Fraser River owned a ship that sank while it was under charter by Can-Dive. Can-Dive was negligent in the sinking of the ship. Fraser River recovered from their insurance company, who in turn sued Can-Dive. However, there was a clause in the contract between Fraser River and their insurance company stating that the insurance company could not bring actions against any charterers of Fraser River, however Fraser River made an additional agreement to waive the right to the waiver of subrogation. Can-Dive was found liable at trial but that was overturned by the Court of Appeal and Fraser River sought leave to appeal to the Supreme Court.
- Can Can-Dive benefit from and/or bring action to enforce the limitation of liability clause in the contract between Fraser River and their insurance company?
Iacobucci, writing for a unanimous court, clarifies that the test in London Drugs does not only apply to employees, but to any third party who meets the requirements. He goes on to say that the evidence in favor of relaxing the doctrine of privity is even more convincing in this case than in London Drugs as it explicitly states that charterers will be exempted in the contract. As Can-Dive was expressly mentioned in the contract, and they were doing the activity anticipated in the contract (chartering), they are covered by the limitation clause and therefore the insurance company cannot sue them. Further, the plain reading of the contract shows that this should be the case. Fraser River was acting as the agent of Can-Dive when they excluded them from liability.
The test in London Drugs applies to all third parties and not only employees of one of the parties.