[1996] 2 F.C. 36
A-205-94
Murray MacKay (Appellant)
v.
Scott Packing and Warehousing Co. (Canada) Ltd. (Respondent)
Indexed as: MacKay v. Scott Packing and Warehousing Co. (Canada) Ltd. (C.A.)
Court of Appeal, Marceau, Décary and Robertson JJ.A. — Toronto, December 12; Ottawa, December 22, 1995.
Contracts — Appeal from trial judgment holding respondent could rely on limitation of liability clause, even though negligent in performance of contractual obligations — Exemption, limitation portions of clause referring to damage “howsoever caused” — Appellant, experienced in such contracts, aware of limitation clause, signing contract to transport belongings to England — Goods arriving short, damaged — “Howsoever caused” encompassing negligence, other causes, but not fraud, bad faith — Nothing in circumstances at time contract entered into rendering enforcement of clause unconscionable — Not unfair, unreasonable to uphold clause as appellant not deprived of “substantially whole benefit of contract”.
Maritime law — Carriage of goods — Appeal from trial judgment holding respondent entitled to rely on limitation of liability clause in contract for transportation of belongings to England, though negligent in performance of contractual obligations — Appellant experienced in such matters — Inclusion of damage “howsoever caused” in exemption, limitation portions of clause encompassing negligence — Not unconscionable, unreasonable, unfair to uphold clause.
This was an appeal from the trial judgment holding that the respondent could rely on the limitation of liability clause in a contract to transport the appellant’s belongings to England, even though it had been negligent in the performance of its contractual obligations. The appellant was experienced in the transportation of valuable antiques and was familiar with standard form contracts. He signed the contract, which was expressly subject to the conditions printed on the reverse side, without reading the conditions, although he had had the contract in his possession for a week. He secured his own insurance. Several items went missing and others were damaged in transit.
The clause in question purported to both exempt and limit liability for damage “howsoever caused”.
The issues were whether the contract limited liability for the kind of breach that occurred; and, if so, whether it would be unconscionable or unreasonable to allow the respondent to rely on the protection of the clause.
Held, the appeal should be dismissed.
The conduct that resulted in the appellant’s loss was within the scope of the clause which was very broadly worded. It provided that “the customer bears all the risks of loss or damage”. The phrase “howsoever caused” encompasses negligence, as well as other causes, but not fraud or bad faith. What was intended was a limitation of liability regardless of how that liability might attach in law.
Whether one assesses the unconscionability of the contract at the time it was signed, or the fairness and reasonableness of enforcing the exclusion clause at the time of the breach, the clause under consideration should be enforced. It would not be unconscionable to uphold the limitation clause. There was no power imbalance between the parties herein. There was nothing in the circumstances at the time the parties entered into the contract that would render enforcement of the clause unconscionable. Nor would it be unfair and unreasonable on the facts to hold the appellant to the limitation clause. The appellant was not deprived of “substantially the whole benefit of the contract”. The Court should not interfere with the bargain struck by the parties.
The issue of damages under the limitation of liability clause was referred back to the Trial Judge for assessment.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Carriage of Goods by Water Act, R.S.C., 1985, c. C-27.
Federal Court Rules, C.R.C., c. 663, R. 480.
CASES JUDICIALLY CONSIDERED
APPLIED:
ITO—International Terminal Operators Ltd. v. Miida Electronics Inc. et al., [1986] 1 S.C.R. 752; (1986), 28 D.L.R. (4th) 641; 34 B.L.R. 251; 68 N.R. 241; Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; (1989), 57 D.L.R. (4th) 321; 35 B.C.L.R. (2d) 145; 92 N.R. 1.
REFERRED TO:
Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, [1983] 1 All ER 101 (H.L.); Mitchell (George) (Chesterhall) Ltd. v. Finney Lock Seeds Ltd., [1983] Q.B. 284 (C.A.).
AUTHORS CITED
Flannigan, Robert D. “Hunter Engineering: The Judicial Regulation of Exculpatory Clauses” (1990), 69 Can. Bar Rev. 514.
Ogilvie, M. H. “‘Reasonable’ Exemption Clauses in the Supreme Court of Canada and the House of Lords” (1991), 25 B.C. Law Rev. 199.
Waddams, S. M. The Law of Contracts, 3rd ed., Toronto: Canada Law Book, 1993.
APPEAL from trial judgment (MacKay v. Scott Packing and Warehousing Co. (Canada) Ltd. (1994), 75 F.T.R. 174 (F.C.T.D.)) holding that the respondent was entitled to rely on the limitation of liability clause in a contract to transport the appellant’s belongings to England, even though the respondent was negligent in its performance of its contractual obligations. Appeal dismissed.
COUNSEL:
Vincent M. Prager for appellant.
Hugh A. Christie and Peter E. Manderville for respondent.
SOLICITORS:
Stikeman, Elliott, Montréal, for appellant.
Smith, Lyons, Torrance, Stevenson & Mayer, Toronto, for respondent.
The following are the reasons for judgment rendered in English by
Robertson J.A.: This is an appeal from a decision of the Trial Division involving the liability of a shipper for items lost or damaged in a trans-Atlantic move. While the Trial Judge found that the respondent had been in effect negligent in the performance of its contractual obligations, he also found that the respondent could nonetheless rely on the limitation of liability clause that was held to form part of the underlying contract. No objection is taken to any of the Trial Judge’s findings of fact. However, the appellant raises no less than eleven substantive issues stemming from the primary conclusion that the respondent shipper’s liability to the appellant is circumscribed by the clause in question.
Aside from the three issues discussed below, I do not feel it necessary to deal with the appellant’s arguments as all but one are fully and adequately addressed by the Trial Judge in his reasons, now reported at (1994), 75 F.T.R. 174. The remaining issue, namely the applicability of the Carriage of Goods by Water Act, R.S.C., 1985, c. C-27, was not dealt with by the Trial Judge as it was raised for the first time on appeal. The appellant virtually abandoned that submission in oral argument and, thus, there is no need to address it further.
The three issues which require consideration relate to the enforceability and application of the limitation of liability clause. The first issue is whether, on a “true construction”, the contract before us limits liability for the kind of breach that occurred. Second, assuming a positive response to that question is warranted, it is necessary to determine whether in the present circumstances it would be unconscionable or unreasonable to allow the respondent to rely on the protection of the clause. The third issue relates to the Trial Judge’s apparent failure to make certain findings of fact in relation to the calculation of damages under the limitation clause. In addressing the first two issues I need only draw attention to a few essential facts.
The appellant had been employed with Christie’s of Canada, and is experienced with the valuation, appraisal, transportation and insuring of valuable antiques and decorative artwork. He also is familiar with standard form contracts and that a limitation of liability clause is often included. On leaving his employment with Christie’s, the appellant decided to return to England and retained the respondent shipper to effect his move. The appellant signed a contract which contained a limitation of liability clause on the reverse side. The contract was expressly made subject to the conditions printed on the reverse side, and the appellant was made aware of this by an employee of the respondent. However, the appellant did not read the conditions, although he had the final quotation and contract in his possession for at least a week before signing it. The appellant was alert to the need to insure his belongings. The matter was discussed and the appellant declined to accept insurance through the respondent as the percentage rate offered by the latter was, in the appellant’s opinion, “excessive”. Accordingly, the appellant secured his own insurance through a brokerage firm at a lower cost.
As fate would have it, not all of the appellant’s belongings arrived at his home in England; 37 of the approximately 220 items went missing. As well, some of his belongings were damaged in transit. As a result, the appellant claimed damages in excess of $457,000. The respondent now relies on the limitation of liability clause which, as I understand it, covers only about one tenth of that amount. The respondent does not dispute the fact that its performance of its contractual obligations was, as found by the Trial Judge, “woefully inadequate” (at page 194).
Given the nature of the first issue, it is useful to reproduce the relevant portions of the limitation of liability clause in question:
7. LIABILITY OF THE COMPANY LOSS OF OR DAMAGE TO GOODS—The customer bears all the risks of loss or damage both during transit and whilst goods are in store and the Company shall not be liable for any loss or failure to produce or damage (howsoever caused) to the goods and accordingly no claim shall be made upon the Company in respect of any loss, failure to produce or damage to any article or articles howsoever caused. In particular, but without prejudice to the foregoing generality, the Company shall not be liable for any loss, failure to produce or damage howsoever caused
(i) By fire
(ii) By war, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, insurrection or militarily usurped power, wear and tear or gradual deterioration, leakage or deficiency or articles or a perishable or a leaky nature or acts of God, or due to causes beyond the Company’s immediate control or due to the acts of third parties whether criminal or otherwise.
(iii) By moths or insects of any kind or vermin or other pests.
(iv) Arising from any process of cleaning, repairing or restoring unless such cleaning, repairing or restoring of the goods was carried out by the Company themselves, and at the request (in writing) of the customer.
(v) To any articles in wardrobes or drawers or in any package, bundle, case or other container not both packed and unpacked by the Company’s employees.
(vi) To jewellery, watches, trinkets, precious stones etc., money, deeds, securities, stamps, coins or collections of all kinds nor livestock.
(vii) Where goods are removed from or delivered to unattended premises or where third parties are present.
(viii) Where the loss or damage is proved to have been due to any inherent defect in the goods.
(ix) Where the customer has failed to advise the Company prior to the commencement of the Contract the value of any article which is in excess of “1000.
Without prejudice to the foregoing, the Company’s liability, if any, for loss, damage and/or failure to produce, howsoever caused, in respect of all goods entrusted to the Company by the customer, whether in the Company’s possession in respect of the contract or otherwise shall be subject to the following limitations”
(a) A sum calculated at the rate of “10 Sterling per cubic foot of the cubic capacity of the item lost or damaged or at the Company’s sole option the cost of repairing or replacing the damaged or missing article.
(b) In respect of articles being part of a pair or set the Company’s liability shall be calculated by reference to the cubic capacity of the particular part or parts lost or damaged irrespective of any special value which such article or articles may have as a part of such pair or set.
Declaring, however, that the Company shall, so far as they are able to do, transfer to the customer the benefit of any right they may have against any railway, steamship, dock or transport company or authority or other Company in respect of the goods but the Company does not undertake that any such right will exist.
The Company recommends the customer to insure the goods against all insurable risks during removal, packing and storage. Upon receipt of written instruction and subject to the payment in advance of the appropriate premium the Company will, if there is sufficient time and so far as may be practicable and without accepting any responsibility for any limitations or conditions imposed by the insurers endeavour to effect such insurances as the customer shall request. The Company shall not be liable to the customer for any failure, howsoever arising, to notify the customer or his insurers for any loss or damage to the goods or any part thereof. [Emphasis is mine.]
Curiously, the first part of the clause purports to exempt the respondent from liability. However, the second part purports merely to limit liability. This is no doubt the result of the uncertainty that has plagued this area of law. It is conceivable that the draftsperson anticipated the possibility that an exclusion clause might be deemed invalid on the basis that it was simply too onerous and therefore unenforceable, while a limitation clause might be upheld as being reasonable: see Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, [1983] 1 All ER 101 (H.L.), per Lord Wilberforce, at pages 102-103. In any event, the respondent conceded that it is willing to pay the amount stipulated under the limitation clause, while taking the position that the loss in question is covered by the clause.
It is my view that the loss suffered by the appellant is within the scope of the clause. In addressing this issue I am mindful that courts are no longer restricted by the principle of “freedom of contract” which required judges, in the pursuit of fairness, to adopt “secret weapons” such as the doctrine of collateral contracts, adverse construction, strict construction or construction contra proferentum (see Mitchell (George) (Chesterhall) Ltd. v. Finney Lock Seeds Ltd., [1983] Q.B. 284 (C.A.), per Lord Denning M.R., at page 297).
The appellant argued that the fact the words “negligence” and/or “fundamental breach” are not expressly referred to in the clause means that they are not within its ambit. However, the jurisprudence is clear that it is not always necessary to be so explicit. The Supreme Court of Canada in ITO— International Terminal Operators Ltd. v. Miida Electronics Inc. et al., [1986] 1 S.C.R. 752 was faced with a limitation clause that did not expressly mention negligence. The question raised, as framed by McIntyre J., at page 799, was whether “the words [of the exemption clause] extend to include” negligence. He states that “[t]his is a question of construction and the answer must be found in the context of the whole contract” and concludes that if a limitation clause is worded widely enough to include negligence “as being within the reasonable contemplation of the parties in formulating their agreement” then the clause will limit liability for negligence. He goes on to note at page 800 that “it is important, in determining what was within reasonable contemplation, to recognize that this is a commercial contract between two parties who, in essence, are determining which of them is to bear the responsibility for insurance at the various stages of the contract.” McIntyre J. concluded that the wording of clause 8 of the bill of lading relied on [at page 798], “[t]he carrier shall not be liable in any capacity whatsoever for any … loss of … the goods”, is wide enough to encompass negligence.
The clause in issue is also very broadly worded. The exemption portion states that “[t]he customer bears all the risks of loss or damage”, that “the Company shall not be liable for any loss or failure to produce or damage (howsoever caused)” and that “no claim shall be made upon the Company in respect of any loss, failure to produce or damage … howsoever caused.” (Emphasis is mine.) It could be argued that the scope of the exemption portion is restricted from protecting the shipper from liability caused by its own negligence, or that of its employees, by virtue of the specific types of non-negligent conduct enumerated therein. However, the inclusion of the phrase “without prejudice to the foregoing generality” as a preamble to the enumerated list seems to preclude such a result. In any case, it is clear that the limitation portion of the clause is not qualified in any way. The phrase “howsoever caused” as incorporated in both the exemption and limitation portions of the clause, in my view, is capable of encompassing not only negligence, but also other causes. Obviously, the clause would not apply in cases where fraud or bad faith is established. In the present case, what is intended is a limitation of liability regardless of how that liability might attach in law; ex. negligence, gross negligence, strict liability or vicarious liability. In my view, it is clear that the conduct that resulted in the appellant’s loss is within the scope of the above clause.
That leads us to the second issue, whether the limitation of liability clause is enforceable in the circumstances of the present case. The proper approach begins with the decision of the Supreme Court in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426: (see generally S. M. Waddams, The Law of Contracts, 3rd ed. Toronto: Canada Law Book, 1993, at pages 322-323; R. Flannigan, “Hunter Engineering: The Judicial Regulation of Exculpatory Clauses” (1990), 69 Can. Bar Rev. 514, at page 524; M. H. Ogilvie, “`Reasonable’ Exemption Clauses in the Supreme Court of Canada and the House of Lords” (1991), 25 B.C. Law Rev. 199).
In Hunter Engineering, the five-judge court was unanimous in holding that an exemption clause was enforceable in the circumstances of that case. Their reasoning was, however, somewhat divided. In the opinion of Dickson C.J. (La Forest J. concurring), the issue is whether it would be unconscionable in all the circumstances to allow the party in breach of its obligations to have the benefit of the clause. There are two aspects of this approach of particular note. First, unconscionability is to be assessed as of the time the parties entered into the contract, and not at the date of the breach. Second, it follows that the nature and degree of the breach are of no of concern. At page 462, Dickson C.J. held:
If on its true construction the contract excludes liability for the kind of breach that occurred, the party in breach will generally be saved from liability. Only where the contract is unconscionable, as might arise from situations of unequal bargaining power between the parties, should the courts interfere with agreements the parties have freely concluded. The courts do not blindly enforce harsh or unconscionable bargains and, as Professor Waddams has argued, the doctrine of “fundamental breach” may best be understood as but one manifestation of a general underlying principle which explains judicial intervention in a variety of contractual settings.
In the opinion of Wilson J. (L’Heureux-Dubé J. concurring), the issue is whether, as a matter of policy, it would be unfair and unreasonable in all the circumstances to enforce an exclusion clause (at page 508). Here, too, there are two aspects of particular note. First, the fairness and reasonableness of enforcing the clause is to be assessed as of the time of the breach. Second, it follows that the nature and degree of the breach may well be of fundamental significance. Wilson J. framed her position at pages 510-511 as follows:
Exclusion clauses do not automatically lose their validity in the event of a fundamental breach by virtue of some hard and fast rule of law. They should be given their natural and true construction so that the meaning and effect of the exclusion clause the parties agreed to at the time the contract was entered into is fully understood and appreciated. But, in my view, the court must still decide, having ascertained the parties’ intention at the time the contract was made, whether or not to give effect to it in the context of subsequent events such as a fundamental breach committed by the party seeking its enforcement through the courts. Whether the courts address this [issue] narrowly in terms of fairness as between the parties (and I believe this has been a source of confusion, the parties being, in the absence of inequality of bargaining power, the best judges of what is fair as between themselves) or on the broader policy basis of the need for the courts (apart from the interests of the parties) to balance conflicting values inherent in our contract law (the approach which I prefer), I believe the result will be the same since the question essentially is: in the circumstances that have happened should the court lend its aid to A to hold B to this clause?
On the facts of this appeal, the difference between these approaches is of no legal significance. Whether one assesses the unconscionability of the contract at the time it was signed, or the fairness and reasonableness of enforcing the exclusion clause at the time of the breach, the clause under consideration should be enforced. I agree fully with the Trial Judge that in the circumstances of this case, it would not be unconscionable to uphold the limitation clause. I can do no better than reproduce his analysis and conclusion which is found at pages 201-202:
Returning to the facts of this case recited above, the plaintiff was experienced in arranging and overseeing the movement of valuable belongings. He was sophisticated enough in such dealings that he was able to recognize that Mr. Roberts’ original quotation for his move to London was too low, and that the insurance rate quoted was too high. He bargained the insurance rate with Mr. Roberts and eventually decided to make his own insurance arrangements. The plaintiff was also familiar with the concept of standard form documents and had ample opportunity (at least one week) to review the formal quotation including the conditions on its reverse side. He was not put under any time constraint or pressure by the defendant. There was no reason offered why he failed to review in detail the conditions on the reverse of the formal quotation. The plaintiff was not dealing with the defendant from a position of weakness or unequal bargaining power. In all, the plaintiff had a somewhat cavalier approach to the settlement of the contract in question. I conclude that it is not at all unconscionable or unreasonable to allow the defendant to rely on the limitation of liability clause in this instance.
There was no power imbalance between the parties herein. The appellant was aware that he was to bear the principal risk of loss or damage to his belongings. There is nothing in the circumstances at the time the parties entered into the contract that would render enforcement of the clause unconscionable. Nor, in my opinion, would it be unfair and unreasonable on the facts of this case to hold the appellant to the limitation clause. The appellant was not deprived of “substantially the whole benefit" of the contract (at page 517 Can. Bar Rev.), and, in my view, this Court, in the circumstances of the case at bar, should not interfere with the bargain struck by the parties.
With respect to the third issue, in both the reasons and the judgment, the Trial Judge left open the determination of the quantum of damages and the rate of interest. That option, of course, was not open to him. As a result, the appeal before us appeared to be premature. At the respectful insistence of the parties, and in the interests of the administration of justice, the Court decided to hear the appeal as if an order in the nature of one made pursuant to Rule 480 of the Federal Court Rules [C.R.C., c. 663] had been made authorizing the Trial Judge to dispose of the question of liability leaving the question of damages for a reference. In the circumstances, the issue of damages under the limitation of liability clause must be referred back to the Trial Judge for assessment in the unlikely event that the parties are unable to reach an agreement on quantum. As is obvious, this is a pyrrhic victory for the appellant. Subject to the reference to the Trial Judge, the appeal must be dismissed with costs.
Décary J.A.: I agree.
Marceau J.A.: I agree.