The brake-line blowout is the most obvious flaw, but since that failure occurs from the inside out, there'* not a lot of symptoms you get before it blows -- just having rusty brake lines alone is not enough to show a potential failure. So IMHO, you can probably beat 'em up over all the other neglected stuff that they should have caught, but I don't think the brake line would have been leaking at the time they looked at it.

This is not a _defense_ of those "inspectors;" I doubt they really looked at _anything_ back there, because if they had, they would have known it was an accident waiting to happen. They would have also known that when (not if) it happened, they would have a lot of explaining to do... like now.

My guess is that the owner showed up with a clean, freshly-washed car and they passed it based on appearances.

The other thing in Ontario is that a garage HAS to be certified to be able to give the certification. If something like this where to occur in Ontario, you could report the place to the MTO ( Ministry of Transportation of Ontario).

They could have the shop license pulled for that.

If your government requires the inspections, and requires inspectors for be licensed, then the government probably has some responsibility when their process fails. Contact your department of motor vehicles and ask them what your next step should be. They may have a policy for you to file a greivance and get a refund of part of your repair costs. Here in the states, the other obvious arena is small claims court. In small claims court you just have to have a more convincing argument than the other guy, and you'd almost certainly be able to collect your repair costs from the inspector who gave you a bogus inspection.