6362222 Canada Inc. v. Prelco Inc., 2021 SCC 39: A Victory for Limited Liability Clauses

In general, limitation of liability clauses are valid in both Quebec’s Civil system and in the Common Law provinces. However, in Quebec limitation of liability clauses are tempered by articles in the Civil Code of Quebec prohibiting the exclusion of liability for intentional fault, bodily injury, and other public order issues. A recent Supreme Court of Canada case has strengthened the power of limited liability clauses and narrowed the applicability of the Breach of Fundamental Obligation Doctrine.

The case centered on a contractual dispute between 6362222 Canada Inc. (“Createch”), and their client, Prelco Inc. Createch is a consulting firm offering integrated management systems and performance improvement solutions. The parties entered into a contract which included a limited liability clause, stipulating that Createch’s liability to Prelco for damages for any cause whatsoever would be limited to amounts paid to Createch under the contract. A further stipulation was that Createch could not be held liable for any damages resulting from the loss of data, profits or revenue, from the use of products, for any other special, consequential, or indirect damages relating to services and/or material provided pursuant to the contract.

Two years into the contract, Prelco opted to terminate the relationship due to numerous problems with the system and Createch’s implementation. Prelco brought an action against Createch for $6,246,648.94 in damages for the reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits. The Superior Court found the limited liability clause to be unenforceable as it went to the essence of a fundamental obligation, and as such ordered a substantial judgment against Createch. The Court of Appeal dismissed the appeal.

The Supreme Court allowed the appeal, stating that the test for unenforceability due to the Doctrine of Breach of a Fundamental Obligation had not been satisfied. In order to find a clause inoperable on this basis, the validity of the clause has to either (a) be contrary to a public order limitation or (b) deprive a contractual obligation of its purpose. The SCC found that the clause did not run contrary to a public order limitation and that since Createch still owed significant obligations to Prelco the validity of the clause would not deprive the contract of its purpose to the extent required by the Doctrine. As such, the principle of freedom of contract supported the enforceability of the limited liability clause.

Takeaway: if you are contracting with a party that is insisting that there be clauses within the contract whereby they are excused from any liability, even for their own negligence, be aware that a Court will probably uphold the limitation of liability clause in the contract. In such a situation, you should consider the extent to which you can insure over the risks that flow from the contracting party’s negligence.

Relief from forfeiture is an extraordinary equitable remedy that the courts can apply at their discretion, which allows them to forgive imperfect compliance with a contractual or statutory requirement. In choosing to apply relief from forfeiture, the court is deciding to protect a party against a loss that would otherwise occur from that party’s breach on the basis that not to do so would be unequitable.

In a recent case, Airside Event Spaces Inc. v Langley, 2021 BCCA 306, the courts have reiterated that an applicant must act in good faith in order for relief from forfeiture to be appropriate, regardless of the disproportionality between the loss suffered on forfeiture and the loss suffered by the other party due to the breach of contract.

In this case, the company was leasing a hangar at the Langley Regional Airport from the city of Langley, which the city had terminated because the company breached the lease contract. The company admitted that it had breached the lease in numerous ways, and to having failed to remedy the breaches when Langley gave it the chance. Still, the company claimed that the loss that they would suffer compared to the loss that Langley had suffered through their breaches was so disproportionate that the court should use their power to apply relief from forfeiture. The company had paid $440,000 for the premises in 2013, and claimed to have invested in excess of $1.5 million in improvements over the years that it had leased the space. The B.C Supreme Court Judge found that since the company had misled Langley, attempted to conceal breaches of the lease, altered the premises contrary to the lease and without the lessor’s consent, and performed all manner of other misconduct that the company had not remotely acted in good faith. As such, the Judge dismissed the application and refused to apply relief from forfeiture.

On appeal, the Court confirmed that Judge had correctly considered the evidence in this case, and did not commit an error by finding that the consequences of the forfeiture, although significant, did not justify relief from forfeiture due to the company’s clear bad faith.

When a home falls into foreclosure the property is sold to satisfy the owner’s creditors. The sale proceeds first go to the mortgagee, and then to other creditors in order of priority. Priority is generally determined based on various factors such as the type of creditor and the date of registration of the debt. In general, a judgment creditor cannot claim an interest in property beyond that held by the judgment debtor. The Court Order Enforcement Act (CEA) confirms this common law principle, and clarifies in s. 86(3)(a) that a judgment creditor’s interest is subject to any equitable interests that may have existed prior to the registration of the judgment.

In a recent decision, Chichak v Chichak, 2021 BCCA 286 the court had to determine priority between a judgment creditor with a registered judgment, and the unregistered equitable interest of a spouse.

In this case, Mr. Chichak was the sole registered owner of the property subject to a mortgage. Ms. Chichak had transferred her interest in title to him several years earlier. In 2014, Cardero Capital and First West Credit Union both obtained judgments against Mr. Chichak and registered them against the title of the property. The property was foreclosed and sold in 2016, and $312,830.83 of the sale proceeds remained after satisfying the debts owed to the highest ranking creditors. Cardero and First West applied to the courts for access to the remaining proceeds. At the same time, Ms. Chichak applied to have a 50% equitable interest in the property declared in her favour and argued that this interest should outrank the judgment creditors in priority. The chambers judge found in favour of Cardero and First West by applying the statutory presumption of indefeasibility (meaning the only valid interests in reference to the land are those that are registered against the title) and by looking at case law where transfers of title between family members had been considered gifts which extinguished the equitable interests of the giftor.

On appeal, the Court ruled that the chambers judge had mistakenly applied the principal of indefeasibility, stating that while a genuine purchaser for value would take priority over an unregistered equitable interest, a judgment creditor is not a genuine purchaser and therefore does not have the same priority. To allow the judgment creditors to take priority over the equitable interest would be to grant an interest in the property beyond what was held by the debtor, which would be contrary to the CEA. The Court allowed the appeal and sent the case back to the Supreme Court of B.C for redetermination.

Disclosure is a material issue in many family law cases. Without a clear idea of each party’s assets, a fair division of property is nearly impossible. However, there are clear limits to what the courts are willing to grant in an order for disclosure. In general, an applicant must specify which individual documents or category of documents they are requesting, link their request to a live issue in the proceedings, and justify the need for the disclosure of these documents (Mossey v. Argue, 2013 BCSC 2078).

In a recent case, Etemadi v Maali, 2021 BCSC 1003, one of the parties applied for an order to force disclosure of a hard drive. A hard drive was found to have the same legal status as a bookshelf or a filing cabinet; to grant an application for disclosure of a hard drive would amount to an authorization to search, which is not in keeping with the purpose of the disclosure rules. The court, therefore, declined to grant the order for production, stating that the interest of protecting privacy and privilege outweighed the desirability of absolute disclosure in this case.

 

In Royal Pacific Real Estate Group Ltd. v. Dong, 2020 BCCA 323, the British Columbia Court of Appeal made it clear that unauthorized use of a trademark carries legal consequences. The Court found that the Defendant, Mr. Dong, had committed the tort of passing off, despite his arguments that he had proper consent from the Plaintiff, Royal Pacific Real Estate Group Ltd., to use the Royal Pacific trademark. Mr. Dong had signed an agreement with the Plaintiff whereby he would work under the real estate group as an independently contracted real estate representative. The agreement allowed and even encouraged Mr. Dong to use the Royal Pacific trademark in this capacity, because the group is well-known for success in the Vancouver area, having arranged billions of dollars of sales. But Mr. Dong could only properly use the trademark for his work under the real estate group; he was not authorized to use the trademark for his other private businesses. One of these included his business named Bliip Box, which he’d hoped to have as a supplier of real estate websites.

Mr. Dong took several actions which constituted trademark infringement including making available the contact information of the Royal Pacific group on his personal website, such that the public would consider Royal Pacific to be endorsing or associated with Mr. Dong’s personal site. The Defendant also sent solicitation emails to various real estate agents, saying that Royal Pacific was seeking to endorse local businesses through his personal Bliip Box company, while Royal Pacific had no intent of this. Even after Royal Pacific lawfully terminated their agreement with the Defendant, and as such he no longer had authority to use the trademark whatsoever, he continued to do so. Bliip Box continued to display Royal Pacific’s trademark, and in launching this business relied on the Royal Pacific online domain name. The Court of Appeal upheld the trial judgement that Mr. Dong had committed the tort of passing off outlined under section 7 of the Trademark Act. The Court recognized that the three elements of passing off were present, being: The existence of reputation or goodwill, a misrepresentation leading the public to believe an association between the parties, and damage or potential damage to the Plaintiff, as outlined in Vancouver Community College v. Vancouver Career College (Burnaby) Inc., 2017 BCCA 41.

The goodwill associated with familiar trademarks has commercial value, and companies such as Royal Pacific will not stand silent in the face of passing off. The Defendant passing off his goods and services as being endorsed by and associated with the trademarked name can be viewed as the unauthorized use of goodwill, and wrongful confusion of the public. While the trial judge only awarded nominal damages of $6,000 to the Plaintiff, an injunction restraining Mr. Dong from continued trademark infringement was also granted. The Court held that the Plaintiffs underwent considerable inconvenience, but that Mr. Dong hadn’t financially benefited from his conduct.

 

Engineers have specialized skill and knowledge on which their clients rely. When engineers are found to be professionally negligent, this relationship of reliance limits an engineer’s ability to shield themselves from liability by operating their business as a corporation. To consider why this is the case, we review several key decisions that create a duty of care between engineers and their firm’s clients.

Employee’s Liability

In London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), the Supreme Court of Canada found that employees of a company, who performed the services for which their company has been hired to complete, may owe a duty of care to the company’s customer. That is, the individual employee may be liable for any damages arising from services they negligently perform on behalf of their employer. In the case, warehouse workers were found to have negligently handled the Plaintiff’s machinery resulting in significant damages. Because the Plaintiff’s contract with the Warehouse owner contained a limitation of liability clause which restricted recovery to $40, the Plaintiff sued the owner’s employees personally. The Supreme Court of Canada found that, although the employees owed a duty of care to the owner’s customers, the contract’s limitation of liability clause logically extended to the Owner’s employees, for they were the ones performing all of the contract’s enumerated tasks.

In the construction context, this principle of an employee’s liability arose in Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., 1993 CanLII 67 (SCC). In the case, Edgeworth, the plaintiff company, was the successful tenderer on a provincial highway contract. Edgeworth claimed that it lost money on the project due to errors in the specifications and construction drawings prepared by the defendant engineers, N. D. Lea. Consequently, Edgeworth sued N.D. Lea and its individual engineers for negligent misrepresentation.

While the Supreme Court of Canada found that N.D. Lea was liable for negligent misrepresentation, it held that the firm’s individual engineers were not liable because they only affixed their professional seals to the impugned designs. Therefore, the Court found that the tenderers in the bidding process did not rely on any individual engineer’s representations because the seal merely represented that the designs were prepared by a qualified engineer, not that the designs were accurate. Since no representations were made by an individual engineer, there was no basis for finding that the engineers had a duty of care to the tenderers (viz. Edgeworth).

The British Columbia Court of Appeal considered the Edgeworth decision in British Columbia v. R.B.O. Architecture Inc., 1994 CanLII 1740 (BC CA) and in Boss Developments Ltd. v. Quality Air Maintenance Ltd., 1995 CanLII 3213 (BC CA). In Boss, Gibbs J.A. distinguished the case from Edgeworth on the grounds that the engineer did more than simply affix their seal to a design. Instead, the engineer signed a report indicating that an aircraft was properly maintained when it was not. Despite the fact that the engineer’s employer had the inspection contract with the customer, the engineer was found personally liable. Gibbs J.A. justified his finding by writing: “only an individual can be qualified as an aircraft maintenance engineer in this field of special skill and knowledge, … it is the individual mechanic who certifies [and] whose skill is being relied upon.”

Boss was applied and extended to a firm’s engineering employees generally in Maritime Steel and Founderies Ltd. v. Whitman Benn and Associates Ltd., 1996 CanLII 5415 (NS SC) and Strata Plan No. VR 1720 (Owners) v. Bart Developments Ltd., 1999 CanLII 5428 (BC SC). In both cases, the engineers did not simply attach their seals to tendering materials –as in Edgeworth—but rather, they provided negligent services to the plaintiffs directly.

Concerning an engineer’s personal liability, Edwards, J. wrote in Bart:
It cannot be plausibly argued that a limited company purporting to offer professional services of “consulting engineers” and indicating that its employees have special skill and experience is not inducing its clients to rely on those individuals’ expertise. It is immaterial whether the client can identify that expertise with individual employees of the firm.
In other words, engineering firms cannot perform engineering services without qualified employees. As such, the firm’s employees must know that their specialized skill and knowledge is being relied upon by the customer, and therefore, they owe a duty of care to their firm’s customers generally.

In conclusion, individual engineers working for an incorporated engineering firm are not shielded from liability by virtue of their employer’s corporate structure. Likewise, engineering firms may be held vicariously liable for the negligence of an employed engineer.

To limit their liability, engineers have four options:

First, they may contractually limit their liability for damages, e.g. to the amount of fees paid. Second, they may place disclaimers on their designs to prevent other parties from unreasonably relying on them. Third, engineers can increase their professional liability insurance coverage. And fourth, engineers can supervise the construction process to ensure their designs are properly constructed.

 

On September 1, 2020, British Columbia’s Arbitration Act, S.B.C. 2020, c. 2 (the “New Act”) came into force. The New Act introduces important amendments that aim to improve the efficiency of the Province’s arbitral process. This will improve commercial dealings by clarifying ambiguities in the previous legislation and creating greater uniformity in arbitrations laws nationally. To that end, the New Act closely resembles The Uniform Law Conference of Canada’s Uniform Act. In turn, the Uniform Act is a national project that strives to harmonize Canada’s arbitration laws with the United Nations’ UNCITRAL Model Law. Generally, these national and international model laws seek to limit judicial intervention in arbitral proceedings, and, thereby, create greater certainty in private dispute resolutions. The New Act strives towards this end as well.

The New Act introduces several important changes worth highlighting. First, Sections 21 and 22 impose a duty on the arbitrator and parties, respectively, to seek a “just, speedy, and economical determination of the proceeding based on its merits.” This explicit focus on the timely and economic resolution of disputes is the principle that underpins all of the New Act’s reforms. Appeals, for instance, are sent directly to British Columbia’s Court of Appeal on questions of law (s.59). Likewise, the time period for appealing an arbitral award or setting it aside due to an apprehension of bias has been shortened from 60 to 30 days (s.60).

In further regards to time limits, section 11 of the New Act reads: “the law with respect to limitation periods for commencing court proceedings applies to commencing arbitral proceedings.” This provision was absent from the previous legislation, creating an ambiguity because British Columbia’s Limitation Act, SBC 2012, c 13, does not specify that it applies to arbitrations and it contains court-centric language. Consequently, it is now clear that parties to an arbitration agreement will have two years from the date that they knew or ought to of known they have a potential claim against another party to pursue arbitration or their claim will be statute barred.

Arbitrators now have expanded authority.  Section 23 of the New Act empowers arbitrators to rule on their own jurisdiction. Where this power is exercised as a preliminary matter, either party may refer the issue to the Supreme Court of British Columbia within 30 days of receiving notice of the arbitrator’s ruling for a re-determination. In exercising their jurisdiction, arbitrators are now permitted under section 25 of the New Act to apply equitable principles, whereas the previous legislation limited their authority to the application of statutory law.

Turning to procedures, the New Act no longer specifies default rules. The British Columbia International Commercial Arbitration Centre’s rules (“BCICA”) previously applied by default, unless the parties agreed otherwise. While the New Act removes any reference to the BCICA’s rules, it has incorporated some of their key elements. For example, section 29 allows arbitrators to subpoena non-party witnesses. Where parties have not specified and cannot agree on the applicable rules, arbitrators appear to have discretion under section 32 to make procedural orders that could include the selection of arbitral rules.

Where the parties cannot agree on an arbitrator, the selection is made by the legislation’s designated appointing authority. Under section 2 of the New Act’s attendant Arbitration Regulation, BC Reg. 160/2020, this appointing authority is the Vancouver International Arbitration Centre (“VIAC”).[1] Previously, such appointment disputes were resolved by application to the British Columbia Supreme Court. By creating the VIAC, the New Act increases efficiency by reducing arbitrations’ reliance on the courts. In addition, the VICA can set arbitrators fees and impose terms on awards whenever an arbitrator’s fees remain unpaid.

Finally, the New Act introduces three other significant changes that were previously absent from the legislation. First, a witness’s evidence is to be written, unless otherwise agreed to by the parties. Oral evidence is limited to cross-examinations. Second, section 68 requires confidentiality. The parties may not disclose information about the proceeding or its outcome. Third, arbitrators may grant interim orders, even on an ex parte basis. However, these orders do not constitute an arbitral award, nor are they enforceable in the courts.

The New Act applies to all arbitral proceedings commenced on or after September 1, 2020. However, it does not apply to proceedings that fall within the jurisdiction of the International Commercial Arbitration Act, RSBC 1996, c 233, nor does it apply to family law matters.

[1] The BCICA was re-branded as the VIAC.

The Covid-19 pandemic has generated significant market volatility. Investors must assess risk and consider whether the investment portfolio should be diversified to reduce risk exposure in an unpredictable market. Trustees who have Trust Property invested in the market are faced with additional obligations that can make protecting Trust Property challenging. Trustees must comply with the terms of the Trust Property as well as the legislation governing trusts. In BC, the legislation governing trusts is the Trustee Act (the “Act”).

 

Pursuant to section 15 of the Act, a Trustee may invest property in any form of property or security in which a Prudent Investor might invest. The Trustee is under an obligation when investing Trust Property to exercise the care, skill, diligence and judgment that a Prudent Investor would exercise in making investments. The Trustee is not liable for a loss to the trust arising from the investment of Trust Property if the Trustee reasonably assessed the risk and return and acted as a Prudent Investor.

 

Unlike other provinces, BC does not expressly impose an obligation to diversify investments. However, the Prudent Investor standard implicitly requires the Trustee to assess whether diversification is necessary to reduce risk exposure. The Prudent Investor standard was considered in Miles v Vince, 2014 BCCA 289 [Miles]. The issue on appeal was whether the Trustee was under an obligation to diversify the investment portfolio.

 

In Miles, the Beneficiary claimed the Trustee should have diversified the Insurance Trust’s assets. The Trustee argued she was under no statutory obligation to diversify the investment portfolio. The Court concluded that the Trustee had breached her statutory duty to prudently invest Trust Property pursuant to section 15.2 of the Act. A Prudent Investor must consider the investment portfolio’s risk and whether diversification in necessary to protect the assets. To the contrary, the Trustee had invested the Insurance Trust’s assets into one illiquid asset that put the Trust’s assets at risk. The Trustee had failed to protect the interests of all the beneficiaries of the trust. As a result, she was removed as Trustee. Pursuant to section 31 of the Act, the Court has power to remove and appoint a new Trustee.

 

In another case, Pestano v Wong, 2019 BCCA 141, the Court stated the definition of a Prudent Investor has evolved to mean:

 

  • Making necessary investments that a Prudent Investor would make to protect capital and provide income;
  • Developing risk and return objectives that are reasonable and suitable, given the size of the overall portfolio, and the circumstances of the investor;
  • Ensuring reasonable diversification of the type and class of investments;
  • Acting with prudence when delegating investment authority to an agent;
  • Incurring only reasonable and appropriate costs; and
  • Adopting a balanced approach to management investments

 

Trustees have significant responsibility when investing Trust Property. With the current level of market volatility, it is important to consider whether an investment portfolio should be diversified to reduce the Trust Property’s risk exposure. Heath Law LLP can help you with any questions concerning Trust Property and the Prudent Investor Standard.

 

 

British Columbia offers various home and community care services to individuals requiring assistance with day-to-day life due to health issues or illness. Individuals living in Long-Term Care Homes and Assisted Living Residences are some of British Columbia’s most vulnerable members of society. Long-Term Care Homes provide 24-hour care to elderly residents. Residents in Long-Term Care Homes often have mobility issues or dementia or require palliative care. Assisted Living Residences provide housing units to residents who require daily assistance but can live independently. Residents can be assisted with eating, dressing, bathing, and managing medication, among other things. Assisted Living Residences do not provide 24-hour care.

BC offers private and publicly subsidized Long-Term Care Homes and Assisted Living Residences. In publicly subsidized Long-Term Care Homes, residents pay a monthly charge of 80% of their after-tax income. In publicly subsidized Assisted Living Residences, residents pay a monthly charge of 70% of their after-tax income. The majority of Long-Term Care Homes and Assisted Living Residences in BC are run by private for-profit companies. In 2016, only 2.4% of the Assisted Living Residences were owned by public health authorities, while 53.1% were owned by for-profit companies and 44.5% were owned by non-profit organizations. In private for-profit Long-Term Care Homes and Assisted Living Residences, residents pay the full cost. If residents require additional services, they must pay an additional fee. Unfortunately, many residents cannot afford to pay for additional services to suit their individual needs.

British Columbia has many laws governing the health, safety, and quality of care for seniors living in Long-Term Care Homes and Assisted Living Residences. The Community Care and Assisted Living Act provides a Bill of Rights to residents in Long-Term Care Homes and Assisted Living Residences. The Bill of Rights provides the resident with:

 

  • Commitment to a care plan developed specifically for the individual
  • Rights to health, safety and dignity
  • Rights to participation and freedom of expression
  • Rights to transparency and accountability

 

Last year, Island Health took over the emergency management of three private for-profit Long-Term Care Homes on Vancouver Island due to complaints of staffing shortages and neglect of the residents. Since Island Heath took over the Long-Term Care Homes, improvements have been made to training staff, creating new staff positions and to purchasing necessary equipment and supplies.

A class action on behalf of a group of residents from Long-Term Care Homes in BC has been brought against the company that owns the Long-Term Care Homes, an investment company, and BC’s Ministry of Health. The class of residents allege “abuse, neglect and mistreatment” (Huebner v PR Seniors Housing Management Ltd, DBA Retirement Concepts, 2020 BCSC 1037). The certification hearing is scheduled to take place no later than June 2021.

Heath Law LLP can help you if you or a loved one have experienced neglect in a Long-Term Care Home or Assisted Living Residence.

What happens if you have been bitten by a dog? What are the legal consequences for the dog owner? In British Columbia, a plaintiff who has been bitten by a dog can establish liability against the dog owner under the scienter doctrine, through negligence, or pursuant to the Occupiers Liability Act.

Under scienter, the law has developed to allow dogs “one bite free”. This is because it must be proven that the dog has a propensity for aggression. The law presumes that dogs are not naturally dangerous and that an owner should not be liable for the dog’s aggressive behaviour unless the owner was aware of such aggressive behaviour.

 Scienter places strict liability on the dog owner only if the plaintiff can establish the following three components:

  • the identity of the dog owner;
  • the dog had manifested a propensity to attack or bite mankind; and
  • the dog owner knew of their dog’s propensity.

The Court applied scienter in Prasad v Wepruk, 2004 BCSC 578 [Prasad]. In Prasad, a 77-year-old mailman was viciously attacked by a bouvier dog. The Court used the testimony of neighbours as evidence to determine that the dog had a propensity for aggression by appearing vicious while snarling and growling at the neighbours when they passed by. The Court concluded that the owner had knowledge of this propensity. As a result, the dog owner was liable.

If a plaintiff cannot establish the three requirements for scienter, the plaintiff can establish negligence on the part of the dog owner or the owner of the property where the injury took place if the plaintiff can prove:

  • the dog owner knew or ought to have known that the dog was likely to injure someone; and
  • the dog owner failed to take reasonable steps to prevent the injury.

In other words, was the dog attack reasonably foreseeable? In many cases, the courts determine the dog’s action was unexpected or that there was no evidence of the dog’s past aggression.

An action for damages may also be brought by a plaintiff pursuant to the Occupiers Liability Act. Similar to negligence, the plaintiff must establish that the dog owner or property owner knew or ought to have known that the dog was likely to be a risk, and that the owner failed to take reasonable steps to prevent such risk.

Other provinces have stricter laws respecting dog bites. In Ontario, once ownership of the dog is proven, the owner is liable for all injuries caused by the dog regardless of the owner’s knowledge of their dog’s aggressive propensity. In 2006, stricter laws were proposed in BC. The proposed laws would have removed the knowledge requirement, essentially making the scienter doctrine inapplicable. However, these laws were not passed. Thus, the “one bite free” principle prevails in BC.