Faute lourde and the Perfectly Drafted Exclusion Clause: A. « civil» Response to a « Common » Problem with Special. Reference to Contracts for the Provision

135 KB – 41 Pages

PAGE – 1 ============
Tous droits r•serv•s † Facult• de droit de l‡Universit• Laval, 1985 Ce document est prot•g• par la loi sur le droit d‡auteur. L‡utilisation des services d‡…rudit (y compris la reproduction) est assujettie — sa politique d‡utilisation que vous pouvez consulter en ligne. https://apropos.erudit.org/fr/usagers/politique-dutilisation/ Cet article est diffus• et pr•serv• par …rudit. …rudit est un consortium interuniversitaire sans but lucratif compos• de l‡Universit• de Montr•al, l‡Universit• Laval et l‡Universit• du Qu•bec — Montr•al. Il a pour mission la promotion et la valorisation de la recherche. https://www.erudit.org/fr/ Document g•n•r• le 8 jan. 2022 14:22 Les Cahiers de droit Faute lourde and the Perfectly Drafted Exclusion Clause: A • civil† Response to a • Common † Problem with Special Reference to Contracts for the Provision of Security Services John D. Crothers Volume 26, num•ro 4, 1985 URI : https://id.erudit.org/iderudit/042694ar DOI : https://doi.org/10.7202/042694ar Aller au sommaire du num•ro …diteur(s) Facult• de droit de l‡Universit• Laval ISSN 0007-974X (imprim•) 1918-8218 (num•rique) D•couvrir la revue Citer cet article Crothers, J. D. (1985). Faute lourde and the Perfectly Drafted Exclusion Clause: A – civilƒ Response to a – Common ƒ Problem with Special Reference to Contracts for the Provision of Security Services. Les Cahiers de droit, 26(4), 881⁄920. https://doi.org/10.7202/042694ar R•sum• de l’article Devant la reconnaissance judiciaire accrue des clauses d’exon•ration clairement r•dig•es, il est devenu pratiquement impossible d’•carter l‡application de telles clauses aux litiges en responsabilit•. L’auteur affirme que le monde commercial a besoin de ces clauses, mais souligne qu’il faut •galement prot•ger la bonne foi entre les co-contractants afin d’assurer des normes minimales de rendement dans l’ex•cution des contrats. A cet •gard, l’auteur pose le probl‹me suivant : supposons que le demandeur engage une compagnie de s•curit• pour prot•ger son usine contre les risques de vol et de feu. Une clause d’exon•ration parfaitement r•dig•e prot‹ge la d•fenderesse, la compagnie de s•curit•, contre la responsabilit• qu’elle pourrait encourir par sa n•gligence ou celle de ses pr•pos•s dans la garde des lieux. Un gardien de s•curit• met feu intentionnellement — l’usine. Est-ce que la compagnie de s•curit• est prot•g•e par la clause ? Selon la jurisprudence des provinces canadiennes de common law et celle d’Angleterre, la r•ponse est affirmative, l’arr›t de principe (Photo Productions v. Securicor) est •tudi• — cet •gard. Au Qu•bec, selon l’auteur, la r•ponse serait n•gative : la responsabilit• de la compagnie de s•curit• serait engag•e. L’auteur pr•tend que cette diff•rence substantielle s’explique par l’histoire et les conceptions th•oriques de base qui ont donn• lieu aux deux syst‹mes de droit. L’auteur examine la division retrouv•e en common law entre le droit d•lictuel (tort) et contractuel (contract) par rapport — l’unit• th•orique de – responsabilit• civile ƒ du droit civil qu•b•cois. Il constate ensuite que les clauses d’exon•ration ont •t• facilement accept•es dans le droit des – contracts ƒ de la common law mais qu’elles ont •t• jug•es s•v‹rement en droit civil qu•b•cois en utilisant la notion de bonnes moeurs et d’ordre public. Malgr• les diff•rences entre la common law et le droit civil qu•b•cois, les deux syst‹mes reconnaissent aujourd’hui les clauses de non-responsabilit•. L’auteur soumet, cependant, que le droit civil qu•b•cois offre la meilleure r•ponse au probl‹me exprim• ci-haut. Selon lui, lorsque l’ex•cution n•gligente d’une obligation contractuelle •quivaut — un manque de bonne foi, elle doit donner lieu — la responsabilit• civile malgr• la clause d’exon•ration, vu la notion de – faute lourde ƒ d•velopp•e par la jurisprudence qu•b•coise. Cette notion est compar•e favorablement aux notions de fundamental breach de la common law et celle de l’obligation essentielle du droit civil. Apr‹s avoir examin• et discut• de la notion de – faute lourde ƒ en •tudiant les arr›ts qu•b•cois avec r•f•rence particuli‹re aux contrats de s•curit•/surveillance, l’auteur termine son •tude en proposant que la common law a besoin de ce genre d’analyse pour redresser le probl‹me des clauses de non-responsabilit• parfaitement r•dig•es en •voluant vers une th•orie g•n•rale des obligations et de la responsabilit• civile.

PAGE – 2 ============
Faute lourde and the Perfectly Drafted Exclusion Clause : A « civil » Response to a « Common » Problem with Special Reference to Contracts for the Provision of Security Services John D. CROTHERS* Devant la reconnaissance judiciaire accrue des clauses d’exonération clairement rédigées, il est devenu pratiquement impossible d’écarter lapplication de telles clauses aux litiges en responsabilité. L’auteur affirme que le monde commercial a besoin de ces clauses, mais souligne qu’il faut également protéger la bonne foi entre les co-contractants afin d’assurer des normes minimales de rendement dans l’exécution des contrats. A cet égard, l’auteur pose le problème suivant: supposons que le demandeur engage une compagnie de sécurité pour protéger son usine contre les risques de vol et de feu. Une clause d’exonération parfaitement rédigée protège la défenderesse, la compagnie de sécurité, contre la responsabilité qu’elle pourrait encourir par sa négligence ou celle de ses préposés dans la garde des lieux. Un gardien de sécurité met feulement à l’usine. Est-ce que la compagnie de sécurité est protégée par la clause ? Selon la jurisprudence des provinces canadiennes de common law et celle d’Angleterre, la réponse est affirmative, l’arrêt de principe (Thoto Productions v. Securicor,) est étudié à cet égard. Au Québec, selon l’auteur, la réponse serait négative : la responsabilité de la compagnie de sécurité serait engagée. L’auteur prétend que cette différence substantielle s’explique par l’histoire et les conceptions théoriques de base qui ont donné lieu aux deux systèmes de droit. L’auteur examine la division retrouvée en common law entre le droit délictuel (tort,) et contractuel (contract,) par rapport à l’unité théorique de « responsabilité civile » du droit civil québécois. Il constate ensuite que les clauses d’exonération ont été facilement acceptées dans le droit des « contracts » de la common law mais qu’elles ont été jugées sévèrement en droit civil québécois en utilisant la notion de bonnes mœurs et d’ordre public. * B.A., LL.B. B.C.L. (McGill), MacDonald Travelling Scholar (1985), Université de Strasbourg III, France. The author would like to thank Professor P. Haanappel of McGill University for his comments and Clark, Woods avocats for technical and moral support. Of course, the opinions expressed herein are the responsibility of the author alone. Les Cahiers de Droit, vol. 26, n° 4, décembre 198S, p. 881-920 (1985) 26 Les Cahiers de Droit 881

PAGE – 3 ============
882 Les Cahiers de Droit (1985) 26 C. de D. 881 Malgré les différences entre la common law et le droit civil québécois, les deux systèmes reconnaissent aujourd’hui les clauses de non-responsabilité. L’auteur soumet, cependant, que le droit civil québécois offre la meilleure réponse au problème exprimé ci-haut. Selon lui, lorsque l’exécution négligente d’une obligation contractuelle équivaut à un manque de bonne foi, elle doit donner lieu à la responsabilité civile malgré la clause d’exonération, vu la notion de «faute lourde» développée par la jurisprudence québécoise. Cette notion est comparée favorablement aux notions de fundamental breach de la common law et celle de l’obligation essentielle du droit civil. Après avoir examiné et discuté de la notion de «faute lourde» en étudiant les arrêts québécois avec référence particulière aux contrats de sécurité/ surveillance, l’auteur termine son étude en proposant que la common law a besoin de ce genre d’analyse pour redresser le problème des clauses de non-responsabilité parfaitement rédigées en évoluant vers une théorie générale des obligations et de la responsabilité civile. Pages Introduction 883 1. The Common Law Approach 884 1.1. Tort v. Contract : Theory and History 885 1.2. Application of the Tort/Contract Distinction in Security Contracts: Nunes Diamonds 886 1.2.1. The Facts 886 1.2.2. The Majority Decision 886 1.2.3. The Dissent 887 1.3. Conclusion 888 1.4. The Rise of Exclusion Clauses 888 1.4.1. History and Economic Theory 888 1.4.2. Doctrinal Analysis 889 1.5. Application of History and Theory of Exclusion Clauses to Security Contracts : Photo Productions 890 1.5.1. The Facts 890 1.5.2. The Majority Decision 892 1.5.3. An Alternative Approach : Lord Diplock 893 1.6. Limitation Clauses 895 1.7. Conclusion 895 2. The Civil Law Approach 896 2.1. The Exclusion Clause : Theory and History 896 2.1.1. «Public Order and Good Morals» 897 2.1.2. G/engoi/v. Pilkington 898 2.1.3. Canada Steamship Lines 899

PAGE – 4 ============
J. D. CROTHERS Faute lourde and Exclusion Clause 883 Pages 2.1.4. Conclusion 900 2.2. The Boundaries of Contract and Delict: Theory and History 900 2.2.1. Unity of Regimes 900 2.2.2. Option/’Cumul 901 2.2.3. Critique of Option 902 2.2.4. Response 902 2.2.5. Conclusion 903 2.3. Faute lourde 903 2.3.1. Introduction 903 2.3.2. The Rule 905 2.3.3. History 905 2.3.4. Application oïfaute lourde in Quebec 906 2.4.4.1. Theory of Faults 906 2.4.4.2. Fundamental Breach and obligation essentielle Distinguished 907 3. Faute lourde in Security Contracts 908 3.1. Introduction 908 3.2. Mere Negligence 908 3.3. Faute lourde 910 3.4. Bad Faith 912 3.4.1. Discussion 915 Conclusion 916 Introduction Born in the industrial revolution of nineteenth century England, the exclusion clause was hailed as the epitome of rational risk allocation in contracts. Its reception was less warm in the civil law of Quebec. A non-codal creature which purported to exclude liability, it was judicially perceived as contrary to public order. Ultimately, however, a combination of commercial expansion and judicial sleight of hand through obiter of the Supreme Court and Privy Council resulted in the grafting of exclusion clauses on to Quebec civil law. Although essentially foreign to Quebec law, such clauses were quickly incorporated into our theory and practice. They remain enigmatic, however, and serve to emphasize several basic doctrinal debates in our law : public order v. the sanctity of contract, judicial intervention v. “contrat fait la loi”, option/cumul v. “la thèse du respect du régime contractuel”, the theoretical unity of civil responsibility v. the duality of contract and delict.

PAGE – 5 ============
884 Les Cahiers de Droit ( 1985) 26 C. de D. 881 The exclusion clause has come of age in the 1980’s. In both the common and civil law, these clauses can be found in most standard form contracts. Drafting of exclusion clauses has also improved, so much so that in the world of commercial contracts, judicial devices such as construction or adequate notice are no match for a well drafted clause. It is submitted that the maturity of exclusion clauses is nowhere better evidenced than in contracts for the provision of security services. Indeed, the leading English and Quebec cases on exclusion clauses deal with these types of contracts. Although this article will focus on an analysis of such a specific type of contract, it is submitted that this detailed analysis also sheds light upon the general common law and civil law approaches to the ubiquitous exclusion clause. Security companies are hired to guard against theft and fire, yet their standard form contracts inevitably exempt or limit liability for these very risks. Such a state of affairs may appear strange to the layman. Judging by the case law dealing with plaintiffs trying to avoid such clauses, the co-contractants in these contracts are often not satisfied when an exclusion clause is invoked. While it is true that security companies are not insurers, the expectations of the plaintiff must also be examined. He has “bargained” for the provision of services and at least would expect good faith performance. It is precisely at the point of good faith in contracting that the common and civil law diverge. This paper will examine, from a comparative viewpoint, the history, theory and application of the respective approaches to the following problem : Plaintiff factory owner hires defendant security company to guard its premises against the risks of theft and fire. A well drafted exemption clause in the standard form contract excludes liability for acts of the the defendant’s employees in carrying out these duties. The employee deliberately sets a fire and the factory is totally destroyed. At common law the security company would be protected by the exclusion. It is submitted that in the civil law of Quebec liability would ensue. 1. The Common Law Approach 1.1. Tort v. Contract : Theory and History Professor Bridge, in his article “The Overlap of Tort and Contract” ‘ speaks of the “theoretical duality and technical unity” of the common law system of civil liability, in contrast to Professor Crepeau’s assertion of the theoretical unity and technical duality of regimes of responsibility in Quebec. 1. (mi)21 McGUILJ. 872, p. 873.

PAGE – 6 ============
Faute lourde and Exclusion Clause 885 At common law, where practice and the incremental growth of the law through accretion take precedence over theory and codification Š lawyers tend to think in terms of the separation of contract and tort. As Bridge recognizes : “[TJheoretical unity is wholly absent” 2. Although Bridge goes on in an attempt to advance his thesis that in practice the hermetically-sealed compartments separating tort from contract are breaking down, he must reluctantly recognize that the leading Supreme Court of Canada case on security contracts and the use of exclusion clauses bluntly perpetuates the distinction3. Surprisingly enough, the historical antecedents of the tort/contract separation at common law point to their initial fusion in the writ system of forms of action. The source of modern contract law can be traced to the writ of trespass, which originally formed part of the law of tort4. By the early 14th century, an action would lie for breach of an express undertaking by a negligent act or commission. The common law of contract diverged from tort at this point, however, focussing attention on the undertaking as opposed to the injury. Plaintiffs began to allege the failure to perform the undertaking as promised rather than liability for a misfeasance. Coterminous with the practicalities of pleading, an independent contractual vocabulary began to develop based on concepts of mutual promises by co-contractors, consideration and unique remedies for breach. By the turn of the 19th century when the writ system was finally abolished, the boundary between tort and contract had become even more distinct. Common law theorists began to rationalize and systematize a separate area of rules under the rubric of “contract law”. The end result of the separate evolution of contract and tort is evident today. Common law courts tend to perpetuate the distinction between the “law of tort” and the “law of contract”, especially in commercial situations. Where the parties have set out their rights and obligations in a contract, liability in an extra-contractual setting will not be lightly imputed. 2. Id. 3. J. Nunes Diamonds v. Dominion Electric, [1972] S.C.R. 769. For another examination of the problems created by Nunes Diamonds and its perpetuation of the tort/contract distinction see B. REITER, “Contracts, Torts, Relations and Reliance”, dans REITER et SWAN, Studies in Contract Law, Toronto, Butterworths, 1980. 4. BRIDGE, supra, note 1, p. 874.

PAGE – 8 ============
J. D. CROTHERS Faute lourde and Exclusion Clause 887 post-contractual assurances of the security company. The appellant had attempted to characterize these assurances as negligent misstatements as to the quality of the alarm system upon which it relied to its detriment. Stressing that the contract alone governed relations between the parties, Pigeon J. went on to conclude : It is a case in which, the parties having mutually established their respective rights and obligations by contract, it is sought to impose upon one of them a much greater obligation than that fixed by the contract by reason of an alleged misrepresentation as to the infallibility of the system which it provides. [] To make the protection company liable, in the case of the failure of its protection system, not for the stipulated nominal damages ($50) but for the full value of the goods to be protected, is a fundamental alteration of the contract. In my view, the representations relied on by appellant cannot be considered as acts independent of the contractual relationship between the parties. This can be readily verified by asking the question : Would these representations have been made if the parties had not been in the contractual relationship in which they stood ? Therefore, the question of liability arising out of those representations should not be approached as if the parties had been strangers, but on the basis of the contract between them. Hence the question should be : May this contract of service be considered as having been turned into the equivalent of a contract of insurance, by virtue of inaccurate or incomplete representations respecting the actual value of the protection service supplied ? In my view, there is no doubt that this question should be answered in the negative.6 1.2.3. The Dissent It is interesting to note that Spence J., in his dissenting judgment suggested an alternative approach which goes against the independence of tort and contract. His opinion also purported to deal with the specific problem of how exclusion clauses fit into a regime which might allow injured plaintiffs to sue in contract or tort. Rather than automatically excluding a cause of action in tort merely because of contractual relations between the parties, Spence J. took a “civilian” approach7. After recognizing that the relationship between the parties was to some extent defined by the contract, he also pointed out that this relationship could give rise to a concomitant duty to take care not to injure the plaintiff. The question thus becomes not whether the existence of a contract wipes out tortious responsibility, but whether the particular contract had in fact excluded liability in tort as well as contract. Spence J. went on to state that liability in negligence as well as contract may be excluded by a validly worded exemption clause, but that attempts to 6. Id., p. 777-778. 7. For an outline of the “civilian” approach, see Part II, below.

PAGE – 9 ============
888 Les Cahiers de Droit (1985) 26 c. de D. 881 exclude negligence would be strictly interpreted. By examining clause 16 of the contract, which stated that no representations “have” been made, in light of a strict interpretation test, Spence J. was able to avoid the exclusion clause and allow recovery : [I] have no hesitation in coming to the conclusion that clause 16 of the agreement between the appellant and the respondent cannot operate as a bar to a claim based on a tortious misrepresentation made many months after the contract which contained such clause had been executed.8 1.3. Conclusion The practical effect of Nunes Diamonds, whatever its critiques9, is that it will be difficult for a plaintiff in a contract for the provision of security services to rely on non-contractual remedies. Read at its widest, the case stands for the proposition that contractual relations will take precedence over tortious liability incurred within the contractual context. Even on the more narrow alternative reading, it could be said that as well drafted, an exclusion clause could have covered the tort in question. The following section of this essay will thus examine possible contractual remedies open to common law plaintiff for the breach of a security agreement. 1.4. The Rise of Exclusion Clauses 1.4.1. History and Economic Theory The rise of contract and contract law in early 19th century England can be traced to the demands of the industrial revolution. In an atmosphere of laissez-faire, contracts were used to maximize efficiency and reduce risk between businessmen intent upon turning a profit throught the exchange of resources l0. While the technology of mass production was turning out standardized manufactured goods, another byproduct was standardized contracts. Rather than negotiating with every party in a classical bargaining environment to produce individual contracts for every need of a large scale business enterprise Š standard forms were widely used for standard repetitive transactions. 8. Supra, note 3, p. 810. 9. BRIDGE, supra, note 1, finds that it goes against his theory on the overlap of tort and contract. 10. See YATES, Exclusion Clauses in Contracts, (1982) 1-26.

PAGE – 10 ============
J. D. CROTHERS Faute lourde and Exclusion Clause 889 The economics of producing standard forms for standard situations also dictated that standard risks inherent in the performance of a contract be identified and allocated. Good business sense suggested that the party putting forward the contract attempt to ensure that terms, which were by definition not open to negotiation, were favourable to that party. The success of this approach was of course conditioned by the degree of competition in the industry and the relative bargaining strength of the parties. One of the key risks of any contract is that of liability for breach of a contractual obligation. Standard forms thus contained clauses which attempted to define precisely the obligations being undertaken by the stipulating party or alternately to transfer or limit the liability flowing from the breach of these obligations. Such contractual risk-shifting devices became known as exclusion, exemption or limitation clauses. 1.4.2. Doctrinal Analysis From the laissez-faire era up to the present day, the common law has tolerated exclusion clauses in a commercial context as an application of the freedom of contract doctrine. Judges remain reluctant to interfere with the allocation of risk between commercial co-contractors. Unlike consumer situations, where negative aspects of standard forms such as the essentially “take it or leave it” thrust of the contract and the potential for abuse of superior bargaining power, are often taken into account, well drafted exclusion clauses in commercial contracts will not usually be tampered with. Nor has the existence of exclusion clauses at common law been seriously questioned by scholars. The theoretical purpose of such clauses, economically based allocation of risk, has traditionally been recognized by theorists ” and the courts 12. The theoretical nature of the exclusion clause, on the other hand, has been examined by few authors. The major common law analyst of exclusion clauses, Coote 13, has suggested an approach that keeps squarely within the contractual setting. He differentiates between the procedural and substantive theories. The traditional view is characterized as a “procedural approach” 14. In other words, an exception clause provides a shield to a claim for damages while the only relevance of the obligations undertaken by the promisor is that they have been breached. As Coote summarizes : 11. Id. 12. Nunes Diamonds, supra, note 3. 13. Exception Clauses, (1964). 14. Id, p. 2.

PAGE – 11 ============
890 Les Cahiers de Droit < '985> 26 c de D- 88 ‘ On this approach it is the duty of the courts, when confronted with a contract containing exception clauses, to look at the contract apart from the exempting clauses and see what are the terms express or implied which impose an obligation on the promisor. The exempting clauses will then operate, if at all, only as a defence to breaches of the obligation thus determined.” An alternative analysis is the “substantive approach” 16, which ignores the promisee’s “procedural” rights of enforcement of the contract and concentrates on the promises themselves. A valid contractual promise can be seen as creating a substantive primary right to performance of the promise and a correlative duty on the promissor to perform. A secondary substantive obligation to pay pecuniary compensation for breach of these promises also comes into being. Applying this approach to exclusion clauses, Coote states : In the first place, the function of all exception clauses, being substantive, is to place substantive limitations upon the rights to which they apply, and, accordingly, to help delimit and define those rights. In the second place, an exception clause which made purported contractual rights wholly unenforceable would not have effect merely as a shield to claims for damages. It would, in fact, prevent those rights from accruing in the first place. Suppose, for example, that I sell a horse which I say is sound for jumping, but provide in the written agreement that I accept no responsibility whatever if the horse should prove unsound. What I am doing is to ensure that the purchaser has no primary contractual right to call for a horse which is sound for jumping. I am not contracting that the horse is sound and giving myself a shield in case of breach. I am simply refusing to contract on the point at all.” 1.5. Application of History and Theory to Security Contracts : Photo Productions Despite the economic rational and judicial acceptance of exclusion clauses or Coote’s contention that there may not have been any promise made at all, plaintiffs unhappy with a total exemption or limitation of liability have attempted to qualify or avoid such clauses. Perhaps many businessmen might not consider themselves to be the laissez-faire bargainers or rationally allocating risk-takers that the common law courts most often see them to be. 1.5.1. The Facts Again, a case involving the provision of security services provides us with an illustrative example. In Photo Productions v. Securicor 18 the plaintiff 15. Id.,p. 1. 16. Id., p. 2. 17. Id., p. 7. 18. [1980] A.C. 827.

135 KB – 41 Pages