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PRIVITY OF CONTRACT AND THIRD PARTY RIGHTS

REPORT OF THE WORKING GROUP PRESENTED BY

GENEVIEVE TREMBLAY-McCAIG, Working Group Chair

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ISSUE #1
Does the privity rule in its current form need to be reformed at present?
³Is there a problem to be fixed?´

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ISSUE #2 If privity needs to be reformed. is legislative intervention an appropriate course of action? ³Which solution is more suitable?´ 3 .

ISSUE #3 If legislative intervention is appropriate. is detailed legislation preferable to a general provision? ³Which legislative option is better suited?´ 4 .

METHODOLOGY ISSUE #1 Does privity need reform? No Yes ISSUE #2 Is legislative intervention appropriate? No Yes ISSUE #3 Is detailed legislation preferable to general? No Yes 5 .

ISSUE #1 Reform? What does privity of contract mean? What underpins the privity rule? ‡ Only a Party to a Contract Can Sue on It ‡ Promisee Must Provide Consideration 6 .

ISSUE #1 Reform? What types of problems has the privity rule posed. and could still potentially pose? ‡ ‡ ‡ ‡ Express Intention to Benefit Third Party Instrument or Representative Chain of Contract Incidental Rights or Obligations 7 .

ISSUE #1 Reform? What tools are available to circumvent the privity rule? ‡ Statutory Exceptions ‡ Common Law Exceptions ± Especially the Principled Exception* ‡ Means of Working Around Privity ‡ Other Causes of Action What now remains of the rule? 8 .

‡ 375069 Alberta Ltd. Hendrichs ‡ Waterloo (City) v.ISSUE #1 Principled Exception Principled Exception Can Only be Used to Enforce Contract by Defence to a Suit ‡ RDA Film Distribution Inc. ‡ Sunshine Valley Developments Ltd. v. 803577 Ontario Ltd. Wolfraim ‡ Design Services Ltd. v. Alcan Inc. Saskatchewan ‡ Kitimat (District) v. ‡ 804977 Alberta Ltd. v. British Columbia Trade Development ‡ Parwinn Developments Ltd. Lowrie ‡ Marble (Litigation Guardian of) v. Canada (SCC recently dismissed appeal) 9 . v. v. 375069 Alberta Ltd. 400411 Alberta Ltd. v. ‡ Geiger v.

' I acknowledge that it is sometimes fortuitous whether a particular party is a defendant in need of a shield or a plaintiff seeking a sword. v. British Columbia Trade Development. 67-68 10 . RDA Film Distribution Inc. usually apply to the two situations´. 2550 (BCCA) at paras. No.C.ISSUE #1 Principled Exception ³First.the exception to privity supplied a 'shield not a sword.J. in terms of mutuality and fairness. in both London Drugs and Fraser River. However. different considerations. the defendants were relying on a contractual term for a defence to liability . [2000] B.

[2005] B. « If I am wrong and the Ontario cases [Higgins.J.. not a sword´. on the basis that the Supreme Court of Canada has given a clear indication that a principled exception to the doctrine of privity can only be used as a shield.ISSUE #1 Principled Exception ³[T]he example set by the Supreme Court of Canada suggests that any such exception must be used by the third party beneficiary as a shield to defend an action rather than as a sword to initiate one. to sue to enforce a contract. then I would respectfully decline to follow them. 65-70 11 . 58 (BCCS) at paras. No.C. on the basis of London Drugs and Fraser River Pile & Dredge. Alcan Inc. Kitimat (District) v. Vandewal] can be said to stand for the proposition that a third party beneficiary is entitled.

on the basis that here Kitimat seeks to avail itself of the statutory and contractual relationship between Alcan and the Province so that it can advance a claim against Alcan.ISSUE #1 Principled Exception ³In both London Drugs and Fraser River.J. Kitimat (District) v. Alcan Inc. 376 (BCCA) at paras. No. 69-71 12 . [2006] B. such a claim is well beyond anything contemplated by the decisions in London Drugs or Fraser River´. the third party sought the benefit of the contract to protect itself from a claim advanced against them. The learned chambers judge distinguished these cases from this one.C. « In my respectful view.. correctly in my view.

has been understood as relaxing the doctrine of the privity of contract for use as a shield. « In light of this jurisprudence. Fraser River. Canada.ISSUE #1 Principled Exception ³First of all. No. along with London Drugs. not as a sword.C. Design Services Ltd. [2006] F.J. 1141 (FCA) at paras. I am reluctant to permit the respondents to rely on the Fraser River doctrine in this instance´. v. 38-39 13 .

Fero Waste and Recycling Inc. Ltd. Imperial Tobacco Ltd. Stelco Inc. Cheong v. Frontenac Institution Inmate Committee v. 14 . Higgins Estate v. Regina Exhibition Assn.ISSUE #1 Principled Exception Principled Exception Can Also be Used to Enforce Contract by Suit ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Hawman v. Deleeuw Vandewal v. Security One Alarm Systems Ltd. (Re) King v. Vandewal MacNeil v. Fenrich v. Wawanesa Mutual Insurance Co. Futama Deleeuw v. Shuniah Financial Services Ltd. Canada Caputo v.

[2001] O. in London Drugs Ltd.J. as stated for the majority that: privity fails to appreciate the special considerations which arise from the relationships´. 2447 (ONSupCtJus) at para. v. Higgins Estate v. 33 15 .ISSUE #1 Principled Exception ³I can find no privity of contract between Alice Higgins and the defendant. it is clear that the contract was for the benefit of Alice Higgins and I am content with respect to that benefit and find that the deceased was entitled to expect and rely upon the express and implied undertaking by the defendant that they would provide a safety and security system « And in so doing I rely on the reasoning of Iacobucci J. However. Kuehne & Nagel International Ltd. No.. Security One Alarms Systems Ltd.

[2001] O. 39 16 . Higgins Estate v. then concludes: ³Having found as I have above I am satisfied that the trustee can therefore maintain the action in this instance for tort for breach of the contractual obligation to provide the security and safety of life expectation which arose from the contract entered into by the deceased's daughter-in-law on behalf of John Higgins of which duties and obligations the deceased was the beneficiary´. 2447 (ONSupCtJus) at para. Daudlin J. Security One Alarms Systems Ltd.J..ISSUE #1 Principled Exception However. No.

If I am incorrect. Vandewal v. although not in writing. Can-Dive Services Limited´.J. 17 17 . They acted upon it. Vandewal. I find that this situation would fall within an exception to the doctrine of privity as outlined in Fraser River Pile and Dredge Limited v. [2002] O. when presented to the Plaintiff. 393 (ONSupCtJus) at para.ISSUE #1 Principled Exception ³The doctrine of privity of contract applies to situations in which one of the parties to an agreement has undertaken to confer a benefit on a third party. The privity defense does not apply. « I find that the January 1996 agreement. No. was accepted by him as a new agreement.

I do not get a sense of certainty out of London Drugs to be determinative in this motion. In the final analysis I agree with the proposition that the court on a summary judgment motion should not dispose of matters of law that are not fully settled in this jurisprudence´.. [2006] O. My reading of London Drugs. Sokkia Inc.J. No. Parlette v. indicates the reserve expressed by the Supreme Court in dealing with matters of privity of contract which is one perspective with which to view the issue under adjudication in this matter. v. Kuehne & Nagel International Ltd. 4085 (ONSupCtJus) at paras. did an analysis of third party rights « It cautioned that the exception to the doctrine of privity functions as a "shield" rather than a "sword". 26-27 18 .ISSUE #1 Principled Exception ³The Supreme Court in London Drugs Ltd.

No. 75 19 . relaxation of the doctrine of privity can be characterized as "incremental" is the potential for double recovery and multiplicity of actions. S. in any particular circumstance. I believe the principle in Fraser River contemplates extension of the third party beneficiary principle regardless of whether it is being used as a shield or a sword´.J. I would note that these concerns were present in both Kitimat and RDA Film Distribution. 3219 (Ont.C. [2006] O.ISSUE #1 Principled Exception ³It is clear from that decision that the fundamental consideration in the determination of whether. In the present proceeding where such concerns are not present.. Stelco Inc. Re.) at para.J.

Stelco Inc. 16 20 . 2007 ONCA 483 (Ont. the Senior Debt Holders can rely on trust principles to provide an exception to the privity of contract doctrine « It is therefore unnecessary for us to decide whether the trial judge erred in allowing the Senior Debt Holders to enforce the Indenture as third party beneficiaries by extending to this case the principled exception to privity of contract found in Fraser River Pile & Dredge Ltd. Re.´.) at para. C. v.A..ISSUE #1 Principled Exception The Court of Appeal instead concludes: ³[W]hile they are not parties to the Note Indenture between Stelco and the Noteholders. Can-Dive Services Ltd.

ISSUE #2 Legislation? What are the arguments in favour of legislative intervention? ‡ ‡ ‡ ‡ Expediency Certainty Consistency Uniformity 21 .

ISSUE #2 Legislation? What are the arguments against legislative intervention? ‡ Irrelevancy ‡ Difficulty of Defining Extent of Third Party Rights ‡ Rigidity ‡ Risk of Becoming Obsolete 22 .

ISSUE #3 Detailed Scheme? What subsidiary issues could be addressed in a detailed legislative scheme? ‡ ‡ ‡ ‡ Enforceability Test Third Party Identification Variation/Cancellation Defences/set-offs/remedies ‡ ‡ ‡ ‡ Overlapping Claims Opt-out Exclusions Current Exceptions 23 .

ISSUE #3 Detailed Scheme? What shape could a general provision take? ‡ ‡ ‡ ‡ ‡ Intention to Benefit Third Party Right to Enforce Limitation of Liability Negative Rule Abolition 24 .

ISSUE #1 Conclusion ‡ Privity of contract has created unfair results and could still potentially cause difficulties in certain context. ‡ Privity does not represent an urgent matter or. at any rate. privity as it now stands in Canada does not pose de type of problem which call for the implementation of stand alone legislation. a legislative priority at present. ‡ However. 25 .

‡ Nevertheless. 26 .ISSUES #2 & #3 Conclusion ‡ No need to provide definitive answers to issues #2 & #3. since the conclusion on issue #1 is that privity in its current form does not pose enough problems that it needs to be reformed at present. as well as subsidiary issues ensuing from the development of third party rights. issues #2 & #3 are outlined and briefly discussed in case provincial delegates disagree with the conclusion on issue #1 and want to reflect on those two issues and available options.

The common law should take its course given the potential for further clarification and expansion of third party rights.RECOMMENDATION The Working Group recommends no further action at this time. 27 .

. AB ‡ Tim Rattenbury. AB 28 . Law Reform/Office of the Attorney General. Department of Justice.C.Working Group ‡ Tim Epp. ON ‡ Bert Kramar. Civil Law Branch. Legislative Services Branch. Alberta Justice. SK ‡ Kim Graf. AB ‡ Wayne Gray. NB ‡ Genevieve Tremblay-McCaig. Alberta Law Reform Institute. Alberta Law Reform Institute. Alberta Justice. AB ‡ Peter Lown. McMillan Binch Mendelsohn LLP. Q. Civil Law Branch.

THANK YOU 29 .