Canadian Laboratory Supplies Ltd. v. Engelhard Industries of Canada Ltd., (1979) 27 N.R. 193 (SCC)

• Judge: Laskin, C.J.C., Martland, Ritchie, Spence, Pigeon, Dickson, Beetz, Estey and Pratte, JJ.
• Court: Supreme Court (Canada)
• Case Date: May 08, 1979
• Jurisdiction: Canada (Federal)
• Citations: (1979), 27 N.R. 193 (SCC);27 NR 193;1979 CanLII 44 (SCC);45 CCC (2d) 383;6 BLR 235;1979 CanLII 209 (SCC);[1979] 2 SCR 16;8 CR (3d) 87;[1979] 2 SCR 787;97 DLR (3d) 1;[1979] 3 WWR 576

Cdn. Lab. Supplies v. Engelhard Ind. (1979), 27 N.R. 193 (SCC)

MLB headnote and full text

Canadian Laboratory Supplies Ltd. v. Engelhard Industries of Canada Ltd.

Indexed As: Canadian Laboratory Supplies Ltd. v. Engelhard Industries of Canada Ltd.

Supreme Court of Canada

Laskin, C.J.C., Martland, Ritchie, Spence, Pigeon, Dickson, Beetz, Estey and Pratte, JJ.

May 8, 1979.

Summary:

This case arose out of the plaintiff's claim against the defendant for damages for conversion. Beginning in 1962 in a scheme to defraud his employer, Cook, a sales clerk of the plaintiff company, which sold laboratory supplies, arranged with the defendant platinum refiner for the purchase of quantities of platinum by the plaintiff for resale to a fictitious third person. He also arranged for the repurchase of the platinum back to the defendant as scrap for cash. The transaction constituted a theft of the platinum from the plaintiff by Cook, who received the cash paid by the defendant to the ficitious third person. Cook had no actual authority from the plaintiff to arrange such a transaction and the defendant relied solely upon the clerk's representations. After 4 years a manager of the defendant called the purchasing agent for the plaintiff, whom he had dealt with on the telephone for many years, to complain about unsatisfactory payment arrangements in connection with the transactions. The plaintiff's purchasing agent referred the defendant's manager to Cook, who managed to satisfy the defendant without alerting the plaintiff to his fraud. After the fraud was discovered in 1969 the plaintiff brought an action for damages for conversion against the defendant, which relied upon Cook's apparent authority.

The Ontario High Court in a judgment reported 68 D.L.R.(3d) 65, allowed the plaintiff's action. The defendant appealed. The Ontario Court of Appeal in a judgment reported 78 D.L.R.(3d) 232, allowed the appeal and dismissed the plaintiff's action on the ground that Cook had apparent authority to conduct and arrange the transactions. The plaintiff appealed.

The Supreme Court of Canada allowed the appeal and the action in part. The Supreme Court of Canada held that title to the platinum passed to the plaintiff upon purchase from the defendant and that Cook had no apparent authority to arrange the transactions. See paragraphs 15 to 30. However, the Supreme Court of Canada held that Cook was clothed with apparent authority by the purchasing agent of the plaintiff referring the defendant to Cook concerning the payment problem respecting the transactions 4 years after the fraud began. The Supreme Court of Canada held that the defendant was liable for damages for conversion of the platinum only up to that point and that the plaintiff could not recover damages respecting subsequent transactions. See paragraphs 40 to 52.

Laskin, C.J.C., dissenting on the issue of damages, was of the opinion that Cook was not clothed with apparent authority by the referral to him by the purchasing agent of his company, because the purchasing agent was not a management employee capable of holding out Cook on behalf of the plaintiff. Laskin, C.J.C., was of the opinion that the plaintiff's damages should have cut off at a point in 1968 when the defendant's president telephoned the plaintiffs' vice-president of operations with an inquiry about the unusual use of the platinum by the fictitious third person, an inquiry which should have alerted the plaintiff to the fraud. See paragraphs 31 to 43.

Agency - Topic 1410

Authority of agent - Apparent authority - Holding out by corporation - What constitutes - In a scheme to defraud his employer a sales clerk of the plaintiff company, which sold laboratory supplies, arranged with the defendant platinum refiner for the purchase of quantities of platinum by the plaintiff for resale to a fictitious third person and for the repurchase of the platinum by the defendant as scrap for cash - The transactions constituted a theft of the platinum from the plaintiff by the clerk, who received the cash paid by the defendant to the fictitious third person - The plaintiff and the defendant had done business for many years and the clerk's fraudulent scheme continued undetected for several years - The clerk had no actual authority from the plaintiff to arrange such transactions and the defendant relied solely upon the clerk's own representations - The plaintiff brought an action for damages for conversion against the defendant, which relied upon the clerk's apparent authority - The Supreme Court of Canada held that the clerk had no apparent authority to arrange such transactions, where there was no representation from the plaintiff that he could - The Supreme Court of Canada held that in the circumstances, where the clerk was not a management employee, his own representations were insufficient to constitute holding out by the plaintiff - See paragraphs 15 to 30.

Agency - Topic 1410

Authority of agent - Apparent authority - Holding out by company - What constitutes - In a scheme to defraud his employer a sales clerk of the plaintiff company, which sold laboratory supplies, arranged with the defendant platinum refiner for the purchase of quantities of platinum by the plaintiff for resale to a fictitious third person and for the repurchase of the platinum by the defendant as scrap for cash - The transactions constituted a theft of the platinum from the plaintiff by the clerk, who received the cash paid by the defendant to the fictitious third person - After 4 years a manager of the defendant called the purchasing agent for the plaintiff, whom he had dealt with on the telephone for many years, to complain about unsatisfactory payment arrangements in connection with the transactions - The plaintiff's purchasing agent referred the defendant's manager to the sales clerk, who managed to satisfy the defendant without alerting the plaintiff to his fraud - Three years later the fraud was discovered and the plaintiff brought an action for damages for conversion against the defendant, which relied upon the clerk's apparent authority - The Supreme Court of Canada held that the clerk had no apparent authority up to the time of the call from the defendant's manager to the plaintiff's purchasing agent - The Supreme Court of Canada held that the referral by the purchasing agent of the defendant's manager to the sales clerk for settlement of the problem constituted a holding out by the plaintiff to the defendant that the sales clerk had authority to handle the transactions in question - The Supreme Court of Canada held that once the sales clerk was clothed with apparent authority the defendant was not bound to determine whether the sales clerk acted honestly toward the plaintiff in solving the defendant's payment problem - See paragraphs 40 to 52.

Agency - Topic 4104

Relations between principal and third parties - Principal's liability for contracts by agent - Where agent acts for own benefit - The Supreme Court of Canada stated that, if an agent in the exercise of an admitted authority in him in respect of his ordinary duties acts for his own benefit, his principal cannot deny liability for contracts he purports to make on behalf of the principal - See paragraph 16.

Interest - Topic 5133

Interest as damages - Conversion - The plaintiff brought an action for damages for conversion against the defendant, where the defendant purchased goods which were stolen in a fraudulent scheme from the plaintiff by one of the plaintiff's employees - The Supreme Court of Canada allowed the action and assessed damages as of the date of judgment and not from the date of discovery of the fraud, so that interest on the damages was awarded from only the date of judgment - See paragraphs 38, 53.

Sale of Goods - Topic 2708

Transfer of property in goods from seller to buyer - Whether title passed to buyer - Where buyer's agent defrauds buyer - In a scheme to defraud his employer a sales clerk of the plaintiff company, which sold laboratory supplies, arranged with the defendant platinum refiner for the purchase of quantities of platinum by the plaintiff for resale to a fictitious third person, and for the repurchase of the platinum by the defendant as scrap for cash - The transactions constituted a theft of the platinum from the plaintiff by the clerk, who received the cash paid by the defendant to the fictitious third person - The purchases from the defendant were authorized and paid on the basis of regular and authorized purchase orders of the plaintiff - The fraud was eventually discovered and the plaintiff brought an action for damages for conversion against the defendant - The Supreme Court of Canada allowed the action and held that title to the platinum passed to the plaintiff from the defendant upon the filling of the purchase orders by the defendant - See paragraphs 11 to 15.

Cases Noticed:

Farquharson Brothers & Co. v. C. King & Co., [1902] A.C. 325, folld. [para. 5].

Union Bank of Australia Ltd. v. McClintock, [1922] 1 A.C. 240, dist. [para. 6].

Commercial Banking Co. of Sydney Ltd. v. Mann, [1961] A.C. 1, dist. [para. 6].

Freeman & Lockyer v. Backhurst Park Properties (Mangal) Ltd., [1964] 2 Q.B. 480, appld. [paras. 16, 47].

Hely-Hutchinson v. Brayhead Ltd., [1968] 1 Q.B. 549, dist. [para. 16].

Statutes Noticed:

Judicature Act, R.S.O. 1970, c. 228, sect. 39(3) [para. 38].

Authors and Works Noticed:

Bowstead on Agency (14th Ed. 1976), p. 240 [para. 23].

Powell on Agency (2nd Ed. 1961), pp. 70, 150 [para. 23].

Restatement of Agency (2d), vol. 1, s. 8, comm. 2 [para. 23].

Schmitthoff, Note, [1961] Journal of Business Law 35 [para. 30].

Counsel:

J.J. Fitzpatrick, Q.C. and H. Poss, for the appellant;

P.B.C. Pepper, Q.C., and John Adams, for the respondent.

This case was heard on November 1, 2, 7 and 8, 1978, at Ottawa, Ontario, before LASKIN, C.J.C., MARTLAND, RITCHIE, SPENCE, PIGEON, DICKSON, BEETZ, ESTEY and PRATTE, JJ., of the Supreme Court of Canada.

On May 8, 1979, the judgment of the Supreme Court of Canada was delivered and the following opinions were filed:

LASKIN, C.J.C., delivered the judgment of the Court upon the issue of liability, but dissented upon the issue of damages - see paragraphs 1 to 39;

ESTEY, J., delivered the judgment of the Court on the issue of damages - see paragraphs 40 to 54.

MARTLAND, RITCHIE, SPENCE, PIGEON, DICKSON, BEETZ, ESTEY and PRATTE, JJ., concurred with LASKIN, C.J.C., on the issue of liability.

MARTLAND, RITCHIE, PIGEON, BEETZ and PRATTE, JJ., concurred with ESTEY, J., on the issue of damages.

SPENCE and DICKSON, JJ., concurred with LASKIN, C.J.C., on the issue of damages.