May 2003

BUT WE HAD A CONTRACT, DIDN'T WE?
Case Comment: Solway v. Davis Moving & Storage Inc.,
[2002] O.J. No. 4760 (Ont. C.A.) December 12, 2002.

Stuart Solway and Gail Akler (hereafter, for convenience, because he is first named, and not on account of any gender issues, Solway) hired Davis Moving to pack and move their home contents from their old home to their new home. They had been married for over a decade. They may well have been together even longer. It appears their household goods were extensive. In addition to furniture and other belongings consistent with their stations in life, they had the results of years of travelling to various parts of the world and collecting mementos and artifacts and antiques. The collected artifacts and antiques included, apparently, any number of items that were rare and valuable (or that they considered rare and valuable). The move-in was scheduled to be a number of days after the move-out. The move did not go as Solway and Davis planned.

The trailer, in which the Solway goods were stored, pending delivery to their new abode, was stolen from where it was parked. It was parked on the street in front of the Davis premises. It had been parked on the Davis yard. However, the yard had be cleared of snow. Apparently, a not unheard of event occurred, it being winter in that part of Ontario where the Davis yard was located. It snowed. So, the trailer was moved on to the public street to facilitate the ploughing of the yard.

The trailer was, so the trial judge found, appropriately locked-down. Nonetheless, thieves, somehow, managed to haul it away. The contents were never recovered. The list of stolen items prepared by Solway, after the theft, ran to some 65 pages. Solway and Akler were significantly underinsured. They sued Davis Moving for their losses.

Davis alleged it was not negligent but, even if it was, it relied on the limitation of liability provisions in its bill of lading and Regulation 1088 under the Truck Transportation Act. The effect of the limitation was to limit the Davis' exposure to $.60 [60 cents] per pound for a total of $7,089.60. The trial judge had held that the Solway and Akler were aware of the limitation of liability clause when they entered into the transaction. She also found that they had taken steps to obtain additional insurance coverage with their own insurer. Nonetheless, the trial judge found in their favour.

The Solway lawyer used an ingenious (some might argue disingenuous) approach. He argued, essentially, that the Solway and Akler had been induced to enter into a contract by a misrepresentation. Why this approach? Because, if the argument succeed, there would be no contract, hence no limitation of liability, for Davis to hide behind. What was the misrepresentation? That Davis "would provide storage of their goods in the moving company's premises rather than in a trailer and that the storage would be monitored on a 24- hour basis". That argument allowed him to do an "end-run" around the limitation clause. The trial judge bought the argument, hook, line and (apparently) sinker.

The trial judge made the following findings which underlay her decision.

1. Trailer storage had been agreed to.
2. It was a term of the contract that the Solway goods would be held in a trailer for the two-week period between the move-out and the move-in.
3. As to security, Davis "was to provide safekeeping of the plaintiffs' belongings by parking the trailer in the parking lot, removing the landing gear, and locking the trailer."
4. Solway and Akler relied upon that term of the agreement when they entered into the contract with the defendant.
5. The Davis' "trailer storage facilities involved parking the trailer in its yard with the landing gear down, the air brakes locked and the trailer locked. There were no fences, no cameras and no monitoring."
6. "It was always intended and the plaintiffs were never told otherwise that their belongings would be stored on a trailer parked on the Kennedy [Davis] premises."
7. Davis did not provide any surveillance after moving the trailer on a public street.
8. "The area was quiet and deserted at night. The trailer could have been watched or at least, moved back to the parking lot as soon as the ploughing was complete rather than left overnight on the street. Steps could have been taken to exercise care in protecting the property that was in their possession."

Now we get to the crux of the trial judge's reasons: "The plaintiffs argue that they entered the contract with Kennedy [Davis] because they were assured of security of their belongings." The judge accepted this and wrote in the next paragraph of her reasons:
"In my view, it is the defendants who should bear those losses which were attributable to the breach of the contract between the parties they cannot rely on a limitation of liability clause where it would be unreasonable to enforce it in the circumstances."

The "where it would be unreasonable to enforce it in the circumstances" can only be understood as a reference to the argument, apparently accepted by the judge, that Solway and Akler "entered the contract with Kennedy [Davis] because they were assured of security of their belongings"; that is, that the trial judge found it would be unreasonable to enforce the limitation of liability where, on her findings, Davis had failed to do the very thing it was hired to do in the way it was hired to do it.

The Court of Appeal dismissed the Davis appeal (on the award for the value of the stolen items) by a 2-1 majority. The appeal was allowed (all 3 judges agreeing) in respect of some other "losses" in the amount of $10,500 for which the judge had awarded damages. The majority reasons appear to turn on the majority accepting that the trial judge found that Davis "had given false assurances that the goods would be secured that had induced the plaintiffs [Solway and Akler] to agree to the limitation clause". The majority later said, "The conclusion of the trial judge is amply supported by the evidence." If, in fact, that was all that had happened at trial and all the trial judge had done, one might quibble with the result but not on the basis of valid legal principle. It would have been a judgment based on contested facts with the trial judge in the best position to decide credibility issues. While one might question whether the trial judge ought to have made that finding of fact on the evidence, she was in as good a position (if not better) than anybody else to decide who actually said what to whom, and she had the benefit of seeing and hearing the witnesses.

The trial judgment could be written off as one arising out of rare and unusual circumstances if, in fact, the crux of it was a finding of misrepresentation by Davis that induced Solway and Akler to enter into the contract with Davis. Denying a contracting party the ability to rely on the terms of a contract induced through misrepresentation is a long-standing and well-settled principle of law. So, if the trial judgment and the majority judgment of the Court of Appeal had said nothing about contract interpretation, limitation of liability provisions, and the proper interpretation of Regulation 1088, the Solway case could be filed away as little more than an unfortunate situation (for Solway and Akler) and very expensive misadventure (for Davis or its liability insurer).

Unfortunately, that is not what happened. The majority of the Court of Appeal were not content with affirming the trial judgment on the basis that Davis had not shown that the trial judge made a "palpable or overriding error" in relation to any questions of fact; nor, on the correctness standard, had Davis shown that the trial judge made an error of law. In John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd., [2003] O.J. No. 350 (C.A.), heard 13 November 2002, judgment released 7 February 2003, the Court of Appeal reiterated, about the standards of appellate review:

"[3] The standard of review of a judge's factual findings and inferences drawn from the facts is palpable and overriding error: Housen v. Nikolaison (2002), 211 D.L.R. (4th) 577 (S.C.C.). Questions of mixed fact and law involving the application of a legal standard to a set of facts and are generally also subject to a standard of palpable and overriding error. If, however, it is clear that the trial judge made some extricable error in principle with respect to the characterization of the standard or its application, the error may amount to an error of law, and a standard of correctness will apply."

Putting what happened another way, the majority could (and probably should have) have ducked having to deal with the merits of the trial judgment, on the basis that it was open to the judge to make the findings of fact she had, on the evidence she heard. Then, the majority could have said that, given those findings, her decision was permitted by contract law. The majority could then have said, correctly, that they lacked jurisdiction to interfere with the decision, even if was not one the majority judges, themselves, would have made, at first instance, had they been trying the case.

Unfortunately, that is not what happened. Indeed, one does not see, anywhere in the majority judgment any specific use of the commonly used wording that delimits the thresholds for judicial intervention, even though it is almost de riguer, today, for an appellant to find the "no overriding and palpable error" phrase somewhere in a the reasons dismissing the appeal. Instead, what the majority did was make a positive statement about the state of legal analysis in the trial judge's reasons. "It also accords with the principles of contract law." That was followed by what has to be the majority's nod to the law determining appellate jurisdiction to alter trial judgments: "We see no basis to interfere."

Then, instead of leaving was already bad enough alone, the two judges in the majority embarked on their own unnecessary journey through the thickets of legal principle and made an already bad quagmire significantly worse.

In Hunter Engineering v Syncrude Canada (1989) 57 D.L.R. (4th) 321 (S.C.C.) the Supreme Court had dealt with the circumstances in which a court might decide that a party to contract could not enforce a limitation provision in the contract which was factually applicable. Hunter Engineering was reviewed by the Ontario Court of Appeal in Fraser Jewellers (1982) Ltd. v Dominion Electric Protection Co. (1997) 40 O.R. (3d) 1 (C.A.). The majority in Solway described the result of that review, this way:

"[13] In Fraser Jewellers Ö this court reviewed the decision in Hunter Engineering and noted that, in that case, the Supreme Court of Canada was unanimous in holding that, while limitation of liability provisions, prima facie, were enforceable according to their true meaning, a court was empowered in limited circumstances to grant relief against provisions of this nature. The Supreme Court of Canada, however, was evenly divided on the question of the test to be used to determine when or in what circumstances the power to grant relief should be exercised."

The Hunter Engineering decision was "evenly divided" because it was a decision of 5 judges, 2 of whom agreed on one "approach", 2 of whom agreed on another "approach" and the 5th took no position either way.

According to the majority in Solway, the Court of Appeal in Fraser Jewellers had been able to "reconcile these two approaches". The Court quoted from Fraser Jewellers:

[17] ... "[W]hether the breach is fundamental or not, an exclusionary clause of this kind, in my opinion, should, prima facie, be enforced according to its true meaning. Relief should be granted only if the clause, seen in the light of the agreement, can be said, on Dickson C.J.C.'s test, to be "unconscionable" or, on Wilson J.'s test, to be "unfair or unreasonable". The difference in practice between these alternatives, as Professor Waddams has observed, "is unlikely to be large": Waddams, The Law of Contract, 3d ed. (1993), at p. 323."

The majority then set out, in 4 paragraphs, the crux of their reasons for affirming the trial decision:

"[18] In this case, the plaintiffs' goods were highly valuable, both in monetary and sentimental terms. As such, they took special care to choose a moving company that would provide the security they felt was essential. Based on their past experience with Kennedy Moving [Davis], its apparent professionalism, and its affiliation with Atlas Van Lines, the plaintiffs made what they thought was an informed decision to opt for Kennedy Moving.

[19] Despite Kennedy Moving's assurances to the contrary, the plaintiffs' goods were not, however, kept in secure conditions. The trailer containing their goods was left overnight on the street with no surveillance. As the trial judge noted, Kennedy Moving should have anticipated that a theft might occur if the trailer was left unattended overnight on a public street. The plaintiffs were never advised that their goods would be stored in these conditions, and they certainly never agreed to such an arrangement. [emphasis added]

[20] In deciding not to enforce the limitation clause, the trial judge appears to have equated the words, "unconscionable" and "unreasonable" as these terms were discussed in Hunter Engineering. In our view, on the facts as found by the trial judge, to limit the loss of the plaintiffs to $7,089.60 would, in the words of Dickson C.J.C. be "unconscionable", or in the words of Wilson J. be "unfair or unreasonable". This is one of those cases where relief should be granted. [emphasis added]

[21] The conclusion of the trial judge is amply supported by the evidence. It also accords with principles of contract law. We see no basis to interfere."

The trial decision in Solway probably seemed ludicrous to those in the moving industry and the appeal result affirming the trial decision equally so. There seems to be only one reasonable way to explain the decision. This is that the majority found no errors of fact or law in the underlying decision ? the standard for review of factual errors is "palpable and overriding; the standard for legal errors is correctness" ? therefore, it held that the decision was one which was open to the trial judge to make. Accordingly, the appellate court lacked jurisdiction to interfere. it was entirely fact based.

On this approach, the majority did not hold the decision was necessarily the correct decision, just that it was one that was open to the judge to make. This approach is essence of paragraph 21 in the reasons of the majority.

This approach is supported by paragraph 20. The majority wrote: "In our view, on the facts as found by the trial judge, to limit the loss of the plaintiffs to $7,089.60 would, in the words of Dickson C.J.C. be "unconscionable", or in the words of Wilson J. be "unfair or unreasonable". This is one of those cases where relief should be granted." The reference to "the facts found by the trial judge" must be understood to be the finding that the Solway and Akler were induced to enter into the contract with Davis, or at least agree to the limitation provision in the contract, on the basis of "false assurances that the goods would be secured."

The dissenting judge, Carthy, JA, had a different view (in the writer's opinion a more realistic view) of what had actually happened and characterized the trial judge's findings of fact somewhat differently. He wrote:

"[27] The trial judge found that the homeowners were intelligent and sophisticated business people, that they knew of the limitation of liability provision in the contract, and that they arranged their own insurance (said now to be insufficient) to protect against loss during the move. The household goods were to be held for three days in a trailer to be locked down on an unfenced lot adjacent to the mover's warehouse. The trailer was moved to the street in front of the premises over one night to permit snow removal of the lot. It was appropriately locked down, but somehow thieves managed to haul it away and the contents were never found. In almost 30 years in the family business of household moving, the personnel of the appellant had never experienced or heard of such a theft."

He then set out the trial judge's findings of fact. These are the findings the writer has summarized above. After that, Carthy, JA, wrote:

"[30] Before going further, I would be critical of these reasons [referring to the trial judge's findings of fact], if on no other account, for reliance on evidence that the consignors were given assurance of security of their belongings. That assurance must be implicit in every contract for carriage of goods and cannot weaken a limitation of liability clause that contemplates claims where security breaks down and a loss occurs. I would also point out in passing that there is no reason to conclude that the trial judge meant "unconscionable" when she said "unreasonable".

Put another way, Carthy, JA, found himself unable to believe the Solway and Akler story about relying on assurances from Davis about the security arrangements as the basis for their engaging Davis. He considered unreasonable the trial judge's finding that Solway and Akler entered into the contract relying on these alleged assurances of Davis.

Carthy, JA, recognized that this disagreement with the trial judge was not a valid basis for dissenting and writing an opinion in favour of overturning the trial judgment. He needed some error on a matter of law. He found that in the trial judge's application of Hunter Engineering. He expressed the situation this way.

"[31] My major disagreement with the trial judge's reasons is with her application of the reasons in Hunter. It is generally considered that there is little room remaining for setting aside an exemption provision on the basis of fundamental breach following Hunter. See per Finlayson J.A. Kordas v. Stokes Seeds Ltd. (1992), 11 O.R. (3d) 129 (C.A.), leave to appeal to S.C.C. refused [1993] 2 S.C.R. viii at p. 135. Yet here we find what I would consider a minor transgression in the performance of the contract justifying just that."[emphasis added]

Commenting on the two conflicting approaches in Hunter Engineering, Carthy, JA, wrote:
[40] It isn't necessary to my reasoning to choose between these two approaches. If it were, I would favour that of Dickson C.J.C. There is no need for an undefined discretion in the enforceability of exclusion clauses. Contracting parties, insurers, business persons and litigants are all better served by the certainty of standards. And it must be kept in mind that this debate is not about fundamental breach as it may excuse continuing performance under a contract. As pointed out by Dickson C.J.C. at p. 342, that is a distinct subject from the use of fundamental breach to defeat an exclusion clause.

[41 Turning to the facts of this case, Dickson C.J.C. would not take a moment to conclude that there was no unconscionability in the terms of this contract. The liability clause was imposed by statute, and in this case upon knowledgeable and sophisticated persons. Wilson J. would have looked as well at the outcome, but surely would have concluded that all policy concerns pointed to enforcement of a provision born in legislation which itself was driven by policy."[emphasis added]

Carthy, JA, then discussed the legislative and policy histories of limitation of quantum of liability provisions such as those in the Truck Transportation Act regulations and similar provisions in other statutory regimes, summarizing the situation this way:

"[47] Thus we have a legislative policy that has developed over many years, permeates all facets of the transportation of goods industry and is based upon a sensible business and commercial rationale. I see no policy basis for not applying the limitation provision against the respondents in the present case. To the contrary, allowing the respondents' [Solway and Akler] claim opens the door to every imaginable complaint of misfeasance and would undermine the entire structure built up under this longstanding policy." [emphasis added]

At paragraph 49, Carthy, JA, explained, in terms that should resonate in the industry, how the industry no doubt believes the limitation of liability provision is to be applied, and should have been applied in this case, bearing in mind the usual knowledge of the parties and their respective abilities to obtain insurance:

"[49] The incident that gave rise to the present litigation fits precisely within the policy and the wording of Condition 9 of the regulation. The appellants were in the course of performing a common carriage and a misadventure occurred which, at most, could be found to be caused in part by their negligence. It was the manner of performance, not the failure to perform which was the subject of complaint. On their part, the householders recognized the burden of risk and sought out their own insurance, armed with knowledge of the goods' value that was essential to that task and not reasonably available to the moving company. The movers did know how many pounds they were carrying and thus could readily cover themselves with insurance to meet the statutory limit. In my view, this was how the regulation was intended to work in facilitating carriage of goods and it would be totally disruptive of its purpose if carriers are to be exposed to liability for undetermined amounts whenever, in the trial judge's words, "it would be unreasonable to enforce [the exemption]" or some standardless variation on those words."

Finally at paragraphs 50 and 51, Carthy, JA, responded, directly, to the misrepresentation and inducement theory that was the crux of the trial decision and that the majority was prepared to countenance:

[50] In direct response to the reasons of Labrosse J.A., I do not agree that the standard of care is affected by the fact that the cargo was not "ordinary household goods". Movers should treat all belongings alike. If the goods were of special value then the consignors should have purchased a corresponding amount of insurance.

[51] The fulcrum of Labrosse J.A.'s argument seems to be that the respondents were induced to accept the limited liability by false assurances that their goods would be secure. I made the point earlier that assurances that the goods would be kept secure are superfluous in a contract of bailment. That is so because a carrier's obligation to keep their consignment secure is implicit in every contract of carriage of goods. The assurances did not need to be made explicit. Aside from being superfluous, there was nothing false about the assurances. The overnight storage on the street was not anticipated. It was, at the highest, a negligent performance of the duty to keep the goods secure. Finally, there was no inducement because the limitation of liability was mandated by statute." [emphasis added]

Looked at from a very cynical perspective, Solway is, arguably a case where principal overcame principle. Solway and Akler estimated the replacement value of their goods was $750,000. Their homeowners insurance had limits of $170,200. Judges are not supposed to follow the money. Even the Supreme Court of Canada has said so: see Dobson v. Dobson, [1999] 2 S.C.R. 753 at paragraphs 71 through 73 per Cory J.

In Dobson, the Supreme Court was asked to determine whether a mother should be liable in tort for damages to her child arising from a prenatal negligent act which allegedly injured her foetus. By a 7-2 majority, the Court held the mother should not be. The lower courts' decision (the action came out of New Brunswick) was that the infant had the right to sue for injuries caused by the mother's alleged negligence (a car accident). The majority reasons were delivered by Mr. Justice Cory. One of the arguments he dismissed was a variation of the "deep-pocket" argument: the argument that the defendant could afford to pay, so should pay. In Dobson, the deep pocket was the motor vehicle liability insurer and the proposition was that the cause of action should be permitted because there was (or at least in cases where there would be) liability insurance that would pay.
Justice Cory wrote, in part:

[71] Clearly, the judicial creation of a motor vehicle exception would be predicated, in large part, on the existence of a mandatory insurance regime for automobile negligence. . . .

[72] It must be recognized that, although the appellant mother is in the legal position of defending this action, an award of damages in favour of the respondent would greatly assist the appellant and her husband with the financial requirements of caring for their severely disabled child. It is true that, in this particular case, the material interests of the mother and child are aligned, notwithstanding the fact that their legal relationship is adversarial. As one author notes, "[i]f there is automobile insurance, allowing such suits does not make the mother and fetus -- or, rather, subsequently born child -- genuine adversaries, since the whole family benefits by allowing the child to recover": [citation omitted]

[73] An insurance-driven judicial solution to the issue raised in this appeal imposes liability on a mother on the basis of her ability to satisfy a judgment by means of her insurance coverage. However, tort law is not, and should not be, result-oriented in this manner. . . . [emphasis added]

[74] Quite simply, the existence of insurance is not an appropriate basis for the determination of tort liability between litigating parties. . . ." [emphasis added]

It probably appears to the industry, that the majority, under the guise of findings of fact, were prepared to rewrite the contract, in order to see that Solway and Akler were compensated for a loss which was not their fault. In this vein, the industry may be interested in the comments of another panel of the Court of Appeal, in a decision released only 6 days before the Davis decision. In that decision, a different panel of the Ontario Court of Appeal took a very different, and very limited, view of the ability of Ontario judges to rewrite contracts. And, this panel of the Court of Appeal did this in a context where, historically, it has often appeared that the courts have been willing to render decisions which certainly seemed as if the courts were rewriting contracts: the insurance context.

In Alie v. Bertrand & Frère Construction Co.[2002] O.J. No. 4697 (Ont. C.A.), a panel composed of three different judges wrote:

[219] This court has vigorously interpreted ambiguities in insurance contracts in favour of the insured. It has, however, stopped short of rewriting those contracts: Chilton et al. v. Co-operators General Insurance Co. (1987), 143 D.L.R. (4th) 647 at 652 (Ont. C.A.). An invitation to imply a duty to defend into the Guardian policy is an invitation to rewrite that policy in a dramatic way. None of the limited bases upon which Canadian courts have been prepared to imply terms into a contract operate here: see G. H. L. Fridman, The Law of Contract in Canada, 4th ed., (Toronto: Carswell, 1999) at 514-516.

Where does all of this lead us? Perhaps to Lewis Carrollís Through The Looking Glass, and a very famous exchange between legendary protagonists.

"When I use a word," Humpty Dumpty said, in a rather scornful tone, "it means just what I choose it to mean, neither more nor less."

"The question is," said Alice, "whether you can make words mean so many different things."

"The question is," said Humpty Dumpty, "which is to be master - that's all."

There is the perhaps apocryphal story about a senior barrister who, during a trial, took strong exception to a ruling from the Bench. The barrister, perhaps, expressed his disagreement too forcefully, which provoked the judge to say: "Iíll be the final judge of that." The barrister is supposed to have replied: "Only in this life, My Lord."

My point? It is that the majority's decision is final, unless appealed and reversed, does not mean the ruling is correct. It does not, also, necessarily mean that it states a result which is binding on the next appellate court which is faced with a similar problem. And, finally, the quite explicit findings of actual misrepresentation and actual inducement made by the trial judge, and accepted by the majority, probably provide future trial courts with a very obvious basis to distinguish the result in this case.

D.C.