Wednesday, July 16, 2014

Contribution and indemnity or claim in negligence?

Addison & Leyen Ltd v Fraser Milner Casgrain LLP, 2014 ABCA 230:

[22]           The leading authority on the common law of contribution and indemnity is Birmingham and District Land Co v London and Northwestern Railway Co(1886), 34 Ch D 261 (CA). In that early decision, the English Court of Appeal broadly defined the right to indemnity under the common law as a direct right to reimbursement which may arise: (1) by express contract, if provided in the terms of a contract between the parties; (2) by implied contract, if the parties intended such indemnity; or (3) by implication, if the circumstances demand a legal or equitable duty to indemnify, by which the law recognizes an assumed promise by a person to do what, under the circumstances, he ought to do (at 274). The court identified certain circumstances where the law may imply a contract to indemnify, such as relationships of principal and agent and of co- trustees.

[23]            However, a right to indemnity, recognized at law or in equity, must be distinguished from the common law right to "damages" for breach of contract or tort. Bowen L.J. explained (at 274-275):

But it is quite clear to my mind that a right to damages, which is all that the Defendants have here if they are entitled to anything, is not a right to indemnity as such. It is the converse of such a right. A right to indemnity as such is given by the original bargain between the parties. The right to damages is given in consequence of the breach of the original contract between the parties. It is an incident which the law attaches to the breach of a contract, and is not a provision of the contract itself.


[24]           In concurring reasons, Fry L.J. further noted (at 276):

In the same manner with regard to tort, the right to damages for tort does not arise from any implied contract that if I do a wrong I will indemnify the person wronged for the wrong I have done. It is the common law right which everybody has to damages for a wrong which has been done to him.

[25]           In Eastern Shipping Company Limited v Quah Beng Kee, [1924] AC 177 (PC), the Privy Council adopted these principles and held that a common law indemnity may be implied "where the relation between the parties is such that either in law or in equity, [express or implied], there is an obligation on one party to indemnify the other" (at 182).

[26]           The common law right of indemnity has long been recognized in Alberta and across Canada (see: R v Imperial Tobacco Canada Ltd, 2011 SCC 42 (CanLII), 2011 SCC 42, [2011] 3 SCR 45; Trans-Canada Forest Products Ltd v Heaps, Waterous Ltd, [1954] SCR 240, [1954] 2 DLR 545; McFee v Joss (1925),56 OLR 578, [1925] 2 DLR 1059 (Ont CA); Ryan v Dew Enterprises Ltd, 2014 NLCA 11 (CanLII), 2014 NLCA 11, 28 CLR (4th) 1; Dilcon Constructors Ltd v ANC Developments Inc 1994 ABCA 245 (CanLII), (1994), 155 AR 314, 117 DLR (4th) 156 (CA); Fidelity Trust Company v 98956 Investments Ltd1988 ABCA 267 (CanLII), 1988 ABCA 267, 89 AR 151;Dean v Kociniak, 2001 ABQB 412 (CanLII), 2001 ABQB 412, 289 AR 201;Doucette v Hasegawa and Associates Ltd,2009 ABQB 502 (CanLII), 2009 ABQB 502, 486 AR 124).

[27]           Both parties highlight McFee v Joss, a decision of the Court of Appeal for Ontario, as an early statement of the law in Canada (at para 24):

…[A]n implied contract of indemnity arises in favour of a person who, without fault on his part, is exposed to liability and compelled to pay damages on account of the negligence or tortious act of another, provided the parties were not joint tort-feasors in such a sense as to prevent recover; that is where the act is not clearly illegal itself. This right of indemnity is based upon the principle that everyone is responsible for his own negligence, and if another is by a judgment of a Court, compelled to pay damages which ought to have been paid by the wrongdoer, such damages may be recovered from the wrongdoer. I am also of the opinion that such right of indemnity exists independently of the statute, and whether or not contractual relations exist between the parties, and whether or not the negligent person owed the other a special or particular duty not to be negligent.

[28]           More recently, in Ryan v Dew Enterprises Ltd, the Newfoundland Court of Appeal summarized the applicable legal principles in implying a right of indemnity at common law (at para 54): 

A claim for indemnity is a claim that another party save the indemnity-claimant harmless against loss or damage which the indemnity-claimant has incurred or suffered or will incur or suffer at the hands of another, and to reimburse the claimant in respect of such loss or damage. The claim may arise from an express contract, by implication of law or from statute. An example of a claim to indemnity arising from implication of law is where an act is done at the request of another, the act turns out to be injurious to a third party and in consequence of doing the act the doer incurs liability to the third party (Birmingham and District Land Co. v. London and North Western Railway Co.(1886), 34 Ch. D. 261 (C.A.)). Other diverse examples include: (i) where an agent incurs loss while lawfully carrying out the mandate of his or her principal; (ii) where a principal suffers loss by incurring liability to a third party as a result of the wrongful actions of his or her agent or employee; (iii) where a trustee causes a co-trustee to incur costs through the trustee's negligent management of the trust; and (iv) where an obligation arises in equity from the relationship between the parties, such as between trustee and beneficiary.


[29]           While these cases provide diverse factual examples giving rise to a right of implied indemnity, courts have cautioned against the unprincipled expansion of these claims. In R v Imperial Tobacco Canada Ltd, the Supreme Court of Canada stated (at para 147):

Equitable indemnity is a narrow doctrine, confined to situations of an express or implied understanding that a principal will indemnify its agent for acting on the directions given. As stated in Parmley v. Parmley1945 CanLII 13 (SCC), [1945] S.C.R. 635, claims of equitable indemnity "proceed upon the notion of a request which one person makes under circumstances from which the law implies that both parties understand that the person who acts upon the request is to be indemnified if he does so" (p. 648, quoting Bowen L.J. in Birmingham and District Land Co. v. London and North Western Railway Co. (1886), 34 Ch. D. 261, at p. 275.)

[30]           A narrow approach was also encouraged in Ryan v Dew Enterprises Ltd,where the court noted (at para 54):

While the circumstances where an obligation to indemnify arises by implication of law are diverse, they are not open-ended. The obligation cannot be imposed simply by the exercise of ad hocdiscretion. As noted by Goodridge J. inCollavino, at paragraphs 18-21, just because a party may have a claim for damages over against a third party does not entitle him or her to a claim in indemnity or contribution. This was the traditional English position as enunciated inBirmingham and District Land Co. v. London and North Western Railway Co, supra., at pages 272 and 274-275, which was cited and relied on by Goodridge J. inCollavino at paragraphs 15-16 andLundrigan at paragraphs 18-19.

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