London Drugs Ltd. v. Kuehne & Nagel International Ltd.

London Drugs Ltd. v. Kuehne & Nagel International Ltd.
Collection
Supreme Court Judgments
Date
1992-10-29
Report
[1992] 3 SCR 299
Case number
21980
Judges
La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Cory, Peter deCarteret; McLachlin, Beverley; Stevenson, William; Iacobucci, Frank
On appeal from
British Columbia
Subjects
Contract
Torts
Notes
SCC Case Information: 21980
Decision Content
London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299
London Drugs Limited Appellant
v.
Dennis Gerrard Brassart and Hank Vanwinkel Respondents
and
Kuehne & Nagel International Ltd. and
Federal Pioneer Limited Third Parties
and
General Truck Drivers and Helpers Local Union No. 31 Intervener
Indexed as: London Drugs Ltd. v. Kuehne & Nagel International Ltd.
File No.: 21980.
1991: October 29; 1992: October 29.
Present: La Forest, L'Heureux‑Dubé, Sopinka, Cory, McLachlin, Stevenson* and Iacobucci JJ.
on appeal from the court of appeal for british columbia
Torts ‑‑ Negligence ‑‑ Duty of care ‑‑ Transformer being stored in warehouse facility ‑‑ Warehouse employees negligently damaging transformer ‑‑ Whether employees owed duty of care to employer's customer ‑‑ Whether employees can benefit from limitation of liability clause in contract of storage between employer and customer.
Contracts ‑‑ Privity of contract ‑‑ Limitation of liability clause ‑‑ Transformer being stored in warehouse facility ‑‑ Warehouse employees negligently damaging transformer ‑‑ Whether employees owed duty of care to employer's customer ‑‑ Whether employees can benefit from limitation of liability clause in contract of storage between employer and customer.
The appellant delivered a transformer to a warehouse company for storage pursuant to the terms and conditions of a standard form contract, which included a limitation of liability clause limiting the warehouseman's liability on any one package to $40. With full knowledge and understanding of this clause, the appellant chose not to obtain additional insurance from the warehouse company and instead arranged for its own all‑risk coverage. When the respondent employees tried to move the transformer using two forklift vehicles, contrary to safe practice, it toppled over and fell, causing extensive damage. The appellant sued the warehouse company and the employees for damages for breach of contract and negligence. The trial judge found the employees personally liable for the full amount of the damages, limiting the company's liability to $40. The Court of Appeal, in a majority decision, reduced the employees' liability to $40. The appellant appealed this decision and the respondent employees cross‑appealed, arguing that they should be completely free of liability. The principal issues raised are the duty of care owed by employees to their employer's customers, and the extent to which employees can claim the benefit of their employer's contractual limitation of liability clause.
Held (La Forest J. dissenting on the cross‑appeal): The appeal and the cross‑appeal should be dismissed.
Per L'Heureux‑Dubé, Sopinka, Cory and Iacobucci JJ.: The respondent employees unquestionably owed a duty of care to the appellant when handling the transformer. In all the circumstances of this case, it was reasonably foreseeable to them that negligence on their part in the handling of the transformer would result in damage to the appellant's property. There was such a close relationship between the parties as to give rise to a duty on the employees to exercise reasonable care. Reliance, as it may be used here, goes to the existence of a duty of care owed and not to liability for breach of a duty of care. There is no general rule in Canada to the effect that an employee acting in the course of his or her employment and performing the "very essence" of the employer's contractual obligations with a customer does not owe a duty of care to the employer's customer. According to the uncontested findings of the trial judge, the respondents breached their duty of care, causing damage to the transformer.
Although the respondents were not a signing party to the contract of storage between their employer and the appellant, they were third party beneficiaries to the limitation of liability clause found in it and, in view of the circumstances involved, may benefit directly from this clause. While none of the traditional exceptions to privity of contract is applicable here, the doctrine should be relaxed in the circumstances. Most of the traditional reasons or justifications for the doctrine are of little application in cases such as this, where a third party beneficiary is relying on a contractual provision as a defence in an action brought by one of the contracting parties. Further, the doctrine of privity fails to appreciate the special considerations which arise from the relationships of employer‑employee and employer‑customer. There is clearly an identity of interest between the employer and his or her employees as far as the performance of the employer's contractual obligations is concerned. When an employer and a customer enter into a contract for services and include a clause limiting the liability of the employer for damages arising from what will normally be conduct contemplated by the contracting parties to be performed by the employer's employees, there is no valid reason for denying the benefit of the clause to employees who perform the contractual obligations. The nature and scope of the limitation of liability clause in such a case coincides essentially with the nature and scope of the contractual obligations performed by the third party beneficiaries (employees). It would be absurd in the circumstances of this case to let the appellant get around the limitation of liability clause by suing the respondent employees in tort. Such an attempt to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort should not be sanctioned in the name of privity of contract. Finally, there are sound policy reasons for relaxing the doctrine of privity in this case. It simply does not make commercial sense to hold that the term "warehouseman" was not intended to cover the respondent employees and as a result to deny them the benefit of the limitation of liability clause for a loss which occurred during the performance of the very services contracted for. Such a result creates uncertainty and requires excessive expenditures on insurance in that it defeats the allocations of risk specifically made by the contracting parties and the reasonable expectations of everyone involved, including the employees. When parties enter into commercial agreements and decide that one of them and its employees will benefit from limited liability, or when these parties choose language such as "warehouseman" which implies that employees will also benefit from a protection, the doctrine of privity should not stand in the way of commercial reality and justice.
Employees should be entitled to benefit from a limitation of liability clause in a contract between their employer and the plaintiff if the following requirements are satisfied: (1) the clause must, either expressly or impliedly, extend its benefits to the employee or employees seeking to rely on it; and (2) the employee or employees seeking the benefit of the clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract when the loss occurred. The only question in this case is whether the first requirement is met, since the employees were acting in the course of their employment and were performing the very services provided for in the contract. The parties have not chosen language which inevitably leads to the conclusion that the respondent employees were not to benefit from the limitation of liability clause. When all the circumstances of this case are taken into account, including the nature of the relationship between employees and their employer, the identity of interest with respect to contractual obligations, the fact that the appellant knew that employees would be involved in performing the contractual obligations, and the absence of a clear indication in the contract to the contrary, the term "warehouseman" in the limitation of liability clause in the contract must be interpreted as meaning "warehousemen". As such, the respondent employees are not complete strangers to the clause, but are unexpressed or implicit third party beneficiaries with respect to it. Accordingly, the first requirement of this new exception to the doctrine of privity is also met.
Per McLachlin J.: Tort and contract constitute separate legal regimes, and the appellant's action against the employees in this case is necessarily in tort, since there was no contract between them. The theory of voluntary assumption of the risk permits an employee sued in tort to rely on a term of limitation in his employer's contract. On this theory, the plaintiff, having agreed to the limitation of liability vis-à-vis the employer, must be taken to have done so with respect to the employer's employees. The concept of voluntary assumption of the risk has been characterized both as a negation or limitation of the duty of care and as a waiver of an existing cause of action (i.e. a bar to recovery). Quite apart from the particular contract term, it can be argued that the circumstances giving rise to the tort duty, of which the contract with its exemption of liability is one, are such that they limit the duty of care the employees owed to the plaintiff. The law of tort has long recognized that circumstances may negate or limit the duty of care. Waivers and exemption clauses, whether contractual or not, have long been accepted as having this effect on the duty in tort. In this case the duty of care of the respondent employees was limited to damage under $40, the appellant having accepted all risk of damage over that amount.
Per La Forest J. (dissenting on the cross-appeal): The respondent employees did not owe any duty of care to the appellant in the circumstances of this case. The House of Lords decision in the Anns case sets out the two criteria for determining whether a duty of care exists. Since the damage in question here was reasonably foreseeable, the first branch of the test is satisfied. The second branch, which asks whether there are any considerations which ought to negative or limit the scope of the duty, is broad enough to allow the factors the English courts have considered in the context of their just and reasonable test to be taken into account. It is now well established that policy considerations may in fact negate the existence of the duty. Courts must be sensitive to the impact that an imposition of tort liability would have on the contractual allocation of risk, whether the damage incurred is economic loss or property damage, although tort liability may be less likely to disrupt contractual arrangements in property damage cases. While this has now been most clearly recognized in cases of concurrent liability, it has also been recognized in cases involving parties who are not in contractual privity. The mere fact that this case involves property damage rather than economic loss cannot be sufficient to eliminate inquiry into whether the recognition of a duty of care in these circumstances is justified on policy grounds.
Neither the Warehouse Receipt Act nor the contract of storage confirms or negates the existence of a duty owed by the employees of the warehouseman. The scope of the duty the employees may or may not have to the warehouseman or its customers must thus be determined by the application of the common law principles of tort. The vicarious liability regime, which holds the employer liable for the misconduct of his employee, is best seen as a response to a number of policy concerns. The most important policy considerations are based on the perception that the employer is better placed to incur liability, in terms of both fairness and effectiveness, than the employee. The vicarious liability regime is not merely a mechanism by which the employer guarantees the employee's primary liability, but has the broader function of transferring to the enterprise itself the risks created by the activity performed by its agents. Elimination of the possibility of the employee bearing the loss is not only logically compatible with the vicarious liability regime, it is practically compelled by the developing logic of that regime. The employer will almost always be insured against the risk of being held liable to third parties by reason of his vicarious liability: the cost of such liability is thus internalized to the profitable activity that gives rise to it. There is no requirement for double insurance, covering both the employee and his employer against the same risk. Further, imposing tort liability on the employee in these circumstances cannot be justified by the need to deter careless behaviour. An employee subjects himself to discipline or dismissal by a refusal to perform work as instructed by the employer, and the employer is free to establish contractual schemes of contribution from negligent employees. Finally, the elimination of employee liability will have no impact on the plaintiff's compensation in the vast majority of cases.
In a "classic" or non-contractual vicarious liability case, in which there are no "contractual overtones" concerning the plaintiff, the concern over compensation requires that as between the plaintiff and the negligent employee, the employee must be held liable for property damage and personal injury caused to the plaintiff. As between the employee and employer, however, the employer should still bear the risk even in this kind of case. The best solution would probably be an indemnity regime operating between employer and employee. Such cases can be distinguished from those like the present case, which involve a planned transaction, in which someone acquires or disposes of property or services of any kind. Whenever a planned transaction is involved, there are foreseeable risks, and the possibility of allocating or otherwise dealing with those risks in advance must be taken into account, even if the plaintiff's action is in tort. Where the plaintiff has suffered injury to his property pursuant to contractual relations with a company, he can be considered to have chosen to deal with a company. A plaintiff who chooses to enter into a course of dealing with a limited liability company can, in most cases, be held to have voluntarily assumed the risk of the company being unable to satisfy a judgment in contract or for vicarious liability. Now that many contractual claims are brought concurrently as tort claims, the customer should not be able to shift this risk to the employee by claiming in tort. In this case the employer was able to limit its tort and contract liability for property damage, but the employees had no real opportunity to decline the risk. Placing the onus to contract out of their tort liability on the employees is not justified in this context.
There is no logical necessity that the employer's liability in tort depend on the personal liability of the servant. The negligent act of the employee can be attributed to the company for the purposes of applying the vicarious liability regime in this context. Because of the proximity created by contract, the company owes a duty of care to the customer and is vicariously liable for the negligent acts of its employees.
A requirement of reasonable reliance akin to that required in negligent misrepresentation cases should be adopted for employee negligence. While the policy concerns are different, a requirement of reasonable reliance is equally justified. Reasonable reliance is a necessary condition for recovery in cases of employee negligence where the law provides for compensation through recourse to the employer and where, accordingly, the plaintiff's interest in compensation is substantially looked after. It is necessary in cases in which the defendant has no real opportunity to decline the risk. Reliance on an ordinary employee will rarely if ever be reasonable. In most if not all situations, it will not be reasonable in the absence of an express or implied undertaking of responsibility by the employee to the plaintiff. Mere performance of the contract by the employee, without more, is not evidence of the existence of such an undertaking since such performance is required under the terms of the employee's contract with his employer. Any reliance by the appellant on the respondent employees was certainly not reasonable in this case.
The employee remains liable to the plaintiff for his independent torts. An independent tort may fall within or outside the range of the employer's liability under the vicarious liability regime. The first question to be resolved in cases of this kind is whether the tort alleged against the employee is an independent tort or a tort related to a contract between the employer and the plaintiff. In answering this question, it is legitimate to consider the scope of the contract, the nature of the employee's conduct and the nature of the plaintiff's interest. If the alleged tort is independent, the employee is liable to the plaintiff if the elements of the tort action are proved. The liability of the company to the plaintiff is determined under the ordinary rules applicable to cases of vicarious liability. If the tort is related to the contract, the next question to be resolved is whether any reliance by the plaintiff on the employee was reasonable. The question here is whether the plaintiff reasonably relied on the eventual legal responsibility of the defendants under the circumstances. In this case the tort was related to the contract and any reliance by the plaintiff on the respondent employees was not reasonable.
Cases Cited
By Iacobucci J.
Considered: ITO‑-International Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R. 752; Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; distinguished: Greenwood Shopping Plaza Ltd. v. Beattie, [1980] 2 S.C.R. 228; Canadian General Electric Co. v. Pickford and Black Ltd., [1971] S.C.R. 41; referred to: Scruttons Ltd. v. Midland Silicones Ltd., [1962] A.C. 446; New Zealand Shipping Co. v. A. M. Satterthwaite & Co. (The "Eurymedon"), [1975] A.C. 154; Anns v. Merton London Borough Council, [1978] A.C. 728; Kamloops (City of) v. Nielsen, [1984] 2 S.C.R. 2; Donoghue v. Stevenson, [1932] A.C. 562; Junior Books Ltd. v. Veitchi Co., [1983] 1 A.C. 520; Norwich City Council v. Harvey, [1989] 1 All E.R. 1180; Pacific Associates Inc. v. Baxter, [1990] 1 Q.B. 993; Cominco Ltd. v. Bilton, [1971] S.C.R. 413; Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465; B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228; Sealand of the Pacific v. Robert C. McHaffie Ltd. (1974), 51 D.L.R. (3d) 702; Moss v. Richardson Greenshields of Canada Ltd., [1989] 3 W.W.R. 50; Summitville Consolidated Mining Co. v. Klohn Leonoff Ltd., B.C.S.C., Van. Reg. No. C880756, July 6, 1989; R.M. & R. Log Ltd. v. Texada Towing Co. (1967), 62 D.L.R. (2d) 744; Northwestern Mutual Insurance Co. v. J. T. O'Bryan & Co. (1974), 51 D.L.R. (3d) 693; Toronto‑Dominion Bank v. Guest (1979), 10 C.C.L.T. 256; East Kootenay Community College v. Nixon & Browning (1988), 28 C.L.R. 189; Ataya v. Mutual of Omaha Insurance Co. (1988), 34 C.C.L.I. 307; Elder, Dempster & Co. v. Paterson, Zochonis & Co., [1924] A.C. 522; Dyck v. Manitoba Snowmobile Association Inc., [1985] 1 S.C.R. 589; Crocker v. Sundance Northwest Resorts Ltd., [1988] 1 S.C.R. 1186; Tweddle v. Atkinson (1861), 1 B. & S. 393, 121 E.R. 762; Dunlop Pneumatic Tyre Co. v. Selfridge & Co., [1915] A.C. 847; Coulls v. Bagot's Executor and Trustee Co., [1967] Aust. Argus L.R. 385; Smith and Snipes Hall Farm Ltd. v. River Douglas Catchment Board, [1949] 2 K.B. 500; Drive Yourself Hire Co. (London) Ltd. v. Strutt, [1954] 1 Q.B. 250; Adler v. Dickson, [1955] 1 Q.B. 158; Beswick v. Beswick, [1967] 2 All E.R. 1197 (H.L.), aff'g [1966] Ch. 538 (C.A.); Olsson v. Dyson (1969), 120 C.L.R. 365; Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd., [1980] 1 All E.R. 571; Swain v. Law Society, [1983] 1 A.C. 598; Trident General Insurance Co. v. McNiece Bros. Pty. Ltd. (1988), 80 A.L.R. 574; Lawrence v. Fox, 20 N.Y. 268 (1859); Choate, Hall & Stewart v. SCA Services, Inc., 392 N.E.2d 1045 (1979); Robert C. Herd & Co. v. Krawill Machinery Corp., 359 U.S. 297 (1959); Salmond and Spraggon (Australia) Pty. Ltd. v. Port Jackson Stevedoring Pty. Ltd. (The "New York Star"), [1980] 3 All E.R. 257; Watkins v. Olafson, [1989] 2 S.C.R. 750; R. v. Salituro, [1991] 3 S.C.R. 654; J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co., [1972] S.C.R. 769; Mayfair Fabrics v. Henley, 244 A.2d 344 (1968); Employers Casualty Co. v. Wainwright, 473 P.2d 181 (1970).
By McLachlin J.
Referred to: Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; Pacific Associates Inc. v. Baxter, [1990] 1 Q.B. 993; Car and General Insurance Corp. v. Seymour, [1956] S.C.R. 322; Crocker v. Sundance Northwest Resorts Ltd., [1988] 1 S.C.R. 1186; Junior Books Ltd. v. Veitchi Co., [1983] 1 A.C. 520; Anns v. Merton London Borough Council, [1978] A.C. 728; Watkins v. Olafson, [1989] 2 S.C.R. 750.
By La Forest J. (dissenting on the cross-appeal)
Applied: Anns v. Merton London Borough Council, [1978] A.C. 728; considered: Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189; Sealand of the Pacific v. Robert C. McHaffie Ltd. (1974), 51 D.L.R. (3d) 702; Toronto‑Dominion Bank v. Guest (1979), 10 C.C.L.T. 256; Moss v. Richardson Greenshields of Canada Ltd., [1989] 3 W.W.R. 50; Greenwood Shopping Plaza Ltd. v. Beattie, [1980] 2 S.C.R. 228, rev'g (1979), 31 N.S.R. (2d) 168 (S.C.A.D.), aff'g (1978), 31 N.S.R. (2d) 1 (S.C.T.D.); Greenwood Shopping Plaza Ltd. v. Neil Buccanan Ltd. (No. 1) (1979), 31 N.S.R. (2d) 135 (S.C.A.D.), aff'g (1978), 31 N.S.R. (2d) 1 (S.C.T.D.); Cominco Ltd. v. Bilton, [1971] S.C.R. 413; distinguished: East Kootenay Community College v. Nixon & Browning (1988), 28 C.L.R. 189; Ataya v. Mutual of Omaha Insurance Co. (1988), 34 C.C.L.I. 307; referred to: Donoghue v. Stevenson, [1932] A.C. 562; Pacific Associates Inc. v. Baxter, [1990] 1 Q.B. 993; Kamloops (City of) v. Nielsen, [1984] 2 S.C.R. 2; Rothfield v. Manolakos, [1989] 2 S.C.R. 1259; Leigh and Sillavan Ltd. v. Aliakmon Shipping Co., [1986] A.C. 785; Norwich City Council v. Harvey, [1989] 1 All E.R. 1180; New Brunswick Telephone Co. v. John Maryon International Ltd. (1982), 43 N.B.R. (2d) 469; B.D.C. Ltd. v. Hofstrand Farms Ltd., [1986] 1 S.C.R. 228; Cattle v. Stockton Waterworks Co. (1875), L.R. 10 Q.B. 453; Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465; J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co., [1972] S.C.R. 769; District of Surrey v. Carroll‑Hatch & Associates Ltd. (1979), 101 D.L.R. (3d) 218; Dominion Chain Co. v. Eastern Construction Co. (1976), 12 O.R. (2d) 201; Elder, Dempster & Co. v. Paterson, Zochonis & Co., [1924] A.C. 522; Scruttons Ltd. v. Midland Silicones Ltd., [1962] A.C. 446; Johnson Matthey & Co. v. Constantine Terminals Ltd., [1976] 2 Lloyd's Rep. 215; Murphy v. Brentwood District Council, [1991] 1 A.C. 398; Kamahap Enterprises Ltd. v. Chu's Central Market Ltd. (1989), 64 D.L.R. (4th) 167; Winterbottom v. Wright (1842), 10 M. & W. 109, 152 E.R. 402; Staveley Iron & Chemical Co. v. Jones, [1956] A.C. 627; Kooragang Investments Pty. Ltd. v. Richardson & Wrench Ltd., [1981] 3 All E.R. 65; Morris v. Ford Motor Co., [1973] 1 Q.B. 792; Hamilton v. Farmers' Ltd., [1953] 3 D.L.R. 382; Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 555; Bundesarbeitsgericht (Seventh Senate), judgment of 23 March 1983, BAG 42, 130; Salomon v. Salomon & Co., [1897] A.C. 22; Northwestern Mutual Insurance Co. v. J. T. O'Bryan & Co. (1974), 51 D.L.R. (3d) 693; ITO ‑- International Terminal Operators Ltd. v. Miida Electronics Inc., [1986] 1 S.C.R. 752; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; Co‑Operators Insurance Association v. Kearney, [1965] S.C.R. 106; Lennard's Carrying Co. v. Asiatic Petroleum Co., [1915] A.C. 705; Adler v. Dickson, [1955] 1 Q.B. 158; Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co. (1988), 30 B.C.L.R. (2d) 273; Summitville Consolidated Mining Co. v. Klohn Leonoff Ltd., B.C.S.C., Van. Reg. No. C880756, July 6, 1989; Durham Condominium Corp. No. 34 v. Shoreham Apartments Ltd., Ont. H.C., April 23, 1982, 14 A.C.W.S. (2d) 155; O'Keefe v. Ontario Hydro (1980), 29 Chitty's L.J. 232; Constellation Hotel Corp. v. Orlando Corp., Ont. H.C., July 6, 1983, 20 A.C.W.S. 482, rev'd Ont. C.A., January 12, 1984, endorsement reproduced at (1984), 2 C.P.C. (2d) 24; Leon Kentridge Associates v. Save Toronto's Official Plan Inc., Ont. Dist. Ct., No. 301678/87, March 27, 1990; British Columbia Automobile Association v. Manufacturers Life Insurance Co. (1979), 14 B.C.L.R. 237; Herrington v. Kenco Mortgage & Investments Ltd. (1981), 29 B.C.L.R. 54; Great West Steel Industries Ltd. v. Arrow Transfer Co. (1977), 75 D.L.R. (3d) 424; Junior Books Ltd. v. Veitchi Co., [1983] 1 A.C. 520; Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd. (1991), 53 B.C.L.R. (2d) 180, leave to appeal granted, [1992] 2 S.C.R. 000.
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APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (1990), 45 B.C.L.R. (2d) 1, 70 D.L.R. (4th) 51, [1990] 4 W.W.R. 289, 2 C.C.L.T. (2d) 161, 31 C.C.E.L. 67, reversing a decision of the British Columbia Supreme Court (1986), 2 B.C.L.R. (2d) 181, [1986] 4 W.W.R. 183, allowing appellant's action against respondents. Appeal and cross‑appeal dismissed, La Forest J. dissenting on the cross‑appeal.
Richard B. Lindsay and Michael J. Jackson, for the appellant.
Bryan G. Baynham and William S. Clark, for the respondents.
No one appeared for the intervener.
//La Forest J.//
The following are the reasons delivered by
La Forest J. (dissenting on the cross-appeal) --
Introduction
In this case, the appellant seeks to recover damages against the respondent employees for their negligence in the performance of a duty their employer undertook by contract to do. The issues are whether the employees have a duty in tort towards the appellant and, if so, whether a clause in the contract limiting the employer's liability in the performance of the duty will serve to protect the employees as well.
My colleague Justice Iacobucci has set out the facts and judicial history of the appeal, but for convenience I shall briefly reiterate the facts. The appellant London Drugs Limited purchased a transformer for its new warehouse facility and arranged for storage of the transformer with Kuehne & Nagel International Ltd. (KNI). London Drugs knew or can be taken to have known that KNI was a limited liability company and that KNI's employees would be responsible for carrying out the contract. The terms of storage were set forth in a standard form contract, which included a limitation of liability clause limiting the warehouseman's liability to $40. This clause having been brought to its attention, London Drugs declined to purchase extra insurance through KNI and chose instead to arrange for its own all-risk coverage. The defendant employees, Dennis Gerrard Brassart and Hank Vanwinkel, having received orders to load the transformer onto a truck which would deliver it to London Drugs' new warehouse, negligently damaged the transformer and caused damages in the amount of $33,955.41. The trial judge allowed the action against Vanwinkel and Brassart for the full amount of the damage but limited judgment against KNI to $40 in accordance with the terms of the contract. The Court of Appeal of British Columbia, sitting as a panel of five, limited judgment against both the employees and KNI to $40.
I have had the benefit of reading the reasons of my colleagues McLachlin and Iacobucci JJ. Both would decide this case by applying the clause in the contract limiting the liability of the employer (KNI) to the employees, McLachlin J. on the basis of a tort analysis, Iacobucci J. in terms of a contractual analysis. For reasons that will appear, however, I think the best solution would be to hold that the respondent employees did not, in the circumstances of this case, owe any duty to the appellant. Although my colleagues have given this possibility short shrift, I think it deserves more extensive examination.
In my view, before turning to the examination of any specific provision of the contract between the employer and the customer, it is necessary to consider the difficult issue of whether the employees had any duty of care to the appellant. Such an approach has the advantage of being more comprehensive, since it is not dependent on the specific terms of the employer's contract with the customer. The issue was raised by the parties before all the courts that have heard the case and is the object of conflicting jurisprudence. At all events, the question of the duty of care determines whether Vanwinkel and Brassart are jointly liable with KNI for the $40 or whether KNI alone will be liable for that amount.
The latter point was what impelled me to write. My colleagues have ably advanced views that seem to me to be tenable and I was particularly attracted to Iacobucci J.'s view, which would go a long way towards ridding us of many of the consequences of that pestilential nuisance, privity. However, the difficulty with accepting their positions in the present context is that it would have the effect, given the manner in which the case has come to us, of barring us from subsequently dealing with the underlying issues in a comprehensive way. For what their approaches do is to focus on an incidental aspect of the matter ‑‑ the fact that London Drugs and KNI inserted a clause in their contract allocating liability as between themselves. But the real issue is no different from what it would be if no such clause appeared in the contract. Ultimately what we are concerned with is whether it is appropriate to impose a duty on employees to compensate their employers or those who contract with them for the employees' negligence in carrying out an activity the contracting parties have set in motion. Reading the limiting clause as applying by implication to the employees or as restricting their tort liability is simply to reach out for a convenient device that partially solves the problem, but which depends on underlying policies applicable to the whole problem ‑‑ whether the employees should be subject to a duty of care for ordinary, and so foreseeable negligence, in performing work arising out of the contract.
My colleagues justify their unwillingness to enter into the matter on the basis of what they perceive as the proper institutional role of the courts in modifying law and suggest that it should be left to the legislature. I do not agree. The relevant law, the doctrine of vicarious liability, is a judicial creation devised in Holmes' phrase, in response to "the felt necessities of the time". In my view, like the judges who created the doctrine, it is incumbent on present day judges to adapt the law to new and evolving social and organizational realities. The present situation, it seems to me, is ideally suited to a principled case by case approach, subject to legislative intervention if need be to meet special situations not easily resolvable by doctrinal development. Compared to other areas, economic loss for example, into which courts have ventured without any prompting by the legislature, employee liability does not appear to raise that formidable a doctrinal task. On the other hand, a general legislative response seems inappropriate to a task that requires great sensitivity to the specific context in which a claim arises. The courts created the law; it is up to them to adapt it to meet modern needs.
As I mentioned, my colleagues say very little about this duty of care issue. Nor can much help be derived from the reasons in the courts below, possibly because it has so little practical importance in the present case. It means a variation of $40 in the amount granted by the Court of Appeal. Its importance in other situations, however, is far from negligible, and the manner in which my colleagues have dealt with the case precludes our taking what appears to me the proper approach to the problem in different fact situations.
Of the judges in the Court of Appeal, only Lambert J.A. clearly addressed the question of the employees' duty of care in the absence of a contractual limitation clause. He found that "if there were no express contract governing the storage", he would have had no hesitation in saying that the two employees were dir