London Drugs Ltd. v. Kuehne & Nagel International Ltd.

London Drugs Ltd. v. Kuehne & Nagel International Ltd.
Supreme Court of Canada
Hearing: October 29, 1991 Judgment: October 29, 1992
Full case name: ' Citations: [1992] 3 S.C.R. 299 Docket No.: 21980
Court membership
Chief Justice: Antonio Lamer Puisne Justices: Gérard La Forest, Claire L'Heureux-Dubé, John Sopinka, Charles Gonthier, Peter Cory, Beverley McLachlin, William Stevenson, Frank Iacobucci
Reasons given
Majority by: Iacobucci J. Concurrence by: McLachlin J. Concurrence/dissent by: La Forest J.

London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299 is a leading decision of the Supreme Court of Canada on privity of contract. It is also notable for La Forest J's discussion of vicarious liability, which has influenced subsequent Supreme Court decisions on that doctrine.

Background

Kuehne & Nagel was storing a transformer owned by London Drugs valued at $32,000. The agreement between the parties included a limitation of liability clause which limited liability for damage to the transformer to $40. Two employees were moving the transformer with a forklift and negligently dropped it.

London Drugs sued the two employees on the basis that they owed a separate duty of care and could not seek protection under the contract.

Decision of the Supreme Court of Canada

Justice Iacobucci, writing for the majority, dismissed the appeal. The court held that the employees were liable in negligence but were able to gain protection under the contract. Employees are able to gain protection where "(1) the limitation of liability clause must, either expressly or impliedly, extend its benefit to the employee(s) seeking to rely on it; and (2) the employee(s) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff when the loss occurred."

Justice La Forest, in dissent, engaged in a long discussion of the policy underlying vicarious liability, the nature of work in the modern economy and the abilities of employees to cause loss, and the parties' risk-bearing capacities. He would not have found the employees liable for $40. He proposed the following analysis:

The first question to be resolved is whether the tort alleged against the employee is an independent tort or a tort related to a contract between the employer and the plaintiff. In answering this question, it is legitimate to consider the scope of the contract, the nature of the employee's conduct and the nature of the plaintiff's interest. If the alleged tort is independent, the employee is liable to the plaintiff if the elements of the tort action are proved. The liability of the company to the plaintiff is determined under the ordinary rules applicable to cases of vicarious liability. If the tort is related to the contract, the next question to be resolved is whether any reliance by the plaintiff on the employee was reasonable. The question here is whether the plaintiff reasonably relied on the eventual legal responsibility of the defendants under the circumstances.

Since the conduct of the employees was covered by the contract, the plaintiffs were considered to have voluntarily assumed the risk of their tortious behaviour. The plaintiffs could not have reasonably relied on the employees and, thus, the employees were shielded from liability.

See also

• List of Supreme Court of Canada cases

External links

• Full text of Supreme Court of Canada decision at LexUMand CanLII