The Canada Steamship Lines Ltd v King
Privy Council (Canada)
Citations:  AC 192;  1 All ER 305;  1 Lloyd’s Rep 1;  1 TLR 261; (1952) 96 SJ 72;  CLY 610.
The government leased a freight shed to the appellant. Clause 7 of the parties’ contract stated that the appellant would not have any claim against the government for damage to goods kept in the shed. Clause 8 required the government to keep the shed in repair. Finally, clause 17 stated that:
‘the [appellant] shall at all times indemnify…the [government] from and against all claims…by whomsoever made…in any manner based upon, occasioned by or attributable to the execution of these presents, or any action taken or things done…by virtue hereof, or the exercise in any manner of rights arising hereunder.’
The government’s employees negligently burned down the shed while repairing it, destroying both the shed and its contents. The appellant sued the government. The government also faced claims by third-parties whose property had been in the shed.
The government sought to argue that the appellant was bound under clause 17 to indemnify it against the third-party claims, while the appellant’s own breach of contract claim was barred under clause 7.
- Did clause 7 cover liability for negligent damage to the contents of the shed?
- Did clause 17 require the appellant to indemnify the government over its own negligent acts?
The Privy Council held in favour of the appellant. Clause 17 was not worded clearly or widely enough to apply negligence liability. Accordingly, it did not exclude the appellant’s claim. Clause 17 also did not cover the government’s own negligence, because:
- It was questionable whether the phrase ‘any action taken or things done…by virtue hereof’ was wide enough to cover negligence in carrying out contractual obligations;
- If that phrase was wide enough, it was possible for the clause to apply in situations other than negligence. Accordingly, under the rules for construing such clauses the term should be construed as not applying to negligence unless the language was very clear. The language was not sufficiently clear.
Accordingly, the appellant was not required to indemnify the government.
This Case is Authority For…
When determining whether an exclusion or indemnity clause covers negligent acts, the courts will be guided by a three-stage process of construction:
- Does the clause expressly refer to negligence liability? If so, it covers negligence.
- If not, is the wording of the clause wide enough to cover negligence? Any ambiguity is resolved against the party who seeks to rely on the clause.
- If the words are wide enough to cover negligence, might the breaching party might be liable for something other than negligence? If another type of liability exists, and is not so fanciful or remote that it was unlikely that the breaching party wanted protection against it, the clause is construed as only covering non-negligence liability.
If the clause can only realistically be breached negligently, then naturally it covers negligence. The court should not construe the clause as having no practical content.