



COURT OF APPEAL FOR ONTARIO

CITATION: Sanofi
    Pasteur Limited v. UPS SCS, Inc., 2015 ONCA 88

DATE: 20150209

DOCKET: C58868

Hoy A.C.J.O., Simmons and Tulloch JJ.A.

BETWEEN

Sanofi Pasteur Limited

Appellant

and

UPS SCS, Inc.,
    Honeywell Limited, Honeywell International Inc.,

Automation
    Components Inc., Industrial Technical Services

(ITS) Inc.,
    Airon HVAC Service Ltd., Airon HVAC and Control Ltd.

and Enercorp Instruments Ltd.

Respondents

and

United Parcel Service of America,
    Inc., UPS Supply Chain

Solutions, Inc., UPS Supply Chain
    Solutions General Services, Inc.,

Maple Reinders Constructors Ltd.,
    Maple Reinders Construction Ltd.,

Maple Reinders Group Ltd. and Heraeus
    Sensor Technology, USA

Third Parties

Shawn K. Faguy and Vincent Doré, for the appellant

Kathryn Podrebarac and Alan Melamud, for UPS SCS Inc.

David Hillel, for Automation Components Inc.

Linda Matthews and Dustin Milligan, for Industrial
    Technical Services (ITS) Inc.

David S. Young and Kevin R. Bridel, for Airon HVAC
    Service Ltd. and Airon HVAC and Control Ltd.

Megan Shortreed and Emily Lawrence, for Honeywell
    Limited and Honeywell International Inc.

Brittany Benning, for Maple Reinders Constructors Ltd.
    and Maple Reinders Construction Ltd.

Patrick  Duffy, for Heraeus Sensor Technology, USA

Heard: December 17, 2014

On appeal from the judgment of Justice Edward M. Morgan
    of the Superior Court of Justice, dated April 30, 2014.

Hoy A.C.J.O.:

OVERVIEW

[1]

The respondent, UPS SCS, Inc. (UPS), stored the vaccines of the
    appellant, Sanofi Pasteur Limited, in a dedicated, temperature-controlled
    warehouse.  As required by the storage contract between them, the appellant
    insured its vaccines under an all-risks policy. The warehouse cooling system
    malfunctioned. After a weekend at below the contractually-stipulated
    temperatures, the vaccines were unsaleable. The appellant was fully indemnified
    by its insurer.

[2]

The appellants insurer subrogated itself to the appellant and commenced
    an action against UPS and a number of other defendants, including Honeywell
    Limited and Honeywell International Inc. (Honeywell), Automation Components
    Inc. (Automation), Airon HVAC Service Ltd. and Airon HVAC and Control Ltd. (Airon),
    and Industrial Technical Services Inc. (ITS) (collectively, the Other
    Defendants).
[1]
On summary judgment motions brought by most of the defendants,
[2]
the motion judge dismissed the action in its entirety and awarded costs to UPS
    and the Other Defendants. He also ordered the appellant to pay one-half of the
    costs sought by the third parties to the action.

[3]

At issue on this appeal is whether the motion judge erred in concluding
    that: (1) the effect of the covenant (the Insurance Covenant) in the storage
    contract between the appellant and UPS that required the appellant to maintain
    all-risk property insurance for its personal property could be determined on a
    summary judgment motion; (2) the Insurance Covenant signified that the
    appellant had assumed
all
risk of damage to the vaccines and barred
    the appellants claim against UPS; and (3) the Other Defendants were
    third-party beneficiaries of the Insurance Covenant and similarly insulated
    from suit. The appellant also takes issue with the costs of the action awarded
    to the defendants and the third parties, and thus seeks leave to appeal the
    motion judges costs awards.


[4]

While I agree with the motion judge that the effect of the Insurance
    Covenant can be determined on a summary judgment motion, I conclude the appellant
    assumed all risk of damage to its vaccines
except for
damages of up to
    $100,000 solely due to the negligence of the defendants. The motion judge erred
    to the extent that he concluded otherwise. I also conclude that the Other Defendants
    are third-party beneficiaries of this limitation of liability.

[5]

As I detail below, UPS previously tendered payment of $100,000 plus
    pre-judgment interest to the appellant as an estimate of its maximum liability
    to the appellant. Although UPS indicated that the payment was non-refundable and
    did not depend on the outcome of the summary judgment motion, the appellant
    returned the payment. Because of the willingness of UPS to make such payment, there
    is no genuine issue requiring a trial. Provided UPS pays to the appellant within
    10 days the $100,000 plus pre-judgment interest that was refunded to it, together
    with pre-judgment interest thereon from the date of refund to the date of such
    payment, I would uphold the motion judges costs awards and dismiss this
    appeal.

[6]

If such payment is not made within 10 days, I would allow this appeal
    and direct a trial of the issue of whether the vaccines were damaged solely as
    a result of the negligence of the defendants.  In such event, I would also necessarily
    set aside the costs of the action awarded by the trial judge and return the
    issue of the costs of the summary judgment motions to the motion judge, if the
    parties are unable to agree on those costs.

[7]

I first provide some background to this appeal and then address the issues
    raised by the appellant.

BACKGROUND

[8]

The appellant is an international pharmaceutical company. UPS  the main
    respondent  is among other things a warehousing company, specializing in the
    storage of pharmaceutical products. The Other Defendants include: the
    manufacturer of the building automation system that controlled the temperature
    in UPSs warehouse (Honeywell); the party which installed the system and
    performed limited ongoing preventative maintenance on it (Airon); the supplier
    of the temperature and humidity sensors used in the warehouse (Automation); and
    the contractor who calibrated and tested those sensors (ITS).

[9]

On April 8, 2009, the appellant and UPS entered into a Master Services
    Agreement (the MSA). The MSA incorporated various schedules (Service
    Schedules) that specified the services that UPS was to provide to the
    appellant. The Service Schedules in turn attached statements of work (SOWs)
    and exhibits. The MSA, and the Service Schedules, SOWs and exhibits (the
    Incorporated Documents) are defined as the Agreement between the parties. For
    ease of reference, the relevant provisions of the Agreement are set out in
    Schedule A to these reasons.  The Agreement specifies that in the event of a
    conflict between the terms of the MSA and the terms of any Incorporated
    Document, the terms of the Incorporated Document shall control.

[10]

Federal
    legislation requires that vaccines be stored in temperature-controlled
    warehouses that accord with Good Manufacturing Practices (GMP). Under the
    Agreement, UPS agreed to store the appellants vaccines in a GMP-compliant
    cooler, at between 2 to 8 degrees Celsius, and to monitor the temperature in
    the cooler (see ss. 6 and 9.3 of Exhibit A to Service Schedule 1). It also
    agreed to adhere to federal regulations regarding the storage of vaccines. In
    exchange, the appellant agreed to pay UPS monthly storage fees.  For the month
    at issue on this appeal, the storage fees amounted to $8,920.

[11]

The
    Insurance Covenant  s. 10.2(c) of the MSA  required the appellant to maintain
    all-risk property insurance for the Goods and the personal property of [the
    appellant]  in an amount not less than the full replacement cost thereof,
    whether such Goods or property are in [UPSs] facilities or in transit and
    shall include [UPS] as an additional insured.

[12]

Another
    provision of the MSA  s. 10.1  required UPS to maintain commercial general
    liability insurance, including  warehousemans liability and contractual
    liability covering [UPSs] obligations hereunder for bodily injury and property
    damage.

[13]

Clause
    4.2.1.1 of Service Schedule 1 provided that UPS would be liable for damaged
    vaccines solely due to its negligent acts or omissions with up to a maximum of
    one hundred thousand dollars ($100,000) per year.

[14]

On
    June 1, 2009, UPS discovered that the warehouse cooling system had
    malfunctioned. The vaccines had spent the weekend at a temperature of minus 4.2
    degrees Celsius.  They were unsaleable. The incident seems to have been caused
    by compounding errors: not only did the cooler malfunction, but the alarm
    system intended to notify UPS of temperature fluctuations had been suppressed before
    the MSA was signed due to the actions of an employee of a U.S.-based affiliate
    of UPS and remained suppressed until sometime after the incident occurred.

[15]

The
    appellant sued UPS and the Other Defendants for damages in the amount of
    $8,259,934.48 for breach of contract, negligence, gross negligence,
    recklessness, wilful misconduct and/or fundamental breach of contract. Among
    other things, it alleged that it had entered into the Agreement based on
    various representations made by UPS regarding its cooling and monitoring system.

[16]

A
    number of third parties (the Third Parties) were added to the action: United
    Parcel Service of America, Inc., UPS Supply Chain Solutions, Inc., UPS Supply
    Chain Solutions General Services, Inc., Maple Reinders Constructors Ltd., Maple
    Reinders Construction Ltd., Maple Reinders Group Ltd. and Heraeus Sensor
    Technology, USA.

[17]

UPS
    delivered a cheque to the appellant for $100,000, plus pre-judgment interest,
    stating that, [i]t is [UPSs] position that its
maximum
liability to
    [the appellant] under the [Agreement] is $100,000 (emphasis added). And in a
    subsequent letter it confirmed that it would not seek to recover this amount,
    regardless of the outcome of the proceeding. Several months after delivery of
    its cheque, UPS brought its motion for summary judgment, based on the Insurance
    Covenant. The appellant chose to return the $100,000 plus pre-judgment interest
    that UPS paid to it before the summary judgment motions were heard.

[18]

The
    motion judge concluded that the Insurance Covenant signified the appellants
    assumption of risk of the very damage for which it sues and was therefore a
    complete answer to the appellants action. He wrote, at para. 3:

The Ontario Court of Appeal has stated in an unqualified way
    that, [a] contractual undertaking by the one party to secure property
    insurance operates in effect as an assumption by that party of the risk of loss
    or damage caused by the peril to be insured against:
Madison Developments
    Ltd. v. Plan Electric Co.
(1997), 36 O.R. (3d) 80, at para. 9. And since
    the [appellants] insurer in this subrogated action can be in no better
    position than the [appellant] itself,
Amexon Realty Inc. v. Comcheq
    Services Ltd.
(1998), 37 OR (3d) 573 (Ont CA), this combined proposition
    of contract and insurance law entirely refutes the claim.

[19]

Applying
Fraser River Pile & Dredge Ltd. v. Can-Drive Services Ltd
, [1999]
    3 S.C.R 108, he also concluded, at para. 34, that the parties intended to
    extend the benefit of the Insurance Covenant to the Other Defendants: the
    activities of the co-Defendants  all of whom are sued because they are alleged
    to have played a role in the failure of the required temperature control
    mechanism  are the very activities at which the [Insurance Covenant] aims.

[20]

The
    motion judge accordingly dismissed the appellants action against all of the
    defendants. Because UPS and the Other Defendants enjoyed immunity by virtue of
    the Insurance Covenant, and therefore sustained no loss for which they could
    claim contribution or indemnity, the motion judge also dismissed the
    defendants claims against the Third Parties.

[21]

Finally,
    the motion judge awarded costs of the action in favour of the defendants and
    the Third Parties. (The parties had agreed on the costs of the summary judgment
    motions.)

Issue 1: Was this action
    appropriate for summary judgment disposition?

[22]

The
    decision of a motion judge that an action is appropriate for summary
    disposition attracts deference: see
Hryniak v. Mauldin
, 2014 SCC 7, [2014]
    1 S.C.R. 87, at paras. 81-84.

[23]

While
    I conclude that the motion judge erred in his interpretation of the Agreement, I
    am not persuaded that ascertaining the effect of the Insurance Covenant could not
    be undertaken on a summary judgment motion, and therefore cannot be undertaken
    by this court on appeal. The task before the motion judge was to determine
    whether  or to what extent  the appellant had contractually assumed all risks
    of damage to its vaccines and, to the extent the appellant had assumed the risk,
    whether the parties intended to extend the benefit of the Insurance Covenant to
    all of the defendants.

[24]

The
    appellant argues that because the parties advance competing interpretations of
    the Agreement, the motion judge needed to engage in an exercise of contractual
    interpretation (which  as discussed below  it argues he failed to do) and a
    complete factual matrix relating to the incident and its cause are necessary
    before this task can be undertaken.  The appellant argues that the complete
    factual matrix can only be determined after it has an opportunity to examine
    the individual who allegedly suppressed the alarm in the warehouse. Therefore,
    it submits, a trial of the action was (and is) required.

[25]

In
    its factum, the appellant also argued that the motion judge erred in concluding
    that the cause of the loss at issue was fortuitous. It did not pursue this
    issue in its oral submissions.  I address this argument here, because it
    appears to me to relate to the appellants submission that this matter is not
    appropriate for summary disposition.

[26]

I
    disagree that a trial is required to determine whether  or to what extent 
    the appellant contractually assumed the risk of damage to its vaccines and, to
    the extent the appellant had assumed the risk, whether the parties intended to
    extend the benefit of the Insurance Covenant to all of the defendants.

[27]

To
    be covered by an all-risk policy, the damage must be due to some fortuitous
    circumstance or casualty. The insured is not required to prove the exact nature
    of the accident or casualty: see
Goderich Elevators Ltd. v. Royal Insurance
    Co.
(1999), 42 O.R. (3d) 577 (C.A.), at para. 15.

[28]

As
    the motion judge wrote at para. 10 of his reasons:

The [appellants] obligation under the MSA is to maintain
    all-risk coverage. The requisite insurance is not limited to a specific type
    of peril or damage; rather it covers all situations in which the cause of the
    damage is fortuitous. The courts have made it clear that with this type of
    coverage obligation, there is no need to prove the exact nature of the
    accident or casualty which, in fact, occasioned [the] loss:
British &
    Foreign Marine Insurance Co. v. Gaunt
, [1921] 2 AC 41, at 47 (HL).

[29]

It
    was not necessary to determine the cause of the damage in order to interpret
    the Agreement. Further, the factual matrix includes those facts surrounding the
    genesis of the contract that are known or reasonably ought to have been within
    the knowledge of both parties at or before the date of contracting: see
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, 373 D.L.R. (4th) 393, at
    para. 58. The facts surrounding the alleged loss were not known by both parties
    at the time the MSA was executed. Accordingly, these facts are not part of the
    factual matrix and were not relevant to the interpretation of the Agreement.

[30]

I
    find it odd that the appellant argued the issue of fortuity on the summary
    judgment motion, and again on appeal.  It is an issue  that I would have expected
    the appellant to raise to avoid an obligation to indemnify its insured, and not
    to bolster a subrogated claim made
after
it has indemnified its
    insured. This may explain why the appellant did not pursue this issue in oral
    submissions.

[31]

In
    any event, if the motion judge was required to address the issue of fortuity,
    he did so. He referred to this courts decision in
Goderich
and
    reasoned that as the loss in that instance was covered under an all-risk
    policy, the loss in this case was similarly covered.

[32]

In
Goderich
, grain stored by the insured became heated, resulting in a
    down-grading of the grain shipment. The insurer sought to avoid indemnifying
    the insured. Goudge J.A., for the court, wrote at para. 15:

In my opinion, although the cause remains unknown, the fact
    that the grain became heated grain while in the care and control of Goderich
    is exactly the kind of fortuituous event that triggers the coverage of this
    all-risks policy. Something happened which resulted in the damage to the grain.

[33]

As
    the motion judge wrote at para. 11,[i]t stands to reason that if a covenant to
    insure prevents a warehouse from being held liable for overheated products, a
    similar covenant prevents a warehouse from being held liable for overcooled
    products.

[34]

Moreover,
    there was no evidence that UPS intentionally damaged the appellants vaccines or
    that damage to the appellants vaccines was inevitable. I see no error in the
    motion judges reasoning in concluding that the loss was fortuitous. And as
    previously stated, I agree with the motion judge that the effect of the
    Insurance Covenant could properly be determined on a summary judgment motion.

Issue 2: Does the Insurance
    Covenant bar the appellants claim?

[35]

The
    appellant argues that the motion judge simply determined that the Insurance
    Covenant barred the appellants claim as a matter of contract law, without
    engaging in the requisite exercise of contractual interpretation.  It submits
    that this amounted to an error of law. Further, the appellant says that had the
    motion judge engaged in a full and complete analysis of the Agreement, he
    would, or at least should, have concluded that the Insurance Covenant does not
    bar the appellants action.

[36]

While,
    as the appellant points out, the motion judge cited numerous cases in his analysis,
    I am satisfied that the motion judge engaged in an exercise of contractual
    interpretation in concluding that the Insurance Covenant barred the appellants
    action. This is demonstrated in paras. 13-22 of his reasons, where he addresses
    the appellants arguments that s. 10.1 of the MSA and clause 4.2.1.1 of Service
    Schedule 1  reproduced below and in Schedule A to these reasons  make clear
    that the Insurance Covenant was not intended to bar its claim.

[37]

However,
    as I explain below, in interpreting the inter-play of clause 4.2.1.1 of Service
    Schedule 1 and the Insurance Covenant, the motion judge failed to consider a
    material provision of the Agreement: s. 1 of the MSA, entitled Structure of
    the Agreement (reproduced in Schedule A to these reasons). Section 1 of the
    MSA mandates that in the event of any conflict between a provision in the MSA
    (such as the Insurance Covenant) and a provision in Service Schedule 1, the
    terms of Service Schedule 1 control. As a result, his conclusion is not
    entitled to the deference this court would otherwise accord it: see
Sattva
,
    at paras. 50-55.

[38]

Clause
    4.2.1.1 of Service Schedule 1 provides that UPS is liable for damage to the
    vaccines as result of its negligence, to a maximum of $100,000. Giving effect
    to the structure of the Agreement mandated by s. 1 of the MSA, I conclude that
    pursuant to the Insurance Covenant the appellant assumed all risk of damage to
    the vaccines,
except for
up to $100,000 caused solely due to the
    defendants negligent acts or omissions. But for this adjustment, I agree with
    the motion judge that the Insurance Covenant bars the appellants claim.

[39]

The
    appellant advances three arguments to show why the Insurance Covenant does not
    bar its action. I address each argument in turn.

[40]

The
    appellants first, and principal, argument arises out of s. 10.1 of the MSA.
    That section sets out UPSs insurance obligations:

10.1 [UPS] Insurance

[UPS] shall maintain the following insurance: (a) commercial
    general liability insurance including premises operations, broad form property
    damage, independent contractors, warehousemans liability and contractual
    liability covering [UPSs] obligations hereunder for bodily injury and property
    damage, with a combined single limit of not less than $5,000,000 USD each occurrence

[41]

At
    para. 19 of his reasons, the motion judge concluded that, [t]his clause
    requires [UPS] to carry liability insurance, which is aimed at damage and
    injury to third parties. It is not aimed at damage or injury to the
    [appellants] property.

[42]

The
    appellant argues that the motion judge erred in so concluding. It submits that
    the Agreement requires each of the appellant and UPS to insure the vaccines.
    While the Insurance Covenant requires the appellant to maintain all-risk
    property insurance, s. 10.1 requires UPS to maintain warehousemans liability
    insurance for property damage. And, it argues, s.10.1 is more specific than the
    general all-risk Insurance Covenant and therefore takes precedence over it.

[43]

I
    disagree. While my reasoning is slightly different than that of the motion
    judge, I agree with him that s. 10.1 does not alter the appellants assumption
    of risk pursuant to s. 10.2. First, it is evident from the requirement in the
    Insurance Covenant that the appellant insure its property in an amount not
    less than the full replacement cost thereof that the Insurance Covenant is to
    take precedence over s. 10.1. The Insurance Covenant is more specific as to the
    quantum of the coverage to be obtained. It provides
comprehensive coverage
for the appellants vaccines. Second, this interpretation gives meaning to both
    sections. If s. 10.1 contemplates insurance that would cover damage to the
    appellants property, that insurance would cover UPS in respect of its limited liability
    (i.e. $100,000) flowing from damage to the appellants property occasioned solely
    as a result of UPSs negligence. The commercial general liability policy UPS
    was required to maintain would primarily cover claims by persons not party to
    the Agreement.

[44]

The
    appellants second argument is that the motion judge erred in concluding that
    clause 4.2.1.1 of Service Schedule 1 did not apply and that UPS is liable for
    its own negligence or its own negligence to a maximum of $100,000. Clause
    4.2.1.1  provides as follows:

4.2.1.1 [UPS] shall be liable for Lost Goods or Damaged Goods
    in excess of the Shrinkage Allowance while the Goods are in its care, custody
    and control solely due to its negligent acts or omissions with up to a maximum
    of one hundred thousand dollars ($100,000) per year.

[45]

Indeed,
    the appellant argues, the motion judge failed to consider evidence that UPS
    thought it was liable for the incident, but that its liability was limited to
    $100,000 as set forth in clause 4.2.1.1. It points to the following answer to
    an undertaking arising out of the discovery  of UPSs representative:

It is [UPSs] position that section 4.2.1.1 of [Service
    Schedule 1] applies to the Incident and [UPSs] sole liability to [the
    appellant] is $100,000 maximum specified therein.

[46]

At
    paras. 13 through 17 of his reasons, the motion judge considered the
    appellants argument that clause 4.2.1.1 must be indicative of the fact that
    UPS is liable for damages caused by its own negligence and the evidence that
    UPS had forwarded a payment of $100,000 to the appellant.

[47]

Citing
Economical Mutual Insurance Co. v. 1072871 Ontario Ltd.
(1998), 20
    R.P.R. (3d) 154 (Ont. C.J.), at para. 12, affd (1999), 122 O.A.C. 94 (C.A.)
[3]
and
Smith v. T. Eaton Co.
, [1978] 2 S.C.R 749, at p. 754, the motion
    judge concluded that a covenant to insure such as the Insurance Covenant is of
    preclusive effect: it displaces the risk that would otherwise be on UPS as a
    result of its negligence. At para. 16 of his reasons, the motion judge accepted
    UPSs counsels representation that the $100,000 payment was made out of an
    abundance of caution, and not as an admission of liability or as an advance
    payment made to obtain a release of liability.

[48]

Each
    contract containing a covenant to insure must be interpreted based upon its own
    wording. Decided cases can be helpful, when the wording considered is similar
    to that in the agreement at issue. However, differences in the wording between each
    case can be determinative. Such is the case here.

[49]

Each
    of the MSA and Service Schedule 1 specifically provides that in the event of
    any conflict between the terms of the MSA and the terms of Service Schedule 1,
    the terms of the Service Schedule are to control. The agreements in the cases
    considered by the motion judge did not include a similar provision.  In concluding
    that the Insurance Covenant was of preclusive effect, the motion judge did
    not consider these specific paramountcy provisions or whether the Insurance
    Covenant and clause 4.2.1.1 conflict. His failure to do so warrants appellate
    intervention.

[50]

In
    my view, the terms of the Insurance Covenant in the MSA and clause 4.2.1.1 of
    Service Schedule 1 conflict. The Insurance Clause effectively provides that UPS
    has no liability for fortuitous losses, howsoever arising. Clause 4.2.1.1, on
    the other hand, provides that UPS is liable up to $100,000 for damage to the
    vaccines while they are in its control, solely due to its negligent acts or
    omissions. Clause 4.2.1.1 therefore controls, to the extent of the conflict. As
    a result, pursuant to the Insurance Covenant, the appellant assumed all risk of
    damage to the vaccines, except for up to $100,000 caused solely due to UPSs
    negligent acts or omissions.
[4]
I come to this conclusion without consideration of the position taken by UPS 
    pointed to by the appellant  in answer to an undertaking arising out of the
    discovery. I do not accept that the effect of clause 4.2.1.1 is that the
    Insurance Covenant does not insure against
any
loss arising from
    negligence.

[51]

The
    appellants final argument is that because the Insurance Covenant is in the MSA
    it cannot supersede UPSs specific obligations in the Service Schedule with
    respect to the storage of the vaccines, such as maintaining the vaccines at
    specified temperatures. It submits that giving effect to the Insurance Covenant
    would render these specific obligations meaningless and the Agreement provides
    that the provisions of the Service Schedule are to control.

[52]

I
    reject this argument. As discussed above, the Agreement specifies that in the
    event of a
conflict
between the terms of the MSA and the terms of a
    Service Schedule or other Incorporated Document, the terms of the Incorporated
    Document shall control. There is no conflict between the provisions of the
    Service Schedule that the appellant refers to and the Insurance Covenant.

[53]

I
    now turn to whether the Other Defendants are third party beneficiaries of the
    Insurance Covenant, as qualified by clause 4.2.1.1 of Service Schedule 1.

Issue 3: Were the Other Defendants third party beneficiaries of the
    Insurance Covenant?

[54]

Although
    my reasoning is somewhat different than that of the motion judge, I agree with
    him that the defendants which were not parties to the Agreement are entitled to
    rely on the Insurance Covenant to limit the appellants claim against them.

[55]

The
    Supreme Court has adopted a principled approach to when the doctrine of privity
    of contract  under which a contract cannot confer rights or impose obligations
    arising under it on anyone other than the parties to the contract  should be
    relaxed. In
Fraser River
, the Court articulated the following two-part
    test to be applied in determining if a third-party should be permitted to
    enforce the benefit of a contractual provision to defend against an action by
    one of the contracting parties:

1.

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

2.

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?

[56]

The
    intention to extend the benefit in question may be express or implied in all of
    the circumstances: see
London Drugs Ltd. v. Kuehne & Nagel
    International Ltd.
, [1992] 3 S.C.R. 299, at p. 449.

[57]

I
    address each of the
Fraser River
requirements in turn.

Did the parties to the Agreement intend to extend the
    benefit in question to the Other Defendants?

[58]

In
    all of the circumstances, it can be implied that the parties to the Agreement
    intended to extend the benefit of the Insurance Covenant (as qualified by
    clause 4.2.1.1) to the Other Defendants. It is necessary to do so to give
    business efficacy to the transaction.

[59]

As
    noted above, the Insurance Covenant required the appellant to maintain
    all-risk property insurance for the Goods and the personal property of [the
    appellant] in an amount not less than the full replacement cost thereof,
    whether such Goods or property are in [UPSs] facilities or in transit and
    shall include [UPS] as an additional insured. In its ordinary sense, this
    all-risk clause insures the Goods against loss or damage arising from the
    negligence of any person, whether or not a party to the contract.
[5]
And here, the ordinary sense of the provision prevails: the motion judge
    rejected  and I would reject  the appellants arguments that the effect of
    other provisions in the Agreement is that the Insurance Covenant does not
    insure against any loss arising from negligence. (Clause 4.2.1.1 only provides
    that the appellant is not at risk for the first $100,000 of damages for
    negligence.)  Given this, and absent a provision indicating that persons whose
    negligence is alleged to have caused the loss are intended to be excluded from
    the benefit of the Insurance Covenant,
[6]
it can and should be implied that the parties intended to extend the benefit of
    the Insurance Covenant (as qualified by clause 4.2.1.1) to them  provided that
    they were involved in the very activity contemplated by the Agreement. As I explain
    below, to do otherwise would subvert the allocation of risk established by the
    parties.

[60]

The
    fact that the Insurance Covenant specifies that insurance is to be maintained
    in an amount not less than the full replacement cost thereof also indicates
    that the parties intended all persons who were involved in the very activities
    contemplated by the Agreement and whose negligence is alleged to have caused
    the fortuitous loss to have the benefit of the Insurance Covenant (as qualified
    by clause 4.2.1.1). Having allocated this risk to itself (and away from UPS),
    it cannot at the same time have intended to allocate the risk to the persons
    who permitted UPS to provide the storage services contracted for.

[61]

Extending
    the benefit of the Insurance Covenant (as qualified by clause 4.2.1.1) to the Other
    Defendants also accords with commercial reality. The appellant  a
    sophisticated international pharmaceutical company  was in the best position
    to quantify the financial consequences of loss of or damage to its costly
    vaccines. The fees UPS paid the Other Defendants pale in comparison to the
    $8,259,934.48 in damages the appellant claims.  For example, ITS  a small
    company with approximately 17 employees  earned mere hundreds of dollars for
    its annual testing and calibration of the temperature and humidity sensors at
    the warehouse.

[62]

Moreover,
    not extending the benefit of the Insurance Covenant to the Other Defendants
    would either nullify the protection the Insurance Covenant
[7]
was intended to provide to UPS or risk an injustice to the Other Defendants.
    The Other Defendants differ as to which of the foregoing results would prevail and
    this is not the case to decide the issue. Both possibilities militate in favour
    of extending the benefit of the Insurance Covenant to the Other Defendants. The
    defendant Honeywell describes the first possibility in its factum:

It would be nonsensical for [UPS] to agree to this bargain,
    without extending the benefit to other parties who assisted [UPS] to provide a
    temperature-controlled warehouse. Doing so would expose [UPS] to claims for
    contribution and indemnity by its equipment suppliers and subcontractors, and
    render the protection afforded by the covenant to insure meaningless.

[63]

Automation
    and Airon explain the second. They say that not extending the benefit of the
    Insurance Covenant to the Other Defendants would result in an injustice: under s.
    2 of the
Negligence Act,
R.S.O. 1990, c. N. 1 and
Dominion Chain
    Co. v. Eastern Construction Co
., [1978] 2 S.C.R. 1346,
[8]
the Other Defendants would not be able to claim contribution and indemnity from
    UPS because, as a result of the operation of the Insurance Covenant, UPS has no
    liability to the appellant. Section 2 of the
Negligence Act
provides
    as follows:

Recovery as between
    tortfeasors

2.  A tortfeasor may recover contribution or indemnity from any
    other tortfeasor who is, or would if sued have been, liable in respect of the
    damage to any person suffering damage as a result of a tort by settling with
    the person suffering such damage, and thereafter commencing or continuing
    action against such other tortfeasor, in which event the tortfeasor settling
    the damage shall satisfy the court that the amount of the settlement was
    reasonable, and in the event that the court finds the amount of the settlement
    was excessive it may fix the amount at which the claim should have been settled.

And
Dominion Chain
established it is a
    precondition of the right to resort to contribution that there be liability to
    the plaintiff: p. 1354. Thus, they say, because any tortfeasor found to have
    negligently caused or contributed to the injury is fully liable for it, even if
    it were only 1% at fault, either of them could be called upon to satisfy the
    entire judgment, without contribution from UPS, a public company and the
    worlds largest package delivery company. Not extending the benefit of the
    Insurance Covenant to the Other Defendants would have the effect of imposing
    liabilities on them which they would not otherwise have.

[64]

Contrary
    to the appellants submissions, neither the restrictions in the Agreement on
    subcontracting without consent
[9]
nor the restriction on the transfer or assignment of rights and obligations
    under the Agreement in s. 17.1 of the MSA, entitled Assignment; Third Party
    Beneficiaries, indicate that the parties did not intend to extend the benefit
    of the Insurance Covenant to the Other Defendants.

[65]

UPS
    engaged the Other Defendants to supply products or services that permitted it
    to provide the warehouse services  something presumably within the parties
    reasonable expectations. Section 4.1 of the MSA, which provides that each party
    would indemnify the other and (among others) its subcontractors, licensors and
    suppliers evidences this. Indeed, the appellant knew that UPS would use Honeywells
    system to control and monitor the warehouses climate.

[66]

While
    s. 17.1 of the MSA is entitled Assignment; Third Party Beneficiaries, the
    text of that provision is simply a standard restriction of assignment. An
    assignment and the extension of the benefit of a provision to a third party are
    different. In the case of an assignment, a party effectively relinquishes a
    benefit. Party A assigns the benefit of a provision to third party X. As
    between X and party A, X enjoys the benefit of the provision. X and A do not
    both enjoy the benefit of the assigned provision. Where a third party
    beneficiary of a provision is recognized, party A and the third party
    beneficiary
both
enjoy the benefit of the provision. Section 17.1 does
    not provide that no third party shall be permitted to enforce the benefit of
    any provision of the Agreement.

[67]

Nor
    does the fact that ITS and Airon were required by their contracts with UPS to
    carry $1,000,000 of Comprehensive General Liability Insurance indicate that the
    appellant and UPS did not intend to extend the benefit of the Insurance
    Covenant to them. The amount of insurance UPS required was much less than the
    replacement value of the vaccines. It could not have been expected to insulate
    against the full extent of claims by the appellant.

[68]

Before
    turning to the second prong of the
Fraser River
test, I wish to
    clarify that the Insurance Covenant does not insulate the Other Defendants from
    the first $100,000 of damages for their own negligence. As I have indicated,
    the Insurance Covenant is qualified by clause 4.2.1.1 of Service Schedule 1. While
    clause 4.2.1.1 speaks to UPS being liable for damage to the vaccines solely
    due
its
negligent acts or omissions (emphasis
    added), this proviso must apply equally to the Other Defendants. Otherwise, the
    Third Parties would benefit from the Insurance Covenant to a greater degree
    than UPS.

Are the activities performed by the defendants the very
    activities contemplated as coming within the scope of the Agreement?

[69]

At
    para. 39 of
Fraser River
, Iacobucci J. phrases this second part of the
    test as whether the purported third-party beneficiary is involved in the very
    activity contemplated by the contract containing the provision upon which he or
    she seeks to rely. The Other Defendants were clearly involved in the very
    activity contemplated by the Agreement.

[70]

Both
    federal legislation and the Agreement required the vaccines to be stored in a
    GMP-compliant cooler. GMP-compliance requires a continuous temperature
    monitoring system and an ability to obtain audit trails of events. This type of
    system is part of a building automation system (a BAS).  Honeywells BAS is
    well-known in the industry as one of the few GMP-compliant building automation
    systems. It is run by software manufactured by Honeywell, which was installed
    by the defendant Airon and operated by UPS. The appellant knew that the
    warehouse was controlled, monitored and alarmed by a Honeywell BAS.

[71]

After
    the installation, Airon continued to be involved, performing limited ongoing preventative
    maintenance. Automation supplied the temperature and humidity sensors used at
    the warehouse and ITS tested them annually as well as in response to specific
    requests to do so.

[72]

All of the Other Defendants were involved in the storage
    of the appellants vaccines and monitoring the temperatures in the cooler. They
    were persons who provided the products and services necessary to permit UPS to
    provide the temperature-controlled storage services under the Agreement.

Issue 4: Costs of the action

[73]

A
    court should set aside a costs award on appeal only if the [motion] judge has
    made an error in principle or if the costs award is plainly wrong:
Hamilton
    v. Open Window Bakery Ltd.
, 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27. While
    I would grant the appellant leave to appeal the costs awards, I am not
    persuaded that the motion judge made an error in principle or that his costs
    awards are plainly wrong. I would not disturb the costs that he awarded (provided,
    as indicated above, UPS pays the $100,000 plus pre-judgment interest that the
    appellant refunded to it, together with pre-judgment interest thereon from the
    date of the refund to the date of such payment, within 10 days).

[74]

In
    his costs endorsement, the motion judge awarded costs of the summary judgment
    motion in amounts agreed upon by the parties. Over objections from the
    appellant, he also fixed the costs of the action, since its inception, of the
    defendants who had brought summary judgment motions. He rejected the
    appellants argument that costs had been inflated due to the defendants delay
    in bringing their summary judgment motions. He concluded that the defendants
    could not be faulted for the timing of the summary judgment motions in this
    complex and multi-party action. The defendants were justified in investigating
    the technological aspects of the claim, including retaining experts. However,
    the motion judge reduced each of these defendants cost requests by 25% to
    bring them in line with what I think the [appellants] reasonable expectations
    might have been:
Sanofi Pasteur Ltd. v. UPS SCS, Inc.
, 2014 ONSC
    3558, 33 C.C.L.I. (5th) 90, at para. 14. The amounts he awarded were inclusive
    of HST and disbursements.

[75]

In
    a supplementary costs endorsement, the motion judge awarded partial indemnity
    costs to Automation  a defendant who had not brought a summary judgment motion
     and costs in favour of the Third Parties.

[76]

The
    motion judge concluded that the costs sought by Automation were a reasonable
    request within the range of expectations of the [appellant] for an action of
    this magnitude:
Sanofi Pasteur Limited v. UPS SCS, Inc
., 2014 ONSC
    5402, 33 C.C.L.I. (5th) 96, at para. 4.

[77]

The
    motion judge acknowledged that generally an unsuccessful plaintiff will not be
    held liable for costs incurred by third parties: the plaintiff does not sue the
    third party, does not want it in the action and is not responsible for it being
    brought into the action. But there are cases where costs to third parties are
    warranted  particularly where the third party proceedings followed naturally
    and inevitably upon the institution of the [plaintiffs] claim: para. 4,
    quoting
Greater Toronto Airports Authority Assn. Inc. v. Foster Wheeler
    Ltd.
, 2011 ONSC 3377, 2011 CarswellOnt 4126, at para. 53. However, as
    Newbould J. observed in
Guarantee Co. of North America v. Resource Funding
    Ltd.
(2009), 82 C.P.C. (6th) 258, at para. 5 (Ont. S.C.), whether an
    unsuccessful plaintiff should be ordered to pay a third partys costs depends
    on the circumstances of the particular case and the discretion to order such
    costs must be exercised judicially.

[78]

The
    motion judge characterized the third party claims as not unnecessary, but
    neither were they imperative: para. 8. On the other hand, [t]he very nature
    of the claim and its sheer size undoubtedly suggested to the [appellant] that
    the Defendants would do all they could to either minimize or share their
    liability, and that this might take the form of third party proceedings. He
    exercised his discretion to award costs in favour of the Third Parties by
    ordering the appellant to pay roughly half of what the Third Parties requested
    in costs.

[79]

On
    appeal, the appellant challenges the costs awarded to the defendants on a
    number of bases. The appellant argues that UPS improperly sought pre-action
    costs and that all the defendants improperly sought disbursements for expert
    fees and expenses not covered under Tariff A of the
Rules of Civil
    Procedure
, R.R.O. 1990, Reg. 194. It says the motion judges conclusion
    that the defendants should not be faulted for not bringing their summary
    judgment motions sooner was unreasonable. Further, the motion judge failed to
    consider the novelty of the issues on the summary judgment motion in fixing
    costs. Finally, the appellant argues the motion judge erred in including HST in
    the costs he awarded because the entity directing the appellants litigation is
    a foreign corporation and not subject to HST.

[80]

The
    appellant argues that the motion judge had no power to award costs to
    Automation and the Third Parties because they were not parties to the summary
    judgment motion. And even if he had the power to do so, the motion judge erred
    in principle by awarding costs to the Third Parties in the absence of a
    determination that the third party proceedings followed naturally and
    inevitably upon the institution of the [appellants] action, in the sense that
    the defendant had no real alternative but to join the party:
Royal Bank of
    Canada v. Gentra Canada Investments Inc.
(2001), 147 O.A.C. 96 (C.A.), at
    para. 16. It says the motion judges finding that the third party proceedings
    were not unnecessary, but neither were they imperative does not meet this
    test.

[81]

Dealing
    first with the motion judges award of costs of the action to the defendants,
    the motion judge was not required to address every submission made by the
    appellant in fixing costs. It must be remembered that the motion judge reduced
    the costs sought by the defendants who brought summary judgment motions by 25%
     a significant reduction. Even if all of the issues raised by the appellant
    were sustained (and in my view, they should not be) they would readily have
    been addressed by this reduction.
[10]
The amount ordered payable by the motion judge was reasonable. It is not
    clearly wrong.

[82]

Turning
    to the motion judges supplementary costs endorsement, the motion judges
    disposition of the summary judgment motion resulted in the dismissal of the
    appellants action against Automation. The motion judge appropriately fixed the
    costs payable by the appellant to Automation.

[83]

The
    disposition of the summary judgment motion also resulted in the dismissal of
    the defendants claims against the Third Parties. The motion judge was entitled
    to consider whether the appellant should be liable for the Third Parties costs.
    He recognized that normally an unsuccessful plaintiff will not be held liable
    for costs incurred by third parties. However, he concluded that, in this
    particular case, an order that the appellant pay one-half of the costs sought
    by the Third Parties was warranted.

[84]

What
    the appellant advances as the applicable test  namely that the third party
    proceedings must have followed naturally and inevitably upon the institution
    of the [appellants] action, in the sense that the defendant had no real
    alternative but to join the party  is one of the situations identified by
    McLachlin J., as she then was, in
Milina v. Bartsch
(1985), 1 C.P.C.
    (2d) 269 (B.C. S.C.), as warranting an order requiring an unsuccessful
    defendant to pay a successful third partys costs.  I agree with the motion
    judge and Newbould J. in
Resource Funding
that McLachlin J. did not
    set out an exhaustive list of situations where a plaintiff can be ordered to
    pay a third partys costs. As they state, the question depends upon the
    circumstances of the particular case. Here, the motion judge considered the
    circumstances of the case in making the order that he did, and there is no
    basis to interfere with the exercise of his discretion.
[11]


[85]

The
    trial judge in
Royal Bank of Canada v. Gentra Canada Investments Inc.
,
    [2000] O.J. No. 3028 (S.C.) alluded to the naturally and inevitably scenario
    identified in
Milina
in deciding that the successful defendant  who
    had a complete defence without the necessity of bringing the third party law
    firm into the action  and not the unsuccessful plaintiff, should be
    responsible for the third partys costs. This court agreed with the trial
    judges decision. It did not go so far as to indicate that an unsuccessful
    plaintiff could only be responsible for a third partys costs if it fell within
    that scenario (or one of the other scenarios identified in
Milina
.)

Costs of the appeal

[86]

The
    parties agreed that if the appeal were dismissed, the appellant would pay the
    respondents costs, inclusive of disbursements and GST, in the following
    amounts:

UPS: $45,000

Honeywell, Airon and ITS, collectively: $45,000

ACI and the Third Parties, collectively: $8,000

[87]

I
    would accordingly order costs in such amounts  subject to the payment to the
    appellant by UPS within 10 days of the sum of $100,000, plus pre-judgment
    interest thereon, previously paid to the appellant and refunded by it to UPS,
    together with pre-judgment interest thereon from the date of the refund to the
    date of such payment.

Released: February 9, 2015 (A.H.)

Alexandra
  Hoy A.C.J.O.
I
  agree Janet Simmons J.A.
I
  agree M. Tulloch J.A.
Schedule A
Excerpts from
    Agreement
Master Services Agreement
1.       Structure of the Agreement
[UPS] shall provide the
  services (Services) specified in service schedules referencing this MSA
  (Schedules), which Schedules have been approved by both Parties or their
  Affiliates. Each Schedule may have attached one or more statements of work
  (SOWs) and exhibits. Each such Schedule, SOW, and exhibit is an Incorporated
  Document. This MSA and the Incorporated Documents are the Agreement. In the
  event of a conflict between the terms of the MSA and the terms of any
  Incorporated Document, the terms of the Incorporated Document shall control.
4.1     General Indemnification
Each Party
  (Indemnitor) shall indemnify, defend and hold harmless the other Party and
  any affiliated and controlling entities of such Party, and the directors,
  employees, officers, agents, subcontractors, licensors and suppliers of all of
  them (in each case Indemnitee) from and against all third party liabilities,
  claims, suits, demands, actions, fines, damages, losses, costs and expenses
  (including reasonable attorneys fees) (Claims) for injury to or death of any
  person or damage to or loss of improvements to real property or tangible
  personal property to the extent caused by or resulting from such Partys
  negligent acts or omissions or those of its employees or agents, except to the
  extent caused by the Indemnitee;
provided however
, that this Section
  shall not apply to any loss or destruction of, or any damage to, [Sanofis]
  goods and property for which Services are provided (Goods).
10.1   [UPS] Insurance
[UPS] shall maintain the
  following insurance: (a) commercial general liability insurance including
  premises or operations, broad form property damage, independent contractors,
  warehousemans liability and contractual liability covering [UPSs] obligations
  hereunder for bodily injury and property damage, with a combined single limit
  of not less than $5,000,000 USD each occurrence; and (b) workers compensation
  insurance in statutory amounts covering [UPS] and its employees, and employers
  liability insurance. All insurance required herein shall be carried with
  insurance companies licensed to do business in the province(s) where operations
  are maintained with A.M. Best rating of A- or above. [UPS] shall deliver to
  [Sanofi] upon signing of this Agreement, certificates of insurance of evidence
  of the required coverage. All policies shall provide that such coverage under
  these policies shall not be canceled or materially changed without at least
  thirty (30) days prior written notice to [Sanofi].
10.2   [Sanofi] Insurance
[Sanofi] shall maintain in effect
    during the term of this Agreement and for a period of two (2) years after
    termination of this Agreement:
a)

product liability
    insurance in the amount of at least $5,000,000 CDN and with [UPS] named as an
    additional insured; and
b)

general liability
    insurance in the amount of at least $2,000,000 CDN, which shall include
    contractual liability coverage for all liability assumed under this Agreement
    with [UPS] named as additional insured; and
c)

all-risk property or
    stock-transit insurance for the Goods and the personal property of [Sanofi] (or
    property for which [Sanofi] is legally responsible) in an amount of not less
    than the full replacement cost thereof, whether such Goods or property are in [UPSs]
    facilities or in transit and shall include [UPS] as an additional insured.
12.     Subcontractors
There are no plans to subcontract
    [UPS] services however [UPS] retains the right to subcontract the performance
    of the Services to its parent, affiliates or third party service providers
    provided that, except as set forth in Section 6 (Limitation of Liability), no
    such subcontracting shall relieve [UPS] of the obligation to perform in
    accordance with the terms hereof, and without limiting the foregoing any
    failure by any such subcontractor to protect the Confidential Information of
    [Sanofi] shall be deemed a material breach by [UPS] of Section 8
    (Confidentiality).
17.1   Assignment;
    Third Party Beneficiaries
The rights and obligations under
    this Agreement may not be transferred or assigned to a third party by either
    Party without the prior written consent of the other Party;
provided
    however
, either party may transfer or assign all or party of its rights
    and/or obligations of this Agreement to one or more of its parent or
    affiliates.
Service Schedule 1
1.       Introduction
1.2     [UPS] will
  perform for [Sanofi] warehouse distribution services specified in this Schedule
  (the Services), at one or more facilities listed in Exhibit C (each a
  Facility), in accordance with the MSA, this Schedule and its Exhibits and the
  documents specified below, which documents and Exhibits are incorporated into
  this Schedule by reference. In the event of a conflict between the terms of
  this Service Schedule and the terms of the MSA, this Service Schedule shall
  control. In the event of a conflict or inconsistency between any of the
  documents specified below and this Schedule, the order of precedence shall be
  as follows: (a) Statement of Work, and (c) Exhibits B-D.
4.       Liability for Loss or Damage to Goods Stored
    by [UPS]
4.2.1.1         [UPS]
  shall be liable for Lost Goods or Damaged Goods in excess of the Shrinkage
  Allowance while the Goods are in its care custody and control solely due to its
  negligent acts or omissions with up to a maximum of one hundred thousand
  dollars ($100,000) per year. [UPS] shall not be liable for any loss or damage
  to Goods which is (i) caused by any defects in the packaging or manufacture of
  such Goods, (ii) attributable to carriers (contract or otherwise) failing to
  deliver the full shipment of expected Goods to the Facility or otherwise caused
  by the acts or omissions of such carriers, (iii) attributable to concealed
  damage, or (iv) attributable to [Sanofis] negligence acts or omissions or
  those of any of its employees, agents, or subcontractors. In no event shall
  [UPS], its employees, agents, subcontractors or affiliates be liable for any
  loss of or damage to the Goods arising out of or caused by an event of Force
  Majeure.
6.       Subcontractors
6.1     [UPS] may not
    sub-contract the Services under this Service Schedule 1 without the prior
    written consent of [Sanofi].
Exhibit A to Service Schedule 1
6.       Storage
All Goods will be kept
  and stored within the Storage Area unless otherwise agreed to by [Sanofi]. The
  Goods will be stored in GMP (Good Manufacturing Practices) compliant, safe and
  secure manner on shelves or racks, and may be floor stacked on pallets if appropriate.
  The Goods will be stored in a temperature-controlled cooler of 2 to 8 degrees
  Celsius.
9.       Warehouse Distribution Services
The Warehouse
  Distribution Services to be performed pursuant to this SOW are as follows (the
  Warehouse Distribution Services):
[]
9.3 Storage
·

adhering
    to applicable food and drug, and government regulations, and in particular to
    GMP processes related to pharmaceutical distribution and HPFBI (Health Products
    and Food Branch Inspectorate) Guidelines
·

storing
    of products in a clean, secure environment
·

storing
    of products in cooler, 2 to 8 degrees Celsius
·

storage
    area temperature monitoring
Service Schedule 2
4.1     Subcontracting
UPS may not subcontract any
    aspect of the SERVICES.

[1]
Although Enercorp Instruments Ltd. (Enercorp) appears in the title of
    proceedings, Himel J. dismissed the claim and all cross-claims against it in an
    order dated May 4, 2011. Enercorps motion to dismiss was made on consent,
    except for UPS which did not oppose the motion.


[2]
Automation did not bring a motion for summary judgment.


[3]
In
Economical Mutual Insurance Co.
,
    the lease contained both a covenant on the part of the landlord to maintain
    fire insurance and a covenant on the part of the tenant to indemnify the
    landlord with respect to damage to the premises caused by the tenants
    negligence. The premises were damaged as a result of a fire. The motion judge
    rejected the landlords insurers argument that the tenants specific
    obligation to indemnify in respect of damage occasioned by its negligence
    demonstrated an intention that the tenant was not to be protected from fires
    caused by its own negligence. At para. 13, he wrote, even in the absence of a
    specific provision requiring the tenant to indemnify for damage caused by its
    negligence, there is no doubt as to the liability of the tenant for fire caused
    by its negligence. I therefore cannot see how the presence of a provision such
    as [the tenants indemnification obligation] changes the effect of the
    landlords obligation to insure.


[4]
As I explain below, the proviso contained in clause 4.2.1.1 of Service Schedule
    1 also applies to the Other Defendants.


[5]
See
Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd.
,
    [1976] 2 S.C.R. 221, at p. 229-230, referred to by the motion judge at para. 30
    of his reasons. In
Agnew-Surpass
,
    the landlord covenanted to insure the building against all risk of loss or
    damage from fire and other specified perils. The Supreme Court stated that
    [t]he ordinary concept of fire insurance does embrace fires caused by
    negligence and the fact is that the policy taken out by the lessor did insure
    against negligence, whether that of the lessee or others.


[6]
In
Williams-Sonoma Inc. v. Oxford
    Properties Group Inc.
, 2013 ONCA 441, 307 O.A.C. 314, the relevant
    clause was limited to the contracting parties and those for whom it was in law
    responsible. There is no similar limitation in the Insurance Covenant in this
    case.


[7]
This concern mirrors that expressed by Charron J.A. in
Tony and Jims Holdings Ltd. v. Silva
(1999)
,
    43 O.R. (3d) 633 (C.A.). In
Silva
, Charron J.A., as she then was, extended
    the benefit of a contractual provision to a third party, reasoning, in part,
    that a strict application of the doctrine of privity in the circumstances
    would have the effect of allowing the customer to circumvent the limitation of
    liability clause to which it had expressly consented: p. 643


[8]

Dominion Chain
was applied by the Supreme Court in
Bow Valley Husky
    (Bermuda) Ltd. v. Saint John Shipbuilding (Bermuda) Ltd.
,

[1997] 3
    S.C.R. 1210, at para. 123.


[9]
See s. 12 of the MSA, clause 6.1 of Service Schedule 1 and clause 4.1 of
    Service Schedule 2.


[10]
For example, the pre-action costs sought by UPS represented approximately 10%
    of the total costs it sought.


[11]
While not referred to in the motion judges supplementary costs endorsement,
    the appellant had itself sought to add the U.S. UPS entities as defendants to
    the main action. On that basis alone, third party costs were justifiable.
