2018 NBCA 28, 2018 NBCA 28

COURT OF APPEAL OF NEW BRUNSWICK COUR D’APPEL DU NOUVEAU-BRUNSWICK 85-16-CA CROPVISE INC. and WOLF & WOLF SEEDSINC. APPELLANTS CROPVISE INC. and WOLF & WOLF SEEDSINC.

APPELANTES - and - - et - CANADIAN FOOD INSPECTION AGENCY RESPONDENT AGENCE CANADIENNE D'INSPECTION DESALIMENTS INTIMÉE Cropvise Inc. and Wolf & Wolf Seeds Inc. v.Canadian Food Inspection Agency, 2018 NBCA28 Cropvise Inc. and Wolf & Wolf Seeds Inc. c.Agence Canadienne d'inspection des aliments, 2018NBCA 28 CORAM: The Honourable Justice Richard The Honourable Justice Baird The Honourable Justice French CORAM : l’honorable juge Richard l’honorable juge Baird l’honorable juge French Appeal from a decision of the Court of Queen’sBench: October 18, 2016 Appel d’une décision de la Cour du Banc de laReine : le 18 octobre 2016 History of case: Decision under appeal: 2016 NBQB 186 Preliminary or incidental proceedings: Historique de la cause : Décision frappée d’appel : 2016 NBQB 186 , 2016 NBBR 186 Procédures préliminaires ou accessoires : Appeal heard: October 10, 2017 Appel entendu : le 10 octobre 2017

Judgment rendered: May 24, 2018 Reasons for judgment by: The Honourable Justice French Concurred in by: The Honourable Justice Richard The Honourable Justice Baird Jugement rendu : le mai 24 2018 Motifs de jugement : l’honorable juge French Souscrivent aux motifs : l’honorable juge Richard l’honorable juge Baird Counsel at hearing: For the appellants: Rodney J. Gillis, Q.C. Charles A. Haché For the respondent: Lori Rasmussen THE COURT The appeal is dismissed with costs of $3,000. Avocats à l’audience : Pour les appelantes : Rodney J. Gillis, c.r. Charles A.

Haché Pour l’intimée : Lori Rasmussen LA COUR L’appel est rejeté avec dépens de 3 000 $. The judgment of the Court was delivered by FRENCH, J.A. I. Introduction [ 1 ] The appellants, Cropvise Inc. and Wolf & Wolf Seeds Inc., maintain the respondent, the Canadian Food Inspection Agency (the “CFIA”), was negligent in its’ efforts to negotiate with Venezuelan authorities for the release of their seed potatoes.

The potatoes had been rejected for entry into the country following an inspection on delivery to the Port of Cabello, Venezuela. [ 2 ] Cropvise and Wolf Seeds had contracts to supply seed potatoes to a government owned company responsible for importing agricultural products into Venezuela. They delivered the potatoes in refrigerated containers which arrived at the Port of Cabello at various times between November 2009 and April 2010. The initial shipment was accepted without incident in November 2009.

However, on December 6, 2009, 16 containers were rejected by Venezuelan authorities, out of a shipment of approximately 50 containers. It was alleged the rejected potatoes did not meet the standards represented in the Phytosanitary Certificates which accompanied them. The Certificates were issued by the CFIA pursuant to the International Plant Protection Convention (the “ Convention ”) and a Bilateral Potato Protocol between Canada and Venezuela (the “ Protocol ”).

In response to the rejection, the CFIA sent two inspectors to Venezuela, had the rejected potatoes re-inspected in the presence of Venezuelan inspectors and advised the

Venezuelan authorities that the potatoes conformed to the Certificates, meeting the standards required under the Protocol . Notwithstanding this representation and the subsequent efforts to have the potatoes released, the Venezuelan position did not change, the rejected potatoes were not released and ultimately, they were destroyed. Their value was estimated to exceed $100,000. As required under their contracts, the appellants continued to deliver seed potatoes to Venezuela.

While parts of three subsequent shipments were similarly rejected, the vast majority, approximately 88%, of the potatoes delivered to Venezuela were accepted. Approximately 12% were rejected. [ 3 ] In their action against the CFIA, the appellants collectively claim special damages of approximately $3,500,000 for losses incurred during the 2009-2010 season. They also claim an unquantified amount for profits lost during the three subsequent seasons, during which they claim they were unable to sell into Venezuela.

The appellants do not allege any error in the CFIA’s inspection of their potatoes or the correctness of the Phytosanitary Certificates issued by the CFIA. Indeed, it is based on the accuracy of the Phytosanitary Certificates that the appellants maintain the Venezuelan authorities wrongly rejected their potatoes and acted contrary to the Convention and Protocol .

The appellants claim the CFIA failed to act reasonably in performing its duty “to negotiate” with the Venezuelan authorities for the release of their potatoes. [ 4 ] Following a 7-day trial, a judge of the Court of Queen’s Bench dismissed the appellants’ claim. He concluded the CFIA did not owe a duty of care in connection with its efforts to negotiate the release of the rejected potatoes. While the judge concluded the CFIA owed the appellants a prima facie duty of care, he found residual policy considerations negated that duty.

Additionally, the judge concluded that, even if a duty of care were owed to the appellants, they did not establish that the CFIA failed to meet the requisite standard of care, nor did they establish any of their losses were caused by any such breach. [ 5 ] On appeal, Cropvise and Wolf Seeds maintain the judge erred in determining they were not owed a duty of care based on policy considerations.

They describe the CFIA’s efforts to negotiate the release of the rejected potatoes as operational – and not reflecting a government policy decision or a government undertaking of a type which, for policy reasons, should be insulated from liability in negligence. In short, Cropvise and Wolf Seeds submit the judge erred in concluding CFIA has no legal responsibility for conduct that would otherwise be viewed as negligent. They also maintain the judge erred in concluding the CFIA met the requisite standard of care and that causation was not established. [ 6 ] I would dismiss the appeal for the reasons that follow.

II. Background [ 7 ] The circumstances leading up to the rejection of the appellants’ potatoes and the parties’ efforts to secure their release were canvassed fully by the trial judge. The appellants do not take issue with the findings of fact (at paras. 1 to 75 of the reasons for decision). [ 8 ] In 2009, Cropvise and Wolf Seeds were in the business of exporting seed potatoes, from growers in New Brunswick and Prince Edward Island, to importers in Venezuela. [ 9 ] Wolf Seeds is an extra-provincial corporation, registered to carry on business in New Brunswick.

Sam Wolf, a principal of the corporation, resides in Florida and has been involved in the seed potato business since 1973. He is a third-generation operator of a business started by his grandfather in 1903. They have been selling seed potatoes to importers in Venezuela since the 1960s. [ 10 ] Cropvise, a New Brunswick corporation, was formed by Dwight Hansen in 1994-95. Sometime after that, Cropvise got into the business of selling seed and table potatoes. In 2003, for the first time, it sold seed potatoes to importers in Venezuela.

Cropvise became a regular supplier to Venezuelan importers in 2008. [ 11 ] Beginning in 2009, a company owned by the Venezuelan Government became the sole importer of Canadian seed potatoes. Previously, Cropvise and Wolf Seeds sold to a number of private Venezuelan importers.

A letter to the Government of Canada and the CFIA, dated August 10, 2009, and which began “it is a pleasure to extend a Revolutionary and Bolivian greeting to you all”, advised that the sale of seed potatoes from Canada to Venezuela had to be made to the “Bolivian Company of Marketing Agricultural Supplies and Services, SA (ECISA), a government company that was created to attend to the purchase, import and distribution of agricultural imports”.

[ 12 ] The evidence at trial, of political change in Venezuela in 2009, was of more than just passing interest to this dispute and it is addressed by the judge in his reasons in relation to a number of issues. As he noted, the degree to which political change in Venezuela had created commercial uncertainty is clearly evidenced by the decision of Export Development Canada to not offer its insurance coverage on seed potato shipments to Venezuela in 2009-2010.

EDC, the export credit agency of the Government of Canada, seeks to support Canadian exporters in their sale of goods to foreign buyers. [ 13 ] The judge also noted the uncertainty was recognized by the appellants. At a minimum, an increased level of apprehension was evident from Mr. Wolf’s plan to be present in Venezuela when the first shipment of Wolf Seed potatoes arrived. As the judge observed, Venezuela was a market Wolf Seeds had been shipping into for almost 50 years, yet, in advance of the delivery, Mr. Wolf had requested the involvement of trade representatives from the Canadian Embassy in Caracas.

In a November 12, 2009 email to Mr. Ramirez, a trade representative at the Canadian Embassy, Mr. Wolf thanked him for Canadian Embassy support and requested Mr. Ramirez’s presence at the offloading of the potatoes. Explaining his concern, Mr.

Wolf wrote: After our conversation last week, we would like to take you up on your offer to be present in Puerto Cabello when the vessel arrives, to ensure that the potatoes supplied by the Canadian farmers are inspected based on quality and not any other criteria . [Emphasis added.] [ 14 ] The supply contracts between Cropvise and Wolf Seeds, as sellers, and ECISA, as buyer, for the 2009-2010 season were not in evidence.

However, the judge made the following findings as to the essence of their contractual obligations: • The seed potatoes were to be shipped by Cropvise and Wolf Seeds to the Port of Cabello, Venezuela, in refrigerated containers, each containing approximately 27.5 metric tons of potatoes (maintained at 8°C); • Title to and responsibility for the potatoes would only pass to ECISA after the potatoes had been inspected at the Port by the Venezuelan equivalent of the CFIA, the Instituto Nacional de Salud Agricola Integral (“INSAI”), and cleared for entry into Venezuela; • ECISA had no responsibility for the potatoes prior to the passage of title – and Cropvise and Wolf Seeds had no right to claim payment before then.

Also, ECISA had no obligation to assist with the importation of the potatoes, notwithstanding that representatives of both ECISA and the INSAI conducted a pre-shipment inspection of the potatoes in Canada; • Cropvise and Wolf Seeds were required to post performance security for their supply commitments to ECISA and they had no contractual right to withhold future shipments of potatoes in the event earlier shipments were wholly or partially rejected by INSAI.

Based on these findings, it is not difficult to see why the judge observed that, under their contracts, Cropvise and Wolf Seeds bore the full risk of the potatoes being refused entry into Venezuela – a risk they were unable to mitigate with insurance from EDC. [ 15 ] Before addressing the rejection of the seed potatoes that arrived in Venezuela in December 2009, I will explain the role the CFIA and its equivalent, the Instituto Nacional de Salud Agricola Integral (“INSAI”), played in ECISA’s importation of Canadian seed potatoes under the contracts with Cropvise and Wolf Seeds. [ 16 ] Canada and Venezuela are parties to the International Plant Protection Convention , which came into force in 1952.

The Convention regulates the international trade in certain agricultural products, including seeds, with the goal of preventing the spread of pests. Each contracting state is required to establish a National Plant Protection Organization (the “NPPO”) which will perform the state’s obligations under the Convention . In Canada, the National Plant Protection Organization is the CFIA, as prescribed by the Plant Protection Act , S.C. 1990, c. 22. In Venezuela, the NPPO is “INSAI”.

Not surprisingly, and relevant in the circumstances of this case, the obligations imposed on the CFIA under the Plant Protection Act form only part of the CFIA’s responsibilities. It has additional responsibilities under both its own legislation and other federal legislation. [ 17 ] Under the Convention , each state retains the authority to establish the phytosanitary requirements that must be met in order for an agricultural product, in this case, seeds, to be permitted entry into the state.

Also, the Convention provides for the NPPO of an exporting state (the CFIA) to issue Phytosanitary Certificates to the NPPO of an importing state (INSAI). Phytosanitary Certificates confirm to the importing state that, prior to shipment, the seeds were inspected and their phytosanitary standards have been met. The intention, it appears, is not only to prevent the spread of pests but also to attempt to ensure, prior to export, that the seeds will meet the phytosanitary standards of the importing state, thus avoiding (or at least reducing) the risk of rejection at the time of

importation, for phytosanitary reasons. The Convention provides that the system is not to be used to deny entry of seeds unless necessitated by phytosanitary considerations and technically justified. [ 18 ] The CFIA established a Policy on the issuance of Phytosanitary Certificates. As the Policy explains, CFIA Phytosanitary Certificates, issued to the NPPO of an importing country, are viewed as “official government documents”, which must be carefully controlled, and although they facilitate trade, they are not “trade documents” and cannot be demanded or issued by importers, exporters, brokers, banks etc.

This is important since the CFIA did suspend, briefly, the issue of Phytosanitary Certificates on the urging of the appellants. [ 19 ] The appellants rely on the Policy as the source of the CFIA’s obligation to negotiate for the release of their potatoes. Under the heading the “CFIA Responsibilities” the Policy provides: Export Commodity Officer (ECO) group Set and provide guidance on policy on the issuance of Phytosanitary Certificates.

Seek clarification from foreign plant protection organizations of their phytosanitary import requirements in cases of contradictions or lack of phytosanitary information. […] Negotiate or contribute to negotiations with foreign plant protection organizations for less stringent phytosanitary import requirements, when the current requirements are not technically justified. Negotiate release of shipments that are detained, as a result of alleged phytosanitary reasons . [Emphasis added.] [ 20 ] The Policy also describes the “Exporters’ Responsibilities”.

They include the following: Know the phytosanitary import requirements for the commodity they intend to export, before signing contracts or LOC. The requirements may be obtained from the CFIA for some destinations and products, from the Permit to Import or from the importer.

Information from the foreign NPPO provided by importer must be verified with the local CFIA office. […] Complete and sign Application for Export Inspection and Phytosanitary Certification, Form CFIA/ACIA 3369, for each phytosanitary certificate requested, and submit to the appropriate CFIA office.[…] Ensure that shipments meet the phytosanitary import requirements of the importing country and safeguard the phytosanitary status of the product after inspection and certification. [ 21 ] In 1999, Canada and Venezuela entered into a bilateral agreement to establish a protocol for the export of seed and table potatoes to Venezuela.

The Protocol is consistent with the Convention but it specifically addresses potatoes. The trial judge summarized the operative provisions of the Protocol :

a) potato shipments must be free from quarantine pests, and otherwise within the specified tolerance levels for non-quarantine pests;

b) all seed potatoes must be packaged as specified in the Protocol, be treated with a fungicide and have a certified seed potato export tag attached thereto;

c) each seed potato field must be inspected twice during the growing season by CFIA inspectors and all seed potatoes must originate from a seed potato certification program approved by SENASEM;

d) an import permit will be required for all potato exports to Venezuela and visual inspections of “unwashed tubers” will occur at the point of entry to ensure compliance with the qualitative requirements set out in the Protocol ;

e) the phytosanitary certificates issued by the CFIA for each shipment must confirm the shipment is in accordance with the tolerances set out in the Protocol;

f) shipments found to be infested with quarantine pests will be refused entry, but in the case of non-quarantine pests in excess of the specified tolerance limits, the Venezuelan authorities (INSAI and SENASEM) “may require the lot to be reconditioned to meet the tolerance”.; [para. 7, 2016 NBQB 186 ]

g) where a shipment is found to be out of tolerance for quality factors, e.g. mechanical, frost, heat, water damage, etc.… the disposition of the shipment will be determined by the commercial parties ”; and h) “any disagreements in the

interpretation or execution of this Protocol will be resolved amicably between the parties, through diplomatic channels ”. [Emphasis added.] [ 22 ] The CFIA is responsible for meeting the Canadian obligations under the Protocol. INSAI and Senasem of Fonalap are the entities responsible for the Venezuelan obligations. Senasem of Fonalap (the “SENASEM”) is the Venezuelan national seed service. [ 23 ] Neither the Convention nor the Protocol provide a process to adjudicate a dispute between the parties.

The Convention provides that disputes between contracting states may be referred to a committee of experts for consideration; however, any recommendation from or determination by the committee is nonbinding. The Protocol provides that “any disagreements in the

interpretation or execution of the Protocol will be resolved amicably between the parties, through diplomatic channels”. [ 24 ] I return to the appellants’ shipments of seed potatoes during the 2009-2010 season. The rejected potatoes had been inspected by the CFIA in Canada before being shipped to Venezuela, as the Convention and Protocol require. The relevant Phytosanitary Certificate(

s) issued by the CFIA to INSAI certified that the potatoes: […] are considered to be free from the quarantine pests specified by the importing contracting party and do conform with the current phytosanitary requirements of the importing contracting party, including those for non-regulated quarantine pests.

They are deemed to be practically free from other pests and “the potatoes contained in the shipment comply with the Protocol for the shipment of certified seed and table potatoes from Canada to Venezuela, dated November 1999 … [para. 20, trial decision, emphasis added.] [ 25 ] All parties to this litigation maintain the Phytosanitary Certificates were correct and the potatoes complied with Venezuelan requirements, both prior to shipment and on arrival in Venezuela. Necessarily therefore, they all maintain the reasons given for rejecting the potatoes are unjustifiable, based on phytosanitary reasons.

The implication is either the Venezuelan inspection and assessment of the potatoes was flawed, or worse, the potatoes were rejected for reasons not related to phytosanitary conditions. Not surprisingly, neither possibility has been expressly acknowledged by the Venezuelan entities involved. That said, statements attributed to Venezuelan representatives acknowledged some “political” considerations were at play in the Venezuelan position.

[ 26 ] The trial judge found the CFIA had carried out all the necessary field inspections, the Phytosanitary Certificates were accurate and the necessary export tags were issued. He also found the potatoes were packaged, tagged and treated in accordance with the Protocol and they were shipped to Venezuela in refrigerated containers, in accordance with the contracts between the appellants and ECISA. In other words, he found that all was well when the potatoes left Canada. In fact, and as has been emphasized many times, the inspection of the potatoes in Canada was undertaken not only by the CFIA.

They were also inspected in Canada by representatives of ECISA (the importer/buyer), INSAI (the Venezuelan NPPO under the Convention and Protocol ) and SENASEM (the Venezuelan National Seed Service, which had a role under the Protocol ). [ 27 ] On November 24, 2009, Wolf Seed’s first shipment of seed potatoes arrived in Venezuela. Without any incident, the 1,400 metric tons (about 50 containers) was accepted for entry by INSAI/SENASEM and ECISA took delivery. [ 28 ] On Sunday, December 6, 2009, at least 47 more containers arrived.

Within days, the parties learned 16 containers had been rejected, 10 Wolf Seeds’ containers and 6 Cropvise. As will be explained further below, the evidence before the trial judge was not clear on whether the number of rejected containers was 16 or 23. [ 29 ] On Wednesday, December 9, 2009, Ms. Rodriguez, the President of ECISA (the importer), telephoned Mr. Ramirez, a trade officer at the Canadian Embassy in Caracas, to advise that a 400 ton shipment of seed potatoes from Cropvise had arrived in bad condition -- suffering from wet rot.

She suggested the CFIA had not conducted proper phytosanitary inspections, as required by the Protocol . Mr. Ramirez confirmed the rejection with Dr. Zapata, the Plant Health Director of INSAI and with Mr. Gil, a representative of Cropvise in Venezuela. Mr. Gil suggested there may have been an issue with refrigeration. The same day, Mr. Ramirez reported by e-mail the rejection to Mr. Yu, a Potato Program Specialist with the CFIA in Ottawa. [ 30 ] Also on Wednesday, Ms.

Sandoval, the Director General of INSAI, sent a letter to the CFIA, advising that 16 containers (approx. 440 metric tons) of potatoes were being denied entry into Venezuela. Ms. Sandoval’s letter was not received by Mr. Yu until Friday, December 11, 2009 (receipt had been delayed for it to be translated into English). Mr. Yu received further correspondence from Ms. Sandoval providing reasons for the rejection. Mr. Yu set up a conference call with the Venezuelan officials for the following business day, Monday, December 14. [ 31 ] On Friday, December 11, Mr. Yu also received two emails from Mr.

Wolf, the first at 12:05 PM and the second at 12:49 PM. In the first email, Mr. Wolf advised that his potatoes had been accepted for entry (apparently he was referring to the November 24 shipment) but he indicated he was very concerned because the importer, ECISA, had opened the refrigerated containers, breaking the “cold chain”, which could eventually lead to rot. The exposure of the cold potatoes in the humid heat of Venezuela caused the potatoes to sweat.

In fact, he learned that some of the potatoes were not going to farmers straight away but were going to remain on- site, un-refrigerated, until sometime in January. Additionally, he advised Mr. Yu that it appeared the first shipment of potatoes had been inspected again, for more than health issues. It is clear Mr. Wolf was anxious about how the first shipment of potatoes had been handled on arrival in Venezuela, despite their having been accepted without issue. Mr.

Wolf indicated he was afraid that, if the potatoes were to rot, he expected ECISA would blame him, as the exporter, or the farmers – “not themselves for the inconsistencies that they are causing because of their lack of knowledge”. He attributed these problems to the fact that the representatives of ECISA, the new government owned importer, were inexperienced. [ 32 ] Mr. Wolf’s second email, barely more than half-an-hour later, notified Mr. Yu that 10 of the 47 containers that arrived on December 6 had been denied entry into Venezuela. He asked Mr.

Yu to consider sending “one of your most experienced experts on the matter right away to Venezuela to solve the Phytosanitary issues”. In other words, he wanted the CFIA to explain to the Venezuelans that they were wrong to reject the potatoes. [ 33 ] Late that afternoon, Mr. Yu circulated an internal CFIA report explaining the situation and the intention to have a conference call with Venezuelan officials on Monday. The next step(

s) would be determined after the call. It states as follows: Venezuelan plant health authorities have indicated that 16 containers of Canadian seed potatoes (approximately $100K in value) have been rejected due to tolerances for common grade defects being exceeded. All 16 containers had been pre-cleared in Canada by official Venezuelan inspectors, and successfully cleared a CFIA pre-export inspection as stipulated in the terms of the Canada-Venezuela bilateral agreement. The Canadian exporter indicated that, while under the strict control of Venezuelan importer and the Venezuelan plant protection

authorities, the storage temperature had not been properly maintained and that this had probably compromised the condition of the seed potatoes, thereby leading to the deterioration in quality and subsequent rejection. This would account for increased levels in certain types of the specified grade defects (wet rot) but not other types (scab, rhizoctonia) but is yet to be verified. Another 68 containers (approximately $420K in value) of Canadian seed potatoes are expected to arrive in Venezuela next week and in early January. The CFIA’s potato

section staff hope to engage with Venezuelan authorities by conference call on Monday, and will plan next steps based on the outcome of this. It may be necessary to consider sending inspection staff to Venezuela at short notice to prevent further rejections and to resolve the issue . [Emphasis added.] It is clear the CFIA officials were concerned from the beginning that the situation in Venezuela might develop into a problem which could have consequences beyond the 16 containers that had been rejected.

It could affect the shipments that were to follow, including the appellants’ 68 containers that were to arrive in Venezuela in the coming weeks. [ 34 ] During the conference call with Venezuelan officials on Monday, December 14, 2009, it was learned they would reconsider the rejection of 9 of the 16 rejected containers and they were willing to conduct inspections with CFIA representatives. As later became apparent, the 16 containers were rejected based on samples from 7 of them. It would appear the Venezuelans were open to reconsidering the 9 containers which had not been directly inspected. [ 35 ] Mr.

Yu circulated another internal CFIA report after the conference call. Again, concern over the Venezuelan inspection of future shipments was evident. He said: 40 containers of seed potatoes are expected to arrive in Venezuela in the next few days, plus 28 expected to arrive in early January. The cooperation is critical to ensure that inspection procedures are performed on incoming loads in a similar manner to CFIA.

Given the tolerances that Venezuela has reported to us only marginally exceed the allowable tolerances in the bilateral protocol, our inspection staff believe that we could make gains, perhaps on the containers that have already been rejected. The on-site cooperation may further enhance the good phytosanitary relationship and confidence in CFIA inspection activities and expertise. [Emphasis added.] [ 36 ] Approval was obtained to send two officials to Venezuela – Mr. McManus, Atlantic Canadian Seed Potato Program Coordinator working from Fredericton, New Brunswick, and Mr.

MacSwain, Potato Program Officer from Charlottetown, Prince Edward Island. Both have extensive experience, which includes inspecting potatoes and dealing with inspectors of INSAI, the Venezuelan counterpart to the CFIA. [ 37 ] On Wednesday, December 16, Mr. McManus and Mr. MacSwain left Canada, arriving in Caracas well after midnight. On Thursday morning, they met Mr. Wolf and Mr. Hansen and then drove for four hours with Mr. Ramirez, the trade representative from the Canadian Embassy, to Port of Cabello. [ 38 ] At the port, they were met by Dr.

Zapata, of INSAI, who confirmed that the 16 rejected containers had been rejected based on samples taken from seven containers. Messrs. McManus and MacSwain took two bags from the PEI containers and three bags from the New Brunswick containers. However, the inspection had to be postponed until the next day. Once the potatoes were removed from their refrigerated containers they began to perspire and could not be inspected straight away. Under the Protocol , inspections were to be of “unwashed tubers”. Messrs. McManus and MacSwain stayed at a local hotel, as did Messrs. Wolf and Hansen. Mr. Ramirez and Mr.

Zapata returned to Caracas. [ 39 ] While at breakfast on Friday, December 18, Mr. MacSwain received a phone call from Mr. Ramirez who explained that he had been told by Dr. Zapata that, regardless of the inspections, the Venezuelan authorities did not intend to change their position regarding the rejected potatoes. Nevertheless, Messrs. MacSwain and McManus went to the port as planned and completed their inspections.

They concluded the potatoes met the requirements of the Protocol; to use the words in a report written by them the following week, after they returned to Canada: “the seed potatoes represented by our samples were well within the established tolerances according to the 1999 Protocol for the Shipment of Certified Seed and Table Potatoes from Canada to Venezuela”. [ 40 ] Messrs. MacSwain and McManus reviewed the results of their inspections with the Venezuelan inspectors who

were present, including Dr. Zapata, and also with Messrs. Wolf and Hansen. They also communicated their findings to the CFIA in Ottawa and the results were shared within the CFIA. The CFIA internal memo reporting their results and addressing the strategy to move forward, once again makes it plain the CFIA considered it necessary to “resolve” the situation without “compromising market access” in Venezuela. It states: The two CFIA experts have indicated that there are discrepancies in tuber inspection procedures and results between Canada and Venezuela.

Canada has found all rejected loads to be compliant with the bilateral agreement and the Canadian seed potato standard. However, 23 containers (out of 170 that have already arrived) will be rejected by Venezuela for common quality pests and defects. Approximately 100 containers are scheduled to arrive in the next few weeks . The CFIA experts feel Venezuelan inspectors are inexperienced and yet are doubting the rigour of the Canadian method for seed potato inspection. Although there are provisions for reconditioning of loads in such cases, Venezuelan authorities have chosen to reject the containers.

It is proposed to provide CFIA senior management with full briefing information once experts have returned (Dec. 20) in an effort to devise a strategy to solve the immediate situation without compromising market access . [Emphasis added.] This communication’s reference to 23 rejected containers is at odds with the evidence which indicates 16 containers had been rejected. As the trial judge notes in his reasons, the discrepancy was not relevant for the purposes of the trial; it is also not relevant to the appeal. [ 41 ] After the inspections had been completed, Messrs.

MacSwain and McManus were invited to attend a meeting with Ms. Sandoval, Dr. Zapata’s superior at INSAI, to discuss the results. The meeting was scheduled for Monday, December 21, 2009. There was conflicting evidence regarding who called or wanted the meeting but the trial judge found it had been requested by Messrs. Wolf and Hansen with a view to using the results of the CFIA’s inspection to convince INSAI to reverse its decision to reject the potatoes. That afternoon, Mr. McManus telephoned the CFIA office in Ottawa about the invitation to attend the meeting. Based on the advice received from Mr.

Turner, the Manager of the Potato Program Section, Messrs. McManus and MacSwain advised they would not attend the meeting. [ 42 ] The decision to not participate in the meeting is the first and most significant of the acts relied upon by Wolf Seeds and Cropvise in their claim the CFIA failed to act reasonably in the exercise of its duty to negotiate the release of their potatoes. [ 43 ] The trial judge summarized Mr. Turner’s explanation for why he advised Messrs. McManus and MacSwain that it was not appropriate for them to attend the meeting with Ms. Sandoval, as follows: […] He was advised by Mr.

Turner that it was not appropriate for he and Mr. MacSwain to attend the meeting. Mr. Turner’s reasoning was: (

i) as a matter of government protocol, it was inappropriate for technical staff like Messrs. MacSwain and McManus to meet with Ms.

Sandoval as she was a high-level official of an agency of the Venezuelan State; (ii) they were not appropriately briefed and their attendance at the meeting could have negative repercussions for other areas of concern between Canada and Venezuela; and (iii) their role in going to Venezuela was limited to the provision of “expert technical advice in the Canadian methods for inspection, sampling and testing of exported seed potato tubers” (taken from the International Travel Approval prepared internally within the CFIA to approve Messrs. MacSwain and McManus’s travel to Venezuela). Mr.

Turner did not/could not articulate why having Messrs. MacSwain and McManus attend the meeting under instruction to speak only to their inspection methodology and results would have been problematic. […] [para. 40] [ 44 ] At the Monday meeting with Ms. Sandoval and Dr. Zapata, Messrs. Wolf and Hansen had with them the handwritten inspection notes prepared by Messrs. McManus and MacSwain. Also, Dr. Zapata was fully aware of the CFIA inspection results since he was present during the inspections. However, the meeting did not go well and there was no change to the Venezuelan position. The evidence was that Ms.

Sandoval “expressed irritation” Messrs. McManus and MacSwain did not attend and she “did not substantially address the results” of their inspections. In the absence of CFIA inspectors, the meeting was between Ms. Sandoval and private foreign exporters, not between representatives of INSAI and the CFIA, Venezuelan and Canadian equivalents under the Convention or Protocol . [ 45 ] On Monday, December 21, Messrs. McManus and MacSwain left Venezuela to return to Canada. They produced an Inspection Report, dated December 22, which states:

Based on results of our inspection work carried out on December 17 and 18 th (see attached reports), we determined that the seed potatoes represented by our samples were well within the established tolerances according to the 1999 Protocol for the Shipment of Certified Seed and Table Potatoes from Canada to Venezuela. It should be noted that, prior to commencement of the shipment of 2009 crop Kennebec seed potatoes, Venezuelan officials had inspected these lots in Canada while the seed potatoes were in storage (prior to packing) and had approved them for shipment. [ 46 ] On Tuesday, December 22, Mr.

Turner sent a copy of the Inspection Report to Mr. Salesse, the Charge d’Affaires, Senior Trade Commissioner, Canadian Embassy, Caracas. In his letter, he advised of the possible intervention of senior CFIA officials. He wrote: As of today, I understand that on-site technical discussions with the two CFIA experts has not resolved the situation, thus please keep me posted as to the progress of the situation, as the intervention of senior CFIA level official may be required. I will keep you posted as we engage senior management. [ 47 ] The same day, Mr. Salesse wrote to Ms.

Rodriguez, the President of ECISA, enclosing the Inspection Report and pointing out the Canadian position – the rejected potatoes met the requirements of the Protocol . Mr. Salesse’s letter, which was copied to Ms. Sandoval at INSAI and others in the Venezuelan Government, states: In this sense, given that no sanitary authority (INSAI nor CFIA) from either country have demonstrated the existence of quarantine pests that would justify the return and/or destruction of the lots under inspection, we urge you to find an immediate solution, as set by the current agreements ruling the subject.

Therefore, since seed potatoes are a delicate and perishable product, we would appreciate your assistance in the prompt negotiation of an agreement regarding the topic of tolerance in qualitative terms, which would please both parties. [ 48 ] The CFIA’s next communication, a letter dated January 4, 2010, was sent directly to Ms. Sandoval, the Director General of INSAI; it came from Mr. Chancey, the CFIA Executive Director of Plant Health and Biosecurity Directorate. Mr. Chancey asked Ms. Sandoval if INSAI would consider the reconditioning of the rejected potatoes to permit their entry into Venezuela.

In support of this request, Mr. Chancey pointed out the Inspection Report indicates the rejected potatoes were acceptable under the Protocol and that the different viewpoints “appear to result from procedural differences in how potato inspection should be conducted”. He also noted the diseases identified by the Venezuelan inspectors (common scab, rhizoctonia and wet rot) are non-quarantine pests, which are present in all potato growing countries, and the Protocol permits entry of such potatoes.

In essence, he maintained that even if the analysis of the Venezuelan inspectors was accepted, the incidence of disease was only slightly in excess of the specified tolerances under the Protocol and it permits reconditioning of such potatoes for use as seed potatoes. [ 49 ] Ms. Sandoval responded to Mr. Chancey by letter dated January 6, 2010. She reiterated that INSAI stands by its inspections and the decision to deny entry on the basis of the potatoes’ non-conformance with qualitative requirements – the decision would not be reversed. She indicated ECISA would not agree to recondition the potatoes. However, Ms.

Sandoval advised INSAI would welcome meeting with CFIA officials to discuss technical matters and the harmonization of inspection practices. [ 50 ] The trial judge found frustration on the Canadian side had been building since the December 18 th inspections, noting that while it had been especially difficult for the appellants, it had also been trying for the officials at the CFIA and the Canadian Embassy in Venezuela.

As an indication of the pressure caused by the lack of a resolution, trade officials had suggested the CFIA suspend the issuance of Phytosanitary Certificates – Canadian exporters were very concerned about continuing to ship into a market that was, in their view, unjustifiably rejecting their potatoes. [ 51 ] Against this background, officials at the CFIA drafted a more forceful letter to INSAI – this time from Ms. Swan, the President of the CFIA and addressed to Ms. Acosta, the President of INSAI. While Ms. Swan signed the letter, on January 11, 2010, it was not sent.

The decision to hold the letter reflected a turning point in the CFIA’s approach to securing the release of the rejected potatoes. The CFIA had learned, on January 12, 2010, the most recent shipment of seed potatoes had been accepted by INSAI for entry into Venezuela. This information, along with receipt of Ms. Sandoval’s letter of January 6 th , indicating a willingness to meet to

discuss inspection issues, caused the CFIA and trade officials to not release the letter from Ms. Swan, a letter which had a tone that witnesses at trial described as aggressive by diplomatic standards. [ 52 ] Instead, the CFIA decided to have Mr. Chancey respond to Ms. Sandoval’s January 6 th letter. By letter dated January 15, 2010, he thanked Ms. Sandoval, for her “ongoing collaboration and open communication” and agreed a meeting might be helpful.

He did request, in view of the high cost of disposal, that the rejected potatoes be permitted entry into Venezuela for processing or consumption (either of these options have a lower value than seed potatoes). [ 53 ] The trial judge found this was where the objectives of the appellants and the CFIA diverged.

The focus of the CFIA no longer included the release of the rejected potatoes, as seed potatoes, but rather the focus was on trying to secure the entry of future shipments of seed potatoes and preserve the trade relationship overall. [ 54 ] The appellants, on the other hand, wanted the CFIA to bring more pressure to bear on the Venezuelan authorities. Mr. Wolf had been informed by a representative of ECISA that, for progress on the release of the rejected potatoes, Canadian authorities needed to engage the Venezuelan Minister of Agriculture in Caracas. Until Mr. Chancey’s January 15, 2010 letter to Ms.

Sandoval, such intervention had been contemplated. Since all parties felt political issues were in play in the rejection of the potatoes, the CFIA had been preparing for the possibility of elevating the Canadian effort to that level, if necessary. There was nothing secret about the view that politics had a role. As Mr.

Turner explained, in an email to a representative of the Prince Edward Island Potato Board sent on January 9, 2010: The CFIA is briefing the Canadian Minister of Agriculture and has engaged the Department of Foreign Affairs (DFAIT), as the situation has clearly elevated beyond the technical level, as it seems internal politics within key Venezuelan organizations, the nature of which is very unclear, may be strongly influencing the fate of these containers. [ 55 ] In addition to relying on the failure of Messrs. McManus and MacSwain to attend the meeting with Ms.

Sandoval, the appellants rely on this mid-January change in the CFIA’s approach to the Venezuelans in support of their claim the CFIA failed to act reasonably in negotiating for the release of their seed potatoes. In essence, the appellants felt the CFIA and the Canadian Government had not done enough to cause the Venezuelans to respect the Protocol . In particular, Mr. Wolf was not happy about the lack of effort by the CFIA to engage the Minister of Agriculture, as had been suggested to him by the ECISA.

As the judge observed: […] The Plaintiffs still wished to secure the release of the rejected potatoes, while the CFIA and the Canadian Government were more focused on salvaging the remainder of the export season and maintaining the overall Canadian/Venezuelan trade relationship. The parties also had differing views of what was achievable. The Plaintiffs believed high-level intervention from the Canadian Government could bring about the release of the rejected potatoes.

The CFIA and the Canadian Government believed the INSAI decision to reject the potatoes could not be reversed and high-level intervention could damage the broader trade relationship and do more harm than good. Tellingly, there were no further follow-ups from the CFIA (Canadian Government) with the Venezuelan authorities with respect to the rejected potatoes post Mr. Chancey’s January 15 correspondence. […] [para. 59] [ 56 ] On January 22, 2010, the rejected potatoes were destroyed. [ 57 ] On January 28, 2010, for the second time, a shipment of the appellants’ potatoes was rejected.

Ten containers of Cropvise seed potatoes were rejected, six for excess soil and four for wet rot. It appears 20 other containers from the same shipment were approved for entry. Cropvise was given the option of re-exporting the rejected potatoes or destroying them. Neither was economical and they were destroyed by the Venezuelan authorities on February 3 rd . [ 58 ] This second rejection was followed by a breakdown in the co-operation the CFIA had hoped for only a few weeks before. Calls were not returned; a meeting between the Canadian Ambassador and Ms. Sandoval was cancelled.

As the trial judge explained, when Ms. Sandoval did communicate, she indicated there was no intention or desire to discuss “specific rejections”, only general issues under the Protocol : […] Communications from Mr. Chancey and Caracas Embassy staff, both verbal and written, to Ms. Sandoval and the Venezuelan Embassy in Ottawa requesting a delay in the destruction of the potatoes and further dialogue and investigation were not responded to. Representatives of Cropvise and the Caracas Embassy were denied access to the Port of Cabello and a scheduled meeting between the Canadian Ambassador and Ms.

Sandoval on February 4 was cancelled by the Venezuelan authorities. A request to Ms. Sandoval for a

telephone conference with Mr. Chancey was not responded to. When Ms. Sandoval did respond she advised that the decision to destroy the potatoes was made by ECISA. She also reiterated that representatives of CFIA were welcome in Venezuela to discuss the Protocol in a general sense, but not specific rejections made by INSAI thereunder . [para. 63] [Emphasis added.] [ 59 ] The judge found the recent rejection and the unresponsiveness of the Venezuelan authorities caused considerable frustration within the CFIA and among the trade officials involved. Mr.

Wolf called for the CFIA to suspend the issuance of Phytosanitary Certificates. He believed this would allow him to invoke the force majeure clause in his contract with ECISA, permitting him to suspend future shipments and avoid contractual liability for doing so. The sense of a need to do something led, on February 3, 2010, to the CFIA suspending the issuance of Phytosanitary Certificates for the export of seed potatoes to Venezuela.

However, this decision was quickly reversed on February 5 for a variety of reasons, all of which reflect the perceived volatility of the situation and an apprehension over where such a step could lead. Certainly, the CFIA recognized Phytosanitary Certificates should be withheld only for phytosanitary reasons, as contemplated by the Convention and Protocol .

Additionally, the Department of Foreign Affairs expressed the view that the refusal to issue Phytosanitary Certificates for improper reasons could have “profound ramifications for trade in several high-value areas in both agriculture (wheat) and relations in non-agricultural areas (oil)”. There was a real concern of taking action which would negatively influence the overall Canada-Venezuela trade relationship. [ 60 ] Again, a decision was made to continue efforts to engage and work cooperatively with Venezuelan authorities.

A meeting was scheduled for February 23, 2010, in Venezuela, between Canadian Embassy staff and INSAI Director-level staff. Despite this plan to meet, the increased level of concern caused by the second rejection of potatoes led to a decision to warn potato exporters that Venezuela was a risky market. The Canadian Trade Commission issued a communication to this effect on February 11, 2010. [ 61 ] The February 23, 2010 meeting in Venezuela focused on technical issues, not political or commercial issues. This approach was consistent with the position taken by Ms.

Sandoval in her letter of January 6 and her communication with Mr. Chancey following the second rejection. It was agreed at the meeting that INSAI and the CFIA would

schedule a further bilateral meeting to discuss updating the Protocol . Notably, the embassy staff’s

summary of the meeting included the observation that “INSAI somewhat recognized the political influence on some decisions recently taken by CVA-ECISA”. [ 62 ] While there had been discussions before the meeting about the possibility, depending on the outcome of the meeting, of having the Canadian Ambassador to Venezuela continue to attempt to meet with the President of INSAI, this was not pursued further.

Based on the outcome of the meeting, the CFIA preferred not to elevate the issue beyond the technical level and, as was discussed at the meeting, a bilateral meeting to discuss the Protocol was scheduled for April 13-15. This was consistent with the direction Ms. Sandoval was prepared to follow. [ 63 ] On March 24, 2010, for the third time, a portion of a shipment of potatoes was rejected; 12 containers of Wolf Seeds’ potatoes were denied access because of excess soil. Mr. Wolf’s resulting correspondence to Ms.

Sandoval, on March 29 th , noted the potatoes had been certified by the CFIA; however, as the trial judge pointed out, his letter did not expressly request that this decision be reversed. Mr. Wolf’s letter concluded with: Finally, I would like to confirm that, based on communications between the Canadian Embassy and your organization, the CFIA has made firm arrangements for a potato delegation to travel to Venezuela to meet with you and your staff to discuss the bilateral protocol from April 13-15, 2010. I am looking forward to this opportunity to discuss apparent differences in

interpretation related to the protocol and to discuss potential improvements to its implementation. As in the two previous rejections, the CFIA requested information regarding the rejections but did not request the decision be reconsidered. It again advocated for a discussion regarding the Protocol , essentially, for the purpose at attempting to harmonize inspections. The rejected potatoes were not destroyed and Wolf Seeds re-exported them to Haiti for food aid.

The CFIA assisted in this transfer by advising Haitian authorities the potatoes met the Venezuelan requirements at the time of export and they did not contain any quarantine pests. [ 64 ] On April 15, 2010, for the fourth and final time, a portion of shipment of potatoes was rejected; 11 containers were denied access because of excess soil, wet rot and dry rot. These potatoes were destroyed. [ 65 ] The judge found that approximately 88% of the appellants’ potatoes were accepted into Venezuela and delivered to ECISA – 12% were rejected.

[ 66 ] As the judge also found, the Protocol has continued in place, without change, after the April 2010 meetings and “there have been no material issues in relation to potato exports from Canada to Venezuela post 2010”. [ 67 ] The appellants commenced an action in November 2010 alleging the CFIA was negligent in the performance of its responsibility under the Policy “to negotiate release of shipments that are detained, as a result of alleged phytosanitary reasons”.

Collectively, the appellants claim special damages of approximately $3,500,000 (USD) in connection with the rejection of the potatoes during the 2009-2010 season. The appellants also claim damages for the loss of profit during the subsequent three seasons, namely, 2010-2011, 2011-2012, and 2012-2013. They claim the Venezuelan market was lost to them as a consequence of their being viewed as having breached their contracts in 2009-2010. Prior to trial, the issue of damages was severed and the trial proceeded on liability. [68] The judge dismissed the appellants’ claim.

He concluded the appellants did not establish: (1) the CFIA owed a duty of care; (2) the CFIA had not met the requisite standard of care; and (3) the CFIA caused the losses claimed. III. Grounds of Appeal [69] The appellants maintain the trial judge erred by: 1. Misapprehending their position, by finding they asserted the CFIA had a duty to bring about entry of their rejected potatoes into Venezuela; 2. Failing to find a duty of care was established by analogy and proceeding to conduct a full Anns/Cooper analysis; 3. Failing to find a duty of care under a full Anns/Cooper analysis; 4.

Finding the CFIA met the applicable standard of care; and 5. Finding there was no evidence to establish the actions or inactions of the CFIA contributed to the losses they sustained. IV. Analysis [70] To establish entitlement to damages in negligence, the appellants must establish (

i) the CFIA owed them a duty of care, (ii) the CFIA did not meet the standard of care, (iii) the failure to meet the standard of care caused their damages, and (iv) the damages claimed are not too remote. [71] Whether the CFIA owes a duty of care to the appellants was the primary focus of the trial judge’s decision and it is at the centre of this appeal. The inquiry to determine whether a duty of care is owed seeks to establish whether it is just for a person to be legally liable to another for damages suffered based on principles applicable to negligence law.

The test is rooted in the two-stage analysis first articulated in Anns and Others v. London Borough of Merton , [1977] 2 All E.R. 492 , and re- stated by the Supreme Court of Canada in Cooper v. Hobart , 2001 SCC 79 , [2001] 3 S.C.R. 537 , and Edwards v.

Law Society of Upper Canada , 2001 SCC 80 , [2001] 3 S.C.R. 562 . [72] At the first stage of the Anns test, the question is whether the facts disclose a reasonably foreseeable harm and whether there exists, between the plaintiff and the defendant, a relationship of proximity, a relationship which is sufficiently close and direct “it is just to impose” liability for conduct that falls below the required standard of care and causes harm.

If foreseeability and proximity are established, the question that follows, at the second stage of the Anns test, is whether residual policy considerations warrant a finding that there should be no duty of care – no legal liability to the defendant in negligence. This two-stage analysis is described by the Supreme Court in Edwards as follows:

At the first stage of the Anns test, the question is whether the circumstances disclose reasonably foreseeable harm and proximity sufficient to establish a prima facie duty of care. The focus at this stage is on factors arising from the relationship between the plaintiff and the defendant, including broad considerations of policy. The starting point for this analysis is to determine whether there are analogous categories of cases in which proximity has previously been recognized . If no such cases exist, the question then becomes whether a new duty of care should be recognized in the circumstances.

Mere foreseeability is not enough to establish a prima facie duty of care. The plaintiff must also show proximity -- that the defendant was in a close and direct relationship to him or her such that it is just to impose a duty of care in the circumstances. Factors giving rise to proximity must be grounded in the governing statute when there is one, as in the present case .

If the plaintiff is successful at the first stage of Anns such that a prima facie duty of care has been established (despite the fact that the proposed duty does not fall within an already recognized category of recovery), the second stage of the Anns test must be addressed. That question is whether there exist residual policy considerations which justify denying liability.

Residual policy considerations include, among other things, the effect of recognizing that duty of care on other legal obligations, its impact on the legal system and, in a less precise but important consideration, the effect of imposing liability on society in general. [para. 9-10] [Emphasis added.] [73] Relevant in this case, and as noted from the above passage in Edwards , is the fact the starting point of the first stage of the Anns test is the determination of whether there are analogous categories of cases in which proximity had been previously recognized. If so, a duty of care is usually found to exist.

Naturally, there should be no need to re-invent the wheel and it is not generally necessary to perform the second stage analysis.

However, there are circumstances where, despite a claim being analogous to cases where a duty of care has been previously recognized, it is nevertheless appropriate to proceed to the second stage of the Anns test and determine whether “residual policy considerations justify denying liability”. [74] In this appeal, the appellants assert the trial judge erred because he conducted a second stage policy analysis even though he concluded a duty of care had been previously recognized in circumstances analogous to this case. More will be said about this shortly. A.

The 1 st Ground of Appeal – Misapprehending the Appellants’ Position [75] The appellants submit the trial judge erroneously “elevated” their claim to the assertion that the CFIA had a duty to bring about entry of their rejected potatoes into Venezuela.

This submission is not grounded in any reasonable reading of the judge’s reasons for decision. [76] The appellants’ submission is based on the following statement by the judge (para. 112): the “suggestion the CFIA was under a specific duty to bring about the entry of the rejected potatoes into Venezuela in the circumstances of this case, is fundamentally inconsistent with the degree of flexibility required to support the duty [of the CFIA] to act broadly in support of Canadian agricultural and economic interests” (emphasis added).

The appellants maintain this statement indicates the judge had misapprehended their claim, erroneously elevating it from a failure to negotiate reasonably, to an absolute obligation to bring about entry of the potatoes into Venezuela. In my opinion, this takes the judge’s statement out of context and is wrong. The judge made the statement when addressing the issue of whether a duty of care to the appellants would conflict with the CFIA’s other more general and broad duties. He was explaining his assessment of whether policy considerations ought to negate a duty of care.

The judge concluded that the “suggestion that the discretion of the CFIA, to act broadly in support of Canadian economic interests, becomes fettered anytime it engages a representative of the foreign state on behalf of a Canadian exporter , is not one I am prepared to accept”.

Even within the context of this paragraph, it is clear the judge is merely contrasting the CFIA’s responsibility to negotiate for the release of the rejected potatoes with the CFIA’s other duties and responsibilities. [77] Moreover, when viewed in the context of the decision as a whole, the judge’s statement does not evidence any misapprehension of the appellants’ claim. Throughout the decision the judge repeatedly and clearly states the appellants’ position.

In particular, he states, under the heading “Plaintiffs’ Position”, the “Plaintiffs contend the CFIA did not take reasonable steps to secure the entry of the rejected potatoes into Venezuela. Specifically, they maintain the CFIA negligently performed its responsibility […] to ‘negotiate release of shipments that are detained, as a result of alleged phytosanitary reasons’” (para. 73) (emphasis added). In the following paragraph, the judge enumerates the specific acts, or lack thereof, which the appellants assert fell short of the required standard of care.

There was no misapprehension of the appellants’ position. [78] In the appellants’ written submission respecting this ground of appeal, they submit a mere duty to negotiate

does not conflict with the CFIA’s other duties to an extent that a duty of care must be negated as being incompatible. While such a submission may relate to the appellants’ position that the judge erred in concluding a duty of care to the appellants conflicts with the CFIA’s other duties, this does not support their suggestion the judge misapprehended their claim. The appellants’ position is without merit and I would dismiss this ground of appeal. B.

The 2 nd Ground – Conducting a full Anns/Cooper Analysis [79] In the Notice of Appeal and in their written submission, the appellants assert the judge erroneously “failed to find a duty of care was established by analogy and then proceed[ed] to conduct a full Anns/Cooper analysis”.

However, the judge did conclude a duty of care was established by analogy and the appellants’ real position in connection with this ground of appeal is that, once the judge determined the claim fell within an analogous category of cases, where a duty of care had been found to exist, it was an error of law for him to “go on to conduct a full Anns/ Cooper analysis and ultimately conclude there was no duty of care because of policy reasons”. [80] The trial judge relied on Adams et al. v.

Borrel et al. , 2008 NBCA 62 , 336 N.B.R. (2d) 223 , when he determined the appellants’ claim falls within an analogous category of cases in which a duty of care had been previously recognized. He states: […] In our case, the CFIA was operating under the same legislation, and the relationship of business dependency summarized in paragraph 79-81 makes the Plaintiffs, in the conduct of their potato export business, no less dependent upon the actions of the CFIA than potato farmers were upon the inspection-related activities of Agcan in Adams .

Consequently, I find that the present case falls within an existing or analogous category of cases in which a duty of care has been previously recognized . […] [para. 82] [Emphasis added.] [81] Other than state their position, the appellants say little more in connection with this ground of appeal. Rightly so, in my opinion, since the Anns test does not preclude an assessment under the second stage as the appellants suggest.

The ability to consider the second part of the Anns test, notwithstanding a finding that a case falls within an existing or analogous category of cases, is explained by this Court in Adams : The analytical framework set down in Cooper v. Hobart involves the application of the two-part test first set out in Anns . First, it must be determined whether a prima facie duty of care exists. To make that determination the court must consider whether there was “reasonable foreseeability” of the harm plus a relationship of “proximity”.

As a starting point, proximity is generally established by reference to previously recognized or analogous categories of negligence. This simplifies the “duty of care” analysis so long as the case is one that falls within a recognized or analogous category . Conversely, in a “novel” case, the issues of foreseeability of harm and proximity must be examined afresh. These points were recently affirmed by the Supreme Court in Design Services Ltd. v. Canada , [2008] S.C.J. No. 22 (QL) , 2008 SCC 22 . Once foreseeability and proximity are established, a prima facie duty of care is assumed.

This takes us to the second stage of the Anns analysis. It is at this stage that residual policy considerations for negating that prima facie duty are to be considered. These policy considerations are not concerned with the relationship of the parties, but rather with the effect of recognizing a duty of care on other legal obligations. Notably, would recognition of the duty of care create the specter of unlimited liability to an unlimited class? As well, it is necessary to ask whether there are other reasons of broad policy that suggest that the duty of care should not be recognized.

This is the point where the distinction between the formulation and execution of government policy is to be considered. The law declares that government actors are not liable in negligence for policy decisions, only for those that are operational in nature . In Cooper , the Supreme Court makes two important observations with respect to the second stage of the Anns analysis. First, the need to proceed to the second stage generally arises only in cases where the duty of care asserted does not fall within a previously recognized or analogous category of recovery.

As the Court qualified this observation with the adverb “generally”, one must accept that resort to the second stage will be necessary if the case involves the distinction between policy and operational decisions. This is true even in cases that fall within a previously recognized or analogous category (such as negligent maintenance of highways). The Court’s second observation is that in a “novel” case, it is necessary to consider both steps of the Anns test.

As the Court stated at paragraph 39 of Cooper , “[t]his ensures that before a duty of care is imposed in a new situation, not only are foreseeability and relational proximity present, but there are no broader considerations that would make imposition of a duty of care unwise ”. [paras. 36-38] [Emphasis added.]

[82] In

summary, the judge did not err in law when he undertook an analysis of policy considerations, under the second part of the Anns test, simply because he had determined the appellants’ claim fell within an analogous category of cases in which a duty of care had been recognized. [83] In connection with the judge’s alternative finding, it was necessary for him to undertake a policy analysis under the second part of the Anns test.

Having decided to undertake a full Anns analysis, in the event he was wrong to conclude the appellants’ claim fell within an analogous category of cases, he concluded the appellants and the CFIA were in a relationship of proximity and the risk of harm was reasonably foreseeable. With a prima facie duty of care having been established, it was necessary for him to undertake the second stage analysis. C.

The 3 rd Ground – Negating a Duty of Care under the 2 nd Stage of the Anns Test [84] The appellants allege the trial judge erred in law in his application of the second stage of the Anns test – and in his conclusion policy considerations negate a duty of care. [85] Before addressing the merits of the appellants’ submissions, I would pause to address two findings made by the trial judge, both of which favour the appellants and neither of which are a subject of this appeal.

They relate to determinations made by the judge at the first stage of the Anns test – the appellants’ claim fell within an existing or analogous category of cases and, alternatively, the appellants established a relationship of proximity (as well as foreseeability). For obvious reasons, neither of these findings are challenged by the appellants – the focus of their appeal is the judge’s application of the second stage policy analysis and his conclusion a duty of care is negated by policy considerations. Also, these findings are not challenged by the CFIA; it did not file a Notice of Contention.

As a consequence, neither party made submissions on appeal regarding these findings. However, since factors relevant to these unchallenged findings were addressed by the judge under his second stage analysis and the factors were addressed on appeal, a few observations are warranted. [86] I will address first the judge’s acceptance of the appellants’ submission their claim is analogous to the claim recognized by this Court in Adams .

In that case, a duty of care was found to exist in connection with an investigation by the federal government (Agriculture Canada) to identify the source of a potato virus which had spread disease to tobacco fields. After the government had ordered the disposal of potatoes believed to be infected, and they were destroyed, it was discovered the government’s testing procedure was faulty.

Recognizing the same legislative framework applied to the CFIA and a similar level of dependency existed, the judge explained: In these circumstances, to borrow from the language of Justice Robertson in Adams , “it would be disingenuous to hold no prima facie duty of care was owed” by the CFIA to the Plaintiff’s. In Adams , Justice Robertson grounded his determination that a duty of care was owed to farmers upon his finding that an immediate purpose of the governing legislation was the protection of the agricultural sector of the economy.

In our case, the CFIA was operating under the same legislation, and the relationship of business dependency summarized in paragraphs 79–81 makes the Plaintiffs, in the conduct of their potato all export business, no less dependent upon the actions of the CFIA than potato farmers were upon the inspection-related activities of Agcan in Adams . Consequently, I find that the present case falls within an existing or analogous category of cases in which a duty of care has been previously recognized . [para. 82] [Emphasis added.] [87] Without a doubt, there are significant similarities.

The legislative framework that applied to the federal government in Adams applies to the CFIA in this case . Also similar is the degree of dependency in the relationship between the parties. However, there is at least one important difference, which the judge addresses in his policy analysis under the second stage.

In Adams , the negligent acts related to the faulty test used in the investigation of the source of the virus, similar to cases where the negligent acts in question related to a government authority undertaking an inspection in relation to, for example, maintenance of a road or compliance with a building by-law. In this case, the impugned conduct, the acts the appellants allege were negligent, relate to the CFIA’s efforts to negotiate with Venezuelan state agencies.

The difference in the nature of the acts forming the basis for the claim of negligence is material to the analysis of whether the claims are the same or analogous. Indeed, the judge identified the true uniqueness of the appellants’ claim when he pointed out that neither party was able to identify a reported decision where a Government or a Crown agency, such as the CFIA, had been the subject of an action for negotiating with a foreign state or state entity.

More specifically, he distinguished Adams on the basis of this difference when he concluded that, unlike in Adams , policy considerations weigh against finding the CFIA owes a duty of care to the appellants, he states: […] Unlike Adams , this is not an instance where inspection practices can be evaluated against common sense and/or established inspection methodology. Rather we are, as previously discussed, very much into the area of diplomacy between sovereign nations where there is no effective legal recourse and no correct answer. [...] [para. 112]

[88] In

summary, while the appellants’ claim is analogous in some respects to the claim in Adams , it is quite different in terms of the nature of the impugned conduct. Though of no consequence in this appeal, the distinction is fundamental to the assessment of whether a claim falls within an existing or analogous category of cases in which a duty of care has been previously recognized. [89] I now turn to the second of the findings made by the trial judge under the first stage of the Anns test – his determination that a relationship of proximity exists between the appellants and the CFIA.

The judge chose to address policy considerations relevant to the proximity analysis in the second stage analysis. [90] While the judge’s finding of proximity is not an issue in this appeal, proximity was very much an issue at trial. The judge summarizes the CFIA’s submission that a relationship of proximity did not exist. He states: There was little question that it was reasonably foreseeable a failure by the CFIA to properly perform its functions under the CFIA Policy and/or Protocol could cause harm to the Plaintiffs.

However, counsel for the CFIA argued forcefully that the CFIA did not enjoy a relationship of sufficient proximity with the Plaintiffs to give rise to a duty of care. The principle authorities put forward for that argument were the British Columbia Court of Appeal’s decision in The Los Angeles Salad Company Inc v. Canadian Food Inspection Agency , [2013] BCCA 34, and the Ontario Court of Appeal’s decision in River Valley Poultry Farm Ltd v. Canada (Attorney General ) , [2009] ONCA 326.

In these cases suppliers of food prod ucts -- distributors of carrots for retail sale in Canada in Los Angeles Salad , and a supplier of eggs in River Valley Poultry -- claimed damages for negligent inspection. The Courts in each of these decisions found that no duty of care existed on the basis of insufficient proximity. The rational underpinning each of these decisions is summarized by Justice Smith at paragraph 55 of Los Angeles Salad as follows: “In my view the clear purpose of the legislative scheme is to protect the health of Canadians by preventing the sale of contaminated food in Canada.

To recognize a private law duty of care to food sellers would conflict with that purpose . It would put food sellers in the untenable position of having to balance the paramount interests of the public with private interests of food sellers and would thereby have a chilling effect on the proper performance of their duties.

Thus the statutory scheme excludes the possibility of sufficient factual proximity to make it just and reasonable to impose a prima facie duty of care in the circumstances of this case ...” [para. 83] [Emphasis added.] [91] That policy considerations factor into the proximity analysis is beyond question. Where the relationship to be analyzed exists under a statutory framework, the analysis begins with the statute and any policy considerations that bear on the relationship.

The trial judge identified this in his decision but, for reasons he explained, he chose to address such policy considerations at the second stage of the test. Factoring into his reasons is his earlier conclusion the appellants’ claim is analogous to the claim in Adams and a duty of care would be owed but for policy considerations . As he explained: For purposes of this decision, I note the Cooper , Los Angeles Salad and River Valley Poultry decisions reflect that the issue of public policy may be applied to negate the existence of a prima facie duty of care during the consideration of proximity.

For the reasons previously noted, I believe that the CFIA owes a prima facie duty of care to potato exporters, and the jurisprudence set out in Adams would be directly applicable in the event we were dealing with an issue of operational performance such as a failure to properly inspect or issue a phytosanitary certificate.

For that reason, I considered it appropriate to address the issue of public policy at stage two of the Anns analysis and believe the jurisprudential reasoning set out in Cooper , Imperial and Adams permit me the discretion to adopt this approach . [para. 114] [Emphasis added.] [92] Determination of the issue of proximity under the first part of the Anns test and the required analysis of policy considerations which may arise at, or overlap, both stages of the Anns test is addressed by Abella J. in Syl Apps Secure Treatment Centre v. B.D. , 2007 SCC 38 , [2007] 3 S.C.R. 83 .

In doing so, she refers to the comments of McLachlin C.J. in Cooper which note that it may not matter at which stage such considerations are addressed, depending on the circumstances, so long as they are addressed. Explaining proximity and the connection to policy considerations that arise under an applicable statutory framework, Abella J. states: There must also be a relationship of sufficient proximity between the plaintiff and defendant.

The purpose of this aspect of the analysis was explained by Allen Linden and Bruce Feldthusen in Canadian Tort Law (8th ed. 2006) as being to decide “whether, despite the reasonable foresight of harm, it is unjust or unfair to hold the defendant subject to a duty because of the absence of any relationship of proximity between the plaintiff and the defendant” (p. 304).

When the relationship occurs in the context of a statutory scheme, the governing statute is a relevant context for assessing the sufficiency of the proximity between the parties ( Cooper , at para. 43 ; Edwards , at para. 9 ). As this Court said in Edwards : “Factors giving rise to proximity must be grounded in the governing statute when there is one” (para. 9). Where an alleged duty of care is found to conflict with an overarching statutory or public duty, this may constitute a compelling policy reason for refusing to find proximity ( Cooper , at para. 44 ; Edwards , at para. 6 ).

Such a conflict exists where the imposition of the proposed duty of care would prevent the defendant from effectively discharging its statutory duties . In Cooper , for example, a duty to individual investors on the part of the Registrar of Mortgage Brokers was rejected because it was found to “potentially conflict with the Registrar's overarching duty to the public” (para. 44).

Similarly, in Edwards a private law duty of care on the part of the Law Society to the victim of a dishonest lawyer was rejected at the proximity stage since “[d]ecisions made by the Law Society require the exercise of legislatively delegated discretion and involve pursuing a myriad of objectives consistent with public rather than private law duties” (para. 14). In both cases, the serious negative policy consequences of these conflicting duties were found to justify denying a finding of proximity . A statutory immunity provision may also be relevant .

In Edwards a statutory immunity provision was found to be indicative of the Legislature’s intention to preclude compensation beyond the amount provided by the lawyers’ professional indemnity insurance and fund for client compensation (paras. 16-17). Depending on the circumstances of the case, the factors to be considered in the proximity analysis include the parties’ expectations, representations and reliance ( Cooper , at para. 34 ). There is no definitive list. [paras. 26-30] [Emphasis added.] See also Cromwell J. in Fullowka v.

Pinkerton’s of Canada Ltd ., 2010 SCC 5 , [2010] 1 S.C.R. 132 at para. 39 . [93] Speaking to the “possibility of some blending” of policy considerations under both stages of the Anns test and recognizing it may not matter at which stage such considerations are addressed, Abella J. states: If a prima facie duty of care is found to exist based on reasonable foreseeability and proximity, it is still necessary for a court to submit this preliminary conclusion to an examination about whether there are any residual policy reasons which make the imposition of a duty of care unwise. As noted in Cooper , “the Donoghue v.

Stevenson foreseeability-negligence test, no matter how it is phrased, conceals a balancing of interests. The quest for the right balance is in reality a quest for prudent policy” (para. 29). This means, the Court recognized, that policy is relevant at both the “proximity” stage and the “residual policy concerns” stage of the Anns test. The difference is that under proximity, the relevant questions of policy relate to factors arising from the particular relationship between the plaintiff and the defendant .

In contrast, residual policy considerations are concerned not so much with “the relationship between the parties, but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally” ( Cooper , at para. 37 ). The possibility of some blending of policy considerations was noted by McLachlin C.J. and Major J. in Cooper : Provided the proper balancing of the facto

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