T-3640-79
Keystone Camera Corporation of Canada Limited
(Plaintiff)
v.
The Queen (Defendant)
Trial Division, Cattanach J.—Ottawa, March 31
and April 23, 1981.
Crown — Torts — Negligence — Action for alleged negli
gence of servants of Crown — Plaintiff was required to pay
duties and taxes on imported goods notwithstanding that it
had already paid such duties and taxes to a licensed customs
broker — Broker failed to remit payments to Department of
National Revenue — Bonds deposited with Department pursu
ant to Custom-House Brokers Licensing Regulations and
Release of Imported Goods Regulations did not cover broker's
indebtedness — Whether defendant owed a statutory duty to
plaintiff and if so, whether that duty was breached — Action
dismissed — Customs Act, R.S.C. 1970, c. C-40, ss. 2(3),
22(3), 116, 118, 125 — Custom-House Brokers Licensing
Regulations, C.R.C. 1978, Vol. V, c. 456, ss. 11(1), 17 —
Release of Imported Goods Regulations, C.R.C. 1978, Vol. V,
c. 475, ss. 2(b), (c), 4, 5.
This is an action in tort for damages allegedly caused by
negligence of servants of the Crown. Empire Customs Brokers
Limited (hereinafter Empire) acted as a customs broker for
plaintiff. Empire was licensed by the Department of National
Revenue as a customs broker. It deposited a $20,000 bond with
the Department as security against loss by the Department or
its clients pursuant to section 11(1) of the Custom-House
Brokers Licensing Regulations. In order to obtain immediate
release of imported goods, it also posted a bond in the amount
of $50,000 as security in respect of duties and taxes payable,
pursuant to section 2(b) of the Release of Imported Goods
Regulations. Empire's pre-release and uncertified cheque privi
leges were suspended verbally on November 16, 1978 because
several cheques had bounced. On December 28, 1978 Empire
shut down its business office without having remitted to the
Department payment of duties and taxes which it had received
from plaintiff. The plaintiff was required to pay the Depart
ment a pro-rated portion of Empire's total short-fall after
deducting the money realized from the surety and performance
bonds. The plaintiff alleges negligence in that the Department
of National Revenue allowed Empire to release goods, the
duties and taxes on which were in excess of the amount of the
bonds deposited with the Department. The questions are wheth
er a statutory duty was owed to the plaintiff, and if so, was the
defendant in breach of such a duty?
Held, the action is dismissed. The Release of Imported
Goods Regulations and the bonds exacted thereunder are for
the exclusive purpose of protecting the public revenue. How
ever, the clear intent of the Custom-House Brokers Licensing
Regulations is that the bond is not for the exclusive purpose of
securing the revenue to the Crown, but that it also secures "the
broker's clients" against loss. Thus the express language of
section 11(1) imposes a duty upon the Department to control
the conduct of third persons. There has not been negligence in
the exercise of the statutory duties under the Custom-House
Brokers Licensing Regulations. Under section 11(1) Empire
had posted a bond in the amount of $20,000. There is no
provision whereby the amount of the bond may be increased
during the currency of the licence. There was no evidence that
at the time of the grant or renewal of that licence the minimum
amount of $20,000 was not adequate for which reason there
was no negligence with respect to the duty owed to the plaintiff
under the licensing Regulations.
Timm v. The Queen [1965] 1 Ex.C.R. 174, referred to.
Home Office v. Dorset Yacht Co. Ltd. [1970] A.C. 1004,
referred to. Rubie v. Faulkner [1940] 1 All E.R. 285,
referred to. Culford Metal Industries Ltd. v. Export
Credits Guarantee Department (Q.B.D.) The Times of
London, March 25, 1981, referred to. O'Rourke v.
Schacht [1976] 1 S.C.R. 53, applied.
ACTION.
COUNSEL:
John L. Finlay for plaintiff.
B. D. Segal and Carolyn Kobernich for
defendant.
SOLICITORS:
McCarthy & McCarthy, Toronto, for plain
tiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
CATTANACH J.: The plaintiff was incorporated
pursuant to the laws of Canada under the corpo
rate name of Berkey Keystone of Canada Limited,
by which name the plaintiff was improperly identi
fied in the statement of claim filed on July 23,
1979 that corporate name having been changed to
that of Keystone Camera Corporation of Canada
Limited, on January 8, 1979 some seven months
prior to filing the statement of claim under the
former name. At trial the style of cause and the
statement of claim were amended to reflect the
true corporate name of the plaintiff. No fault is
imputed to the solicitors for the plaintiff because
their client had not made them aware of the
change in name.
As is indicated in its corporate name in the
corrected style of cause the business of the plain
tiff is that of dealing in photographic equipment
manufactured by its parent company, Berkey
Photo Inc. (or some like name) or according to its
parent's specifications in Japan and Hong Kong.
Thus the plaintiff imported into Canada photo
graphic equipment for sale to photographic retail
ers to the estimated value of 4 million dollars
annually and which attracted customs duties and
excise taxes in the approximated amount of
$500,000 annually.
Contrary to the evidence of Victor Chernick, the
President and General Manager of the plaintiff,
there is no impediment to an importer clearing
imported wares through customs on his own behalf
but I take Mr. Chernick's view to have been that it
was more economic to engage customs brokers
whose business it is to do this.
At the time when Mr. Chernick first became
associated with the plaintiff these services were
performed by P.I.E. Canada Limited, a customs
broker, and a Mr. Weber was the employee of that
company who looked after the plaintiffs importa
tions as his particularly assigned client.
Later Mr. Weber approached Mr. Chernick
advising him that P.I.E. Canada Limited had sold
its business, that he had severed his connection
with that company and, as a principal, had formed
a custom brokerage business under the corporate
name of Empire Customs Brokers Limited (here-
inafter referred to as Empire) and that Empire
was bonded and licensed by the Department of
National Revenue (see R.S.C. 1970, c. N-15).
Because Mr. Weber was familiar with the prod
ucts of the plaintiff, their commodity codes and
had given satisfactory service as an employee of
P.I.E. Canada Limited, Mr. Chernick informed
Mr. Weber that the plaintiff would utilize
Empire's services. My recollection of the evidence
is that this change of brokers took place in 1976 or
1977. In any event Empire acted as customs
brokers for the plaintiff at all times material to
this action.
The defendant, in her pleadings, admits that
Empire held a licence to transact business as a
custom-house broker, at all material times, that
licence being issued to Empire pursuant to subsec
tion 118(1) of the Customs Act, R.S.C. 1970, c.
C-40, which reads:
118. (1) The collector at any port may upon application,
subject to the approval of the Minister, issue to any person,
being a British subject residing in Canada and being of lawful
age and good character, a licence to transact business as a
custom-house broker at the port where such licence is issued,
and no person shall transact business as a custom-house broker
without a licence granted in accordance with this provision; but
nothing herein shall be so construed as to prohibit any person
from transacting business pertaining to his own importations,
or to prohibit duly authorized agents of importers from trans
acting business as provided for in sections 116 and 117.
By virtue of subsection 118(5) of the Customs
Act the Minister shall prescribe regulations for
carrying the provisions of section 118 into effect,
that is to say licensing custom-house brokers and
this he has done by Custom-House Brokers Li
censing Regulations, C.R.C. 1978, Vol. V, c. 456,
subsection 11(1) of which reads:
11. (1) Before a licence is issued or renewed, there shall be
deposited with the Department a bond of a guarantee company
approved by the Minister of Finance or one or more negotiable
Government of Canada bonds in an amount or aggregate
amount of not less than $20,000 as security against loss by the
Department or the broker's clients during the period for which
the licence or renewal thereof is valid.
Empire deposited with the Department such a
bond in the amount of $20,000 for the period from
April 1, 1978 to March 31, 1979.
By virtue of subsection 22(3) of the Customs
Act the Governor in Council may make regula
tions prescribing the terms and conditions upon
which goods may be entered into Canada free of
any requirement that the importer shall, at the
time of entry, pay or cause to be paid all duties on
the goods so entered and the terms and conditions
of any security in respect of such duties thereon.
This he has done by Release of Imported Goods
Regulations, C.R.C. 1978, Vol. V, c. 475. Para
graphs 2(b), 2(c) and section 4 of these Regula
tions are pertinent to this action and read:
2. Subject to section 97 of the Customs Act, imported goods
may be released from customs before payment of duties and
taxes on such goods, if the importer thereof or a custom-house
broker deposits
(b) with the collector security in respect of all duties and
taxes payable on the goods released at any one port during
the term of the security to the importer or custom-house
broker, as the case may be, the amount of which security
shall be determined by the collector and be not less than $25
if deposited by an importer or $5,000 if deposited by a
custom-house broker; or
(c) with the Deputy Minister security in respect of all duties
and taxes payable on the goods released at more than one
port during the term of the security to the importer or
custom-house broker, as the case may be, the amount of
which security shall be determined by the Deputy Minister
and be not less than $5,000 if deposited by an importer or
$25,000 if deposited by a custom-house broker.
Under these Regulations, Empire posted a bond
in the amount of $50,000 permitting it to obtain
immediate release of imported goods from the
Department of National Revenue at any branch at
the port of Toronto. This bond was approved at the
Toronto port on February 3, 1980.
Section 4 reads:
4. Security deposited under section 2 shall be conditioned on
the payment of all duties and taxes on goods released to the
importer or custom-house broker who deposits the security,
(a) within five days of their release from customs, in the case
of goods that are perishable or that are recorded and con
trolled by means of an electronic data processing system
acceptable to the Deputy Minister; or
(b) within 3 days of their release from customs, in the case of
goods other than those referred to in paragraph (a).
Paragraph 4(b) is pertinent to this action. The
duties and taxes on goods released to the importer
or custom-house broker on behalf of the importer
shall be paid within three days of their release
from customs.
Mr. Chernick described the practice he followed
with Empire. Upon receipt of an invoice from the
manufacturer for goods ordered and shipped (a
duplicate accompanied the goods), the bill of
lading and shipper's declaration showing the fair
market value in the currency of the country of
origin, and other documents of title were delivered
to Empire together with an executed pre-release
form. The goods were then released from customs
to the plaintiff who picked them up from the
bonded warehouse.
Empire would then invoice the plaintiff for dis
bursements and services, the disbursements being
in most instances the duty and tax paid (or per
haps to be paid).
Upon the receipt of the invoice from Empire the
plaintiff would pay that invoice by cheque payable
to Empire.
Mr. Chernick testified to this effect.
The defendant called as a witness another cus
toms broker carrying on business in Toronto and
who was the president of the Toronto branch of
Dominion Chartered Customs House Brokers
Association. This is merely a voluntary association
of custom-house brokers devoted to their mutual
interests. It is not a governing body in the sense
that it prescribes the qualifications to engage in
the business, (that is done by the Department of
National Revenue) or suggested tariff of fees and
the like.
This witness described the practice followed by
the company of which he was an officer and
shareholder and those of other brokers of which he
had personal knowledge.
He testified that brokers posted a security bond
which entitled the broker to "immediate release
privileges".
That, in my view, is essential for any custom-
house broker to attract customers in a competitive
business and to provide service. This the Depart
ment recognizes and it is to ensure payment of
those duties and taxes that the sections of the
Release of Imported Goods Regulations quoted
above were made. That is what section 4 states and
paragraph 4(b) states that the duties and taxes
shall be paid within three days of the release of the
goods. The importer is liable for the duties and
taxes but the broker on his behalf may pay these
duties and taxes also within the prescribed time
limit. The Department looks in the first instance to
the broker whose bond has been exacted as surety
but under the statute the importer is not relieved
of his liability to pay those duties and taxes. There
is no dispute between counsel for the parties in this
respect nor could there be.
The witness called on behalf of the defendant
testified as to what were self-evident and ordinary
business practices followed by himself and by
other brokers of which he knew.
In the ordinary course the broker would pay the
duties and taxes payable on the goods released.
In other cases, and when shipments attracted
large sums for duties, the broker will not pay the
duties and taxes on behalf of the importer unless
the importer has provided the broker with funds to
do so either with respect to a particular shipment
or by a cash deposit held on account with the
broker. In that event it would be sound business
sense for the importer to require the broker to
provide a letter of credit from the broker's banker
or a guarantee.
There would be no impediment to the importer
paying the duties and taxes exigible directly to the
Department.
There is no radical departure in the practice
followed by this witness and that described as
prevailing between the plaintiff and Empire.
The only possible inference to be drawn is that
the duties and taxes payable, while substantial
over the year, were not of such a large amount
upon a particular shipment that would appear to
be beyond the means of Empire to meet. At no
time did Empire specifically request an advance
from the plaintiff to meet the duties and taxes nor
did the plaintiff have a deposit on account with
Empire.
As circumstances subsequently disclosed that
may well have been what Empire was doing. The
funds paid by the plaintiff in discharge of Empire's
invoices could have been used by Empire to pay
the duties and taxes on the goods released but the
plaintiff was not aware of this nor was any specific
request made by Empire of the plaintiff for an
advance of funds to pay duties and taxes.
Where the practice between Empire and the
plaintiff differed from that described by the
defendant's witness was that a customs entry form
duly stamped by the Department that duties and
taxes had been paid would accompany the broker's
invoice for disbursements and services.
Section 17 of the Custom-House Brokers Li
censing Regulations provides that every broker
shall furnish to his client in respect of each import
entry passed by the broker on the client's behalf a
copy of the import entry form bearing the impres
sion of the official Customs Duty Paid Stamp. It is
required that such import entry form stamped as
paid shall be furnished by the broker to the client
but it is not specified in the Regulation that the
form shall accompany the broker's invoice to his
client.
No such certification by the Department was
attached to Empire's invoices directed to the plain
tiff with the request for payment and the plaintiff
paid the invoices with despatch. Mr. Chernick
testified that such entry forms duly stamped by the
Department may have been provided by Empire
later but it was his evidence those forms did not
accompany the invoices. He was not unduly con
cerned because the goods were in his possession.
He assumed the duties and taxes had been paid.
On November 14, 1978 cheques tendered by
Empire to the Department in payment of the
duties and taxes on goods pre-released began to
bounce.
A cheque in the amount of $22,244.96 tendered
by Empire to discharge the charges on pre-release
goods from Interpost Sufferance Warehouse was
deposited on November 7, 1978. On November 14,
1978 that cheque was returned to the Department
as being without sufficient funds to cover it or
N.S.F. The Department was immediately in touch
with Empire on November 14, 1978 and a replace
ment cheque was given that same day. It was a
certified cheque so Empire must have had on
deposit sufficient funds to cover it. There was no
evidence as to the source of these funds.
On that same day Empire's cheque in the
amount of $34,041.94 also tendered at the Inter-
post Sufferance Warehouse for the pre-release of
goods was deposited by the Department on
November 7, 1978 and was returned marked
N.S.F. on November 14, 1978. That cheque was
also replaced by a certified cheque on November
14, 1978 at the behest of the Department.
On November 15, 1978 Empire's cheque in the
amount of $8,539.66 tendered at Toronto Interna
tional Airport in payment for duties and taxes on
pre-released goods was returned on November 15,
1978. A replacement cheque was presented on
November 16, 1978.
A cheque in the amount of $1,562.62 was
returned as N.S.F. on November 17, 1978. Empire
was notified on that date and a good replacement
cheque was received on November 23, 1978.
A cheque in the amount of $5,607.86 tendered
by Empire for the customs and excise charges on
goods pre-released at Mid-Continent Trust Termi
nal on November 17, 1978 was returned N.S.F. on
November 22, 1978. Empire was notified on that
date and a replacement cheque was forthcoming
on November 23, 1978.
None of these cheques written by Empire was in
payment of goods pre-released on behalf of the
plaintiff.
On November 16, 1978 Mr. Mills, the Superin
tendent of Long Room operations, Toronto
Region, telephoned the manager or superintendent
of each of the seven offices at the port of Toronto
advising them that the pre-release and uncertified
cheque privileges of Empire were suspended and
that the release of any goods presented by Empire
were to be effected on a live entry certified cheque
basis only. That means no pre-release--cash on
the barrel-head or no release.
However on November 17, 1978 the goods for
which Empire's uncertified cheque in the amount
of $5,607.86 was tendered were released at Mid-
Continent Trust Terminal. The explanation prof
fered was that this Terminal is a large and busy
operation with over 100 customs employees work
ing there and that the advice received by the
Superintendent from Mr. Mills had not been com-
municated to the particular customs officer who
released this shipment on November 17, 1978 to
Empire on a pre-release uncertified cheque basis.
There were no such releases to Empire subse
quent to November 17, 1978.
On November 20, 1978 Mr. Mills confirmed to
each of the seven Toronto branches his verbal
advice of November 16, 1978.
Mr. Mills' action is this respect was prompted
by the deluge of Empire's N.S.F. cheques.
Sometime in mid-November Mr. Mills discussed
this matter with Mr. Weber as a principal in
Empire at the Customs Long Room in the main
Toronto office of the Department. Mr. Weber
indicated that he was trying to keep the business
afloat and that he was trying to become sufficient
ly solvent to pay his debts and requested the
Department's forbearance for a short period. The
Department did not take immediate steps to close
Empire down but gave him time to come up with
the money to pay the outstanding obligations for
duties and taxes to the Department. That time was
about one month because Mr. Mills advised Mr.
Neville by memorandum dated December 28,
1978 that Mr. Weber had called and advised him
that he had shut down the business office of
Empire. In response to an enquiry if he was going
to surrender his brokerage licence he said not at
that time but would await what the outcome was
regarding the outstanding amount of money owed
to the Department.
Prior thereto however, Empire had billed the
plaintiff by invoices dated October 26, 1978 for
$372.55 and $179.43 and on November 15, 1978,
for $2,222.76. The total of these three items I
compute to be $2,774.74. By invoice dated Novem-
ber 20, 1978 Empire billed the plaintiff for
$23,658.62.
The first two invoices dated October 26, 1978
for $372.55 and $179.43 totalling $551.98 are
indicated thereon as having been paid by the plain
tiff by its cheque numbered 10655 dated Decem-
ber 8, 1978 in the amount of $3,674.76.
The invoice dated November 15, 1978 for
$2,222.76 is indicated as having been paid by the
plaintiff's cheque No. 10675 dated November 27,
1978 in the amount of $2,981.04 and the invoice
dated November 20, in the amount of $23,658.62
is endorsed by the plaintiff as having been paid by
the plaintiff's cheque No. 10675 in the amount of
$2,981.04 and cheque No. 10670 dated November
20, 1978 in the amount of $23,000 and cheque No.
10675 dated November 27, 1978.
Thus I compute that Empire billed the plaintiff
for a total amount of $25,881.37 from October 26
to November 20, 1978 and the plaintiff paid to
Empire by cheques Nos. 10655, 10670 and 10675
a total amount of $29,615.80. The endorsements
on these three cheques indicate that they were
deposited to the credit of Empire.
The Department computes that $25,789.50 is
owing for duties and excise taxes on goods import
ed by the plaintiff.
The plaintiff does not dispute the accuracy of
the amount of duties and excise taxes unpaid and
accordingly I do not consider it essential to
attempt to reconcile the discrepancies in the
amounts. One thing is certain and that is that
Empire did not pay to the Department the amount
of $25,789.50 and it is equally certain that the
plaintiff paid to Empire the amounts of all
Empire's invoices in an amount in excess of
$25,789.50. It clearly follows that Empire did not
remit to the Department the sum of $25,789.50 in
payment of duties and excise taxes which it had
received from the plaintiff to do or, as the plaintiff
understood it, as reimbursement to Empire for that
payment which Empire should have made but did
not make.
The plaintiff was not the only client of Empire
to suffer the same kind of loss. There were four
others.
The total owing by the plaintiff and the four
other clients was $108,161.81. After deducting
$70,000 realized from the surety and performance
bonds (less a debt of $154 by Empire to the
Department not involving an importer) the short
fall was $38,315.81.
This amount of $38,315.81 was collected by the
Department from the importers (in whom the
ultimate liability lay under the Customs Act) on a
pro rata basis according to the amount owed by
each. The plaintiff's share came to $9,134.49
which the plaintiff paid under protest.
When Mr. Mills cut off the pre-release and
uncertified cheque privileges of Empire because of
its obvious financial instability he did not inform
any of the importers including the plaintiff
forthwith.
An enquiry was made by him in a telephone call
to the plaintiff's office on November 29, 1978
which call was answered by a clerk. The substance
of that call, as understood by the clerk, was that it
was an enquiry whether the plaintiff had paid
funds to its broker to cover duties and excise taxes.
It may have opened with a demand for payment
from the plaintiff followed by the clerk's advice
the account had been paid to Empire.
On being informed of this message Mr. Cher-
nick checked the dates of the importations and
satisfied himself that cheques in the amount of
$2,981.04 and $23,000 had been forwarded to
Empire to pay the duties and taxes.
On December 6, 1978 Mr. Mills spoke to Mr.
Chernick and informed him that Empire had not
paid outstanding duties and taxes. He asked Mr.
Chernick to produce the invoices and cheques in
payment thereof to Empire which Mr. Chernick
did.
When Mr. Chernick learned from Mr. Mills on
December 6, 1978 that Empire had not paid the
duties and taxes he immediately got in touch with
Mr. Weber. Mr. Weber gave Mr. Chernick no
satisfactory explanations as to the problems he
faced but he did reassure Mr. Chernick that if
there was a short-fall there was no need for con
cern because Empire's bonds were sufficient to
indemnify the plaintiff for any loss.
Mr. Weber took the plaintiff's account to
another broker, X M Customs Brokers Limited
and the plaintiff gave its power of attorney to these
brokers.
The Department suspended Empire's pre-release
privileges on November 16, 1978 by verbal
instruction followed by written confirmation to all
Toronto branches on November 20, 1978.
In mid-November Mr. Mills spoke to Mr.
Weber of Empire demanding to know what he was
going to do about the outstanding amounts due.
He did not cancel Empire's licence but permitted
Empire to continue its business on a cash basis to
afford Mr. Weber the opportunity to recoup and
pay the debts. This state of affairs persisted until
December 28, 1978.
On December 6, 1978 when Mr. Mills discussed
the matter with Mr. Chernick who produced the
invoices and cheques in payment to Empire there
was no discussion of a possible short-fall from the
bonds or that the plaintiff would be liable therefor.
On November 14, 1978 Mr. Mills knew
Empire's cheques were bouncing. Empire's privi
leges were suspended November 16, 1978.
On November 20, 1978 the plaintiff wrote a
cheque to Empire for $23,000 and on November
27, 1978 a further cheque to Empire for $2,981.04.
This was after the suspension of Empire on
November 16, 1978 and before any intimation was
given to the plaintiff that Empire had forfeited its
pre-release and uncertified cheque privileges.
By virtue of section 5 of the Release of Import
ed Goods Regulations where the amount of a
security bond required of custom-house brokers in
accordance with paragraphs 2(b) and (c) has been
deposited and, in the opinion of the collector or the
Deputy Minister as the case may be, the maximum
amount of duty and taxes likely to be outstanding
at any time during the term of the security is
greater than the security then the broker who
deposited the bond may be required to execute a
new bond for that greater amount. The converse is
equally so.
To ensure that a pre-release bond is adequate
each station at a port reports over a period of a
time frame the amount of business transacted by a
broker each day.
Thus there is a weekly summary of the transac
tions of each broker from all stations sent to the
accounts supervisor.
Because of the number of brokers it is impos
sible to review these records every week.
The practice in vogue results in every broker
being monitored at two-month intervals. The
accounts of every broker are checked and while it
is not possible to adhere to a two-month schedule
with rigid exactitude the two-month schedule is
approximately met.
This is reflected in the review of the accounts of
Empire.
For the week beginning January 9, 1978 the
highest total three days duties and taxes was
$23,400 odd.
For the week of February 20, 1978 the highest
total three days duties and taxes was $7,345 odd.
For the week of April 24, 1978 the highest of
three days duties and taxes was $33,000 odd.
For the week of June 12, 1978 the highest of
three days duties and taxes was $35,735 odd.
For the week of September 11, 1978 the highest
of three days duties and taxes was $20,638 odd.
The reviews are very close to two-month
intervals.
In each instance the guarantee bond in the
amount of $50,000 exceeded the highest of the
three days in each week and indicated no necessity
to increase the amount of the bond.
The next review, based upon a two-month inter
val from the week ending September 15, 1978
would be mid-November 1978.
There was no plan to carry out a security review
of Empire in November, 1978 but the reason
therefor is obvious.
Empire's financial responsibility must have
reached a nadir about November 14, 1978 when
its cheques began to bounce.
Empire's pre-release and uncertified cheque
privileges were suspended on November 16, 1978.
Because the guarantee bond is surety for uncer-
tified cheques for the duties and taxes on goods
pre-released it follows that since these privileges
were cancelled a bond would not serve the purpose
for which it was intended.
At an unspecified date near the end of January,
1979 Mr. Chernick had a discussion with an offi
cer of the Department of National Revenue, Cus
toms and Excise Division, to the effect that a
review of Empire's transactions would doubtlessly
disclose a short-fall in an amount not then deter
mined but that the plaintiff would be responsible.
Mr. Chernick expressed his view that this was not
just since he had paid all duties and taxes on goods
imported by the plaintiff to Empire.
By letter dated February 1, 1979, R. J. Neville,
Regional Collector for the Department of National
Revenue, by registered post advised the plaintiff
that Empire failed to meet its obligations under its
immediate release privileges and the amount of
$25,789.50 was owed for duties and taxes unpaid
on two importations, delivery of which was taken
by Empire on behalf of the plaintiff in the amounts
of $23,598.62 and $2,190.88.
The letter continued to state that under the
Customs Act the liability to pay duties and taxes
remained with the plaintiff notwithstanding that
the amount of the duties and taxes had been paid
to Empire and the legal liability upon the plaintiff
was not removed until Empire in turn paid the
amount to the Crown.
This is an accurate statement of the liability
imposed on an importer under the Customs Act
and is not disputed by the plaintiff.
The letter continued to state that the guarantee
bonds posted by Empire would be realized by the
Department which would result in an abatement to
the plaintiff.
By further registered letter dated February 19,
1979 the Department advised the plaintiff that the
duties and taxes payable by the plaintiff after
taking into account the recovery from the surety
bonds was $9,134.49 payment of which was
demanded within 30 days from the date of the
letter failing which recovery would be sought by
legal action.
On April 2, 1979 the plaintiff paid the amount
so demanded under protest.
Against this background the plaintiff brought
this action, not founded on contract, there being no
privity of contract between the plaintiff and the
Department, but founded on tort seeking damages
in the amount of $9,134.49 as the measure of its
damages, having been obliged to pay that amount
by reason of the negligence alleged on the part of
servants of the Crown within the scope of their
duties as such.
The basic allegations of negligence by the ser
vants of the Crown asserted by the plaintiff are as
set out in paragraphs 11 and 12 of the statement of
claim.
In paragraph 11 the negligence imputed is that
the Department of National Revenue, through its
responsible employees, allowed Empire to release
goods the duties and taxes on which were in excess
of the amount of the bonds deposited with the
Department.
In paragraph 12 the negligence alleged is that
no effort was made by the Department to collect
the duties and taxes from Empire for two months
after these duties and taxes were supposed to be
paid by Empire.
With respect to the allegations in paragraph 11
of the statement of claim the bonds deposited by
Empire, one in the amount of $20,000 under the
Custom-House Brokers Licensing Regulations
made by the Minister under the authority con
ferred upon him by subsection 118(5) of the Cus
toms Act and the other in the amount of $50,000
under the Release of Imported Goods Regulations
made by the Governor in Council under the au
thority conferred upon him by subsection 22(3) of
the Customs Act, the two in the total amount of
$70,000, were $38,315.81 short of the amount of
$108,161.81 owed by Empire for duties and taxes
on goods pre-released on behalf of its clients and
$154 owed to the Department unrelated to duties
and taxes on client's imported goods. The total
amount of the indebtedness of Empire to the
Department at November 16, 1978 when its pre-
release privileges were suspended was $10,831.81.
By virtue of section 5 of the Release of Import
ed Goods Regulations the amount of the bond
deposited by Empire in the amount of $50,000
could be increased or decreased.
As the evidence has disclosed and has been
detailed previously the Department reviews the
transactions of all brokers at the port approxi
mately every two months to ascertain if a change
in the amount of a broker's bond should be
required.
The last review of the $50,000 bond deposited
by Empire for its pre-release privileges was for the
week ending September 15, 1978.
Essentially therefore, the allegation of negli
gence in paragraph 12 is that the Department was
derelict in not reviewing Empire's account in the
period subsequent to September 15, 1978 and prior
to November 16, 1978.
In essence the allegation of negligence by the
employees of the Department in paragraph 12 of
the statement of claim is that the prescribed period
of three days within which a broker with pre-
release privileges must pay the duties and taxes
thereon in accordance with paragraph 4(b) of the
Release of Imported Goods Regulations was
allowed to pass without payment and without
effort to secure payment from Empire.
Corollary to the negligence pleaded in the state
ment of claim counsel for the plaintiff advanced in
argument that the Department was negligent in
failing to make known to the plaintiff, upon whom
ultimate liability for payment lay as importer,
forthwith upon the expiry of three days of the
pre-release of imported goods that Empire had not
paid the duties and taxes owing thereon.
As a corollary to the allegations of negligence in
the statement of claim counsel for the plaintiff also
contended that the officers of the Department
were derelict in not advising the plaintiff forthwith
that Empire was financially irresponsible when it
was learned on November 14, 15 and 16 that
Empire's cheques tendered in payment of duties
and taxes of its clients other than the plaintiff were
dishonoured, but delayed until December 6, 1978
or November 29, 1978 in doing so and not advising
the plaintiff on either occasion that it would be
liable for any deficiency not covered by the
amount of the bonds until February 1, 1979 at
which time the amount of the short-fall had not
been determined.
Still further contentions of negligence were
made that an entry was released on November 17,
1978 after pre-release privileges to Empire had
been suspended on November 16, 1978 and that
after Empire's immediate release privileges were
suspended on November 16, 1978 (of which the
plaintiff was not notified) Empire was permitted to
continue in business until Mr. Weber voluntarily
caused Empire to cease to carry on its business on
December 28, 1978 and even then Empire's licence
was not revoked nor was the plaintiff informed by
the Department.
For Her Majesty to be liable for any injury
sustained by the plaintiff there must have been a
duty owed to the plaintiff by Her Majesty and a
breach of that duty by Her Majesty.
For the plaintiff to recover, the duty on Her
Majesty must be established. If that is not done
that ends the matter. If a duty is established to
exist then the plaintiff must establish a breach of
that duty to succeed.
Naturally the plaintiff contends that there was
both a duty and a breach thereof and the defend
ant contends that there was no duty and even if
there were, there was no breach.
The defendant submits that the object and pur
pose of the Customs Act is to impose customs
duties and excise taxes to produce revenue for the
Crown and to preserve that revenue for the Crown.
That premise I accept.
An Act of Parliament ought to be construed so
as to carry out the object sought to be accom
plished by it as that object can be collected from
the language employed in the statute.
A taxing statute must be construed strictly.
Words must be found imposing the tax and the
Crown seeking to recover it must bring the subject
precisely within the letter of the provision other
wise the taxpayer goes free regardless of however
apparent the case may be within the spirit of the
law.
However that cardinal rule of interpretation of a
taxing statute is varied by subsection 2(3) of the
Customs Act which provides that all provisions of
that Act or any law relating to customs shall
receive such fair and liberal construction and
interpretation as will best ensure the protection of
the revenue and the attainment of the purpose for
which the Act or law pertaining to customs was
made according to its true intent, meaning and
spirit.
By virtue of section 118 of the Act the collector
at any port may license custom-house brokers to
transact that business. This was done with respect
to Empire.
By virtue of section 116 anything done by a duly
authorized agent, as Empire as a customs broker
was the agent of the plaintiff, binds the principal
and the principal must furnish a power of attorney
to the agent. This is a restatement of the principles
of agency with the statutory requirement that the
agent produce to the Department written authority
from the principal.
Section 125 of the Customs Act provides that all
bonds and securities authorized to be taken by any
law relating to customs shall be taken to and for
the use and benefit of Her Majesty.
These sections, relied upon by the defendant,
make it abundantly clear that the purpose of the
statute is to preserve the revenue on behalf of the
Crown as I have accepted as being the purpose and
object of the Act to be found in these provisions
and the general scheme of the Act.
However I do not construe the Act in its entirety
as being a statute imposing on government service
a legal duty to provide services to the public and,
in my view, the statute as a whole cannot be read
as creating a private right of action for a breach of
that duty.
The same considerations do not, in my view
apply to the Custom-House Brokers Licensing
Regulations. These Regulations were made by the
Minister under the authority conferred upon him
by subsection 118(5) of the Customs Act for the
purpose of carrying the provisions of section 118
into effect, that is to say the conditions precedent
to licensing a custom-house broker.
Thus those Regulations so made by the Minister
were within his authority and competence to make
and are not incompatible with the Release of
Imported Goods Regulations made by the Gover
nor in Council pursuant to subsection 22(3) of the
Customs Act prescribing the conditions under
which goods may be entered into Canada free of
the requirement that all duties thereon at the time
of entry be paid and the conditions of any bond to
be presented to permit that entry.
I am satisfied that the Release of Imported
Goods Regulations and the bonds exacted there-
under were for the exclusive purpose of protecting
the public revenue.
Subsection 11(1) of the Custom-House Brokers
Licensing Regulations reads:
11. (1) Before a licence is issued or renewed, there shall be
deposited with the Department a bond of a guarantee company
approved by the Minister of Finance or one or more negotiable
Government of Canada bonds in an amount or aggregate
amount of not less than $20,000 as security against loss by the
Department or the broker's clients during the period for which
the licence or renewal thereof is valid. [Emphasis added.]
This subsection of the Regulations being validly
made under the authority given the Minister by
statute is as much a part of the statute as the
statute itself and must be interpreted accordingly.
The clear intent obvious from the language of
the subsection is that the bond is not for the
exclusive purpose of securing the revenue to the
Crown but that it also secures "the broker's cli
ents" against loss.
The bond exacted of Empire was in the mini
mum amount of $20,000. No provision in the
Regulations was cited to me, nor was I able to find
one, whereby that amount can be increased during
the currency of the licence. If the amount is to be
increased it could be done only on the renewal of
the licence.
Thus, the express language of subsection 11(1)
imposes a duty upon the Department to control the
conduct of third persons. Ordinarily the law does
not require that one person interfere with activities
of another person for the purpose of protecting yet
another person. But a relationship may exist be
tween a person and an injured person who is
entitled to rely on that person for protection or
between that person and a third person who is
subject to that former person's control.
Illustrative of the entitlement to protection are
the conventional relations of employer and
employee, innkeeper and guest and other like
relationships.
In Timm v. The Queen ([1965] 1 Ex.C.R. 174)
it was held that the duty of prison authorities owed
to an inmate is to take reasonable care for his
safety as a person in their custody and it is only if
the prison employees fail to do so that the Crown
may be held liable. Analogous thereto is the duty
on the management of a theatre, sports stadium,
hotel and tavern to protect their patrons from
molestation by others, and in some instances from
themselves, and the duty of a parent or teacher to
protect their charges from foreseeable dangers.
Further, with much less frequency, the law will
exact an obligation to control another by reason of
a special relationship between a defendant and
that. other person. In the absence of that right of
control there is no corresponding duty to exercise
that control for the protection of others.
In my view, subsection 11(1) of the Custom-
House Brokers Licensing Regulations creates such
a duty from which it follows that the principles
enunciated in Home Office v. Dorset Yacht Co.
Ltd. [ 1970] A.C. 1004, Rubie v. Faulkner [ 1940]
1 All E.R. 285, O'Rourke v. Schacht [1976] 1
S.C.R. 53 and Culford Metal Industries Ltd. v.
Export Credits Guarantee Department, a decision
of Neill J., Queen's Bench Division reported in
The Times of London, March 25, 1981, apply.
Dorset Yacht and Culford Metal cases were
cases based on negligence in the exercise of statu
tory duties and not on breach of a statutory duty
as such (see Lord Pearson at page 1055).
In Dorset Yacht seven Borstal boys under the
supervision of three officers escaped, cast adrift
and damaged the plaintiffs' yacht. The plaintiffs
sued the Home Office alleging negligence by the
officer who, knowing the propensities of the boys,
failed to exercise effective control and supervision
over them. The Home Office contended that there
was no obligation to the subject however negligent
the officers may be but that the duty is owed to the
Crown and to the Crown alone.
The like contention is made before me in this
instance. The duty on the employees of the
Department is to preserve the revenue on behalf of
the Crown and that is the only duty owed.
In the Dorset Yacht case that contention was
rejected and it was held that the Borstal officers
owed a duty to the plaintiffs to take reasonable
care to prevent the boys under their control from
causing damage to the plaintiffs' property if that
was a happening of which there was a manifest
risk if they neglected that duty and that public
policy did not require there should be immunity
from an action such as the plaintiffs'.
Lord Pearson said at page 1055:
Statutory duty: Not only with respect to the detention of
Borstal boys but also with respect to the discipline, supervision
and control of them the defendants' officers were acting in
pursuance of statutory duties. These statutory duties were owed
to the Crown and not to private individuals such as the
plaintiffs. The plaintiffs, however, do not base their claim on
breach of statutory duty. The existence of the statutory duties
does not exclude liability at common law for negligence in the
performance of the statutory duties.
Lord Reid in commenting on the test adumbrat
ed by Lord Atkin in Donoghue v. Stevenson
([1932] A.C. 562 at page 580) said at page 1027
that negligent injury should be actionable "unless
there is some justification or valid explanation for
its exclusion".
In the Culford Metal case there was a statutory
duty on the Department to advise an exporter
whether or not it was insured against a risk of
non-payment in certain circumstances. The
Department gave the plaintiff incorrect advice
leading it to believe it was insured when, in fact, it
was not, thereby causing loss to the plaintiff. That
was negligent performance of a statutory duty
giving rise to the liability of the Department.
In Rubie v. Faulkner (supra) a provisional
licence had been issued under the Road Traffic
Act, 1930, 20 & 21 Geo. V, c. 43, to the owner of
a vehicle. The Regulations thereunder provided
that the provisional licensee could drive only if
accompanied by a "supervisor" who as a com
petent driver had undertaken to act in that capaci
ty at the owner's request. The owner pulled out to
pass a horse and cart. The owner did not see an
approaching vehicle but the supervisor did. The
owner was convicted of driving without due care
and attention. The supervisor was convicted of
aiding and abetting the commission of that
offence.
On appeal it was held that there was a clear
duty upon the supervisor on the face of the Regu
lations to supervise and it was open to the Justices
to decide as a fact whether or not that duty had
been performed.
To like effect is the decision in O'Rourke v.
Schacht (supra). The reasons of the majority sug
gest that there was a breach of a statutory duty. It
was found that The Police Act, R.S.O. 1970, c.
351, placed specific duties on Provincial Police
Officers which were found to include the patrol of
highways, to investigate accidents and to preserve
the safety of road users. The non-performance or
negligent performance of those duties gives rise to
a cause of action by a plaintiff injured by the
failure to do so.
These cases are based upon a duty of care owing
to particular individuals.
As I have previously stated, in my view the
principles in the foregoing cases are applicable as a
statutory duty owed to the clients of licensed
brokers by virtue of the express language of sub
section 11(1) of the Custom-House Brokers
Licensing Regulations and a breach of these statu
tory duties either by non-performance or negligent
performance of those duties by the employees of
the Department gives rise to liability to the
broker's client, in this instance, the plaintiff.
With respect to the Release of Imported Goods
Regulations I reach a different conclusion. These
Regulations are designed to preserve the revenue
under the Customs Act to the Crown from which
it follows that the duty, which the Regulations are
designed to make more effective, is owed to the
Crown and to the Crown alone.
Accordingly consideration must be given to
whether or not there has been negligence in the
exercise of the statutory duties under the Custom-
House Brokers Licensing Regulations.
I think not.
Empire held à valid and subsisting licence under
section 118 of the Customs Act.
Empire complied with all conditions precedent
imposed by the section and the Regulations made
thereunder at the time of issue and renewal of that
licence.
Under subsection 11(1) Empire had posted a
bond in the amount of $20,000. As I have said
above there is no provision whereby the amount of
that bond may be increased during the currency of
the licence. There was no evidence whatsoever that
at the time of the grant or renewal of that licence
the minimum amount of $20,000 was not adequate
for which reason I have concluded there has been
no negligence on the part of the servants of the
Crown with respect to the duty owed to the plain
tiff under the licensing Regulations.
Having so concluded there is no necessity to
consider if the plaintiff has been contributorily
negligent.
Assuming that there is a duty owed to the
plaintiff by virtue of the Release of Imported
Goods Regulations, which I have concluded not to
be the case, I am of the opinion that there has been
no negligence in the exercise of those statutory
duties.
A particular of negligence alleged is that the
officers of the Department did not conduct a
review of the transactions of Empire to ascertain
whether the bond of $50,000 deposited was ade
quate to secure against any default.
The last review for the week ending September
18, 1978 indicated that the amount of the bond
was sufficient to so ensure. This review is conduct
ed on a two-month basis which the experience of
the Department proved to be frequent enough in
ordinary circumstances. The next forthcoming
review would have been for a week in mid-Novem-
ber 1978. Extraordinary circumstances came to
the attention of the Regional Collector on Novem-
ber 15 and 16, 1978 that Empire's cheques had
been returned by the bank, payment of which was
refused because of insufficient funds.
On November 16, 1978 verbal advice was given
to all branches in the port of Toronto that
Empire's immediate release and uncertified cheque
privileges were forfeited. That being the case there
was no necessity to conduct a review of Empire's
transactions in mid-November to ascertain if the
amount of its bond was sufficient to cover the
duties and excise taxes for goods released because
that privilege was no longer granted to Empire and
there was no need to provide security. Accordingly
there was no negligence by the officers of the
Department in this respect.
While those privileges subsisted Empire was
obliged by section 4 of the Release of Imported
Goods Regulations to pay all duties and taxes on
goods released, within three days of the release.
There was an amount of $25,789.50 in duties
and taxes unpaid by Empire for two importations
on behalf of the plaintiff for which Empire had
invoiced the plaintiff between October 26, 1978
and November 15, 1978 which were paid to
Empire by the plaintiff by cheques dated Novem-
ber 20, 1978 and November 27, 1978. No cheques
at all, either certified or uncertified, were tendered
to the Department by Empire in discharge of these
duties and taxes incurred by the plaintiff.
I take it that Empire's invoices to the plaintiff
dated November 8, 1978 and November 20, 1978
may well have been for importations three days
prior to that date. One thing is certain that neither
Empire Brokers Invoice Number 3383 nor 2553
(which I take to be the Department's invoice num
bers to Empire) for $23,598.62 and $2,190.88
respectively were paid within three days of the
date of the release of the goods (which were
released to the plaintiff). They were never paid by
Empire other than in part by realization of
Empire's bond. The facts that elude me are the
dates upon which the goods were pre-released. I
am unable to find any evidence of those dates.
When security is subject to forfeiture by failure
of the depositor to pay any duties or taxes within
the time prescribed by section 4 of the Release of
Imported Goods Regulations the Minister has a
discretion not to forfeit the security if he is satis
fied that there is reasonable cause for the delay.
If failure to pay within the three-day period
occurs if the importer acts through a broker, the
broker shall be advised that the immediate release
privileges on behalf of that particular importer will
be suspended. Paragraph 2(i) of the General
Instructions appended to the Release of Imported
Goods Regulations so provides. Therefore if there
should be a duty to notify the importer of non-pay
ment by the broker that is satisfied by notification
of the suspension of the immediate release privi
leges to the broker.
Further the circumstance shall be reported to
the Regional Director, Customs Operations Divi
sion. This officer is either Mr. Neville or Mr.
Neville acts on his behalf.
In mid-November Mr. Neville summoned Mr.
Weber, the principal of Empire, who assured Mr.
Neville that he hoped to be able to discharge all
his debts. Mr. Neville afforded him that opportu
nity. Empire could not run up any more indebted
ness for duties and taxes on importations because
its transactions were being conducted on a cash
only basis from November 16, 1978 (with one
exception on November 17, 1978 when one entry
was allowed to slip through at an extremely busy
branch by a customs officer who had not been
made aware of the suspension of Empire's immedi
ate release privileges on November 16, 1978).
Time was required to collect and correlate the
outstanding indebtedness of Empire on February
19, 1979. Prior to that date, on February 1, 1979
the plaintiff was advised that it owed $25,789.50
in duties and taxes not paid by Empire (although
advanced by the plaintiff to Empire to do so) and
that the Department indicated to the plaintiff its
intention to recover from the plaintiff. It was also
pointed out that a substantial amount might be
recovered from the forfeiture of the bonds but any
deficiency would be recovered from the plaintiff.
The five N.S.F. cheques - of Empire were
replaced by certified cheques. (Perhaps they were
made good from the plaintiff's payment of its
invoices.) Empire ceased tendering N.S.F.
cheques. It did not pay at all.
The foregoing circumstances represent a con
tinuing effort to recover the indebtedness from
Empire after the three-day limitation expired and
was eventually recovered in part by the realization
of the bonds.
The plaintiff was informed on November 29,
1978 that Empire had not paid the duties and
taxes on importations on its behalf. The full import
of that communication was not realized by Mr.
Chernick because the message was conveyed to
him by a clerk. On December 6, 1978 he was
personally informed by the Department and he
confronted Mr. Weber with his deficiencies. He
was lulled into a sense of false security by Mr.
Weber's assurance that his bonds were sufficient
to save the plaintiff harmless.
The plaintiffs remedy for recovery of the pay
ments made by it to Empire was against Empire.
That was a fruitless remedy because Empire was
insolvent and gave up on December 28, 1978. The
efforts of the Department to recover from Empire
were equally fruitless (except to the extent of the
bonds).
In the light of these circumstances no negligence
in the exercise of its statutory duties can be imput
ed to the servants of the Crown.
Neither is any contributory negligence imputed
to the President and General Manager of the
plaintiff. He could have avoided the difficulty he
encountered with Empire if he had insisted that
the invoices from Empire should be accompanied
by an entry form officially stamped as paid. It is
the obligation of a broker to furnish his client with
that entry form but the time at which the broker
must do so is not prescribed. Empire had been
invoicing the plaintiff without attaching a certified
as paid entry form without ill consequences for two
years and the plaintiff was thereby induced to rely
on the financial integrity of its broker with reason
based on past experience but which reliance proved
to be misplaced.
For the foregoing reasons the plaintiff's action is
dismissed and in the circumstances the defendant
shall be entitled to her costs if demanded.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.