Source: https://www.fernandeshearn.com/newsletter-2015-july-fernandes-hearn-toronto-law-firm/
Timestamp: 2019-04-21 18:03:28+00:00

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3. Should a Shipper Have to Pay Twice?
2015 Surface Transportation Summit will take place on October 14, 2015 in Mississauga Ontario.
International Marine Claims Conference will take place in Malahide, Co. Dublin 23 to 25 September 2015.
Workers’ compensation was Canada’s first social program to be introduced as it was favoured by both workers’ groups and employers, who hoped to avoid lawsuits. The system was developed after an Inquiry chaired by Ontario Chief Justice William Meredith, who outlined a system in which workers would be compensated for workplace injuries, but, in return, must give up their right to sue their employers. The system was introduced in various provinces on different dates. Ontario was first in 1914, Manitoba in 1916, and British Columbia in 1917. The system remains a provincial responsibility and thus the rules vary from province to province. In most provinces, the workers’ compensation board or commission remains concerned solely with insurance. The workers’ compensation insurance system in every province is funded by employers based on the employers’ payroll, industry sector and track record of injuries (or lack thereof) in their associated workplaces (usually referred to as the “experience rating”).
1. To promote health and safety in workplaces.
2. To facilitate the return to work and recovery of workers who sustain personal injury arising out of and in the course of employment or who suffer from an occupational disease.
3. To facilitate the re-entry into the labour market of workers and spouses of deceased workers.
4. To provide compensation and other benefits to workers and to the survivors of deceased workers.
The Workplace Safety & Insurance Board, (formerly Worker’s Compensation Board), (“WSIB”) is a branch of the Ontario Ministry of Labour and was established in 1914. It is a workers’ compensation insurer for Ontario, and is tasked with maintaining and administering the insurance fund.
The WSIB was formed in 1914 through the passage of the Workmen’s Compensation Act. In 1998, the Workplace Safety and Insurance Act was passed at Queen’s Park. This resulted in the formation of the Workplace Safety & Insurance Board or WSIB, which took over the functions of the previous board.
Registration with the WSIB is required for most Ontario employers. It is not required for all employers, and the means of knowing which category a business falls into are not commonly known. As a result, as new businesses start up, it is all too frequent an occurrence that the question of registration with the WSIB never arises.
Since the inception of the worker’s compensation system 100 years ago, Ontario employers have essentially fallen into one of three categories.
The first and by far the largest of these categories is Schedule 1. These employers include most manufacturing, sales, distribution, service and construction activities. All Schedule 1 employers in Ontario are required to register with the WSIB effective on the day they first employ workers, and to pay premiums calculated as a percentage of payroll, roughly ranging from 0.2% to 18.3%, based on anticipated injury rates in the given sector of the industry.
15. ii. Operation of dry docks.
20. vii vehicles, other than self-propelled vehicles.
3. i. Carting, teaming and trucking.
ii. Loading or unloading cars or other vehicles.
iv. Operation of aeroplanes, airships or other flying machines.
v. Operations of forwarding companies or persons engaged in the business of transportation by canoes, scows or sleighs.
vi. Operation of wharves or work upon wharves.
vii. Sanding streets or roads.
ix. Street cleaning or removal of snow or ice.
x. Warehousing or storage, with carting, teaming or trucking.
xi. Warehousing or storage, without carting, teaming or trucking.
xii. Business of supplying truck drivers.
xiii. Conveying passengers by automobile or trolley coach.
xiv. Operating a taxicab business.
4. Operation of railways, not included in Schedule 2.
persons who perform stunts in films, videos, theatrical, or live performances, including any actors or performers who do their own stunts.
foreign diplomats and members of a diplomatic staff in embassies as defined by the Vienna Convention on Diplomatic Relations, 1961, including head of the mission, members of the diplomatic staff, and diplomatic agents.
The WSIB has an online Employer Classification manual at www.wsib.on.ca that sets out whether a business activity is compulsorily covered under either Schedule or is available as an option.
Employers who fail to register are potentially liable for retroactive premium assessments plus penalties and interest going back five, and in some cases more, years. Further, the WSIB will bring the full weight of its enforcement powers to bear upon such an employer that it discovers on its own. Prosecutions and fines are a distinct possibility. To that end, the Board draws information from its own investigatory activities, information exchanges with the Canada Revenue Agency and other government authorities, anonymous tips, and reports of worker injuries by individuals whose employers are unknown to the Board.
Where an employer steps forward and voluntarily discloses non-compliance, the WSIB will apply its Voluntary Registration policy and waive its rights to levy penalties and interest, or to lay charges. While the employer will be assessed retroactively for premiums, that assessment will be limited to the 12 months prior to the date that it in fact registers.
It goes without saying that employers who are ineligible and cannot provide workers’ compensation benefits or employers who may choose to provide same but do not are exposed to tort claims by their employees. As not every insurance policy provides for third party liability coverage where an action is commenced by an employee, great care must be taken to ensure that any private insurance coverage is adequate.
3.The Shipper, the Defaulting Load Broker and the Unpaid Carrier: Should the Shipper Have to Pay Twice?
Unfortunately, the situation is not an uncommon one: a shipper engages a load broker to arrange for carriage services by a third party carrier. The shipper pays the load broker, who fails to pay the carrier. The carrier is left considering its options, including possible action against the shipper for the freight charges.
The recent decision of the Alberta Court of Queen’s Bench in Bushell Transport Company Ltd v. NOV Enerflow ULC (*1) provides an interesting illustration of this problem and the legal issues that can arise. The analysis in this case addressed the nature of the broker’s involvement and the legal ramifications – was the broker acting as a pure agent of the shipper in dispatching the carrier, or was the broker acting as an ‘independent coordinator of freight services’? The exercise was more than one of semantics: if the broker was acting as an agent of the shipper, the carrier might have recourse against the shipper for payment. Under strict agency law, the shipper, as the broker’s “principal” would be directly responsible for payment to the carrier – even it meant the shipper “having to pay twice”.
The novel aspect of this case came with the awkward framing of the issue requiring determination: was the load broker acting as the shipper’s agent or as an “independent coordinator of freight services”. While the decision does not elaborate on the legal implication of a finding that a broker was an “independent coordinator”, one can readily fill the gap. If a broker deals as a principal for its own account with a carrier – in effect, assuming its own de facto shipper identity – then the broker’s actual ‘upstream’ customer (i.e. the real shipper) would have no freight charge liability as a shipper vis a vis the carrier. This would, of course, be due to the fact that the carriage contract was then between the broker and the carrier, as distinct from the former scenario involving a carriage contract between the shipper and the carrier but through the agency of a broker intermediary.
The facts are straightforward. NOV Everflow ULC (‘NOV’) asked for a load broker, Orange Delta Transportation Canada Inc. (“Orange”) to arrange the carriage of certain equipment from Alberta to Washington. Orange, in turn, engaged Bushell Transport Company Ltd. (“Bushell”) to carry the loads in question. Orange signed a credit agreement with Bushell whereby Orange was to pay Bushell by cheque for each invoice. Bushell contacted NOV to make arrangements for the pick up of the cargo. After providing the carriage services, Bushell invoiced Orange directly with no mention of NOV on the invoices. NOV paid the freight charges to Orange, who failed to pay Bushell. Orange did not have the money to pay Bushell.
The facts of the case suggest an agency role on the part of Orange: Bushell was aware that NOV was the actual shipper and that Orange was taking the steps of arranging the carriage for the ultimate benefit of NOV.
Bushell sued NOV for payment. Bushell’s case was necessarily premised on the argument that Orange was acting as an agent for NOV, and that NOV was accordingly liable, as the shipper “principal”, to pay the freight monies. Bushell’s argument was that NOV had accordingly assumed the risk that, if Orange did not pay Bushell, NOV would then have to make a replacement payment to Bushell.
Bushell brought a motion for summary judgment against NOV for the unpaid freight charges. Bushell led evidence to the effect that Orange was NOV’s agent: Orange was the only load broker engaged by NOV for the moves, Bushell was the only carrier contacted by Orange to move the loads, and the principal of Orange and the project manager of NOV had a personal relationship. Bushell asserted that these facts must lead to a conclusion that NOV directed Orange to act as its agent to engage Bushell’s services. In effect, by telling Orange which carrier to use, NOV was vesting an agency function in Orange.
Ultimately, Bushell put all of its arguments in one basket: it asserted that the only determination that had to be made was that NOV was, in fact, privy to the contracts of carriage for which Bushell had not been paid. It, therefore, followed that, as Orange was NOV’s agent, NOV had to pay Bushell, even though it had already paid the freight monies to Orange.
For its part, NOV asserted that it was not legally bound to pay twice for the same work.
– the mode of payment: did the forwarder charge an amount calculated upon the freight and other expenses and then charge a further amount or a percentage as its fee? Or did the forwarder charge an all-inclusive figure?
iv) a custom of the trade exists to the effect that, in that particular trade and in those particular circumstances, both the creditor and the debtor normally would expect the payment to be made to the third party.
Bushell argued that, as Orange was NOV’s agent, NOV took a risk by paying Orange instead of Bushell. While conceding that in most cases that the shipper can pay a forwarder based on custom of the trade, Bushell argued that Orange was not acting as an independent freight broker, but rather as a simple agent at the direction of NOV.
As mentioned above, this infatuation with the ‘agency’ question seems to have been an awkward deviation from the real issue presented by the Canadian Pacific Ships; that is, even if Bushell were to prevail in its submissions that Orange was NOV’s agent, this would simply lead to the assessment of whether NOV – as a debtor – could avail itself of the foregoing defences, which presuppose a debtor-creditor relationship.
In this regard, NOV relied upon the Canadian Pacific decision, asserting that Bushell authorized Orange to receive the money on its behalf, and that the custom of the trade was such that both Bushell and NOV expected the payment to be made to Orange. Such arrangement would certainly be in keeping with most broker relationships. Typically, in circumstances where the broker is clearly acting as the shipper’s agent, the carrier invoices the broker expecting to be paid by that broker,and appreciates that the broker, in turn, would separately invoice and be paid by the shipper.
The court found that there was insufficient evidence to find an agency relationship between NOV and Orange and that, in any event, “Bushell’s evidence is not clear as to why this situation differed from others where custom of the trade would support an expectation that payment would be made by NOV to Orange”. Finding that Bushell did not accordingly establish all these elements upon which to base its action, Bushell’s claim was dismissed.
The dismissal of the claim because Bushell did not establish all the elements to prove a case of ‘agency’ to disentitle NOV from the above defences was a curious, if not indirect, approach to what was still the correct outcome: as a debtor, the facts suggested that NOV should be discharged from liability on the basis of its payment to Orange. In particular, NOV was entitled to the fourth defence listed above in the Canadian Pacific Ships case regarding expectations arising out of the custom of the trade.
In any event, with the dismissal of Bushell’s action, NOV was accordingly exonerated from any liability for the unpaid freight charges.
(*4) Incidentally, for the purposes of this article, the terms “Freight Forwarder” and “Load Broker” have the same meaning. The concepts and arguments raised in this article apply equally to both.
It was undisputed that the Goderich Companies carried out the repairs to the Aircraft and that SG Air took no part in those repairs.
The motion judge dismissed SG Air’s claim against ICPL and the Goderich Companies, which claim had sought a declaration that SG Air had a non-possessory lien under the Act in respect of the Aircraft as well as other claims. SG Air appealed on the basis that the motion judge misinterpreted the Act.
The Court of Appeal agreed with the motion judge’s decision to dismiss SG Air’s claim that it had a non-possessory lien. (*5) Pursuant to section 3(1) of the RSLA, a repairer has a lien against an article that he or she has repaired for an amount: (1) equal to the amount that the person who requested the repair had agreed to pay; or (2) the fair value of the repair; or (3) the fair value of the part completed. Provided that he or she retains possession of the article until the amount sought is paid and that there is no written agreement to the contrary, the repairer is entitled to a possessory lien.
the salvage of an article”.
The Court went on to determine whether SG Air was a “repairer” for the purposes of the Act and whether its actions fell under the definition of “repair”.
The Court found that SG Air did not carry out the repairs itself and that it did not bestow skill, labour or money on the aircraft. (*7) The Court also noted that SG Air did not fall within the class of workers and artisans that the Act seeks to protect. The Court cited the decision of the Ontario Divisional Court in 858579 Ontario Inc v QAP Parking Enforcement Ltd. (*8), where it was held that, although the towing of an article was included in the definition of repair, the Act was not meant to cover companies that towed vehicles that had trespassed on private property since the towing in that case was not for the purpose of making a repair.
As such, the Court held that “the Act does not extend a repairer’s lien to lenders who merely lend money to repairers or storers.” (*12) The Court also made rulings regarding further injunctive relief, storage charges and release of a letter of credit.
In cases where it is not entitled to a non-possessory lien, the lender should consider other available options open by virtue of its status as an unpaid creditor. An unsecured creditor can sue a debtor for an unpaid debt. Creditors should consider entering into a security agreement with the debtor and registering their security interest under the Personal Property Security Act (*13) with the specific article listed as the collateral. One benefit that follows is that a secured creditor can bypass the court system when enforcing the unpaid debt.
(*2) RSO 1990, c. R25 (the “Act”).
(*3) Supra note 1 at 10.
(*5) Supra note 1 at 6.
(*7) Supra note 1 at 9.
(*8) (1995) 22 OR (3d) 346.
(*9) Supra note 1 at 10.
(*11) Supra note 1 at 11.
(*12) Supra note 1 at 10.
(*13) RSO 1990, c. P10.
On January 10, 2008, the Canadian Transportation Agency (“the Agency”) gave effect to a policy known as “one person one fare” in respect of air carriage within Canada (*1).
The CTA decision arose out of passenger complaints that Canada’s two leading air carriers, Air Canada and WestJet, were penalizing persons who required an additional passenger seat for transportation because they were (i) required by the airline’s tariff to have an accompanying attendant during air travel; (ii) disabled by obesity; or (iii) otherwise disabled in a manner requiring additional seating space.
The Agency relied upon Supreme Court of Canada jurisprudence to the effect that the accessible transportation provisions in the Canada Transportation Act (the “Act”) (*2) equate to Human Rights Legislation (*3), and, accordingly, the Agency held that it was incumbent upon air carriers to implement reasonable accommodation measures up to the point of undue hardship.
Accordingly, the Agency found that the carriers’ policies requiring payment by the identified disabled persons represented an undue obstacle to access to the federal transportation network and that the carriers could not show that accommodation would be unreasonable, impracticable or impossible.
The Agency then required a revision of Air Canada and WestJet’s policies to eliminate the charge for additional seats where necessary by reason of the stated disabilities. The Agency order thus had the effect of protecting passengers from further charges; however, the Agency did not make any reparative order in respect of compensating passengers previously affected by the impugned carrier policies.
Taking account of the absence of reparative measures ordered by the Agency, a class action proceeding was commenced in Quebec for all WestJet passengers residing in Canada who were charged for additional seats on domestic flights prior to the Agency decision, or charged by Westjet for additional seats on international flights pursuant to the prevailing policy in effect – the scope of the Agency decision being limited to the domestic operations of the airlines concerned.
On October 29, 2013, Martin Castonguay J.C.S. for the Quebec Superior Court certified the class action to proceed for all persons residing in Quebec (*4). Although Castonguay J.C.S. agreed with WestJet that the initial nationwide representative group was overly broad, he dismissed WestJet’s opposition to the certification of the class action.
Notwithstanding the certification, WestJet brought a motion for dismissal of the claim on an alleged declinatory exception as provided for at Art. 163 of Quebec Code of Civil Procedure (C.c.p.). Specifically, WestJet argued that the Quebec Superior Court did not have subject matter jurisdiction over the action given the Agency’s exclusive jurisdiction over the subject matter of the action.
Castonguay J.C.S. dismissed WestJet’s motion (*5), holding that there was no basis to find that the legislation did or intended to carve out claims such as those brought by the plaintiff from the jurisdiction of the Quebec Superior Court, which is the court of original general jurisdiction for the province pursuant to Art. 31 of the C.p.c.
The Court held that, while s. 172 of the Act enabled the jurisdiction of the Agency, nothing in the provision was jurisdiction limiting. Unlike the precedent relied upon by WestJet concerning the jurisdiction of the Quebec Energy Board (*6), the Act did not confer exclusive jurisdiction upon the Agency in respect of claims.
The objectives pursued by the Act did not disclose an implied intention of the legislature to confer exclusive jurisdiction. Had this been the case, the legislator the legislature would not have used the permissive term in s. 172 of the Act to the effect that the “Agency may, on application, inquire into a matter”. Moreover, the Agency’s approach of focusing its decisions on future corrective action rather than reparative orders for past misdeeds was consistent with a parallel and not exclusive jurisdiction of the Agency with the common law courts.
Castonguay J.C.S. also summarily dismissed WestJet’s subsidiary argument that the action encroached on federal legislative competence. WestJet alleged that the action and outcome could impact its tariff and accordingly this was in the realm of the Federal Court system. This argument was refuted given that the Superior Court was being called upon to compensate passengers for past events, and any hypothetical corrective action to its tariff taken by WestJet based upon the outcome of the proceeding would be of the carrier’s own will and not directly coerced by an order of the court.
WestJet brought an application for leave to appeal the decision of Castonguay J.C.S.
This application was heard by Marie-France Bich J.C.A. of the Quebec Court of Appeal on July 15, 2015 (*7). Bich J.C.A. held that an appeal of the interlocutory judgment of Castonguay J.C.S. was warranted in the circumstances given that the decision on the jurisdiction of Superior Court fell within the scope of Art. 29 of the C.p.c. and that the additional requirement of Art. 511 C.p.c. that the pursuit of justice warranted an appeal in view of the novel and interesting issues raised by the matter. Accordingly, a full appeal will be heard of the Superior Court decision in due course.
You are a carrier that has entered into a written contract with a shipper that includes a fee schedule, which lists the costs of ancillary services for, amongst other things, storage and demurrage. You begin to transport goods for the shipper. Due to increased expenses on your end, you send the shipper a revised fee schedule that includes a higher rate for demurrage than was stated in the original contract.
You deliver the goods to the destination specified by the shipper but upon arrival, the receiver is not prepared to unload the goods and your cargo containers are detained at the shipper’s named destination. However, the shipper refuses to pay demurrage fees. The shipper takes the position that there was never an agreement to pay demurrage or storage fees because a representative of your company verbally assured the shipper that there would be no additional expenses. Furthermore, even if demurrage fees were payable, the shipper never agreed to the increased demurrage fees listed in the revised fee schedule.
Is the shipper able to rely on the verbal assurances of the carrier? If not, is the shipper obligated to pay the higher rate for demurrage listed in the revised fee schedule? It depends.
In Yanke Multimodal Services Ltd. v. Jastek Master Builder 2004 Inc., 2014 CarswellSask 793, Jastek, the shipper, signed and returned to Yanke Multimodal Services Ltd. (“Yanke”), the carrier, a Credit Application Agreement which contained a “Value Added Service Fees Document”, whereby Jastek Master Builder 2004 Inc. (“Jastek”) agreed to pay Yanke $75.00 per day per container in demurrage fees.
From approximately July of 2010 to December of 2011, Yanke provided transportation, logistic and related services to Jastek. During this period, on August 12, 2010, Yanke sent an e-mail to all its customers, including Jastek, that it was increasing its demurrage charges to $150.00 per day after the first 5 chargeable days. Jastek never responded to this e-mail.
Freight invoices were generated by Yanke and paid by Jastek on a regular basis; however, beginning in November of 2010, Yanke began to issue invoices for demurrage. By way of two cheques dated December 29, 2010, Jastek paid approximately 20 of the demurrage invoices. After December of 2010, however, Jastek refused to pay any further invoices for demurrage or for storage.
Issue 1: Is Jastek able to refuse payment of demurrage and storage fees?
Jastek’s asserted that its original understanding was that there would be no additional fees. Jastek alleged that representatives of Yanke verbally guaranteed that no additional fees would be payable in order to induce Jastek to enter into a transportation agreement with Yanke.
Yanke relied upon the term in the Value Added Service Document that detailed the demurrage fees, the fact that Jastek had paid 20 invoices for demurrage and an email, dated February 5, 2012, in which a Jastek representative confirmed an “understanding” that Jastek would accept the signed demurrage rate of $75.00 per day.
Delay in loading or unloading cars of freight violates the implied understanding when equipment is placed at the disposal of shipper or consignee that no more than reasonable time shall be taken for either purpose. The profitable and efficient use of equipment is an important item of the costs reflected in the freight rates charged and is an essential in good railway management. That a railway is to supply expensive equipment in order to furnish, gratis, a storage means for shippers and consignees, reveals, on its mere statement, its own absurdity.
The Court did not accept Jastek’s position that Yanke had represented that it would waive any demurrage fees as an inducement to get Jastek’s freight business. Jastek presented no credible evidence that any misrepresentations regarding demurrage fees were made. The Court further stated that, once Yanke delivered the goods to the Jastek site and given that it was the responsibility for Jastek to unload the containers, Yanke would have no control over any delays in unloading the containers. The Court ruled that Jastek was responsible to pay demurrage despite the alleged verbal assurances of Yanke that Jastek would not be required to do so.
Issue 2: Is Jastek obliged to pay the revised demurrage agreement rate change?
With respect to the demurrage rate change, Jastek took the position that it never received the August 12, 2010 e-mail and, alternatively, Jastek never signed the ancillary charge document agreeing to the increase.
Yanke took the position that, despite hearing no response from Jastek to its August 12, 2010 e-mail, Jastek should be deemed to have accepted the changes in fees as it continued to place shipments orders with Yanke. Yanke relied on the 1964 Supreme Court of Canada decision of Furness and Saint John Tug Boat,which held that, where rates are published by a shipper and shipping orders are then placed by a consignor, no further written contract is required because the consignor has tacitly accepted the rates proposed (*1).
If it had been certain that Jastek had been made aware of the changes in the demurrage rate, the Court held that it would have followed the legal principle set out in the Furness and Saint John Tug Boat case and held that Jastek must be deemed to have tacitly accepted the change in demurrage rates given that it continued to place orders with Yanke.
The Court, however, was not convinced that a proposed change in demurrage rates was ever discussed or that the change in demurrage rates was ever adequately brought to the attention of Jastek. Critical to the Court’s analysis was its finding that there was nothing in the August 12, 2010 e-mail that would have alerted Jastek to anything significant other than that some additional services were available and their costs. The e-mail did not clearly state that rates for current services as already used by Jastek would be changed.
The Yanke decision illustrates the important considerations of which both carriers and shippers should be aware when dealing with contracts for carriage that include demurrage clauses.
The Yanke decisionprovides an important warning to shippers that they should avoid relying on carriers’ verbal assurances with respect to the waiver of expenses that are expressly noted in the carriage contracts. As seen above, the Court was not willing to accept Jastek’s position that Yanke had represented to Jastek that it, Yanke, would waive any demurrage fees, as there was no credible evidence to support this assertion. Shippers should confirm with carriers in writing with respect to any verbal assurances made in this regard.
The Yanke decisionalso illustrates that carriers, who wish to change the cost of ancillary fees to the carriage contract, demurrage costs or otherwise, ought to ensure that the changes in fees are adequately brought to attention of the shipper. In Yanke, the court was not satisfied that an e-mail attaching a revised fee schedule was adequate. It is clear from the Court’s ruling that the shipper must be aware that the rates for current services the shipper was already using would be changed.
Although the Yanke decision is that of the Saskatchewan Queen’s Bench, it is a well reasoned and principled decision and will likely be followed by the Federal Court as well as other provincial courts across the country.
Recently, in Suhaag Jewellers Ltd. v. Alarm Factory Inc., 2015 ONSC 3542 (S.C.J.) (“Suhaag”), Justice Diamond of the Ontario Superior Court of Justice held that the defendant, an alarm system and security monitoring provider, was entitled to rely on an exclusion of liability clause contained in an contract between it and the plaintiff, a jewellery store owner. The plaintiff had experienced a theft of jewellery, had not purchased insurance that covered the loss and, accordingly, sued the defendant.
The Court found that the plaintiff was aware of the exclusion of liability clause when it signed the contract, and that it was not unconscionable to enforce the clause in the circumstances of the case.
This case demonstrates a straightforward and correct application of the well-known three-step analysis set out by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways) (“Tercon”)(*1), discussed below. As the Court confirmed in Tercon, exclusion clauses are enforceable in Canada if they can pass the test set out in that case.
Sughaag underscores that parties to a contract, particularly for provision of goods or services as in this case, should always be aware that limitation or exclusion of liability clauses, such as the one in this case, are commonly found in such contracts contract. It should also be noted that exclusion of liability clauses are often treated quite differently from jurisdiction to jurisdiction (particularly in the United States).
The bottom line? 1) Read the contract; and 2) Understand how limitation or exclusion of liability clauses are treated in your jurisdiction. If a contract contains a limitation or exclusion of liability provision, be sure you understand what it means and how it might operate in your case, and in your jurisdiction, if things go wrong. If anything is unclear, be sure to obtain competent legal advice.
The plaintiff corporation carried on business as a jewellery store. Its principal, Satish Verma (“Satish”), immigrated to Canada from India. The defendant corporation carried on business in the security systems industry. Its principal, Anil Kapoor (“Anil”), was also of Indian descent. Both Satish and Anil spoke Punjabi.
In 2004, Satish opened his jewellery store, and was interested in obtaining security and alarm monitoring services for its premises. Satish was ultimately put in touch with Anil, and the two parties negotiated a contract by which Anil would provide security and alarm monitoring services at Satish’s store.
2. Liability: The Alarm Factory Inc.’s business is the installation, servicing and monitoring of security systems. As such, The Alarm Factory Inc. endeavours to produce the highest quality security systems available. Both the Customer and The Alarm Factory Inc. recognize that no matter how good the system is or how carefully it is installed and serviced the possibility of a failure still exists. In respect to this the Customer and The Alarm Factory Inc. agree that The Alarm Factory Inc. is not an insurer. The annual Customer payment is for rental/monitoring and service only, and must not be construed as an insurance premium. Notwithstanding any statute or rule of law to the contrary. (sic) The Alarm Factory Inc. shall not be liable in any way for any claim, loss, damage or expense, including without limitation claim, loss, damage or expense relating to personal injury of the Customer, or any employee, agent or independent contractor of or with the Customer, on whose behalf the Customer hereby contracts as agent, arising, either directly or indirectly, from the provision of products and services. Nor can The Alarm Factory Inc. guarantee that no loss will occur. Further, The Alarm Factory Inc. will not assume responsibility for losses associated with failure of the system or service in any respect even if due to negligent performance (including gross negligence) or fundamental breach of this agreement by The Alarm Factory Inc., its employees or authorized agents.
The Customer agrees to indemnify The Alarm Factory Inc. with respect to any claim, loss, damage or expense, including without limitation any claim by a third party. It is The Alarm Factory Inc.’s recommendation that the Customer obtain a separate insurance policy to cover personal injury, property loss or damage in this regard.
Contrary to the above recommendation, Satish did not purchase insurance for his business. In 2012 – some eight years following the formation of the contract – a jewellery theft took place at the Satish’s store.
The plaintiff sued the defendant for the value of the stolen jewellery. The defendant moved for summary judgment dismissing the plaintiff’s case on the basis of the exclusion of liability clause referred to above. The defendant’s position was that the clause was valid and binding as between the parties.
The plaintiff, on the other hand, agreed that the contract itself was valid, but argued that the exclusion of liability clause was not valid or enforceable.
(a) As a matter of contractual interpretation, does the exclusion clause apply to the circumstances as established by the evidence of the case?
(b) If the exclusion clause applies, was the clause unconscionable at the time the contract was made, as might arise from situations of unequal bargaining power between the parties?
(c) If the exclusion clause is held to be valid and applicable, should the Court nevertheless refuse to enforce the clause because of the existence of an overriding public policy concern?
The Court found that the exclusion of liability clause in this case was valid and enforceable. First, it held that both Satish and Anil knew what they were agreeing to at the time the contract was being negotiated in 2004. While Satish attempted to argue that he did not understand English well enough to comprehend the document he ultimately signed, the Court did not accept this argument, finding on the evidence that Satish had studied English while living in India before coming to Canada, and that Satish had also entered into other commercial agreements with apparently little or no difficulty. The Court also found that Satish had not been pressured by Anil to enter into the contract in any way, or that there was any rush to sign the contract. Furthermore, the Court did not find any evidence of unequal bargaining power between the two parties to the contract, nor were the terms of the exclusion of liability clause obscure, unclear, unduly onerous or unable to be understood by a reasonable person. Thus, Justice Diamond that the exclusion clause was valid and applicable in the circumstances.
Having regard to the potential value of property kept on a customer’s premises, and the many ways in which a loss may be incurred, the rationale underlying this type of limitation clause is apparent and makes sound commercial sense. ADT is not an insurer and its monetary fee bears no relationship to the area of risk and the extent of exposure ordinarily taken into account in the determination of insurance policy premiums. Limiting liability in this situation is manifestly reasonable. The clause, in effect, allocates risk in a certain fashion and alerts the customer to the need to make its own insurance arrangements. ADT has no control over the value of its customer’s inventory and can hardly be expected, in exchange for a relatively modest annual fee, to insure a jeweler against negligent acts on the part of its employees up to the value of the entire jewellery stock whatever that value, from time to time, may be.
Finally, the Court was of the view that there were no public policy arguments in favour of refusing to honour the exclusion of liability clause. In fact, the Court held the opposite, finding that “there is obviously a very strong pubic interest supporting the enforcement of contracts, and in particular commercial contracts made between business corporations.” Diamond J. found no “egregious fraud or criminality” that would operate to disentitle the defendant from relying on the exclusion clause.
In the result, the case was dismissed.
(*3) These warranties appear to have nothing to do with loss or damage suffered by the plaintiff, however, but, instead, are warranties that the security system will be free of manufacturing defects for one year, and that the defendant would make all necessary repairs free of charge.

References: v. 
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