COURT OF APPEAL FOR ONTARIO

DATE: 20000113

DOCKET: C32244

ROSENBERG, FELDMAN AND MACPHERSON JJ.A.

B E T W E E N : )

)

AIR NOVA ) D. Bruce MacDougall and

Plaintiff ) Timothy Tremblay

(Appellant) ) for the appellant

)

and )

)

MESSIER-DOWTY LIMITED and ) John D. Holding, Q.C. and

MESSIER-DOWTY INC. ) Douglas M. Worndl

) for the respondents

)

Defendants )

(Respondents) ) Heard: November 29, 1999

On appeal from the judgment of Matlow J. dated May 3, 1999

MACPHERSON J.A.:

Introduction

[1] The principal issue presented by this appeal is the

interpretation of warranties and exclusion clauses in a contract

between a manufacturer and a purchaser in the aircraft industry.

A secondary issue is the relationship between contract law and

tort law in regards to an exclusion clause purporting to limit

the liability, in negligence, of a manufacturer to a purchaser.

A. Factual Background

(1) The accident

[2] On July 21, 1995, a BAe 146-200 aircraft, manufactured by

British Aerospace Plc. (“British Aerospace”) and operating as

Air Nova flight 889, was on a scheduled passenger flight from

Halifax, Nova Scotia to Charlottetown, Prince Edward Island.

During the landing on runway 03 in Charlottetown, the right main

landing gear partially collapsed. The pilot managed to keep the

aircraft on the runway as it skidded along on the damaged landing

gear. The plane came to a stop about 2800 feet down the runway.

There was an emergency evacuation. Fortunately, no one was

injured.

[3] The Transportation Safety Board (“TSB”) conducted an

investigation and determined that the cause of the accident was

the catastrophic failure of a direction link on the right main

landing gear of the aircraft. The TSB determined that the

direction link tube became separated from one of its eyes as a

result of corrosion in the threads that connected the eye to the

tube. The TSB concluded that the most likely cause of the

corrosion was water which entered the tube through the key way

and became trapped inside the tube.

(2) The parties and their relationship

[4] The appellant, Air Nova, is a Canadian corporation engaged

in the Canadian domestic aviation business. Its main place of

business and base of operations is Halifax.

[5] In January 1989, Air Nova leased and took delivery of a new

BAe 146 Series aircraft from British Aerospace. Prior to delivery

of the aircraft, Air Nova and British Aerospace entered into a

Support Agreement dated December 18, 1988 with respect to the

aircraft. Part A of Appendix C to the Support Agreement is an

aircraft warranty. Part B of Appendix C obligated British

Aerospace to require third party vendors to offer to Air Nova

adequate warranty protection in respect of their equipment

installed in the aircraft and to assign to Air Nova the benefit

of such warranties.

[6] The defendant Messier-Dowty Limited (“Dowty”) is an English

corporation carrying on business in the design, manufacture and

supply of landing gear and components for fixed wing aircraft.1

Dowty designed and manufactured the landing gear installed in the

aircraft Air Nova leased from British Aerospace.

[7] Pursuant to the various agreements among the parties (Air

Nova-British Aerospace and British Aerospace-Dowty), Air Nova and

Dowty entered into an agreement with respect to the landing gear

installed in the Air Nova aircraft. An essential feature of the

agreement was that Dowty offered, and Air Nova accepted, three

warranties:

(1) the General Warranty which provided that the Dowty products

were free from defect in workmanship, material or design,

failing which they would be repaired or replaced at no

cost, if the defect was discovered within a defined period

of time;

(2) the Safe Life Warranty which provided that certain of the

products had a defined life; and

(3) the Turnaround Warranty which provided that any of the

products sent back for

rectification or overhaul would be returned to Air Nova

within a specified period.

[8] These three warranties were contained in a package of

warranties Dowty offered to Air Nova. The package, the Standard

Warranty Agreement, consisted of five specific warranties (Parts

2-6) and a section containing general provisions (Part 1). The

General Warranty, Safe Life Warranty and Turnaround Warranty were

found in Parts 2, 3 and 4 of the general package. There is no

dispute that Air Nova accepted these parts. Nor is there a

dispute that Air Nova did not accept the warranties in parts 5

and 6 of the package.

[9] The package of warranties sent to Air Nova by Dowty included

a five-page document prepared by Dowty entitled “Variations from

Standard Warranty Agreements”. The warranty terms accepted by

Air Nova were those set out in Parts 2, 3 and 4 of the Standard

Warranty Agreement as amended by the Dowty variations.

[10] Parts 2, 3 and 4 of the Standard Warranty Agreement

contained provisions limiting Dowty’s liability. Typical of the

provisions in all three parts is paragraph 8 of Part 2:

8. The Vendor shall have no liability under this GW otherwise

than as expressly provided in the foregoing paragraphs hereof.

[11] However, when the Dowty variations were incorporated into

the Standard Warranty Agreement, paragraph 8 of Part 2 read:

8. The Vendor shall have no liability under this GW otherwise

than as expressly provided in the foregoing paragraphs hereof

together with paragraphs 5, 6, 7 and 8 of Part 1 of this Appendix

4. [Emphasis added.]

Similar changes were made to Parts 3 and 4 of the Standard

Warranty Agreement.

[12] The key provision in this lawsuit is paragraph 7 of Part 1

of the Standard Warranty Agreement, which provides:

7. The obligations and liabilities under the Warranties

pursuant to Paragraph 1 or 2 above and in any Sales Agreement of

which the Warranties may be part are in lieu of, and B.Ae. and/or

the Purchaser and/or the Operator waives as to Dowty and its

associated Companies, all other Warranties (whether of

merchantability, fitness or otherwise) guarantees or liabilities

expressed or implied, arising by law or otherwise (including

without limitation any obligation of Dowty with respect to

special or consequential damages other than those specifically

stated in Paragraph 2 of Part 2 of this Appendix 4) and whether

or not occasioned by Dowty’s negligence. [Emphasis added.]

[13] It is common ground that the general warranties set out in

Parts 2, 3 and 4 of the Standard Warranty Agreement do not come

into play in this litigation. Dowty’s obligation to repair or

replace the defective landing gear, and to do so within a

specified time period, did not arise because the failure of the

landing gear did not occur within two years of its installation

in the aircraft.

(3) The litigation

[14] On July 21, 1997, Air Nova issued its Statement of Claim

against Dowty. Air Nova sought damages of $1,500,000 on three

bases – negligent design of the landing gear, negligent

manufacture of the landing gear, and negligent failure to warn

Air Nova about the possible susceptibility of the landing gear to

corrosion. A flavour of Air Nova’s claim can be garnered from

these excerpts from its statement of claim:

14. Air Nova pleads that its damages were caused by the

negligence of Dowty in the following, among other

particulars:

(A) it manufactured, assembled and distributed the Subject

Part to British Aerospace for use in the main landing

gear on its BAe 146 aircraft when it knew or ought to

have known that it was susceptible to corrosion;

..….

(C) it failed to provide any or an adequate

warning to Air Nova, prior to the

occurrence, when it knew or ought to

have known of the corrosion problem with

the Subject Part;

…..

18. Air Nova further pleads that the Subject Part was

negligently designed and negligently manufactured by

Dowty in the following, among other, respects:

(A) Dowty failed to ensure that the Subject Part was adequately

protected from corrosion when it was provided to British

Aerospace and installed in the Aircraft as part of the landing

gear;

…..

19. As a result of the negligence of Dowty, considerable damage

was done to the Aircraft, which damage was repaired at the

expense of Air Nova. In addition, Air Nova suffered damages

occasioned by the loss of the Aircraft while it was being

repaired.

[15] Dowty issued its Statement of Defence on March 4, 1998. It

asserted, inter alia, that Air Nova had signed a warranty

agreement with Dowty by virtue of which Air Nova “waived any

claim against the defendants for damages sustained to the

plaintiff’s aircraft allegedly caused by the negligence of the

defendants” (paragraph 10).

[16] Relying on this position, Dowty brought a motion for summary

judgment pursuant to Rule 20 of the Rules of Civil Procedure,

R.R.O. 1990, Reg. 194. The motion was heard by Matlow J. on

April 30, 1999. On May 3, 1999 the motions judge granted the

defendants’ motion. His endorsement reads:

Summary judgment is to issue dismissing

this action with costs including the

costs of this motion.

I am persuaded that amended paragraph 7

(as set out on p. 218 of this record)

was part of the direct contractual

relationship between the parties and

that it provides a full defence to all

of the plaintiff’s claims.

[17] The plaintiff, Air Nova, appeals from this decision.

B. Issues

[18] The issues that need to be considered on this appeal are:

(1) What are the relevant terms of the warranty agreement

between Air Nova and Dowty?

(2) Do the terms of the warranty agreement, as determined in

(1), exclude Dowty’s liability for negligence, including

negligent design and manufacture?

(3) If the answer in (2) is ‘yes’, then does the warranty

agreement also exclude Dowty’s liability for negligent failure to

warn about potential defects in the product?

C. Analysis

(1) The terms of the agreement

[19] Air Nova asserts that it accepted only Parts 2 (General

Warranty), 3 (Safe Life Warranty) and 4 (Turnaround Warranty) of

the Dowty Standard Warranty Agreement. It bases this submission

on the exchange of letters between Air Nova and Dowty which

served to create the contract between them.

[20] After receiving Dowty’s warranty package, Air Nova

communicated its acceptance of Parts 2, 3 and 4 in a letter dated

January 17, 1989:

In consideration of the supply by you

direct to the undersigned or through

British Aerospace of equipment installed

in the Aircraft or as spare parts for

use in connection with the operation of

the BAe 146 aircraft, we hereby confirm

acceptance of your Equipment Warranties

in the terms of the General, Safe Life

and Turnaround Warranties.

[21] By letter dated February 8, 1989, Dowty confirmed Air Nova’s

acceptance:

Thank you for your letters of the 17th

and 25th January 1989, confirming that

Air Nova Inc. has accepted delivery of

BAe 146 Series 200 Aircraft… and that

you accept the General Safe Life and

Turnaround Warranties given by Dowty

Rotol Limited.

[22] Air Nova submits that both of these letters contain explicit

language limiting its acceptance of the warranty package to only

Parts 2, 3 and 4.

[23] I cannot accept this submission. Part 1 of the Standard

Warranty Agreement is a general and, for the most part,

descriptive section dealing with the entire warranty package.

Paragraph 7 of Part 1, however, is much more than a descriptive

umbrella provision. It is a far-reaching exclusion of liability

clause, covering even liability for negligence. In the

Variations from Standard Warranty Agreement which Dowty sent to

Air Nova with its warranty package, it is clear that Dowty

intended to link paragraph 7 of Part 1 directly with the

exclusion clauses that already existed in Parts 2, 3 and 4. With

respect to each of these parts, the words “together with

paragraphs 5, 6, 7 and 8 of Part 1 of this Appendix 4” were added

to the relevant paragraphs. Thus, as set out earlier, the

wording of section 8 of Part 2 (the General Warranty) became:

8. The Vendor shall have no liability under this GW otherwise

than as expressly provided in the foregoing paragraphs hereof

together with paragraphs 5, 6, 7 and 8 of Part 1 of this Appendix 4.

[24] Similar language was used to link paragraphs 5-8 of Part 1

with comparable provisions in Part 3 (Safe Life Warranty) and

Part 4 (Turnaround Warranty) of the Standard Warranty Agreement.

[25] It follows that when Air Nova accepted Parts 2, 3 and 4 of

the Standard Warranty Agreement, it also accepted the provisions

of Part 1, which were explicitly referred to in those parts.

Accordingly, my conclusion on this issue is the same as the one

reached by the motions judge: “amended paragraph 7 [of Part 1] …

was part of the direct contractual relationship between the

parties”.

(2) The interpretation of the exclusion clause

[26] Air Nova’s second submission is that, even if the ‘no

liability for negligence’ exclusion in paragraph 7 of Part 1 is

part of its contract with Dowty, it is not a free-standing

exclusion of liability for all negligent acts or omissions on

Dowty’s part. Rather, because paragraph 7 of Part 1 was referred

to in specific paragraphs in Parts 2, 3 and 4, the exclusion must

be read in the context of only the warranties in those parts.

[27] I do not agree with this submission. In my view, paragraph

8 of Part 2 and paragraph 7 of Part 1 must be read together.

That is clear from the words “together with” in paragraph 8 of

Part 2; they are words that link the provisions of the General

Warranty and four paragraphs, including paragraph 7, from Part 1.

[28] What, then, does paragraph 7 of Part 1 add to Dowty’s

protection? Although it is an overly long and poorly drafted

provision, its application to Air Nova in the context of this

case comes from these words:

7. The obligations and liabilities under the [General Warranty]

… are in lieu of … and … [Air Nova] waives as to Dowty … all

other warranties … guarantees or liabilities express or implied,

arising by law or otherwise … and whether or not occasioned by

Dowty’s negligence.

[29] My interpretation of these words is this:

(1) Under the General Warranty, Dowty promised to provide

landing gear “free from defect in workmanship or design

having regard to the state of the art at the time of design”

(Paragraph 1 of Part 2);

(2) This warranty lasts for two years from the date of delivery

or installation (Paragraph 2 of Part 2);

(3) The warranty in (1) and (2) is “in lieu of” and Air Nova

“waives as to Dowty … all other liabilities … arising by

law” (Paragraph 7 of Part 1); and

(4) The “other liabilities” Air Nova waives include those that

might be “occasioned by Dowty’s negligence” (Paragraph 7 of

Part 1).

[30] In the present case, the landing gear became defective

outside the two-year period prescribed in the General Warranty.

So the contractual warranty cannot assist Air Nova. Normally,

that might not be the end of the matter because, if the defect

were caused by Dowty’s negligence, a lawsuit grounded in tort law

would be possible. That is what Air Nova is attempting in this

litigation. However, the language of Paragraph 7 of Part 1 kicks

in to prevent the lawsuit. In return for the warranty it

received, Air Nova specifically waived any other recourse it

might have had against Dowty, including recourse for Dowty’s

negligence.

[31] For these reasons, I am of the view that the motions judge’s

conclusion that “paragraph 7 … provides a full defence to all of

the plaintiff’s claims” was correct.

(3) Negligent failure to warn

[32] Air Nova’s third submission is an alternative one. It

asserts that if the court interprets paragraph 7 of Part 1 of the

Standard Warranty Agreement to exclude liability in negligence,

the exclusion should cover negligent design and negligent

manufacture, but not negligent failure to warn about the defect

in the landing gear component once Dowty becomes aware of it.2

[33] Air Nova does not assert that parties cannot by contract

exclude liability for negligent failure to warn. Such an

assertion would fail in light of the recent decision of the

Supreme Court of Canada in Bow Valley Husky (Bermuda) Ltd. v.

Saint John Shipbuilding Ltd., 1997 307 (SCC), [1997] 3 S.C.R. 1210. In that

case, the court held that the common law duty to warn was not an

absolute one; it gave way to a clear contractual provision

excluding liability except as provided in the warranties.

McLachlin J. (dissenting, but not on this point) articulated the

general proposition of law in this fashion, at p. 1232:

To borrow the language of La Forest J.

in London Drugs Ltd. v. Kuehne & Nagel

International Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299,

at p. 327, tort liability in a case such

as this falls to be assessed in a

contractual matrix. The parties’

planned obligations must be given

appropriate pre-eminence. Where those

planned obligations negate tort

liability, contract “trumps” tort: see

J. Fleming, “Tort in a Contractual

Matrix” (1993), 5 Canterbury L. Rev.

269, at p. 270, citing P. Cane, Tort Law

and Economic Interests (1991), at p.

293. It follows that a tort claim

cannot be used to escape an otherwise

applicable contractual exclusion or

limitation clause: Central Trust Co. v.

Rafuse, 1986 29 (SCC), [1986] 2 S.C.R. 147.

[34] Iacobucci J., speaking for the majority, agreed with

McLachlin J’s discussion of the general principles relating to

the intersection of contract and tort law. He, too, said that

“where the planned contractual obligations of two parties negate

tort liability, contract will ‘trump’ tort” (at p. 1272). See

also BG Checo International Ltd. v. British Columbia Hydro and

Power Authority,1993 145 (SCC), [1993] 1 S.C.R. 12, especially at pp. 26-30 per

La Forest and McLachlin JJ.

[35] In the face of this jurisprudence, Air Nova’s submission is

not that Dowty could not exclude liability for negligent failure

to warn. Rather, its argument is that paragraph 7 of Part 1,

properly interpreted, does not exclude such liability. In

particular, Air Nova relies on the words “expressed or implied”

in that provision; its argument based on these words is set out

in paragraph 37 of its factum:

[T]he exclusion provision relied on by

Dowty by its plain meaning only excludes

liabilities “… expressed or implied …”,

i.e. liabilities in existence at the

time of the contract, and does not

address liabilities not in the

contemplation of the parties at the time

of the contract. By using the past

tense, the clause fails to explicitly or

emphatically exclude future liabilities

that arise from negligent failure to

warn … .

[36] There are two problems, one minor and the other major, with

Air Nova’s submission on this point. First, I do not think that

the words “expressed or implied” are words that connote only the

past tense. They are descriptive words which indicate the types

of liability that are excluded.

[37] Second, and more fundamentally, the wording of paragraph 7

of Part 1 is clear: “all … liabilities” are excluded, including,

specifically, those that might be “occasioned by Dowty’s

negligence.” One of the categories of modern tort law is

‘negligent failure to warn’. Air Nova concedes (for the purpose

of its alternative argument) that the exclusion clause captures

negligent design and negligent manufacture. Given that negligent

failure to warn is as much a part of tort law as negligent design

and negligent manufacture, I see no good reason for interpreting

the words “Dowty’s negligence” in paragraph 7 of Part 1 as

covering design and manufacture, but not covering a failure to

warn.

[38] I make one final observation on the failure to warn issue.

In my view, Dowty’s exclusion clause is stronger than the three

exclusion clauses considered by the Supreme Court of Canada in

Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd.,

supra. None of the exclusion clauses in that case used the word

‘negligence’. Yet, the Supreme Court interpreted the clauses,

because of their broad wording, as excluding liability for a

negligent failure to warn. In the present appeal, the clause in

issue specifically mentions ‘negligence’ as coming within its

ambit. It is no stretch, in my view, to interpret ‘negligence’

to cover one of the recognized components of tort law, namely

‘negligent failure to warn’.

[39] For these reasons, Air Nova’s alternative argument fails.

Disposition

[40] I would dismiss the appeal with costs.

Released:January 13, 2000

“J.C. MacPherson J.A.

“I agree M. Rosenberg J.A.”

“I agree K. Feldman J.A.”

1 Date format is yyyymmdd

2 PUT IN CASE NUMBER – NOT LOWER COURT NUMBERS

1 The defendant Messier-Dowty Inc. is a Canadian company

affiliated with Messier-Dowty Limited. Its head office is in

Ajax, Ontario.

2 Whether Dowty was aware of a defect would be an issue for the

trial.