COURT OF APPEAL FOR ONTARIO
CITATION: Williams-Sonoma Inc. v. Oxford Properties Group Inc., 2013 ONCA 441
DATE: 20130626
DOCKET: C56194
Weiler, Gillese and Hoy JJ.A.
BETWEEN
Williams-Sonoma Inc., Williams-Sonoma Canada Inc., Pottery Barn and Pottery Barn Kids
Plaintiffs (Appellants)
and
Oxford Properties Group Inc., Paragon Protection Ltd. and EllisDon Corporation
Defendants (Respondent)
and
Yorkdale Shopping Centre Holdings Inc. and Omers Realty Management Corporation
Third Parties (Respondents)
Raj K. Datt and Gerry Grossi, for the appellants
Marcia J. Oliver, for the respondent, EllisDon Corporation
Heard: May 9, 2013
On appeal from the judgment of Justice Darla A. Wilson of the Superior Court of Justice, dated October 1, 2012, with reasons reported at 2012 ONSC 5448.
Hoy J.A:
I. OVERVIEW
[1] Williams-Sonoma Inc., Williams-Sonoma Canada Inc., Pottery Barn and Pottery Barn Kids (the “Tenants”) appeal the October 1, 2012 judgment of the motion judge, dismissing their action against the respondent, Ellis Don Corporation.
[2] The Tenants are tenants at Yorkdale Shopping Centre in Toronto. The landlord, Yorkdale Shopping Centre Holdings Inc., (the “Landlord”) contracted for the respondent – an independent contractor – to perform certain construction work at the mall. Early one morning, a vandal opened a fire hose located in the vacant, third floor area of the mall that the Landlord had permitted the respondent to use for its office and storage. As a result, the Tenants’ premises suffered what they allege is some $7,000,000 of water damage.
[3] The leases between the Tenants and the Landlord (each a “Lease”) required the Tenants to take out and maintain insurance covering water damage to the leased premises and to the Tenants’ property within those premises. Under subsection 8.3.1 of each Lease, the Tenant waives all claims against the Landlord and “those for whom the [Landlord] is in law responsible” with respect to occurrences required to be insured against by the Tenant.
[4] The Tenants sued the respondent contractor, alleging that it breached common-law and statutory duties owed to the Tenants by failing to properly secure the area where the fire hose was located. The respondent brought a motion for summary judgment, arguing that the Tenants had waived all claims against it pursuant to s. 8.3.1 of the Leases. The respondent argued that: the Landlord is in law responsible for the respondent within the meaning of that phrase in s. 8.3.1 of the Lease; s. 8.3.1 accordingly applies; the benefit of s. 8.3.1 extends to the non-party respondent; and the Tenants are therefore barred from suing the respondent.
[5] The motion judge concluded that the respondent was an entity for which the Landlord was responsible in law, and that, although the respondent was not a party to the Lease, the benefit of s. 8.3.1 should be extended to it pursuant to Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 654 (SCC), [1999] 3 S.C.R. 108. She accordingly granted summary judgment, dismissing the Tenants’ claims against the respondent.
[6] On this appeal, the Tenants argue that the motion judge erred in concluding that the Landlord could be responsible in law for the respondent if not vicariously responsible for it, and that the respondent did not fall within any exception to the general immunity from vicarious liability for the negligence of an independent contractor.
[7] The Tenants do not argue that this was a matter that should not have been dealt with by way of a motion for summary judgment.
[8] For the reasons that follow, I conclude that the Landlord is responsible in law for the respondent, within the meaning of those words in the Leases, and that the benefit of s. 8.3.1 should be extended to the respondent. I would accordingly dismiss this appeal.
II. THE RELEVANT PROVISIONS OF THE LEASEs
[9] The Leases are the same in all material respects. The relevant provisions are contained in Part 8, entitled “Insurance”. That Part requires the Landlord and the Tenant to take out certain insurance coverage and to release the other to the extent of such coverage.
[10] Section 8.1 provides that the “Landlord shall not be required to take out or maintain any insurance with respect to any loss, injury or damage required to be insured against by Tenant or with respect to Tenant Property.”
[11] Section 8.2 then requires the Tenant to take out and maintain, among other insurance coverage, coverage with respect to “water damage howsoever caused…fully covering the Store (including all Leasehold Improvements), all Tenant Property and any other property owned by [the] Tenant or for which it is legally liable and which is located within the Project.”
[12] Pursuant to s. 8.3, the Tenant releases the Landlord and those for whom it is “in law responsible” from claims arising out of the water damage with respect to which s. 8.2 requires the Tenant to obtain coverage:
8.3.1. Subject to sections 8.3.2 and 8.3.3, each of the Landlord and Tenant hereby releases the other and waives all claims against the other and those for whom the other is in law responsible with respect to occurrences insured against or required to be insured against by the releasing party, whether any such claims arise as a result of the negligence or otherwise of the other or those for whom it is in law responsible. [Emphasis added.]
8.3.2. Such release and waiver shall be effective only to the extent of proceeds of insurance received by the releasing party and proceeds which would have been received if the releasing party obtained all insurance required to be obtained by it under this lease and for this purpose deductible amounts shall be deemed to be proceeds of insurance received.
8.3.3. Notwithstanding anything to the contrary in this section 8.3, Landlord and Tenant shall each be liable to any third person (being any person other than Landlord or Tenant) to the extent of their respective fault or negligence and each shall be entitled to full indemnity and contribution from the other to the extent of the other’s fault or negligence.
[13] Finally, pursuant to s. 8.4, “to the extent not released under s. 8.3”, the Landlord is required to indemnify the Tenant in respect of any losses occasioned by the act, default or negligence of the respondent, which was its contractor:
8.4 To the extent not released under section 8.3, each party shall indemnify and save harmless the other from all liabilities, damages, losses or expenses growing out of:
- … any loss, cost or expense arising from occasioned by the act, default or negligence of the indemnifying party, its officers, agents, servants, employees, contractors, customers or licensees… [Emphasis added.]
III. EXCEPTIONS TO THE DOCTRINE OF PRIVITY OF CONTRACT
[14] In addition to the provisions of the Leases, the law regarding privity of contract is relevant to the analysis that follows.
[15] In two decisions – London Drugs Ltd. V. Kuhne & Nagel Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299 and Fraser River – the Supreme Court decided that, in certain circumstances, the doctrine of privity of contract should be relaxed to recognize the rights of a third party beneficiary to enforce contractual provisions made for its benefit to defend against an action commenced by one of the contracting parties.
[16] In London Drugs, a storage company was party to a contract limiting its liability to $40 for any one package. A package – a 7,500-pound transformer – was damaged while being moved by its employees. The owner of the transformer sued the company and its employees for negligence. All were found liable. At first instance, the liability of the company was limited to $40 while the employees were found liable for the full amount of the damages. The traditional exceptions to the doctrine of privity did not apply. At para. 107, the Supreme Court held that an employee should be entitled to benefit from a limitation of liability clause found in a contract between his employer and a plaintiff if:
The limitation of liability clause, either expressly or impliedly, extends its benefit to the employee seeking to rely on it; and
The employee seeking the benefit of the limitation of liability clause was acting in the course of his employment and performing the very services provided for in the contract between the employer and the plaintiff when the loss occurred.
[17] Fraser River followed some seven years later. That case dealt with a subrogation clause in an insurance contract in which the insurer waived its right of subrogation against persons to whom the insured owner chartered its vessels. The owner chartered a barge to a third party. The barge sunk through the negligence of the charterer. The insurer paid the loss; the owner waived the subrogation clause, and sued the charterer for the benefit of the insurer.
[18] The Supreme Court clarified that the principled approach in London Drugs was not limited to employee-employer relationships and applies where the traditional exceptions to the doctrine of privity do not. At para. 32, it rephrased the test in London Drugs, in general terms:
Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision; and
Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties.
[19] The Supreme Court found that the first prong of the test was clearly met: the clause expressly referenced “charters”. The second prong was also met: “the relevant activities arose in the context of the relationship of Can-Dive to Fraser River as a charterer, the very activity anticipated in the policy pursuant to the waiver of subrogation clause” (at para. 39).
IV. MOTION JUDGE’S REASONS
[20] The motion judge considered the two factors in Fraser River.
[21] As to the first, she concluded that the parties must have intended the protection arising from s. 8.3 of the Lease to extend to others involved in the renovation work ongoing in the mall. At para. 28, she reasoned that one of the intentions of the release was “the allocation of risk and certainty that cost will not be affected by one party asserting subrogation rights. In order to give effect to this intention, in my opinion, the benefit must be extended to a contractor such as [the respondent].” The first part of the test was therefore satisfied.
[22] With respect to the second part of the test, she concluded that “the consideration of vicarious liability is irrelevant.” The motion judge found that the Landlord was responsible for the presence of the respondent at the mall: the Landlord hired the respondent to perform work to satisfy the Landlord’s obligations to its tenants. Moreover, the respondent “utilized the third floor space to house its site office and to store equipment and other items necessary for the work it was conducting.”
[23] The motion judge concluded, “In my view, the waiver of subrogation extends to the benefit of [the respondent], being an entity for whom the landlord is responsible in law. To permit [the Tenants] to advance a subrogated claim against [the respondent] when it cannot advance a claim against the landlord would lead to a result that the subrogation clause is intended to prevent.”
V. ANALYSIS
(1) Summary
[24] I come to the same conclusion as the motion judge, although for slightly different reasons.
[25] The Respondent was not a party to the Leases; consequently, it can only claim the benefit of s. 8.3.1 if it falls within the test set out in Fraser River. In this case, as in Fraser, the parties specifically indicated the persons to whom they intended the benefit of the waiver of subrogation extend. Here, the Lease extends the benefit of the waiver of subrogation to those for whom the Landlord is in law responsible. The first task for the court, therefore, is to determine whether the respondent was a person for whom the Landlord was “in law responsible,” within the meaning of those words as used in the Lease. Applying the ordinary principles of contract interpretation, I conclude that the Landlord was in law responsible for the respondent, within the meaning of those words as used in the Lease.
[26] I also conclude that the two-part test in Fraser is met in this case, and that the respondent was accordingly entitled to invoke s. 8.3.1 of the Lease as a defence to the Tenants’ claims against it.
(2) Interpretation of “in law responsible”
[27] The Tenants argue that s. 8.3 is in essence a waiver, or exclusion of liability, and, as such, should be strictly construed against the party seeking to invoke it: Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 129 (SCC), [1989] 1 S.C.R. 426, para. 132. In Hunter Engineering, sellers sought to rely on provisions in their contracts to preclude the application of the warranty implied by the Sale of Goods Act that the goods supplied were reasonably fit for the purpose. In this case, unlike Hunter Engineering, the exclusion clause is a mutual one. In my view, the principle of strict construction relied on by the Tenants is therefore not applicable. The ordinary principles of contract interpretation apply.[^1]
[28] I start by considering the ordinary meaning of the words “in law responsible.”
[29] The Dictionary of Canadian Law defines “responsible” as meaning liable, accountable legally, answerable.[^2] The Canadian Oxford Dictionary defines “responsible” as “liable to be called to account (to a person or for a thing),” and defines “liable” as legally bound.[^3]
[30] Vicarious liability is a theory that holds one person responsible for the misconduct of another because of the relationship between them: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, at para. 25.
[31] In my view, the ordinary meaning of the phrase “in law responsible” is liable, accountable in law, or legally responsible; its ordinary meaning is not necessarily limited to legal responsibility arising through vicarious liability, and the manner in which the phrase is used in the Lease does not restrict its ordinary meaning.
[32] The respondent argues that a person may become legally responsible for another through the operation of a contract of indemnity. I agree. Indeed, in this case, under s. 8.4, “to the extent not released under s. 8.3,” the Landlord specifically agrees to indemnify the Tenant in respect of losses occasioned by the act, default or negligence of the Landlord’s “officers, agents, servants, employees, contractors, customers or licensees” – a class of persons including the respondent. Under this clause, the Landlord agrees to indemnify the Tenant for damages caused by its contractors, such as the respondent. In other words, the Landlord has specifically made itself legally responsible for the respondent. In my view, the effect of s. 8.4 is that the Landlord is generally “in law responsible” to the Tenant for the respondent within the meaning of s. 8.3.1.
[33] My conclusion is not altered by the phrase “to the extent not released under s. 8.3” that prefaces s. 8.4. Part 8 of the Lease is entitled “Insurance”; it allocates risk between the parties based on which party is required to obtain insurance coverage. The indemnity in s. 8.4 is situated in the part of the Lease dealing with insurance. The effect of the phrase “to the extent not released under s. 8.3” is that the Landlord is not required to indemnify the Tenant in respect of the act, default or negligence of a person listed in s. 8.4.1, if the claim is with respect to an occurrence insured against or required to be insured against by the Tenant. It does not mean that the Landlord is not in law responsible to the Tenant for such persons within the meaning of s. 8.3.1
[34] In my view, any other interpretation of the interplay of ss. 8.3.1 and 8.4 is inconsistent with the overall scheme of risk allocation envisaged by Part 8 of the Lease and would not make commercial sense. For that reason, I reject the Tenants’ argument that if it were the intent of the parties that the release in s. 8.3.1 were to extend to the parties’ “officers, agents, servants, employees, contractors, customers or licensees” then they would have used that wording, and not the words “those for whom the other is in law responsible”.
[35] Having concluded that the Landlord is, under the Lease, in law responsible for the respondent, it is unnecessary to address the arguments of the Tenants regarding vicarious liability.
(3) The application of the test in Fraser River
[36] I turn next to the issue of whether the two-part test in Fraser has been met.
[37] It follows from my conclusion that the respondent is a person for whom the Landlord is “in law responsible” that the parties intended the benefit of s. 8.3.1. to extend to the respondent, and that the first prong of the test is met.
[38] I also conclude that the activities performed by the respondent were activities contemplated as coming within the scope of s. 8.3.1. The respondent was providing services to the Landlord as a contractor – an activity specifically contemplated by the indemnity provision contained in s. 8.4 of the Lease. The second prong of the test is also met.
[39] The respondent is accordingly entitled to enforce s. 8.3.1.of the Leases to defend against the Tenants’ claim against it.
VI. DISPOSITION AND COSTS
[40] I would accordingly dismiss this appeal, and award costs in the agreed upon amount of $ 30,000, inclusive of disbursements and applicable taxes, to the respondent.
Released: June 26, 2013 “Alexandra Hoy J.A.”
“EEG” “I agree K.M. Weiler J.A.”
“I agree E.E. Gillese J.A.”
[^1]: A commercial contract is to be interpreted,
(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;
(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said;
(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and
(d) to the extent that there is ambiguity in the contract, in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.
Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, [2007 ONCA 205](https://www.canlii.org/en/on/onca/doc/2007/2007onca205/2007onca205.html), 85 O.R. (3d) 254, at para. [24](https://www.canlii.org/en/on/onca/doc/2007/2007onca205/2007onca205.html).
[^2]: D.A. Dukelow ed, The Dictionary of Canadian Law, 4th ed. (Toronto: Carswell, 2011), at p. 1124.
[^3]: K. Barber ed, Canadian Oxford Dictionary, 2nd ed. (Don Mills, ON: Oxford University Press, 2004), at pp. 1317 and 883.