada

The UK Supreme Court's decision in Cox is largely consistent with Canadian law, which similarly relies on the distinction between substantive and procedural law to determine choice of law in tort cases.

In Tolofsen v Jensen; Lucas v Gagnon, [1994] 3 SCR 1022, the Supreme Court of Canada laid down the rule that substantive rights of the parties to an action are to be governed by foreign law, but all matters of procedure are governed exclusively by the law of the forum. Justice La Forest, writing for the majority, espoused the benefits of this rule's predictability and its concurrence with people's ordinary expectations that their activities will be governed by the place where they happen to be, and that their legal benefits and responsibilities will be defined accordingly. The distinction between substance and procedure, however, must be drawn because a court in a particular forum cannot be expected to apply every procedural rule of the foreign state whose law it wishes to apply. Justice La Forest noted that "the purpose of the substantive/procedural classification is to determine which rules will make the machinery of the forum court run smoothly as distinguished from those determinative of the rights of both parties".

Although the distinction between substantive and procedural law for the purposes of choice of law makes sense in principle, as is evident from Cox, it can be difficult to apply in practice Justice La Forest noted in Tolofson that "clearcut categorization... is not always easy or straightforward".

In Tolofson, the Supreme Court of Canada addressed the characterization of one tricky concept – limitation periods. The Court held in Tolofson (and the Ontario Court of Appeal held more recently in Bieberstein v Kirchberger, 2013 ONCA 629) that limitation periods are substantive, as they create an accrued right. This reasoning is similar to that of the Court in Cox; limitation periods, like the questions of damages before the UK Supreme Court in Cox, determine the scope of the defendant's liability (i.e. they are only liable for those torts occurring within a particular time) and the rights of the plaintiff (i.e. upon the expiration of a limitation period, a plaintiff no longer has a right to enforce).

Canadian courts have also grappled with the characterization of damages issues as substantive or procedural, further demonstrating the practical complexity of the application of these principles. Although the courts in general have distinguished between an entitlement to damages (as substantive) and the quantification of damages (procedural) – as was done by the UK Supreme Court in Cox, on the basis of the statements in Harding – it is apparent that this categorization can be challenging. For instance, in Somers v Fournier (2002), 60 OR (3d) 225, the Ontario Court of Appeal held that pre-judgment interest was a question of substance (holding it is an entitlement akin to a head of damage), but that costs were a question of procedure (noting that an award of costs was discretionary under the Rules, rather than an entitlement). The decision relied in part on the fact that pre-judgment interest is a right provided for in the Courts of Justice Act, as distinct from courts' authority to grant costs in its absolute discretion pursuant to the Act and the factors articulated in the Rules of Civil Procedure. The Court further held that the cap on non-pecuniary damages was a question of procedure, as a question of quantification of damages after the parties' rights and liabilities have been determined.

The case law shows that drawing a distinction between substance and procedure requires careful analysis, and is easier said than done. In light of this practical challenge, the UK Supreme Court's conclusion and reasoning in Cox, providing an example of an application of this rule to damages issues, may be persuasive in Canadian cases. As is evident from the facts of Cox, the application of the law of the place where a tort occurred to limit or expand the available damages can make a substantial difference to the quantum of damages that may be awarded. Canadian lawyers would be well-advised to pay attention in order to appropriately assess the scope of potential damages in complex cases relating to multiple jurisdictions.

Case Information

Cox v Ergo Versicherung AG, [2014] UKSC 22

Date of Decision: April 2, 2014

To view the original article please click here.

Footnote

1 The application of this reasoning to the facts of Harding was, in the words of the UK Supreme Court in Cox "surprising" and "questionable". The application to the facts in Cox follows more logically from the principles stated in Harding, making Cox a potentially more helpful precedent.

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