COURT OF APPEAL FOR ONTARIO
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
1The 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
2On 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.
3The 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
4The 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.
5In 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.
6The 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.
7Pursuant 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.
8These 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.
9The 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.
10Parts 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:
- The Vendor shall have no liability under this GW otherwise
than as expressly provided in the foregoing paragraphs hereof.
11However, when the Dowty variations were incorporated into
the Standard Warranty Agreement, paragraph 8 of Part 2 read:
- 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
- [Emphasis added.]
Similar changes were made to Parts 3 and 4 of the Standard
Warranty Agreement.
12The key provision in this lawsuit is paragraph 7 of Part 1
of the Standard Warranty Agreement, which provides:
- 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.]
13It 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
14On 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:
- 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;
…..
- 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;
…..
- 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.
15Dowty 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).
16Relying 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.
17The plaintiff, Air Nova, appeals from this decision.
B. Issues
18The 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
19Air 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.
20After 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.
21By 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.
22Air Nova submits that both of these letters contain explicit
language limiting its acceptance of the warranty package to only
Parts 2, 3 and 4.
23I 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:
- 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.
24Similar 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.
25It 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
26Air 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.
27I 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.
28What, 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:
- 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.
29My 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).
30In 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.
31For 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
32Air 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
33Air 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.
- 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.
34Iacobucci 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.
35In 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 … .
36There 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.
37Second, 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.
38I 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’.
39For these reasons, Air Nova’s alternative argument fails.
Disposition
40I 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.