BCCA Addresses Tercon Test for Public Policy and Exemption Clauses

In its well-known decision in Tercon Contractors, the Supreme Court of Canada set out a three-part test for the enforceability of contractual exemption clauses: (1) does the clause, as a matter of interpretation, apply to the dispute; (2) if so, was the clause unconscionable at the time the contract was made; and (3) if not, would enforcing the clause be contrary to public policy?  Since the release of Tercon in 2010, there has been virtually no appellate guidance regarding the third, "public policy" component, of the test.  That silence has now ended with the British Columbia Court of Appeal's ruling in Loychuk v. Cougar Mountain Adventures.

Background

The defendant in Loychuk operated "zip-line tours", a form of recreational sports activity that involves strapping a person into a harness and trolley, and sending them down a line from a higher platform to a lower one.  The two plaintiffs were injured when they collided while making use of the defendant's line.  The collision was solely the result of the negligence of the defendant's employees; indeed, the plaintiffs had no control over their movements once they began their descent.

Prior to embarking upon the zip line tour, each of the plaintiffs had signed a release with the defendant.  The release was framed in extremely broad terms.  Among other things, it provided that the plaintiffs assumed the risk of personal injury or death arising from the negligence of the defendant, including its failure to take reasonable steps to protect them from the risks of participating in the zip line tour, and that they waived their right to claim against the defendant in respect of such loss.

The plaintiffs brought claims for damages against the defendant, and it responded with a summary trial application to dismiss the claims based on the release.  The plaintiffs raised several arguments in an effort to defeat the release, including that it was unconscionable, invalid under the B.C. Business Practices and Consumer Protection Act, lacked consideration and was signed without their informed consent.  However, these arguments were rejected in reasons issued in 2011 by Goepel J., who granted the defendant's motion to dismiss the claims owing to the release.

The Decision

The plaintiffs appealed Goepel J.'s decision to the British Columbia Court of Appeal, where they raised many of the same arguments made below.  However, those arguments were rejected by the Court of Appeal, which ultimately affirmed Goepel J.'s decision to dismiss the plaintiffs' claims.

Among the submissions made by the plaintiffs on appeal was the contention that the release, even if not unconscionable, was still unenforceable for public policy reasons under the third part of the Tercon test.  This submission was based on the fact that a participant's movements on a zip-line tour, unlike in many other forms of recreational sports activities (e.g., skiing), are wholly within the control of the operator.  Accordingly, the plaintiffs argued, the defendant should not be permitted to exclude liability for injury or death caused by its own negligence, since the plaintiffs had no control whatsoever once they were sent down the line.  They buttressed this submission with reliance on two reports from the British Columbia and Manitoba Law Reform Commissions, which recommended that legislation be enacted to preclude commercial recreational operators from excluding their liability for personal injury and death in certain situations.

The Court of Appeal declined to accept the plaintiffs' submission.  Frankel J.A., writing for a unanimous panel, held that the Law Reform Commission reports were of little significance, since releases concerning inherently risky recreational activities had been upheld by the courts for many years.  He went on to observe that, to the extent "there are policy reasons why such releases should not be enforceable when an activity is totally within the control of an operator, then any change in the law is properly a matter for the Legislature" (para. 44).  Finally, in perhaps the most important passages of the judgment, Frankel J.A. referred to the Supreme Court of Canada's ruling in Tercon, stating:

As Binnie J. stated in Tercon, "The residual power of a court to decline enforcement exists but, in the interest of certainty and stability of contractual relations, it will rarely be exercised": para. 117. He then provided examples of when it would be appropriate for a court to refuse to give effect to an exclusion clause. The first involves food suppliers who knowingly or recklessly sell toxic products to the public: para. 118. The second example, which Binnie J. described as "less extreme", involves a company that knowingly supplies defective plastic resin to a customer who uses it to make natural gas pipelines: para. 119. ...
What those examples have in common is that the party seeking to rely on an exclusion clause either knew it was putting the public in danger by providing a substandard product or service, or was reckless as to whether it was doing so. In other words, that party engaged in conduct that is so reprehensible that it would be contrary to the public interest to allow it to avoid liability. I am not convinced that where a participant is injured through the negligence of an operator, there is such a difference between situations where participants have some measure of control and those where they do not, that the latter rises to this high level of public policy. In both cases the injury was caused by negligence which cannot itself be controlled by the participant.

 

Potential Significance

Given the absence of appellate guidance on the Tercon "public policy" test to date, the decision in Loychuk will be important in future cases concerning the enforceability of exemption clauses.  Frankel J.A.'s analysis suggests that exemption clauses will not be invalidated on account of public policy unless the defendant either knowingly or recklessly puts the public in danger by providing a deficient product or service.  In effect, therefore, mere negligence on the part of a defendant will insulate it from the public policy rule in Tercon, even where the defendant has complete control over whether its negligence results in an injury to the plaintiff.  The role served by public policy on this analysis is minimal; in practical terms, it is limited to ensuring that defendants do not exclude liability for serious forms of wilful misconduct.

This arguably represents a narrowing of Tercon, where Binnie J. held that the criminality and egregious fraud referred to by Frankel J. were "but examples" of the public policy considerations that can justify non-enforcement of an exemption clause, and that "the contract breaker's conduct need not rise to the level of criminality or fraud to justify a finding of abuse" (paras. 118 and 120).  At the same time, the Tercon Court did not itself provide clear guidance on the other kinds of behaviour that could warrant application of the public policy doctrine.  Instead, it left the contours of the doctrine to be mapped out in subsequent litigation.  The Loychuk decision represents the first attempt to do so by an appellate court.  It is unlikely to be the last.

Case Information

Loychuk v. Cougar Mountain Adventures Inc., 2012 BCCA 122

BCCA Court File No.: CA038870

Date of Decision: March 15, 2012

British Columbia Court of Appeal enforceability of exemption clauses Supreme Court of Canada test for enforceability of contractual exemption clauses zip-line tours

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