Liability Limits In Subrogation

In order to fully consider the viability of subrogation in any given action, it is important to determine any limitations on recovery which may be in place. In the context of carriage for reward, it is well understood that limitation of liability clauses are usually inserted into Bills of Lading or other agreements, and are often established by statute, or international convention.

Outside of the realm of carriage of goods, limitation of liability clauses have gained far more acceptance since the 2010 decision of the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways)1, which established that limitation of liability or exclusion of liability clauses would be presumptively enforceable.

Recently, Canadian courts have employed further contractual terms to limit or exclude the liability of parties entrusted with the carriage of goods, notwithstanding their clear responsibility for the loss.

Interpretation

In the context of carriage for reward, the traditional test for interpretation of limitation or exclusion of liability clauses arises from Canada Steamship Lines v. The King2, where the Privy Council set out a three-step analysis for the interpretation of such clauses.

Under Canada Steamship, a court must first consider whether there is an express exemption of liability for negligence, and if so, give effect to that provision. Second, if there is no express reference to negligence, the court must consider whether the words used are broad enough to encompass negligence. If the second step is satisfied, then the court must consider whether liability can be determined on any basis other than negligence. If liability can be so established, then the clause will not be applied.

This test was considered to be a strict one, such that clauses which did not expressly refer to negligence were often considered to be ineffective.

The Supreme Court's decision in Tercon preferred a global interpretation of the contract in order to determine whether a limitation of liability clause is enforceable, but also came to the conclusion that such clauses should be presumptively enforceable. Unfortunately, the Supreme Court did not expressly refer to Canada Steamship, or indicate that its reasoning was incorrect.

The Federal Court of Appeal has recently clarified this issue in Pêcheries Guy Laflamme Inc. v. Capitaines propriétaires de la Gaspésie (A.C.P.G) Inc.3 where the court expressly eliminated the three-step...