The principles of pure economic loss are well-established in Canada. Conceptually, it is simple: in the absence of privity of contract, there are only three scenarios where a pure economic loss claim can be made: negligent misrepresentation or performance of a service; negligent supply of dangerous goods or structures; and relational economic loss.
Relational economic loss is arguably the harder of the three to establish. It has multiple factors and considerations that must be shown. A duty of care under this claim only arises when a plaintiff can demonstrate:
- that the parties are in such a close and direct relationship that it would be just and fair to impose a duty of care in law;
- that an injury to the plaintiff was a reasonably foreseeable consequence of the defendant’s negligence; and
- then policy considerations of indeterminate liability were not engaged.
The assessment for each of these factors can be difficult and not always straightforward. Demonstrating whether one of these categories is operative is not always discernable. This was apparent in a recent BC action, where a superior court’s analysis reached a vastly different result then the lower court flipping the case on whether a prima facie case for relational economic loss existed.
Associate Judge Decision
In Pacific Bioenergy Corporation v. AG Growth International Inc. et al, 2025 BCSC 80, an action was commenced by a manufacturer and vendor of wood pellets who used a terminal to temporarily store its pellets between transfers and delivery. The claim arose when a separate silo at the terminal collapsed causing damage to the terminal and several weeks of closure. The plaintiff alleged that the collapse and shut down was caused by the negligence of the various defendants who designed and constructed the terminal and pursued a claim for relational economic loss against them.
In this application, the defendants brought an application to strike the claim for failing to disclose a reasonable cause of action. In determining that there was a prima facie case, the associate judge stated,
“Proximity is the determinative factor in the test for a prima facie duty of care. Proximity requires an interference with a legally cognizable right”.
The associate judge also emphasized that while there were three categories of relational economic loss recognized by the courts: where the plaintiff has a proprietary or possessory interest in damaged property, general average cases, and joint venture cases. None of the three existing categories applied, but as acknowledged by the associate judge, the categories are not closed. The associate judge confirmed that the court had the discretion to consider novel reasons why relational economic loss should be recognized. In the case at bar, the associate judge determined that a novel reason in fact existed and dismissed the application to strike the claim. In her analysis of proximity, she noted that the defendants were aware that parties, other than the terminal owner, used the terminal and knew that a catastrophic silo failure would render the terminal unusable and result in economic damages to the plaintiff.
On considering whether the class of potential plaintiffs was indeterminate, the associate judge found that it was not as the plaintiffs specifically limited the liability to two potential plaintiffs: itself and another wood pellet manufacturer. However, she stated that, while the trial judge may find the claim to be barred on the basis of indeterminate liability, at this stage the claim should be allowed to continue.
Appeal Court Decision
The case was appealed to the BC Supreme Court and can be found at 2025 BCSC 80. The overarching issue before the Court was whether the associate judge erred in concluding that it was not plain and obvious the plaintiff’s claims were bound to fail. The appeal court did not disagree with the principles set out in such claims or cited by the associate judge. However, the Court allowed the appeal and struck the Notice of Civil Claim citing three errors made by the associate judge:
- the proximity assessment
The appeal court determined that the associate judge erred in her proximity assessment. It found that she had conflated proximity with foreseeability and failed to consider the absence of any pleaded facts of a relationship between the plaintiff and defendants. Her decision on proximity was based on expectations, representations and knowledge. While these are relevant factors in such an assessment, they are irrelevant if they are not connected to the relationship between the parties. Further, the associate judge’s finding that the defendants knew the plaintiff would suffer economic loss from a silo failure was not a finding on proximity. Rather, it was a finding of foreseeability of damages which is insufficient to establish proximity.
- the legally cognizable right or interest of the plaintiff
The appeal court also determined that the associate judge erred in failing to identify a legally cognizable right or interest. While she correctly recognized the requirement that the plaintiff must in fact show a legally cognizable right or interest and that the loss suffered was the result of the defendant’s interference with that right or interest, she failed to identify that right or interest in her reasons.
- indeterminate liability did not negate the prima facie duty of care and the delayed assessment of this issue
The appeal court determined that given a prima facie case did not exist and did not need to consider whether the associate judge was correct in its decisions that the class of potential plaintiffs was not indeterminate, and that indeterminate liability should be addressed at a later time. However, in following the long line of prior authorities, the appeal court confirmed that it was an error for the associate judge to suggest that the issue of indeterminate liability could be addressed at a late time - duty of care and indeterminate liability must be addressed at the same time.
Commentary
The appeal decision is instructive for multiple reasons. Firstly, it follows and reiterates the well-documented principles on which the claims of relational economic loss can apply. There is no dispute as to the parameters in which such a claim can be made out.
Secondly, it highlights the often-complex nature of the proximity analysis which must be fact driven. It is evident, based on the comments from the Appeal Court, that without details on the specific relationship between the parties being set out and evident in the pleadings, proximity cannot be established.
Finally, the case emphasizes that a legally cognizable right cannot be assumed and must be derived by the facts before the court. It must be actively assessed.
Ultimately, Pacific Bioenergy serves as a reminder of the challenges and complexity in evaluating relational economic loss claims and the detailed considerations a decision-maker must make when evaluating such claims. Any party pursuing such claims would be advised to draft their pleadings with each element in mind in order to avoid vague, ambiguous or non-specific facts and assumptions.
Harpreet Dosanjh is Senior Counsel in the Insurance Law, Commercial Business, and Construction and Infrastructure Practice Groups at Singleton Urquhart Reynolds Vogel LLP.