Dear Colleagues:

In Brown v Belleville 2013 ONCA 148, the Ontario Court of Appeal has decided (relying in part on ODGers Angela Swan, Jacob Adamski and John McCamus) that the principled exception to privity of contract created by the SCC in cases like London Drugs and Fraser River can now be used by third parties as a sword to gain benefits from contracts to which they are not privy rather than merely to enforce limitation of liability clauses. This is despite the fact that the SCC and other Canadian appellate courts have contended that the principled exception was only to be used as shield.

The appeal concerned the enforcement of an agreement entered into in 1953 between the City and a local farmer. Under the agreement, the City agreed to perpetually maintain and repair part of a storm sewer drainage system that it had constructed on and near the farmer's lands. After the farmer died, the lands were sold by his heirs to X without an assignment of farmers rights under the contract.  X then sold the land to the plaintiff without an assignment of farmers rights under the contract. The plaintiff asked the City to perform its contract but the City repudiated the agreement. The plaintiff sued the City for specific performance of the agreement or, in the alternative, damages for its breach.

Apparently never having heard of Tweedle or Beswick or its own decision in Gilbert Steel, the CA held that lack of privity was no obstacle to the plaintiff’s claim because there was a clause in the contract that said that the benefits of the contract ‘shall be binding upon the parties hereto and their respective heirs, administrators, successors and assigns’.   Not the enforce the clause entered into freely by the city would ‘ignore the nature, stated purpose and express terms of the Agreement and allow the City ... to escape the covenants’.

On the issue the scope of the principled exception the court said:

110     I recognize that London Drugs and Fraser River were cases where the third-party beneficiaries sought to rely, by way of defence, on the benefit of the contractual provisions at issue to resist claims brought against them -- they were not seeking to enforce the affirmative benefit of the relevant contractual provisions.

111     Nonetheless, it is my view that the [plaintiff’s] status as the successors of the original covenantee under the Agreement affords them the right to seek to enforce the original covenantor's contractual obligations, as against the original covenantor. In effect, for the purpose of enforcement of the Agreement, the [plaintiff is the farmer] ... . Further, insofar as the performance of the City's obligations under the Agreement are concerned, there is a clear identity of interest between [the plaintiff and farmer]. ... In all these circumstances, the application of the principled exception to the privity rule advances the interests of justice.

For what it’s worth, the case seems poorly reasoned to me (and would get a C on an exam for missing obvious points of existing contract law). I fail to see how the interests of justice are advanced when questions regarding the building blocks of justice (ie rights) are ignored.  The reason why the plaintiff’s contract claim should fail is that he does not have a right to performance. Why doesn’t he have a right to performance? Because the law says that the plaintiff needs to (1) have a promise made to him and (2)  needs to have given something of value in exchange for that promise (or (3) he needs to take an assignment from someone who has done (1) & (2)) to acquire this personal right.  Even if there is an exception made for (1) the CA forgets about requirement (2), the plaintiff did not give consideration (or (3) he did not take an assignment). Thus, in Ontario, as a result of this decision, some people can get gratuitous promises enforced and others cannot: that is not a recipe for justice which requires treating like cases alike. (I am assuming that Ontario law has not become so lax that a mere promise by me keep the ODG running in perpetuity made to all ODGers and their ‘heirs, administrators, successors and assigns’ would be enforceable: if it is this is meant to be binding in honour only).

Moreover, the principled exception does not seem to be at issue in so far as either of the two principled explanations for it (ie, ones that do not swallow the rules of contract formation) do not seem to be engaged. This is not a case where there was been detrimental reliance by the plaintiff on the contractual provision for his benefit since he never purchased the property on faith of it (see “Explaining the Principled Exception to Privity of Contract” (2007) 52 McGill Law Journal 757), nor is it the case that the plaintiff is doing actions on behalf of the contracting party in relation to the contract and therefore should be entitled to some form of vicarious immunity (since the contracting party has such an immunity) (see Halsbury’s Laws of Canada).

The only possible justification for the outcome might be that suggested by Peter Benson in relation to White v Jones ("Should White v. Jones Represent Canadian Law: A Return to First Principles" in Emerging Issues in Tort Law (Hart Publishers, 2007) 141).  The contractual right belongs to the estate of the deceased farmer but as the farmer’s estate has no interest in pursuing or vindicating this right and the plaintiff has every interest in doing so, the control of the right is passed to the plaintiff so long as this does no violence to the intentions of the deceased (which it apparently doesn’t given the nature of the contractual wording) nor to the regime of estate law in a particular jurisdiction (on which I know not enough to say).  In order to make an exception like this, however, one needs to know the basic principles that one is departing from—and given what they wrote in Brown v Belleville, this panel of the CA does not appear to know these principles.  

(Un)happy Reading,

-- 
Jason Neyers
Professor of Law
Faculty of Law
Western University
N6A 3K7
(519) 661-2111 x. 88435