London Drugs Ltd v Kuehne & Nagel International Ltd | |
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Hearing: October 29, 1991 Judgment: October 29, 1992 | |
Citations | [1992] 3 SCR 299 |
Docket No. | 21980 |
Holding | |
When parties enter into commercial agreements and decide that one of them and its employees will benefit from limited liability, the doctrine of privity should not stand in the way of commercial reality and justice. | |
Court membership | |
Puisne Justices | La Forest, L'Heureux‑Dubé, Sopinka, Cory, McLachlin, Stevenson and Iacobucci JJ |
Reasons given | |
Majority | Iacobucci J, joined by L'Heureux‑Dubé, Sopinka, and Cory JJ |
Concurrence | McLachlin J |
Concur/dissent | La Forest J |
Stevenson J took no part in the consideration or decision of the case. |
London Drugs Ltd v Kuehne & Nagel International Ltd, [1992] 3 SCR 299 [1] is a leading decision of the Supreme Court of Canada on privity of contract.
Kuehne & Nagel was storing a transformer owned by London Drugs valued at $32,000. The agreement between the parties included a limitation of liability clause which limited liability for damage to the transformer to $40. Two employees were moving the transformer with a forklift and negligently dropped it. [2]
London Drugs sued the two employees on the basis that they owed a separate duty of care and could not seek protection under the contract.
London Drugs succeeded at first instance at the British Columbia Supreme Court, [3] where the trial judge found the employees personally liable for the full amount of the damages, limiting the company's liability to $40. That judgment was reversed in part on appeal to the British Columbia Court of Appeal, [4] where, in a majority decision, the employees' liability was reduced to $40.
London Drugs appealed this decision and the respondent employees cross‑appealed, arguing that they should be completely free of liability.
The appeal was dismissed in a 6–0 ruling, while the cross-appeal was dismissed 5–1.
Iacobucci J, writing for the majority, observed:
There is no general rule in Canada to the effect that an employee acting in the course of his or her employment and performing the "very essence" of his or her employer's contractual obligations with a customer, does not owe a duty of care, whether one labels it "independent" or otherwise, to the employer's customer. The mere fact that the employee is performing the "very essence" of a contract between the plaintiff and his or her employer does not, in itself, necessarily preclude a conclusion that a duty of care was present.
While the employees were liable in negligence, they were able to gain protection under the contract. Employees are able to gain protection where:
McLachlin J concurred, but for different reasons. Tort and contract constitute separate legal regimes, and the appellant's action against the employees in this case is necessarily in tort, since there was no contract between them. The theory of voluntary assumption of the risk permits an employee sued in tort to rely on a term of limitation in his employer's contract. The plaintiff, having agreed to the limitation of liability vis à vis the employer, must be taken to have done so with respect to the employer's employees.
La Forest J, in dissent, believed the respondent employees did not owe any duty of care to the appellant in the circumstances of this case. He applied the "Anns test" as formulated by the House of Lords, which asks:
In the present case, the first question is answered in the affirmative. As to the second, he felt that the vicarious liability regime is best seen as a response to a number of policy concerns:
The employee remains liable to the plaintiff for his independent torts. An independent tort may fall within or outside the range of the employer's liability under the vicarious liability regime. In that regard, the following questions must be answered:
Since the conduct of the employees was covered by the contract, the plaintiffs were considered to have voluntarily assumed the risk of their tortious behaviour. The plaintiffs could not have reasonably relied on the employees and, thus, the employees were shielded from liability. [7]
There has been much discussion about the nature of the ruling in two areas:
The majority ruling, which shielded the employees' liability by virtue of contractual terms, has invited discussion as to the effect where such shielding is not in place. [8] [9] [10]
La Forest J's discussion of vicarious liability has influenced subsequent Supreme Court decisions on that doctrine, most notably Bazley v Curry , [11] which has had significant influence in the jurisprudence of other Commonwealth jurisdictions including the UK House of Lords in its ruling in Lister v Hesley Hall Ltd [2001] UKHL 22.
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In law, liable means "responsible or answerable in law; legally obligated". Legal liability concerns both civil law and criminal law and can arise from various areas of law, such as contracts, torts, taxes, or fines given by government agencies. The claimant is the one who seeks to establish, or prove, liability.
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