



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] 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 causedfully
    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 others 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:



2.  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] 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:

1.       The
    limitation of liability clause, either expressly or impliedly, extends its
    benefit to the employee seeking to rely on it; and

2.       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:

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.

[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 JUDGES 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 Landlords 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] 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 Landlords 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, 85 O.R. (3d) 254, at para. 24.





[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.


