SPOTLIGHT ON PROFESSIONAL DEVELOPMENT
Indemnities + Limitations on Liability in
Commercial Contracts
October 23, 2012
Presented by
ROB HUNTER & RYAN DALZIEL
WITH HELP FROM CAMILLE CHISHOLM, ARTICLED STUDENT
INDEMNITY CLAUSES
• GENERAL
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Purpose and effect
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Exclude liability
Exempt otherwise liable party
Limit extent of liability of liable party
Strict interpretation
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“very burdensome”
Lack of bargaining power
Read in context of entire agreement
INDEMNITY CLAUSES
• LEADING CASE
o Canada Steamship Lines v. Regem
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[1952] 1 All E.R. 305 (P.C.)
Case from Quebec
Crown leased shed to CSL
Crown servant’s negligence caused
• fire damage to CSL property
Lease contained indemnity for Crown
INDEMNITY CLAUSES
Canada Steamship Lines
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Principles to be applied to indemnity clauses:
1. If the clause clearly exempts the indemnitee
from the consequences of his own
negligence, effect must be given to the
clause.
2. If there is no express reference to
“negligence” are the words used sufficient to
cover negligence?
3. Can the words refer to another cause of
action besides negligence?
INDEMNITY CLAUSES
o To satisfy the first test there must be a clear and
unmistakable reference to negligence or to a
synonym for it. (Chitty on Contracts)
o Examples which will normally cover negligence:
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“at sole risk”
“at customer’s sole risk”
“at owner’s risk”
“at their own risk”
“no liability whatsoever”
INDEMNITY CLAUSES
o Indemnity for your own negligence
• Strong presumption that a party is not entitled
to be indemnified against liability resulting
from his own negligence.
• Contra preferentum applies.
• “… it would have been a very simple matter to
say so clearly.”
INDEMNITY CLAUSES
o Kocherkewych v. Greyhound Canada,
R&Z Warman Enterprises Ltd. and others,
2006 BCSC 534
• K tripped over luggage negligently placed by
Greyhound driver outside a depot operated by
R&Z
INDEMNITY CLAUSES
• Greyhound sought indemnity from R&Z based
on indemnity clause in agency agreement
• Summary trial of indemnity issues
• Standard “boiler plate” agency agreement
drafted by Greyhound
• Save, defend, hold harmless and indemnity
(Greyhound) .. against any claims … by
reason of “any .. injury to persons .. upon or
about the Agent’s Premises...”
INDEMNITY CLAUSES
• Indemnity denied based on second and third
principles in Canada Steamship Lines
• Failure on second principle based on other
clauses in standard agreement that would
conflict with Greyhound’s interpretation of the
indemnity clause.
• Failure on the third principle because clause
could have been intended to cover “flying the
INDEMNITY CLAUSE
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flag liability”, nuisance or claims under the
Builders Lien Act rather than negligence of
Greyhound.
Court denied Greyhound’s application.
INDEMNITY CLAUSES
o Shelton-Johnson v. School District 37 and
Sons of Scotland, 2011 BCSC 1545
• S-J injured when she tripped an fell on a
sidewalk on a school ground leading to the
school
INDEMNITY CLAUSES
• Sons had rented part of the school property
from the School District for the Highland
Games
• School District brought an application seeking
an indemnity from Sons based on the
indemnity clause in the rental agreement.
INDEMNITY CLAUSES
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“.. save harmless and keep indemnified ..
against all claims .. who uses the School
facilities as a result of the user entering into
this agreement .. notwithstanding that same
may have been contributed to or occasioned
by the negligence of the said School
Board..”(emphasis added)
INDEMNITY CLAUSES
• Sons argued that the indemnity only referred
to those portions of the school facility which
were actually rented.
• Sons had rented two specific interior rooms, a
cafeteria, a classroom, and adjacent
wash/changing rooms.
• The Court found that these were the facilities
covered by the indemnity clause not the rest
of the school premises.
INDEMNITY CLAUSE
• The Court therefore dismissed the School
District’s application.
Exculpatory Clauses
• Three topics:
• What happens without exculpatory clauses
• Interpretation
• Enforceability
What Happens Without Them
• Two potential consequences of breach
• Damages
• Acceptance of repudiatory breach, ending
contract
What Happens… (cont’d)
• Damages
• Innocent party is to be placed in same
position as he would have been in if contract
had been performed: Wertheim v. Chicoutimi
Pulp Co., [1911] A.C. 301 (H.L.)
• Subject to foreseeability test for remoteness:
Hadley v. Baxendale (1854), 156 E.R. 145
(Ex.Ct.)
Interpretation
• Types of clauses
• Exclusion
• Limitation of Liability
• Liquidated Damages
Interpretation (cont’d)
• Rule of strict construction for exclusion
clauses: Bow Valley Husky (Bermuda) Ltd.
v. Saint John Shipbuilding Ltd., [1997] 3
S.C.R. 1210
• Less strict for limitation of liability clauses:
SaskPower International Inc. v. UMA/B & V
Ltd., 2007 SKCA 40
• Contra proferentum: Shelanu Inc. v. Print
Three Franchising Corp. (2003), 64 O.R.
(3d) 533 (C.A.)
Interpretation (cont’d)
• Presumption against elimination of noncontractual rights and liabilities: BG Checo
International Ltd. v. British Columbia
Hydro and Power Authority, [1993] 1
S.C.R. 12
• Inconsistency within the clause can render
it invalid: Meeker Log and Timber Ltd. v.
Sea Imp VIII (The) (1996), 21 B.C.L.R.
(3d) 101 (C.A.)
Interpretation (cont’d)
• A party who misinterprets the effect of an
exculpatory clause may be bound by the
misinterpretation: Curtis v. Chemical
Cleaning & Dyeing Co., [1951] 1 K.B. 805
(C.A.)
• Oral undertaking of performance may
override exclusion: Mendelssohn v.
Normand Ltd., [1969] 2 All E.R. 1215
(C.A.)
Enforceability
• Nothing inherently unreasonable about
exculpatory clauses, presumptively
enforceable: Hunter Engineering Co. v.
Syncrude Canada Ltd., [1989] 1 S.C.R.
426
• Repudiatory breach and termination does
not terminate exculpatory clauses: Photo
Production Ltd. v. Securicor Transport
Ltd., [1980] A.C. 827 (H.L.)
Enforceability (cont’d)
• Fundamental breach
• Used to avoid exculpatory clauses: see
Karsales (Harrow) Ltd. v. Wallis, [1956] 2 All
E.R. 866 (C.A.)
• Finally laid to rest in Canada: Tercon
Contractors Ltd. v. British Columbia
(Transportation and Highways), 2010 SCC 4
Enforceability (cont’d)
• Three step test from Tercon:
• Interpretation
• Whether clause unconscionable at the time
the contract was made
• Whether, in the circumstances, enforcement
is contrary to public policy (i.e., “serious
criminality” or “egregious fraud”)
Enforceability (cont’d)
• Unconscionability has three elements (see
Burkhardt v. Gawdun, 2004 SKCA 128)
• Inequality in bargaining position
• Use of position of power
• Resulting unfair advantage
Enforceability (cont’d)
• Can a severe exclusion clause deprive a
bargain of contractual force?
• Suisse Atlantique Societe d’Armement
Maritime S.A. v. N.V. Rotterdamsche Kolen
Centrale, [1967] 1 A.C. 431, per Lord
Wilberforce (contract becomes a “mere
declaration of intent”)
• Photo Production, per Lord Diplock
• Tercon?