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Newsletters 2014 > August 2014

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In this issue:
1. News & Upcoming Events
2. Arbitration Awards: Now Tougher to Appeal / Contract Interpretation Rules
3. Playing Music on Vessels and Copyright
4. Summary Judgment Update
5. Exclusions Clauses Update


 

1. News & Upcoming Events

  • Rui Fernandes and Gordon Hearn have been listed in the 2015 edition of Best Lawyers in Canada in the areas of maritime and transportation law.  Gordon Hearn was named in this edition as the "Transportation Lawyer of the Year” for Toronto for 2015.  This follows Rui Fernandes being awarded that distinction for 2014.

  • International Civil Aviation Organization Seminar on “Fuelling Aviation With Green Technology” Montreal, September 9-10, 2014.

  • Rui Fernandes will be speaking on “The Changing World of Customs Broker Risk and Liability” at the Canadian Society of Customs Brokers annual meeting in St. John’s Newfoundland on September 15, 2014.

  • Railway Association of Canada’s Canadian Rail Summit 2014, at the Palais des congrès de Montréal (Montréal Convention Center), September 21-23.

  • International Union of Marine Insurers Annual Meeting in Hong Kong on September 21-24.

  • Canadian Transportation Lawyers Association Annual Meeting and Conference, Halifax Nova Scotia, September 24-27, 2014. Kim Stoll will be moderating the Modal Updates Panel, Rui Fernandes will be providing the Trucking Modal Update (Canada). Gordon Hearn will be attending as the Transportation Lawyers Association representative to the Canadian Transport Lawyers Association.

  • Annual Dinner of the Association of Average Adjusters of the United States and Canada October 2, 2014, New York

 

 

2. Arbitration Awards: Now Tougher to Appeal / Contract Interpretation Rules

Arbitration awards interpreting commercial contracts have just become more difficult to appeal as a result of the Supreme Court of Canada’s decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, released August 1, 2014. In rendering its decision the Court also modified the rules to be applied in the interpretation of contracts.

The result of the decision is that parties may face an uphill battle in obtaining leave to appeal from arbitral decisions concerning the proper interpretation of a commercial agreement. If parties want an appeal right, parties should carefully consider their arbitral agreements, and should include express language providing for a right of appeal on questions of fact, mixed fact and law, or law, depending on the arbitration legislation in existence governing their agreement.

In addition, arbitrators are more likely to have the final say. Parties must therefore exercise great care in selecting their arbitrator, and should conduct careful due diligence on the arbitrator’s experience and expertise.  

The case involved a contract setting out a finder’s fee that was payable as shares. There was a dispute in the interpretation of the contract and the number of shares to be issued, dependent on which valuation date was used.

The proceedings were costly and took a long time to reach the Supreme Court of Canada. It started with an arbitrator’s decision. The arbitration decision was appealed twice to judges of the B.C. Supreme Court, twice to the B.C. Court of Appeal, and then to the Supreme Court of Canada after a leave to appeal application was allowed.

In deciding the appeal, the Supreme Court of Canada reversed an historical approach to contract interpretation. Historically, determining the legal rights and obligations of the parties under a written contract was considered a question of law. This rule originated in England at a time when there were frequent civil jury trials and widespread illiteracy. Under those circumstances, the interpretation of written documents were required to be questions of law because only the judge could be assured to be literate and therefore capable of reading the contract. The Supreme Court of Canada found that this historical rationale no longer applies. It noted that despite this, courts in the United Kingdom continue to treat the interpretation of a written contract as always being a question of law. Not so in Canada.

The Supreme Court of Canada held that contractual interpretation involves mixed questions of mixed fact and law rather than pure questions of law (the historical approach). Such an approach reduces the ability of the appellate court to interfere in the lower court’s decision. In so making this reversal, the Court noted the following:

The shift away from the historical approach in Canada appears to be based on two developments. The first is the adoption of an approach to contractual interpretation which directs courts to have regard for the surrounding circumstances of the contract — often referred to as the factual matrix — when interpreting a written contract (para. 46) … The second is the explanation of the difference between questions of law and questions of mixed fact and law.

Regarding the first development, the interpretation of contracts has evolved towards a practical, common sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” … To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning (para. 47) …

The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (para. 48) …

As to the second development, the historical approach to contractual interpretation does not fit well with the definition of a pure question of law ... Questions of law “are questions about what the correct legal test is” … Yet in contractual interpretation, the goal of the exercise is to ascertain the objective intent of the parties — a fact-specific goal — through the application of legal principles of interpretation. This appears closer to a question of mixed fact and law. (para. 50)

The Court also reaffirmed the contextual approach to contractual interpretation and explained the role of surrounding circumstances in contractual interpretation. The contract must be read as a whole and the words in the contract must be given their plain and ordinary meaning, consistent with the surrounding circumstances at the time of contracting. The surrounding circumstances – such as the genesis of the transaction, the background, the context and the market in which the parties operate – combine to aid a decision-maker (the arbitrator, the judge or jury) in ascertaining intention, since words do not have an immutable or absolute meaning.
The Court cautioned, however, that “while the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement,” and “the goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.”
The Court noted, that “while the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement.” (at para. 57). The Court added that the nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case.  It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract; that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.  (at para. 58)
The Court also made interesting comments about the standard of review to be applied in appeals from arbitral decisions. It noted that appeals of commercial arbitral decisions take place under “tightly defined regimes specifically tailored to the objectives of commercial arbitration” (para. 104). The Court noted that an arbitrator’s expertise “is a factor in commercial arbitrations: where parties choose their own decision-maker, it may be presumed that such decision-makers are chosen either based on their expertise in the area which is the subject of dispute or are otherwise qualified in a manner that is acceptable to the parties.” (para. 105). As a result, the standard of review for their decisions even on questions of law will be reasonableness (as opposed to correctness), unless the question is one that would attract the correctness standard, such as a constitutional question or a question of central importance to the legal system as a whole (para. 106). In other words, because the parties choose an arbitrator, he or she can be wrong (an incorrect decision), as long as the decision was reasonably arrived at!

Word to the wise: firstly, consider whether your arbitration agreement should contain express language providing for a right of appeal on questions of fact, mixed fact and law or law; and secondly, be very careful in selecting an arbitrator to ensure his or her experience and expertise. Courts will assume that if the parties selected an arbitrator, he or she will have the necessary experience and expertise to arrive at a correct decision.

Rui M. Fernandes



3. Playing Music on Vessels and Copyright

One of the benefits of living in a harbour city like Toronto is the presence of charter vessels and the welcome opportunity to take in a summer cruise.  Fernandes Hearn LLP recently had the privilege of assisting one such vessel with a copyright matter. 

The Empress of Canada (“Empress”) has been operating in Toronto Harbour since 1989, hosting a variety of functions for up to 489 guests including weddings, community events, corporate functions, and public cruises.  Mark Steele, the owner of the Empress, was surprised to receive notice from Re:Sound Music Licensing Company in 2012 demanding payment of royalties going back to 2008 for the use of recorded music.  On his calculation, the Empress would have owed upwards of $20,000 in unpaid royalties if Re:Sound was indeed entitled to collect their associated demand.

“Our original position was that this type of royalty ought not to have applied to the charter vessel industry,” says Steele.  “As a result, we did not make any payments.  Re:Sound pursued the matter against us and eventually filed a case in Federal Court against the Empress and also against us personally.” 

Under the Copyright Act of Canada, tariffs can be certified by the Copyright Board retroactively.  In other words, a tariff can be certified in 2012 allowing for the collection of royalties going back as far as 2008 - and this is precisely what happened in the case of the Empress.

Although any party can make submissions to the Copyright Board in Ottawa at the time that a tariff is certified, thereby potentially having an impact on the amount of royalties payable, the only required notice is by publication in the Canada Gazette.  In the case of the Empress, the tariffs in question were certified before Steele had any knowledge that Re:Sound even existed.  His position was that the seasonal nature of the charter vessel industry makes payment of such royalties impracticable and that the retroactive nature of such tariffs is unfair.  Since the Empress had had no actual notice of the certification hearing at the Copyright Board, they had no opportunity to make submissions when these Re:Sound tariffs were certified.  This did not seem right.

Furthermore, the Empress has been paying an annual licensing fee to SOCAN, (the Society of Composers, Authors, and Music Publishers of Canada), covering royalties payable to the copyright-holders of music.  Steele and many other charter vessel operators had been under the impression that all of the applicable copyright royalties were already being paid.
 
Re:Sound, however, collects a different type of royalty:  one that is payable to the holders of “neighbouring rights” in published recordings, namely performers and producers.  These are not copyright-holders but they do have the right, at law, to “equitable remuneration” whenever recorded music is played in public.  Re:Sound is a not-for-profit collective society that collects and distributes these “neighbouring rights” royalties to Canadian performers and producers. 

The royalties demanded were payable under the law as it stands today.  Commercial passenger vessels and other venues playing recorded music need to be aware that there is little hope in fighting such tariffs without accumulating significant legal expenses to fight the unfairness of retroactive tariffs.

The Federal Court recently heard an application for judicial review of a Re:Sound tariff for the playing of recorded music in fitness facilities.  Goodlife Fitness Centres (“Goodlife”) challenged the tariff at the 2012 certification hearing, submitting expert evidence regarding the appropriate amount of royalties that should be payable.  The entire matter took almost five years and culminated with eleven days of hearings in Ottawa.  In the end, the Copyright Board certified the tariff at an amount that was lower than either Re:Sound or Goodlife had sought.  Re:Sound appealed the certification to the Federal Court.

On March 10, 2014, the Federal Court released the decision in Re:Sound v Goodlife.  The Court found that the procedure used by the Copyright Board had been unfair and sent the matter back to the Board for a re-hearing.  Needless to say the legal expenses for Goodlife have no doubt been adding up and there are more hearings to come.  This financial reality leaves venues like the Empress with few options.

“We even considered not playing Canadian music anymore to avoid paying these tariffs,” Steele adds.  “But not only would we have had to investigate the possible application of the CRTC’s ‘Canadian content’ rules, it’s virtually impossible to determine whether or not a piece of music has been produced by a Canadian.  As a result, in the end, we acknowledged that we would have to change our position.  With the assistance of Fernandes Hearn we managed to negotiate a settlement with Re:Sound that was acceptable to both parties.”

Charter vessels and any other venue playing recorded music need to be aware that Re:Sound may contact them and that they will be pursued for past and future royalties payable under these tariffs.  The risks of failing to pay past royalties are significant – the Copyright Act of Canada allows assessment of punitive damages of up to ten times the unpaid royalties against parties who knowingly fail to remit these “neighbouring rights” payments.  Charter vessels playing recorded music, therefore, need to be aware of these risks and, if possible, obtain a settlement with Re:Sound. 

Chella Turnbull


 

4. Summary Judgment Update

Failed Summary Judgment Motion to Dismiss results in Judgment for the Opposition: Ontario Court of Appeal Implements Supreme Court of Canada’s Directions in Hyrniak v. Mauldin.

King Lofts I Toronto Ltd. v Emmons 2014 SCC 7

In January 2014, the Supreme Court of Canada issued a judgment in Hyrniak v. Mauldin (*1), which changed the legal landscape regarding summary judgment motions in Canada. (*2) In March 2014, the Ontario Court of Appeal confirmed support of this “culture shift” in the case of King Lofts I Toronto Ltd. v Emmons (*3). The result in King Lofts may once again give parties pause to consider whether the use of the summary judgment tool can be a dangerous choice. The reason for the sober second thought is surprising.

Hyrniak Review

The Hyrniak decision radically altered the traditional view of summary judgment. Summary judgment must now be granted where there is no genuine issue requiring a trial and determined when the hearing judge is able to reach a fair and just determination on the merits of a motion. In Ontario, the motion judges must now use the fact-finding powers available under Rule 20 of the Rules of Civil Procedure (including, for example, calling witnesses to provide oral evidence in support of the motion) thereby providing a more expeditious and less expensive means of obtaining justice for the parties. The judges are now free to consider the credibility of all relevant evidence before them and are not required to justify why a full trial is not required so long as they can reach a fair and just determination on the merits of the case. Even where there is a genuine issue for trial, judges are directed by the Hyrniak decision to determine whether they could use their judicial powers under the Rules in the interests of justice to avoid that trial.  Otherwise, if there is enough proper and credible evidence to come to a decision and justice can be done, justice will be done without the requirement of a full-blown trial, if at all possible.

The Supreme Court of Canada’s intention of making summary judgment a more viable means of obtaining justice by requiring a broader interpretation of the associated Rules, noted above, was made clear from the opening paragraphs in Hyrniak:

[1]          Ensuring access to justice is the greatest challenge to the rule of law in Canada today.  Trials have become increasingly expensive and protracted.  Most Canadians cannot afford to sue when they are wronged or defend themselves when they are sued, and cannot afford to go to trial.  Without an effective and accessible means of enforcing rights, the rule of law is threatened.  Without public adjudication of civil cases, the development of the common law is stunted.
[2]           Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system.  This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case.  The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.

The Hyrniak case outlined the requirements and steps to be taken by judges and parties in their handling of summary judgment motions once filed and then going forward. (*3) Not only did the Supreme Court of Canada direct judges on what they must do when considering summary judgment motions, but also went further regarding the handling of the matter within the court system both before the motion is heard and after, if the motion failed.

Upon a motion for directions (to inquire of the court’s preference and order regarding procedure) as part of a summary judgment motion, the directions judge is encouraged to remain in control of the content and logistics of a summary judgment motion (including the size of the motion record and other procedural steps) but also to become more involved regarding the direction of the structure and implementation of the actual hearing. The directions judge is encouraged to remain “seized” of the matter and so that he/she would hear the final summary judgment motion (*4). Encouragement to parties to ensure that such “proportionality” (the cost of legal actions weighed against the quantum of the action) is respected can be achieved by increased costs consequences.

After a failed or only partially successful motion, the Hyrniak decision directs that the motion judge should continue to be involved. The judge would use his or her powers under Rule 20.05, for example, to make an order identifying those facts not in dispute and/or delineate the issues to be tried to ensure that the action then proceeds to trial expeditiously. Further, the judge could set a trial schedule, a structured discovery plan, or a trial date, order shortened opening statements or require exchange of witness summaries, order limited time for oral witness evidence or require affidavit evidence in part or in whole. Lastly, the Hyrniak decision even encourages that judge to seize himself or herself as the trial judge (*5). 

The Ontario Court of Appeal Decision in King Lofts I Toronto Ltd. v Emmons 2014 ONCA 215 (CanLII)

The cases that bravely navigate the present world of summary judgment teach us about what to do and what not to do, but also inform us of that which parties and their counsel must be wary. We learn something valuable from the King Lofts decision.

Facts

King Lofts I Toronto Ltd. (“King Lofts”) purchased four commercial properties in downtown Toronto for $22.5 million. King Lofts retained the defendant lawyer and law firm (“defendant law firm”) to act on the purchase. At the time of the offer, the city of Toronto owned a strip of land underneath a building on one of the properties, which was discussed between the parties. King Lofts understood from the defendant law firm that the laneway was a minor issue that would be resolved with the conversion of the property to the Land Titles system, that the cost to do so would be minimal and that title insurance would deal with the matter.  No holdback was maintained for this issue. After closing, the defendant law firm reported that the laneway could not easily be converted to Land Titles, that the city would need to transfer it to King Lofts but “in order to provide you with some comfort” title insurance was arranged to “deal with” the “ownership issues.” Two years later, King Lofts received an offer to purchase and retained a different solicitor to act on the sale. In response to requisitions from the purchaser, this new solicitor attempted to obtain a conveyance from the city. The city required a payment of $106,000 for the laneway. King Lofts then claimed against the title insurance policy, but coverage was denied. The transaction closed for $31.5 million and King Lofts brought an action against the defendant law firm.

The defendant law firm brought a motion for summary judgment seeking dismissal of the action. King Lofts responded to the summary judgment motion but did not file a cross-motion. The defendant law firm was unsuccessful at the hearing of the summary judgment motion.

However, and most importantly, the motions judge did not only dismiss the summary judgment motion but then went further and took the unusual step of then granting summary judgment to King Lofts on the basis of negligence and directed a trial on the quantum of damages only. Recall that King Lofts had not filed a summary judgment motion of its own for this order.

The defendant law firm appealed on the issue of time bar alleging that the notice of action against them was issued more than two years from when the new counsel discovered the cause of action being the date of demand for payment by the city and not from the date of the denial of title insurance coverage. The Court of Appeal agreed with the motions judge that King Lofts was entitled to rely on the defendant law firm’s advice that the “issue” would be handled by the title insurance coverage. The defendant law firm also appealed on the basis that the motions judge could not make a decision without expert evidence regarding solicitors’ standard of care.  The Court of Appeal disagreed stating that King Lofts was not warned of the risk that the city might expect payment and that there was a clear duty to warn which did not take place and there was erroneous advice that title insurance would “deal with” the issue of the laneway. The clear duty to warn was not complied with so there was no need for expert evidence on the standard of care.

Interestingly, the issue of granting summary judgment in favour of a party who had not given notice of a claim for summary judgment (or filed a cross-motion) was put forward only in oral argument.

The Court of Appeal gave short shrift to this ground of appeal implementing the intention and direction of the Supreme Court of Canada in Hyrniak, stating at paragraph 14 of the judgment:

There are two points in response to this:

1) The appellant did not request an adjournment at the time; and

2) The Supreme Court of Canada in Hryniak v. Mauldin 2014 SCC 7 (CanLII), 2014 SCC 7, has approved a “culture shift” requiring judges to manage the process in line with the principle of proportionality in the application of Rule 20.

[15] This action involves a claim for $106,000 arising out of a multi-million dollar transaction. The principles of proportionality and sensible management of the court process support the motion judge’s ruling.

[16] The appeal is dismissed. Costs to the respondent in the amount of $15,000, inclusive of disbursements and all applicable taxes.”

The Ontario Court of Appeal has put into effect the intention and direction as laid out in Hryniak. The King Lofts case, unintentionally perhaps, exposes the risk to any party bringing a summary judgment motion that a moving party may get more than what he or she bargained for. There may indeed not only be no second kick at the can after a failed attempt at summary judgment before trial, but further a judgment (or other structure or relief) may be awarded for the non-moving opposing party. It may then be that parties to an action may be less inclined after the King Lofts decision to take steps toward summary judgment given the possible unilateral steps that a recently empowered motions judge might take.

Kim E. Stoll

Endnotes
 (*1) 2014 SCC 7
(*2)Please see Gordon Hearn’s article on this important case in the Fernandes Hearn LLP January 2014 newsletter.
(*3) For a listing, please see Gordon Hearn’s article noted above.
(*4) The judge, it should be kept in mind, also hears all of the various submissions and positions (or squabbling) articulated and perhaps changed prior to the hearing of the actual motion.
(*5) This is the ultimate “culture shift”. The same problem as noted in (*4) above continues, only this time, the judge is now fully aware of the result of the summary judgment motion as well as all of the other items and may be possibly, with respect, less neutral.



5. “There is Nothing Inherently Unreasonable About Exclusion Clauses”: Limitation of Liability Clause Upheld in Maritime Loss Setting

The recently published decision of the Trial Division of the Federal Court of Canada in Capitaines Proprietaires de la Gaspesie (A.C.P.G.) Inc. v. Pecheries Guy Laflamme Inc. (*1) provides an illustration of “freedom of contract” in the commercial context.

The Facts

The MYRANA 1 is a fishing boat owned by Pecharies Guy Laflamme Inc. (“Guy Laflamme”).

The boat was in the course of being launched by a portal crane owned by Capitaines Proprietaires de la Gaspesie Inc. (“Capitaines”) when a chain on the crane malfunctioned.  As a result, the boat fell in the water with some 800 feet of crane cable then coming into contact with the boat and coiling around it. 

Guy Laflamme alleged that the boat sustained $500,000 in damage from both the fall into the water and from the crane cable.   Capitaines was of the view that the damage caused by the incident was minimal and that most of the items complained of were pre-existing damage. Capitaines in any event denied liability on the basis that both it and its employee who was operating the crane were covered by an exclusion of liability clause in the contract for the services in question. 

Capitaines and the employee (along with Capitaines’ liability insurer) brought a court action seeking a declaratory judgment that they were not liable to Guy Laflamme, who in turn filed a defence asserting – as against Capitaines and its insurer its claim for damages to the boat.

The action was divided between the two key issues, concerning 1) the question of liability on the one hand, and 2) the amount of the damages caused by the incident on the other.  These issues would come to be determined separately.  The issue of liability came before the Federal Court for adjudication in March of this year.

In his reasons following a trial on the liability issues, Mr. Justice Harrington reviewed the history of the Capitaines operation and of the crane, and how Capitaines came to use a certain “model contract” wording with its customers entitled “Boat Handling”.  This contract form is a one- page document in very legible type.   The first part is an authorization to carry out certain operations, such as towage, launching, wintering and docking, or to provide other services.  The cost of these individual services is set out in a column on the right hand side.    The second part of the contract form is entitled “Boat Owner’s Responsibilities”.  It is written in capital letters, in bold type.  It contains only three paragraphs.  The first paragraph (translated from French) reads as follows:

I, the undersigned ______, residing at _______, owner of the vessel M/V ________, registration number _______, declare that I accept liability for any risk resulting from the towage, docking, wintering and/or launching of this vessel, and I release the Owner of this dry dock and its Operator, ________, from any civil liability resulting from these associated operations or handling.

The proprietor of the Guy Laflamme signed the contract form before the launch proceeded.  The evidence indicated that this sort of document was not new, with the parties having used that type of form for past launch services since Guy Laflamme became the owner of the vessel in 1989.   In fact, this type of contract form had been signed by the plaintiff’s representative at least sixteen times beforehand in connection with earlier services provided.

Mr. Justice Harrington found that the cause of the incident was unknown.  While Guy Laflamme had argued that the crane was not being maintained as it should have been, the evidence indicated that it had been kept in accordance with the manufacturer’s instructions in the crane operating and maintenance manuals.  This suggested that metal fatigue in the cable may have been the cause; however the evidence was that a chain had never broken in this fashion before.   All that could be determined was that the failure took place due to the launching of the boat.   The Court, however, went on to note that, as the boat and crane were in the possession and control of Capitaines (and/or its employee), the onus was on them, as “bailees”, to prove that the loss was not caused by their negligence. (*2)   As neither Capitaines nor the employee rebutted this presumption of negligence, Justice Harrington then turned to the issue of the scope of and legal effect of the exclusion clause in the contract.

The Exclusion Clause

The Court held that the exclusion clause on its plain wording was broad enough in scope to cover any such negligence – be it in contract or tort – that there may have been on the part of Capitaines or its employee in the operation of the crane. 

Guy Laflamme asserted that the clause did not apply in this case, raising an often cited argument in such cases that the language of the clause does not go so far as to cover a loss caused by negligence where the language of the clause does not address cases of negligence or fault. (*3)  The Court noted that case law precedent holds that, if liability may be based on the facts of a case on some ground other than negligence, liability for negligence is then not excluded unless it is expressly excluded. (*4)

Mr. Justice Harrington found that the scope of the clause addressed the nature of the claim in this case, noting that, in accordance with commercial reality and the ability of parties to contract on terms they deem fit, there is no basis not to apply the bargain agreed upon by the parties:

Rather, the principle is that a court has no discretion to refuse to enforce a valid and applicable contractual exclusion clause unless the plaintiff… can point to some paramount consideration of public policy sufficient to override the public interest in freedom of contract and defeat what would otherwise be the contractual rights of the parties… There is nothing inherently unreasonable about exclusion clauses. (*5)
                                                                                                                                (emphasis added)

Mr. Justice Harrington was persuaded that the contract language cited above was sufficiently broad to exempt both Capitaines and its employee from any liability resulting from negligence.  Citing established case law, the court ruled that even though the employee was not a party to the contract, that he too was entitled to rely on the exclusion clause: Canadian maritime law, like Quebec civil law, recognizes contractual “stipulations” by one contracting party in favor of another not privy to the contract (*6). This principle applies, for example, in favour of an employee of a corporate entity who will be able to enjoy the protection of the terms of a contract entered into by his employer to the extent that the contract in question contemplated that the services were being performed by the employee and the employee was acting within the scope of his employment.

The proprietor of Guy Laflamme protested that the wording of the contract was never brought to his attention. He testified that he has difficulty reading and never read the entire contract, thinking that it was just an invoice.  In this regard, the judge noted that the contract form was done in triplicate, with the first part being given to the signing party, the second to the recipient of the services as an invoice and with the third being kept by Capitaines.   The court noted that Guy Laflamme should have been aware of the clause because a copy of the contract was sent to the company in the past after each boat handling operation and account payment. The court found it unacceptable that “Mr. Laflamme (the proprietor), an experienced businessman who incorporated the MYRANA 1 and took out a hull and machinery insurance policy covering this boat, never told Capitaine’s (sic) employee that he could not read, or that he had great difficulty reading”.  

Capitaines was accordingly entitled to expect there had been a “meeting of the minds” between the parties regarding the conditions according to which the work would be performed.   The judge found that there were no terms in the contract “inconsistent with the overall purpose of the contract”.  In this regard the Court noted:

The underlying principle is an objective theory of contractual principles according to which the parties are bound by a contract on the basis of what is objectively observed by a third party.  It is therefore presumed that a party that signs a contract is bound by the terms of said contract. (*7)

Conclusion

In the result, the Court held that the exclusion clause in the contract was valid, in effect and enforceable against Guy Laflamme.  Capitaines and its employee were vindicated from any liability.

This case illustrates the critical premium on clear and intentional contract wordings in the commercial market place as well as the importance for a party seeking to apply a contract to a situation to be able to show that the language was clearly incorporated into the dealings: for a contract term to govern a situation, there must have been a “meeting of the minds”.

Gordon Hearn

Endnotes
 (*1) 2014 FC 456 (CanLII)
(*2)  This is in accordance with well established principles of bailment law: the party entrusted with the care and custody of property of another must show that it was not negligent in respect of any loss or damage occurring to the property during the term of the bailment: see The “Ruapehu” (1925) 21 LL LR 310 and National Trust Co. Ltd. v. Wong Aviation Ltd. et al [1969] SCR 481. 
(*3)  Many exclusion clauses, in fact, prescribe that there be no liability (on the part of the defendant) “whether the loss be caused by negligence or otherwise”, or such similar wording to that effect  -  being broader language than was in the contract in this case.
(*4) On the other hand, if, given the nature of the relationship between the parties, the only basis upon which there can liability concerns a party having acted negligently, (for example a breach of a bailment obligation), then the contract wording that we see in this case ‘speaks to’ and addresses such a situation even if the contract language does not prescribe that the protection extends to where the party was negligent.  This is because of the fact that, for liability to be found, there would necessarily have to be a finding of negligence. In such a case the courts will presume an intention that the clause covers the negligent event, even where the word ‘negligence’ is not contained in the language.  However, where a party might be found liable for reasons separate from a finding of negligent conduct, the clause (lacking the words “negligence” or “fault”) will then not be deemed to apply:  the parties will be regarded as having been deliberate in the words they chose in the contract and that the clause would not apply to protect a party from negligent conduct.
(*5) Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) [2010] 1 SCR 69
(*6) London Drugs Ltd. v. Kuehne & Nagel International Ltd. [1992] 3 SCR 299 and Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd. [1999] 3 SCR 108.
(*7) at paragraph 48.



 

 

 

 

 

 


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