COURT FILE NO.: DC-06-00000546
DATE: 20070201
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
JUSTICE H. SPIEGEL
B E T W E E N:
RICHARD PARLETTE, KAYLA PARLETTE, a minor by her Litigation Guardian, Richard Parlette, and REBECCA PARLETTE, a minor by her Litigation Guardian, Richard Parlette
Plaintiffs / Respondents
- and -
SOKKIA INC., BLUE BIRD MOVING AND STORAGE, THOMAS LIFT TRUCK SERVICES LTD., FRANK MAYO, and TEREX CORPORATION
Defendants
Rajesh K. Datt, for the Plaintiffs/Respondents
J. Scott Maidment, and Lisa Parliament, for the Defendants, Moving Party Terex Corporation
HEARD: January 15 and 17, 2007
H. SPIEGEL J.
REASONS FOR DECISION
[1] The defendant Terex seeks leave to appeal from the order of Day J. dismissing its application for summary judgment seeking a dismissal of the claims of the plaintiffs against it in this action.
The Facts
[2] In 1995 the plaintiff Richard Parlette was injured as a result of a forklift accident while using a Clark forklift that is alleged that the forklift was defectively and negligently designed in or about 1980 by Clark Equipment Company (CEC).
[3] On or about March 31, 1992 Clark Material Handling Company (CMHC), a Subsidiary of CEC, entered into an Asset Contribution Agreement (the ACA) with CEC wherein CEC conveyed to CMHC the assets of its forklift business and CMHC expressly assumed the product liabilities of CEC arising from the design, manufacture and sale of CEC forklifts (the ACA assumption of liability provision).
[4] By an agreement dated May 27, 1992 Terex agreed to buy and CEC agreed to sell to Terex all the shares of CMHC (the SPA). Terex agreed to be jointly and severally liable with CMHC “to pay, perform and discharge … each and every obligation of CMHC …” under the 1992 Asset Contribution Agreement (the SPA assumption of liability provision).
[5] Between 1992 and 1996 CMHC continued to manufacture Clark forklifts and operated as a separate and independent company from Terex. At no time was Terex ever engaged in the design, manufacture or sale of Clark forklifts. However the plaintiffs allege that the combined effect of the ACA and the SPA is that Terex assumed all the liabilities of CEC arising from the design, manufacture and sale of the forklifts and that Terex is therefore liable to the plaintiffs for the acts or omissions of CEC in relation to design, manufacture and sale of the forklifts.
[6] CEC is still an existing corporation but has not been named as a defendant in this action.
The Motion before Day J.
[7] In the motion before Day J. Terex argued that the doctrine of privity of contract as enunciated by the Supreme Court of Canada in London Drugs[^1] prevents the plaintiffs from relying on the assumption of liability provisions. Day J. rejected this argument because he was not satisfied that the plaintiffs’ claim could not fall within the principled exception to the privity of contract doctrine as set out in London Drugs and the subsequent decision of the Supreme Court in Fraser River[^2]. He accepted that in order to do so the plaintiffs would have to establish that the parties to the ACA & the SPA intended to extend the benefit of assumption of liability provisions to them (the intention test).
[8] In addressing the intention test, Day J. noted that the ACA provided in section 6.09 that “each party hereto intends that this agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto” (the third party beneficiaries provision). While he acknowledged that this provision expressed an intention not to create the right of action specifically sought by the plaintiff in this action, he held that the provision appears to “functionally contradict” the ACA assumption of liability provisions. He concluded therefore that in the absence of a trial he would have difficulty in applying section.6.09 “to restrict the obligations otherwise asserted” in the asset contribution agreement.
[9] Day J. also acknowledged that the SPA also contained a clause similar to s.6.09 but held the language of that clause also appeared to run contrary to the SPA assumption of liability provision. He held therefore that it was arguable that the plaintiffs could satisfy the intention test with respect to the ACA and the SPA and that there was a genuine issue for trial as to whether the plaintiffs’ claim against Terex could fall within the principled exception to the privity of contract doctrine.
Successor Liability
[10] Day J. also held that there was a genuine issue for trial as to whether Terex could be held liable on the basis of successor liability. He noted that in the United States it is settled law that if a corporation expressly assumes the product liabilities of another corporation, then the former is a successor corporation and is liable to the plaintiff for injuries caused by a defective product made by the predecessor corporation (the express assumption theory). He referred to the cases of Boehler v. Blaser Jagwafen GmbH 2000 BCSC 710, [2000] BCJ No. 931 (BC Supreme Ct.) and Suncor Inc. v. Canada Wiring Cable, et al (1993) 1993 6989 (AB KB), 3 WWR 630 (Alta QB) and concluded that the law of successor liability is in a state of evolution in the United States and to a lesser extent in Canada. He adopted the view expressed by Forsythe J. in Suncor, “that there exists a real possibility that courts in Canada will adopt the reasoning of the successor liability cases in the United States and will adapt it to suit our law of negligence”. He concluded therefore that it was arguable that plaintiffs could succeed against Terex on the basis of successor liability and therefore a genuine issue existed for trial.
Position of Terex
Privity Of Contract Doctrine
[11] Terex submits that Justice Day erred in concluding that the decision in London Drugs was not determinative of the issue before him. Terex submits that the London Drugs case made it clear that the privity of contract doctrine applies to prevent a stranger to a contract from enforcing contractual provisions. Terex submits that in relying on the principled exception of the privity of contract doctrine Day J. failed to recognize that the exception would not apply in the plaintiffs’ case because the principled exception adopted by the court in London Drugs and later in Fraser River restricted a stranger to the contract to using the contractual provisions as a defence or “shield” but did not permit a stranger to sue on the contract and thereby use the contract as a “sword”.
[12] Terex further submits that Justice Day erred in finding that there was a genuine issue for trial as to whether the plaintiffs could satisfy the intention test since both the ACA and the SPA contained third party beneficiary provisions that expressly negatived the requisite intention.
Successor Liability
[13] Terex submits that Justice Day erred in relying upon the theory adopted by the New Jersey Supreme Court in Ramirez v. Amsted[^3] which was referred to in Suncor. Terex acknowledges that in Ramirez the court recognized a “product line” exception to the general rule of no successor liability but stipulated that one of the prerequisites for the application of this exception is that the successor’s acquisition of the predecessor’s business must cause the virtual destruction of the claimant’s remedies against the predecessor. Since in the case at bar there has been no such destruction of the remedies against CEC. Terex submits that the plaintiffs cannot succeed on the theory of successor liability adopted by Ramirez.
[14] Terex further submits that the product line exception in Ramirez is grounded on the concept of strict liability for defective products, which has no application to an action in Ontario, where negligence must be established. Terex submits that this distinction was overlooked by Justice Day and therefore constitutes good reason to doubt the correctness of this decision in this regard.
[15] Terex further submits that Justice Day also erred in permitting the plaintiffs to rely on American law in the absence of any proof of the foreign law. It contends that in the absence of such proof, Ontario law must be applied.
Position of the Plaintiff
Privity Of Contract Doctrine
[16] The plaintiffs submit that while the Supreme Court in London Drugs and Fraser River justified the allowance of a principled exception on the part of the defendants in those cases who were using the contractual provisions as a shield, there was no intention of the part of the Supreme Court to lay down as an iron-clad rule that in no circumstances could a stranger to a contract use the contractual provision as a sword.
[17] Counsel for the plaintiffs relies on a number of cases in which the Canadian courts have permitted a stranger to the contract to use the contractual provision as a sword[^4].
[18] The plaintiffs further contend that the motions judge made no error in concluding that there was a genuine issue for trial as to whether the plaintiffs could satisfy the intention test respecting the parties to the ACA and the SPA and thus the claim within the principled exception to the privity of contract doctrine.
[19] Counsel for the plaintiffs submits that the motions judge was right in finding that third party beneficiary provision of the ACA “appears to functionally contradict” the assumption of liability provision. Counsel for the plaintiffs submit that the language of the assumption of liability provision in the ACA goes far beyond merely indemnifying CEC against any claims that may be made against it as a result of the forklift product liability. In particular he refers to section 2.02 (a) (ii):
CEC hereby assigns, transfers, conveys, contributes and delivers CMHC, and CMHC hereby assumes and agrees to timely pay, perform and discharge all of the Material Handling Liabilities.
[20] Counsel further points to extremely broad definition of Material Handling Liabilities which includes “all liabilities obligations claims and expenses with respect to any action, suits, pursuits, arbitration and investigations relating to or arising out of (a) tort or product liability matters or other tortuous acts, failure to acts (whether actual or alleged), …”.
Successor Liability
[21] The plaintiffs submit that it is settled law in the United States where a corporation expressly assumes the product liability of another corporation then the former is a successor corporation and is liable to the plaintiff for injuries caused by defective products made by the predecessor corporation (the express assumption theory). The plaintiffs submit that while the requirement that there be a destruction of the plaintiffs’ remedies against the predecessor corporation may apply to some other theories of successor liability it is not applicable to the express assumption theory which is the only theory of successor liability relied on by the plaintiffs in this case. The plaintiffs further submit that this theory is not grounded on the basis that in the United States a product liability claim is treated as a strict liability claim.
Analysis & Decision
Successor Liability
[22] I will address this issue first since I believe that it is determinative of the motion before me. I have reviewed many of the American cases cited and I agree with the plaintiffs’ submission that the express assumption theory does not require that there be a destruction of the claimant’s remedies against the predecessor corporation.[^5]
[23] Further Terex has not satisfied me that the American doctrine of successor liability is founded on the concept of strict liability for defective products.
[24] I also find that there is no merit to the submission of Terex that the motions judge erred in permitting the plaintiffs to reply on American law in the absence of in the absence of any proof of such law. This is not a case where the plaintiffs base its claim on the applicability of a foreign law but rather where the plaintiffs argue that the Ontario courts may very well be prepared to follow or adopt the American principle of successor liability, as part of the law on Ontario.
[25] In my view the motions judge correctly held that where the court finds there is genuine issue of law that is arguable, the court should not dispose of it on a motion for summary judgment.
Conclusion
[26] Section 19(1)(b) of the Courts of Justice Act provides that an appeal lies to the Divisional Court from “the interlocutory order of a single judge of the Superior Court of Justice “ with leave.
[27] Rule 62.02 (4)(b) provides that leave shall not be granted unless there appears there is good reason to doubt the correctness of “the order in question” and that the proposed appeal involves matters of such importance that leave to appeal should be granted.
[28] The order appealed from is an order dismissing the motion of Terex for summary judgment. In view of my finding in regard to the successor liability issue it cannot be said that I doubt the correctness of this order.
[29] Therefore even if I accepted the submissions of Terex on the issue of privity of contract doctrine, Terex could not satisfy the requirements for obtaining leave to appeal. It has often been held that an appeal lies from an order or judgment not the reasons thereof. It is therefore not necessary for me to express my views on Terex’s submission on this issue since it cannot affect the outcome of this motion. I may also say that it would be undesirable for me to do so because this issue will have to be determined by the trial judge.
[30] The motion is therefore dismissed with costs fixed in the amount $4000 plus G.S.T.
H. Spiegel J.
Released: February 1, 2007
COURT FILE NO.: DC-06-00000546
DATE: 20070201
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
H. SPIEGEL J.
B E T W E E N:
RICHARD PARLETTE, KAYLA PARLETTE, a minor by her Litigation Guardian, Richard Parlette, and REBECCA PARLETTE, a minor by her Litigation Guardian, Richard Parlette
Plaintiffs/Respondents
- and -
SOKKIA INC., BLUE BIRD MOVING AND STORAGE, THOMAS LIFT TRUCK SERVICES LTD., FRANK MAYO, and TEREX CORPORATION
Defendants
REASONS FOR DECISION
H Spiegel J.
Released: February 1, 2007
[^1]: London Drugs Ltd. V .Kuene & Nagel International Ltd., 1992 3 S.C.R.108 [^2]: FraserRiver Pile & Dredge Limited v. Can-div Service Limited (1999) 2 SCR 108 [^3]: (1981), 86 O.J. 332 [^4]: Evanov v. Burlington Broadcasting Inc. (1997) O.J. 1781 (Ont. Ct. Gen Div.), Higgins Estate v. Security One Alarms Systems Ltd. (2001) O.J. No. 2447 (OSCJ), Vandewal v. Vandewal (2002) O.J. No. 393 (OSCJ) aff’d (2003) 2003 1002 (ON CA), O.J. No. 3269 (CA), Stelco Inc. (Re) (2006) 2006 27117 (ON SC), O.J. No. 3219 (OSCJ) [^5]: Grugan v. BBC Brown Boveri, Inc. (1990) 729 F. Supp. 1080 (US District Ct.), Fletcher Cyclopedia of the Law Pte. Corporation at pp 266-267, 269