SUPREME COURT OF CANADA
Cement LaFarge v. B.C. Lightweight Aggregate, [1983] 1 S.C.R. 452
Date: 1983-04-26
Canada Cement LaFarge Ltd./Ciments Canada LaFarge Ltée, LaFarge Canada Ltd., LaFarge Concrete Ltd./LaFarge Béton Ltée, and Deeks-LaFarge Ltd. (the "LaFarge Group") Appellants;
and
Ocean Construction Supplies Limited, Construction Aggregates Ltd., and Metro Concrete Ltd. (the "Ocean Group") Appellants;
and
British Columbia Lightweight Aggregate Ltd. Respondent;
and
Rockcrete Ready-Mix Ltd., Deeks Sand & Gravel Co. Ltd., Deeks-McBride Holdings Ltd., Deeks Concrete Brick Ltd., Deeks Block Ltd., Lorraine Ready-Mix Ltd., T.G. McBride & Co. Ltd., Island Ready-Mix, Ltd., Holmes & Wilson Limited, Holmes & Wilson Trucking Company Limited, Fraser Valley Concrete Products Ltd., Butler-LaFarge Ltd., Friday Harbor Sand & Gravel Co., Evans Coleman & Gilley Brothers Limited, Ocean Cement Limited, Ocean Cement & Supplies Ltd., Ocean Construction Supplies Northern Limited, Ocean Construction Supplies (Victoria) Limited, Ocean Cement Trading Limited, Pacific Brick & Block Limited, British Columbia Cement Company Limited, Genstar Limited/Genstar Limitée, Metro Concrete Western Ltd., Inland Cement Industries Limited, Con-Force Products Ltd. Defendants;
and
British Columbia Lightweight Aggregate Ltd. Appellant on Cross appeal;
and
Canada Cement LaFarge Ltd./Ciments Canada LaFarge Ltée, and others Respondents on Cross appeal.
File Nos.: 16608 and 16704.
[page 453]
1982: November 29 and 30; 1983: April 26.
Present: Laskin C. J. and Ritchie, Estey, McIntyre and Wilson JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA
Torts — Combines — Conspiracy to injure by unlawful means — Whether or not deliberate intention to injure necessary — Whether or not breach of Combines Investigation Act an "unlawful means" required to establish this tort — Combines Investigation Act, R.S.C. 1970, c. C-23, s. 32.
Respondent, a supplier of lightweight aggregate, ceased business and was awarded damages for the tort of conspiracy to injure after its client, a manufacturer, began using another aggregate to produce its light-weight concrete. The action by appellants, who had earlier pleaded guilty to a charge of conspiring to prevent or unduly lessen competition in the production of cement contrary to s. 32(1) (c) of the Combines Investigation Act, made it impossible for respondent to improve its market position. It was found at trial and on appeal that, while appellants did intend to eliminate competition, they did not deliberately conspire to drive respondent out of business. Both courts also concluded that the tort of conspiracy to injure did not include an intent to injure the plaintiff, as a prerequisite, where the defendants had acted unlawfully to effect the ends of their conspiracy. The appellants appealed that finding and further argued that the "wrongful means" required for the tort of conspiracy could not consist of (1) a breach of s. 32(1) (c) of the Combines Investigation Act, (2) fictitious tenders to third parties or fraud or deceit with respect to such third parties, or (3) injury to the purported right not to be deprived of the benefits flowing from a free and competitive market.
Held: The appeals should be allowed and the cross-appeal dismissed.
The tort of conspiracy exists: (1) if the predominant purpose of defendant's conduct is to cause plaintiff injury, whether or not defendants' means were lawful; or (2) where defendants' conduct is unlawful and directed towards the plaintiff (alone or with others) and in circumstances that the defendants should know that injury to the plaintiff is likely to, and does, result—
[page 454]
notwithstanding the fact that the predominant purpose of' defendants' conduct be not necessary to cause injury to the plaintiff.
Respondent was not entitled to claim for damages under this tort because the necessary intention to injure did not exist here. Appellants discontinued their use of respondent's product for solid business reasons and not because of any plan calculated to damage it: the unlawful market-sharing agreements were neither directed against nor intended to injure respondent. Further, because respondent tried to share in the benefits accruing to appellants from those agreements it could not validly argue that it had been unlawfully deprived of its right to the benefits of a free market.
Lonrho Ltd. v. Shell Petroleum Co. Ltd., [1982] A.C. 173, [1981] 2 All E.R. 456, applied; International Brotherhood of Teamsters v. Therien, [1960] S.C.R. 265; Gagnon v. Foundation Maritime Limited, [1961] S.C.R. 435; Southam Co. Ltd. v. Gouthro, [1948] 3 D.L.R. 178, considered; Crofter Hand Woven Harris Tweed Co. v. Veitch, [1942] A.C. 435; Sorrell v. Smith, [1925] A.C. 700; National Coal Board v. England, [1954] A.C. 403; Tallow v. Tailfeathers (1973), 44 D.L.R. (3d) 55; Tomlinson v. Harrison, [1972] 1 O.R. 670, (1971), 24 D.L.R. (3d) 26; Rondos v. Wawrin (1968), 68 D.L.R. (2d) 658, referred to.
APPEALS and CROSS-APPEAL from a judgment of the British Columbia Court of Appeal (1981), 123 D.L.R. (3d) 66, 26 B.C.L.R. 292, [1981] 4 W.W.R. 385, dismissing an appeal from a judgment of Callaghan J. Appeals allowed and cross-appeal dismissed.
R. J. Gibbs, Q.C., and D. F. Robinson, for the appellants the "LaFarge Group."
J. Edgar Sexton, Q.C., Brian G. Morgan, and G. A. Urquhart, for the appellants the "Ocean Group."
Rees Brock, Q.C., and Vince Orchard, for the respondent.
[page 455]
The judgment of the Court was delivered by
ESTEY J.—The plaintiff-respondent holds a judgment against the appellants in the amount of $750,000 for damages for conspiracy to injure the respondent in its business. In essence, the courts below found that while the appellants did not deliberately conspire to drive the respondent out of business, the appellants did intend to eliminate all competitors which, in the view of the Court below, included the respondent. In the view of the learned trial judge and the Court of Appeal, the tort of conspiracy to injure did not include as a prerequisite an intent to injure the plaintiff where the defendants, as an object of the conspiracy, acted unlawfully, in this instance criminally.
The appellants advance their submissions on four principal bases:
(a) The intention necessary to found liability in the appellants for the tort of conspiracy to injure by unlawful means, is a specific intent to injure the respondent;
(b) The element of 'unlawful means' cannot be provided by a breach of the conspiracy section of the Combines Investigation Act, R.S.C. 1970, c. C-23, s. 32, by the fraudulent or fictitious bids made by the appellants in the sale of concrete in British Columbia, or by any injury by the appellants of an alleged legal right of the respondent to the benefits of a competitive concrete market in British Columbia;
(c) The principles of remoteness or causation exclude all elements or factors unconnected to the respondent and any loss suffered by it;
(d) In any case, the respondent, by voluntarily participating in the arrangements of which complaint is now made, is barred from any recovery from the appellants on the principles of ex turpi causa or in pari delicto.
[page 456]
The appellants' first submission seeks to combine in the definition of the tort of conspiracy both elements:
(a) the intent to injure the plaintiff; and,
(b) the agreement to employ unlawful means.
There is no basis in authority in the common law for such a combined standard. As we shall see, the recent contest in the courts has been whether there is a second tort of conspiracy 'to perform an unlawful act', in addition to the long-existing tort of conspiracy to injure. Therefore I will approach the analysis of the facts and the applicable law on the basis that the appellants are seeking to demonstrate:
(a) the tort of conspiracy requires 'the predominant objective of injury to the plaintiff; and, alternatively,
(b) if there be a tort of conspiracy to perform an unlawful act, the actions of the appellants, admittedly contrary to the Combines Investigation Act, are not sufficient to support the respondent's action because the unlawful acts occasioned no injury to the respondent and hence, damages being the gist of the tort in any event, no action lies in the respondent.
It is unnecessary to review the extensive record before dealing with these four principal submissions, but it will be convenient to outline briefly the history of the events leading to these proceedings. The appellants are engaged in the business of manufacturing and supplying cement, ready-mix concrete, concrete pipe, concrete block and other such concrete products in the province of British Columbia. The respondent was at all material times engaged in the business of producing a light-weight aggregate called "Saturnalite" for use in the production of concrete and concrete products. In the production of their concrete the appellants made use of ordinary aggregate, that is sand and gravel, as well as lightweight aggregate for the production of lightweight concrete. The appellant
[page 457]
supplied, or acquired through other sources, the ordinary aggregate but were not engaged in the production of lightweight aggregate. In 1974 the appellants pleaded guilty to charges under s. 32 of the Combines Investigation Act, supra, and substantial fines were levied. In the course of those proceedings it was revealed that in 1962-63 the appellants entered into marketing arrangements, the effect of which was to divide the concrete and concrete product market in British Columbia between the appellant Ocean Construction Supplies Limited and the appellant Canada Cement LaFarge Ltd. in the ratio of 55 per cent to 45 per cent.
By reason of losses in its operations and because the respondent and its owners recognized the small market for lightweight aggregate in British Columbia, and perhaps for other reasons, the respondent sought to establish or secure markets for their lightweight aggregate, Saturnalite, and entered into agreements with the appellants in 1963 whereby the appellants undertook to purchase from the respondent, for a period of two years, volumes of lightweight aggregate specified in the agreement. Under the agreements the appellants undertook to acquire this type of aggregate from the respondent only, and not to enter the lightweight aggregate supply business themselves. The agreements specified the price of the Saturnalite to be supplied.
As a quid pro quo for the entry into this agreement by the appellants, the parent company of the respondent, Graymont Limited, executed an undertaking reciting that the undertaking was entered into "in consideration of Deeks-McBride Ltd.... entering into an agreement dated as of the 1st day of May 1963.... " Deeks-McBride Ltd. was a member of the LaFarge group of companies. The respondent's then parent company covenanted and agreed that it:
shall not ... directly or indirectly, be engaged in, employed in, operate, carry on, manage or invest in the cement or concrete business or in the business of manufacturing concrete products within the province of British
[page 458]
Columbia at any time during the currency of the said agreement and any renewal or renewals thereof ...
At the request of the respondent the parties entered into second agreements (one agreement with each of the appellants, the Ocean Group and the LaFarge Group) on the expiry of the first. These second agreements, which were executed in June of 1965, were for a term of five years and by their terms required:
(1) the appellants to purchase all their requirements of lightweight aggregate from the respondent;
(2) the appellants to refrain from entering into the manufacture of such aggregate;
(3) the price payable by the appellants to be that specified in the agreements;
(4) the appellants to purchase a prescribed minimum quantity of the lightweight aggregate;
(5) the appellants to market blocks produced from lightweight aggregate, as well as light-weight ready-mix concrete, all at a price specified in the agreements.
In return the respondent undertook in the agreements not to enter into "fields in the cement and concrete industry in which . . . [the appellants are] presently engaged . . . ." The effect of these agreements was simply to make the respondent the sole supplier to the appellants of lightweight aggregate for use in the production of cement and cement products in British Columbia and to regulate the minimum volume and price of such lightweight aggregate to be so employed by the appellants, and further to regulate certain prices of the resultant lightweight concrete products.
The trial judge found that the respondent "was not aware it was selling in a completely structured market. It [the respondent] had wrongly assumed there would be competitive bidding for its product " ((1979), 103 D.L.R. (3d) 587, at p. 608); and the Court of Appeal, on the same point, stated: "The plaintiff [respondent] entered into those agreements in the belief that there was free competition in the market." ((1981), 123 D.L.R. (3d) 66, at p. 80).
[page 459]
However, the documentary evidence is to the contrary.
In a letter written by the president of the respondent to the president of the appellant LaFarge on April 1, 1965, the respondent acknowledged that the concrete ". . . industry is virtually controlled by two companies, and because of their capital resources, they can continue this dominance through the acquisition of almost all worthwhile outlets . . . ." The respondent's president then concluded that "any independent raw material supplier is in an untenable position, regardless of the merits of his product". That the respondent was aware of the legal consequences of the control of this industry is made apparent in the next paragraph:
If the large companies refuse to make room in their outlets for new products, they are inviting a third force into the market in order to accommodate the independents. It is also our opinion that the spirit of the Combines Act is contravened by the sealing off of the market by the purchase of more and more outlets, by interference with transportation arrangements, by inter-company sales of materials and other cooperative action.
In this letter the respondent asserted that:
Our only defence under these circumstances would be to expand the diversification programme which we initiated three years ago in order that we be able to take a direct hand in the market and have cooperative outlets for our material.
Indeed, the author states that in reliance upon the first agreement:
We were led to believe at that time [the time of the first agreement] that the first contract would lead to a second one and, for this reason, we did not pursue our vertical integration programme. Therefore, we were very disappointed when we recently found out that Ocean Cement Ltd. was seriously considering entering the shale business. As can now be seen, reasonable predictions would indicate that the volume of shale required for this market will allow our company to make a profit provided we have all the expanded shale business in this area. Any loss of volume to anyone else, such as that
[page 460]
proposed by Ocean a short time ago would, of course, throw us into a loss position once more.
Having recited all of this the respondent's senior officer stated:
Regardless of the foregoing, I believe it would be more profitable for our company to extend the present arrangements whereby we supply your company with all your expanded shale requirements on a fixed contract basis. I therefore propose a five year firm contract on the basis laid out in the attached Schedule 'A'.
The letter concluded:
I am sure that if your company will accept the principle of our supplying you with all your shale requirements (both for aggregate and Pozzolan) then we will soon be able to conclude an equitable arrangement.
As already observed, the courts below concluded, in the words of the Court of Appeal, "the plaintiff [respondent] was a competitor of the defendants [appellants]" (at p. 81). However, the letter of the respondent from which the quotations above have been taken is at pains to point out:
Both expanded shale and Pozzolan [light weight aggregate] should not be looked upon as competitors to heavy aggregate and cement.
The evidence is clear that the choice between the use of lightweight or heavy aggregate is made not by the concrete supplier, such as the appellants, but rather by the customer or buyer of the concrete. Usually this means the architect or engineer employed by the owner undertaking the construction project. Some argument was made by counsel for the respondent that the appellants had priced the concrete produced by use of Saturnalite so high as to discourage its use. Suffice it to say that there was no such finding, and the terms of the contract specify the price of certain end products in any case. With reference to this the learned trial judge stated, at p. 614:
[page 461]
Because the concrete manufacturer only supplied the concrete after it had been specified by the architect or the engineer did not necessarily mean the manufacturer had lost effective control over the type of concrete to be specified. Surely cost benefit studies, or cost analysis studies, would have had to be conducted by the architect or engineer at the design stage and prices would have had to be obtained from the manufacturers.
Light-weight always did cost more because of the manufacturing process but if the savings effected by the use thereof were greater than the additional cost incurred for light-weight, then presumably light-weight would be used in a free competitive market.
The Court of Appeal stated with reference to this topic, at p. 78:
The evidence disclosed that the decision as to whether an owner or contractor would use light-weight concrete, in preference to heavy-weight concrete, was made at the design stage of a project, by an architect or engineer. The decision turned primarily on cost and was the result of a cost benefit analysis made by the architect or engineer.
When an invitation to tender was issued by a contractor the decision had already been made as to what portion of the project would involve light-weight concrete and what portion of the project would use heavy-weight concrete. The defendants would respond to the invitation to tender by quoting prices for the volumes of light-weight and heavy-weight required for the project.
Because lightweight aggregate had a specific use in the concrete industry, and because of the respondent's vested interest in the promotion of that use, the respondent's salesmen were active in the concrete-user market promoting the use of lightweight concrete. The judgment on appeal below, at p. 79, stated with reference to this:
The plaintiff had salesmen who were active in the market, promoting the use of light-weight concrete, and they, knowing the published price of the defendants' heavy-weight concrete, would not only be able to quote a price for light-weight concrete, but from 1965 through 1970, during the period of the agreements between the plaintiff [the respondent] and the defendants, could guarantee the price of light-weight concrete to architects and engineers.
Of critical importance is the statement of the Court of Appeal: "The evidence disclosed that architects and engineers in preparing a cost benefit
[page 462]
analysis would obtain the price for lightweight concrete from the plaintiff [respondent]". The evidence also discloses, and it was so found by the learned trial judge, that during the five-year term of the 1965 agreements the price spread between light and ordinary aggregate rose from five cents to six cents per block by the agreement of the respondent and appellants. At trial it was also found (at p. 605) that "there was little evidence adduced that the defendants [appellants] denigrated or bad-mouthed the plaintiff's [respondent's] product". Furthermore, prior to the expiry of the 1965 agreements, the respondent increased the price of lightweight aggregate supplied to the appellants by one dollar per cubic yard contrary to the terms of the agreements. In the result, the respondent did not realize the volume of sales to the appellants during the second agreement. Instead of delivering to the appellants 411,832 cu. yds., there was a shortfall of 91,718 cu. yds. There is no clear explanation of this disparity between contract guarantees and performance. However, the trial judge noted at p. 599 that:
During the spring of 1969 as a result of heavy demand for Saturnalite and production problems the plaintiff was unable to supply the amounts required by its customers and consequently found it necessary to institute a quota system.
The agreements expired in 1970 and apparently the respondent elected not to seek a renewal. Presumably the respondent by that time had determined either that it was sufficiently established in business that it could "go it alone", or that the agreement had been found to be improvident in that it failed to produce the volume necessary for the respondent to operate its business at a profit. Whatever may be the reason, the respondent did not seek and there was no renewal of the 1965 agreement.
Shortly thereafter, the appellant Ocean, in the course of reviewing its block business in 1970-71, determined that in the production of lightweight aggregate concrete products, Ocean would thereafter use as a lightweight aggregate pumice from the Seattle area instead of Saturnalite. The appellant
[page 463]
LaFarge followed the same course about a year later. Some Saturnalite continued to be used by the appellants thereafter, but only for a limited range of concrete products. In the result, the respondent's sales by 1973 had dropped to about 60 per cent of its annual volume at the end of the contract period. The respondent's plant ceased operations in late 1974.
Both the trial judge and the Court of Appeal, at pp. 616 and 87, found that the appellants "did not make deliberate and specific plans to drive the plaintiff [respondent] out of business." Both courts did find, however, that the respondent was a competitor of the appellants, and that since the appellants did intend, in the words of the Court of Appeal, "to eliminate all competitors and succeeded in so doing", at p. 89), the appellants therefore "eliminated" the respondent. The Court of Appeal in this line of reasoning expressly stated at p. 81: "The plaintiff [respondent] was a competitor of the defendants [appellants]." It is difficult to determine the evidentiary basis for this conclusion. The trial judge seems to have reached the same result by a somewhat different line of reasoning. His Lordship stated, at p. 621:
It was manifestly apparent that one of the objects and purposes of the marketing arrangement was to prevent competition from any source including that from the plaintiff.
This statement immediately follows a reference to the negotiations leading to the execution of the 1963 contract, already quoted in part:
At the time the 1963 contracts were entered into with the plaintiff the quid pro quo was that Graymont Limited and its principal shareholders would not compete with the defendants by agreeing not to . .. [engage in the business of manufacturing concrete products].
It may be that the trial judge, in finding that the object of the appellants was "to prevent competition from any source including that from the plaintiff [respondent] ", was relying upon the immediately preceding quotation from the 1963 covenant executed by the respondent. By that covenant the
[page 464]
respondent undertook not to become a competitor of the appellants, which has quite a different commercial connotation from an agreement between actual competitors. We are not here concerned with the significance of that definition under the Combines Investigation Act, and I only make reference to the distinction in order to determine and examine the actual finding made by the learned trial judge and the Court of Appeal on this issue.
There are two senses in which the learned trial judge seems to have employed the term "competitor" with reference to the potential competition which could arise between the parties. If the respondent, as a raw material producer, extended his industrial operation vertically, the end product would be concrete products which would compete in the market with those of the appellants. The second sense in which it might be argued that the parties are competitors arises from the fact that the respondent produces one type of aggregate used in the production of concrete and the appellants produced another type of aggregate used in the production of concrete products. In support of its conclusion that the respondent is a competitor of the appellants, the Court of Appeal cited the trial judge's summary of the evidence of an expert witness:
Both Ocean and LaFarge had an incentive not to use lightweight aggregates to maximum benefit to their customers for by so doing they would use less cement and aggregate which they produced and sold themselves [at p. 613];
and concluded at p. 81:
The plaintiff was a competitor of the defendants. When light-weight concrete was specified by an architect or engineer this reduced the demand for cement, aggregates and reinforcing steel which they produced or sold themselves.
There is, however, no finding that the end products in question (light and ordinary concrete) are competitive in the sense that one can be used inter-changeably with the other. The products made from lightweight aggregate are, according to the evidence, used where specified by the technicians in control of the building operation in question. There is no evidence and no finding that the
[page 465]
products may be used interchangeably, one for the other, and, as recognized by the Court of Appeal, it was the plaintiff who provided the architects and engineers with the price of lightweight concrete and who did the product promotion. It is difficult to see, therefore, in what sense there is actual competition between the respondent and the appellants.
I now turn to the first of the four submissions advanced by the appellants, supra, relating to the intent requirement of the tort of conspiracy to injure. While there may have been some doubt as to the required intent in the common law tort of conspiracy, there never appears to have been any doubt that one element of the tort of conspiracy to injure is an intent to cause damage to the respondent. The learned author of Salmond on Torts, 17th ed., (1977), put it this way at p. 377:
Since the Crofter case [[1942] A.C. 435] the common law is clear. A combination wilfully to do an act causing damage to a man in his trade or other interests is unlawful and if damage in fact is caused is actionable as a conspiracy.
Damage is, of course, the gist of most tortious actions, and outside of the field of negligence, the intention to inflict damage must be present. Vide Law of Torts, Fleming, 5th ed., pp. 24 and 33.
A recent and most helpful discussion of this tort in circumstances not far removed from those arising in this appeal, is found in Lonrho Ltd. v. Shell Petroleum Co. Ltd., [1982] A.C. 173, [1981] 2 All E.R. 456, a decision of the House of Lords handed down on June 4, 1981. Lord Diplock, with whom the other members of the House of Lords concurred, divides the tort into two components. With respect to the first element or rule he said at pp. 188 and 463 respectively:
Regarded as a civil tort, however, conspiracy is a highly anomalous cause of action. The gist of the cause of action is damage to the plaintiff; so long as it remains unexecuted the agreement, which alone constitutes the crime of conspiracy, causes no damage; it is only acts done in execution of the agreement that are capable of doing that. So the tort, unlike the crime, consists not of
[page 466]
agreement but of concerted action taken pursuant to agreement.
With reference to the second element of conspiracy, His Lordship continued at pp. 189 and 464:
The civil tort of conspiracy to injure the plaintiff's commercial interests where that is the predominant purpose of the agreement between the defendants and of the acts done in execution of it which caused damage to the plaintiff, must I think be accepted by this House as too well-established to be discarded however anomalous it may seem today. It was applied by this House 80 years ago in Quinn v. Leathem [1901] A.C. 495, and accepted as good law in the Crofter case [1942] A.C. 435, where it was made clear that injury to the plaintiff and not the self-interest of the defendants must be the predominant purpose of the agreement in execution of which the damage-causing acts were done.
It was argued in the House of Lords that the tort should be extended to embrace the situation where the conspiratorial conduct resulted in a contravention of penal law, but did not include an intention by the conspiring defendants to injure the plaintiff. This argument was rejected by Lord Diplock in the following words, at pp. 189 and 464:
My Lords, my choice is unhesitatingly the same as that of parker J. and all three members of the Court of Appeal. I am against extending the scope of civil tort of conspiracy beyond acts done in execution of an agreements entered into by two or more persons for the purpose not of protecting their own interests but of injuring the interests of the plaintiff.
There is here no finding by the learned trial judge of any intention by the appellants to injure the respondent in its business. The market-sharing agreements, to which reference will be made below, were not alleged nor found to have been entered into with the plaintiff in mind at all. The 1963 and 1965 agreements between the parties to this appeal were of course not directed against the respondent, and it is axiomatic that the agreements did not have as their object injury to the respondent. The substantial discontinuance of the use of Saturnalite by the appellants after the agreements expired was not found to have been an
[page 467]
act done as part of a plan calculated to damage the respondent. Pumice required no processing and hence was a less expensive ingredient in concrete, and there is no evidence of any supply difficulties of the kind mentioned by the Court of Appeal in connection with Saturnalite. Indeed, the respondent, in attempting to seal off the threat from pumice, requested the Department of Industry, Trade and Commerce of the Government of Canada to take appropriate action through customs duties to keep the product from invading the British Columbia concrete industry. This will be the subject of further comment with reference to the third submission made by the appellants. There is, in short, no evidence and no finding of the necessary intention to injure which would entitle the respondent to the recovery of damages for the tort of conspiracy to injure.
The appellants took the position before this Court that success in any one of their four submissions would be sufficient to require that this appeal be allowed. This is true, however, only if the scope of the tort of conspiracy is confined to situations in which the defendants specifically intended to injure the plaintiff. In any event, the parties having directed their arguments to all four issues, it is appropriate that this Court respond. I therefore turn to the second issue.
The law concerning the tort of conspiracy is far from clear with respect to conduct of the defendants which is itself unlawful. The tort of conspiracy to injure is complete, as we have seen from Lonrho, supra, and the included reference to Crofter Hand Woven Harris Tweed Co. v. Veitch, [1942] A.C. 435, where the predominant purpose of the conspiracy is to injure the plaintiff and damage in fact results. Thus the concerted action to give effect to the intent completes the tort, and if an unlawful object is necessary (assuming damages have been suffered by the plaintiff), it is but the object to injure the plaintiff. As Lord Cave said in Sorrell v. Smith, [1925] A.C. 700, at p. 712:
A combination of two or more persons wilfully to injure a man in his trade is unlawful and, if it results in damage to him, is actionable.
[page 468]
The conspiracy to commit an unlawful act in the criminal law is, in this respect, differently structured. The question which must now be considered is whether the scope of the tort of conspiracy in this country extends beyond situations in which the defendants' predominant purpose is to cause injury to the plaintiff, and includes cases in which this intention to injure is absent but the conduct of the defendants is by itself unlawful, and in fact causes damage to the plaintiff. The causative problems common to the second and third submissions of the appellants will be discussed mainly in connection with the latter. Statements made in a number of English cases decided prior to Lonrho, supra, appeared to endorse this latter aspect of the tort and led the learned author of Salmond on Torts, supra, at p. 379 to conclude:
A second form of actionable conspiracy exists when two or more combine to injure a third person by unlawful means—e.g. the commission of a crime or tort, or the infringement of a guaranteed constitutional right . . . . In such a case it is irrelevant that the object of the conspirators in using those means may be legitimate. Combinations of this kind must be contrasted with what might be called "Quinn v. Leathem conspiracies," where the means are legitimate but the object is not. . . . Hence a conspiracy may be actionable if either the end or the means, or both, are unlawful.
Lord Diplock declined to accept this analysis, however, observing in his judgment in Lonrho, supra, at pp. 189 and 464, that:
... in none of the judgments in decided cases in civil actions for damages for conspiracy does it appear that the mind of the author of the judgment was directed to a case where the damage-causing acts although neither done for the purpose of injuring the plaintiff nor actionable at his suit if they had been done by one person alone, were nevertheless a contravention of some penal law.
As a result, Lord Diplock concluded that the House of Lords had an "unfettered choice" in defining the scope of the tort of conspiracy, and elected to limit the civil action to acts done in combination for the predominant purpose of injuring the interests of the plaintiff.
[page 469]
The history of this tort in the United States has been quite different. While there are cases to the contrary, the courts generally have for many years concluded that the tort of conspiracy to injury forms no part of the law. This has been said to be due to the unreality of the tort of conspiracy when the underlying act is not tortious when committed by an individual; and because of the development of the actions of unfair competition and prima facie tort in the field of commercial regulation. See Prosser, Law of Torts, 4th ed., at p. 291; Civil Conspiracy, L.S.U.C. Special Lectures 1973, 495, at p. 502.
Canadian law concerning the tort of conspiracy displays the same lack of definition which characterized the law of England prior to the Lonrho decision. The subject of the tort of conspiracy has been comprehensively and critically examined in Civil Conspiracy: An Unwieldy Vessel Rides a Judicial Tempest (1982), 16 U.B.C. L. Rev. 229, by Peter Burns. I agree with respect to his conclusion at p. 254 that:
The main effect of a finding that a conspiracy by unlawful means has been made out is to exclude the negative defence of predominant legitimate motive, that is, the advancement of the defendants' own legitimate interests.
See as well p. 247.
The respondent relies upon two decisions of this Court, International Brotherhood of Teamsters v. Therien, [1960] S.C.R. 265, and Gagnon v. Foundation Maritime Limited, [1961] S.C.R. 435, in support of its submission that once the unlawfulness of the means has been established, an enquiry into the predominant object of the conspiracy, that is an intent to injure, is unnecessary.
Referring to statements made in the Therien case, Ritchie J., delivering the judgment of the majority in Gagnon, said at p. 446:
In light of these observations, it becomes unnecessary to embark upon the difficult exercise of determining whether or not a breach of s. 22(1) of the Labour Relations Act gives rise to a statutory cause of action because when inquiry is "made of the statute law" in the
[page 470]
present case it discloses, as has been said, that the means here employed by the appellants were prohibited, and this of itself supplies the ingredient necessary to change a lawful agreement which would not give rise to a cause of action into a tortious conspiracy, the carrying out of which exposes the conspirators to an action for damages if any ensue therefrom.
As Judson J. observed in his dissenting judgment in Gagnon, however, at p. 461: "The case of International Brotherhood of Teamsters v. Therien, does not carry the matter any further. It was not a conspiracy case." The above-quoted statement from the judgment of Ritchie J. must also be read in light of the facts then before the Court. In the words of Locke J., at p. 453, who delivered a separate concurring judgment:
It is clear from the evidence that the purpose of setting up the picket line was to inflict injury upon the respondent . . . . That the actions of Merloni, Gagnon and Blackman were carried on in combination for the purpose of causing injury to the respondent by unlawful means is made clear by the evidence.
Thus, the unlawful conduct of the defendants used by Ritchie J. as the basis for liability was directed towards the plaintiff and was known by the defendants to be likely to result in damage to the plaintiff.
In Southam Co. Ltd. v. Gouthro, [1948] 3 D.L.R. 178 (B.C.S.C.), a case relied upon by the trial judge below in reaching his decision, the defendant union members caused damage to the plaintiff company by staging an illegal sympathy strike. Wilson J. made the following findings of fact, at p. 183:
It is suggested that the object of the strike was to injure the Province or the plaintiff company. I cannot accept this argument .... I think they did so [go on strike] with an honest conviction that they were acting in their own interests and those of their union. True, they knew they would injure the Province and the .. . [plaintiff] company. This, however, was not their predominant object, but, perhaps a means of attaining their object.
Wilson summarized the law as follows at p. 185 :
[page 471]
All enquiries into conspiracy must, I suggest, commence with the definition given by Willes J. in Mulcahy v. The Queen (1868), L.R. 3 H.L. 306 at p. 317, and quoted by Lord Wright in the Crofter case (p. 157): "'A conspiracy consists not merely in the intention of two or more, but in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means.' "
Where the acts agreed on and done are in themselves lawful then, even if their doing damnified the plaintiff, no action of conspiracy will lie unless the object of the conspirators was to injure the plaintiff. If this was the object, then the acts become unlawful. The subject of inquiry is lawfulness or unlawfulness.
But suppose that the acts agreed on and done are not lawful acts, but are unlawful acts. Is an inquiry into the object of the conspiracy then necessary? I think not. The unlawfulness of the acts has been established, it is inherent in the nature of the acts, and an inquiry into their purpose becomes superfluous. The requirements of Willes J.'s definition have been fully complied with.
It is important to bear in mind, when considering this explanation of the tort of conspiracy by unlawful means, the prior finding of fact that the defendants knew that their conduct, which was directed towards the plaintiff, would injure it. The presence of this element appears to be common to all the Canadian cases in which the tort of conspiracy by unlawful means has been applied.
Although the law concerning the scope of the tort of conspiracy is far from clear, I am of the opinion that whereas the law of tort does not permit an action against an individual defendant who has caused injury to the plaintiff, the law of torts does recognize a claim against them in combination as the tort of conspiracy if:
(1) whether the means used by the defendants are lawful or unlawful, the predominant purpose of the defendants' conduct is to cause injury to the plaintiff; or,
(2) where the conduct of the defendants is unlawful, the conduct is directed towards the plaintiff (alone or together with others), and the defendants should know in the circumstances
[page 472]
that injury to the plaintiff is likely to and does result.
In situation (2) it is not necessary that the pre-dominant purpose of the defendants' conduct be to cause injury to the plaintiff but, in the prevailing circumstances, it must be a constructive intent derived from the fact that the defendants should have known that injury to the plaintiff would ensue. In both situations, however, there must be actual damage suffered by the plaintiff.
The Court of Appeal does not appear to oppose the view that the tort of conspiracy is confined to conduct where there is a real or constructive intent to injure the plaintiff. On the facts in these proceedings, the Court found such an intent, probably in constructive form, to be present, and concluded at p. 89 that:
The plaintiff was a competitor of the defendants . . . . It is idle, in the light of these facts, to suggest that the plaintiff was not one of the targets of the conspiracy.
As we have seen, there is no evidence and no finding that the predominant purpose of the appellants' conduct was to cause injury to the respondent. There is no doubt, however, that the conduct of the appellants, although not directed towards the plaintiff, was unlawful. They have been convicted of offences in contravention of a federal statute and have been fined in company with their fellow accused in the total sum of $432,000. The unlawfulness or illegality accompanying the alleged tortious conduct is said to be the breach of the conspiracy section, s. 32(1)(c), of the Combines Investigation Act. That conspiracy of course was not directed towards the respondent as a supplier to the conspirators, but to the public who were purchasers of the products of the conspirators. It may also be argued, as indeed it was, that some of the fictitious tenders submitted by the appellants on construction projects requiring concrete in British Columbia fell into the category of unlawful activities directed towards the respondent. Again, heinous as the conduct of the appellant was, it cannot be said in fact or in law that those tenders were directed in any way towards causing injury to the respondent. Indeed, the respondent,
[page 473]
by entering into the two agreements, sought to participate in the benefits accruing to the appellants as a result of those unlawful activities.
Finally, it was argued by the respondent that the unlawful conduct by the appellants falling under the Combines Investigation Act umbrella included the unlawful injury to the respondent's right to the benefits flowing to it from a free and competitive market in British Columbia. Again the conduct in question was not directed towards the participation of the respondent in the concrete products market in British Columbia, and indeed, as will be discussed below in connection with the fourth submission, the respondent sought to avail itself of the advantage not of a free market, but of a neatly shared market for the end products produced in part from the raw materials supplied by the respondent under the agreements. Again one must conclude that this aspect of the unlawful conduct contravening the federal statute cannot sustain the recovery of damages in tort in these proceedings.
The tort of conspiracy to injure, even without the extension to include a conspiracy to perform unlawful acts where there is a constructive intent to injure, has been the target of much criticism throughout the common law world. It is indeed a commercial anachronism as so aptly illustrated by Lord Diplock in Lonrho, supra, at pp. 188-89. In fact, the action may have lost much of its usefulness in our commercial world, and survives in our law as an anomaly. Whether that be so or not, it is now too late in the day to uproot the tort of conspiracy to injure from the common law. No doubt the reaction of the courts in the future will be to restrict its application for the very reasons that some now advocate its demise.
I turn then to the third submission relating to the causation and remoteness aspects of the tort of conspiracy. The issue raised by this proposition is
[page 474]
simply whether or not the loss suffered by the respondent was occasioned by any action or omission on the part of the appellants. That the appellants combined to share between them the concrete market in British Columbia is not disputed. The evidence reveals no loss traceable by reason of this combination, to the account of the respondent. Indeed the converse would appear to be true. The respondent's ultimate claim under this head of argument must be the loss of the value of its undertaking as a going concern; and it must be a loss occasioned by the conduct of the appellants. We have already discussed the submission advanced by the respondent that the failure of the appellants to promote products made from the respondent's raw material caused the respondent's loss. No evidence was drawn to our attention from the record which would support such a finding.
On the other hand, the answer advanced by the appellants is two-fold. They argue first that the destruction of the respondent's ability to compete in the British Columbia aggregate market was the result of the introduction of the raw material pumice from sources in the State of Washington. Support for this submission is found in a letter written by the respondent to the Department of Industry, Trade and Commerce, Ottawa, on September 30, 1971, supra. The letter, after referring to the loss of the Saturnalite market to imported pumice, continues:
The reason for the change is purely price. The landed cost of pumice in Vancouver is approximately $1.25 cubic yard less than the landed cost of our product. This is so because pumice, being a natural aggregate and subject to no further refining or manufacturing costs beyond crushing and screening, has a base cost approximately one third that of our manufactured product. If this were all there was to the competition of our product vs [?] pumice this letter would not be written.
[…]
[page 475]
The incursion of American pumice into the Canadian Market, replacing a Canadian product, is forecast to result in a 25% reduction in our sales and output.
The annual report of the respondent, dated May 8, 1970, is even clearer:
There is no way that our manufactured aggregate can be sold competitively with pumice, particularly as the latter is imported free of duty.
The appellants also advanced a submission that the cessation of operations by the respondent was due to the inherent financial weakness of the respondent. It was said in argument that this financial weakness was amplified by improvident investment in the late 1960's. In any case, it is argued that the respondent was not financially capable of undertaking anything approaching vertical integration in the concrete manufacturing and supply business and that their attempt to do so had been, and would continue to be, disastrous. It may very well be that the evidence does support such a submission, but again there is no finding to this effect and the documentation does not clearly demonstrate the applicability of the argument. The learned trial judge, in disposing of this suggestion by the appellants, applied the "thin skull doctrine".
It is sufficient in my view to conclude on this branch of the appeal that there is no causal connection between the unlawful activities of the appellants and the commercial demise of the respondent. On the contrary, the documentary evidence under the hand of the respondent's officers indicates that the termination of the undertaking of the respondent was the result of the introduction of a product on the market which effectively displaced the raw material supplied by the respondent. There is no finding, and indeed no evidence to support any such finding, that the employment by the appellants of this imported raw material was part of a scheme, lawful or unlawful, amounting to a conspiracy directed to the injury of the respondent in its business.
This leaves the fourth branch of the appellants' submission, namely that the respondent is barred from recovery of damages from the appellants by
[page 476]
reason of the voluntary participation of the respondent in the same unlawful scheme, plan or arrangement of which the respondent now makes complaint. The law on this point is not as well developed as one might expect. The doctrine is embodied in two principles, namely ex turpi causa non oritur actio and in pari delicto potior est conditio possidentis. The former is generally applied where the plaintiff seeks recovery for an injury caused by the defendant while they were engaged together in an illegal or immoral activity. The latter principle is generally imported for the disposition of an action alleged to arise in the course of an illegal or immoral transaction. As Lord Asquith observed in National Coal Board v. England, [1954] A.C. 403, at p. 428, cases where a tort action has been defeated by the ex turpi causa maxim are exceedingly rare. One instance is where an action failed for the recovery of damages arising from assault in the course of an illegal prize fight. Another example is Tallow v. Tailfeathers (1973), 44 D.L.R. (3d) 55 (Alta. C.A.), where the plaintiffs' action for damages for injuries suffered due to the gross negligence of the defendant was dismissed because of their participation with the defendant driver in the theft and unlawful use of a car. See also: Tomlinson v. Harrison, [1972] 1 O.R. 670, (1971), 24 D.L.R. (3d) 26 (Ont. H.C.); and Rondos v. Wawrin (1968), 68 D.L.R. (2d) 658 (Man. C.A.) Other applications have been seen in cases where one party to an illegal agreement has sought to enforce it or to recover damages for its breach. Lord Asquith concluded at pp. 428-29 that:
... it seems to me in principle that the plaintiff cannot be precluded from suing simply because the wrongful act is committed after the illegal agreement is made and during the period involved in its execution. The act must, I should have supposed, at least be a step in the execution of the common illegal purpose.
His Lordship illustrates this proposition:
If two burglars, A and B, agree to open a safe by means of explosives, and A so negligently handles the explosive charge as to injure B, B might find some difficulty in maintaining an action for negligence against A. But if A and B are proceeding to the premises which they intend
[page 477]
burglariously to enter, and before they enter them, B picks A's pocket and steals his watch, I cannot prevail on myself to believe that A could not sue in tort (provided he had first prosecuted B for larceny). The theft is totally unconnected with the burglary. There is, however, a surprising dearth of authority on this point.
In the present case the plaintiff-respondent clearly sought to avail itself of the benefits apparently attendant upon an ordinary market which has been neatly shared by the members of an illegal combine. The benefit falling to the respondent was the opportunity to be the sole supplier of lightweight aggregate to the combine. If the damages which have been suffered by the respondent flowed from its involvement in the illegal combine or from the contracts entered into between the respondent and the appellants affording the opportunity to the respondent to participate in the combine, then these doctrines prevent the respondent's recovery. On the other hand, if there is not a sufficient causal link between the respondent's participation in the illegal control of the market and the decline and eventual failure of its business, then these doctrines do not operate to provide a further basis for denying the respondent's claim. Without the causal link, of course, the respondent would have no cause of action. It would appear that in these unusual circumstances the respondent must fail whichever way this claim is advanced.
The respondent makes no attempt to cleanse its operations of the obvious tint of illegality arising out of its agreement not to compete in the end product market in return for a grant of the right to be the sole source of supply of the raw material, lightweight aggregate. On the date the writ of summons was issued the Combines Investigation Act did not purport to create a right to recover damages in civil proceedings. Neither did the statute contain a stipulation foreclosing any such recovery by participants in an illegal scheme. The act was entirely neutral. Section 31.1 came into force seven months after the issuance of the writ and purports to authorize the bringing of a civil action to recover losses suffered as a result of certain violations of the Act. This provision has come before the courts in some provinces, and
[page 478]
varying views have been expressed as to its constitutionality. This section did not come before us for determination in these proceedings and it is not necessary to make any further reference thereto. The same lack of a causal connection between the illegal control of the market and the loss suffered by the respondent which is sufficient to dispose of the plaintiff-respondent's claim is determinative of the applicability of the ex turpi causa defence. This is so because the illegality of which the respondent was guilty is not, on the record, "causally relevant" to the damage of which the respondent now complains. Nor does the example proffered by Lord Asquith, supra, have application here. There is no proof that collateral activity by the appellants during or after the term of the contracts between the appellants and the respondent gave rise to the injury in the respondent and thus, to a cause of action known to the law. In an interesting review of the application of this defence in law by Dale Gibson, (1969), 47 Can. Bar. Rev. 89, the author makes reference to the works of earlier writers wherein considerable doubt is cast on the propriety of the application of the defence of ex turpi causa in tort actions. Gibson suggests that if the rule has any application it is only to forestall a plaintiff who is attempting to profit from his illegality and not merely to realize such compensation as may be necessary to restore him to the position he enjoyed prior to the operation of the illegal arrangement. Professor Fridman, on the other hand, in The Wrongdoing Plaintiff (1972), 18 McGill L.J. 275, argues that the question of whether the plaintiff's conduct should deprive him of his remedy can only be determined by weighing three factors: causation, remoteness, and blame-worthiness. If the plaintiff's wrongdoing is historically related to his loss or injury, if it operated with the defendant's illegal behavior to produce the harm suffered by the plaintiff, and if his conduct makes him morally responsible or blame-worthy for what happened to him, the plaintiff's action should not succeed. (See also Cronkite, Effect of the Violation of a Statute by the Plaintiff in a Tort Action (1929), 7 Can. Bar Rev. 67).
[page 479]
Whatever the state of the law may be at the present time, however, I do not find these circumstances to be an appropriate occasion for the invocation of this defence. If the loss suffered by the respondent was occasioned by his voluntary participation in an illegal transaction, the courts should not come to his assistance. This does not seem to have been the case, however. In any event, since the respondent's loss was not caused by the appellants' actions pursuant to their illegal transaction, there is no basis upon which the respondent can recover in the courts. The third and final points raised by the appellants place the respondent in the hopeless position. If the respondent succeeds on the causation submission, it is defeated on the fourth point. If the respondent fails on causation, the fourth point does nothing to assist it.
For all of these reasons I come regretfully and somewhat reluctantly to the conclusion that the appeal must be allowed and the action dismissed with costs. I have said this conclusion is reached with reluctance because both courts below have found an action residing in the respondent for the recovery of extensive damages for loss of its business undertaking. Were this conclusion founded on findings of fact or on conclusions on factual issues, an appellate tribunal would ordinarily refrain from intervening and disturbing the conclusions reached at trial and confirmed on appeal. It seems to me, however, for reasons already given, that the conclusions are not based upon findings of fact, but in part upon an error in law as to the necessary elements for an action for conspiracy to injure, as well as errors in law relating to causation and remoteness, and the proper consequence of unlawful activity on the part of the defendants. For these reasons I would allow the appeal and dismiss the action of the respondent against the appellants with costs here and below. It follows that the cross-appeal is likewise dismissed but there shall be only one set of costs.
[page 480]
Appeals allowed with costs and cross-appeal dismissed.
Solicitors for the appellants, the "LaFarge Group": Lawson, Lundell & Co., Vancouver.
Solicitors for the appellants, the "Ocean Group": Osler, Hoskin & Harcourt, Toronto.
Solicitors for the respondent: Ladner, Downs, Vancouver.