Bernard LLP lawyers W. Gary Wharton , Neo J. Tuytel and Paul D. Mooney have successfully appealed a judgment for the loss of inventory, estimated at more than $16,000,000, when a warehouse in New Westminster was destroyed by fire. The appeal decision is available at Kruger Products Limited v. First Choice Logistics Inc., 2013 BCCA 3 (CanLII).
A primary issue in the case was the lack of a signed agreement. The warehouse operator had, prior to the commencement of operations, provided a first draft of the contract to the plaintiff paper manufacturer. By the day of the fire (July 31, 2001), the plaintiff paper manufacturer had not provided any meaningful response to numerous requests for suggested revisions to or other comments on a draft agreement for operating the warehouse, which the defendant had presented at a meeting in the late Spring of 2000. The draft agreement contained covenants, among other things, by the plaintiff manufacturer to insure its inventory which the defendant would manage. The Supreme Court of Canada, and other Canadian appellate courts have since the 1970s held that covenants to insure, in leases or construction contracts, bar claims by covenantors for loss or damage to the subject property by perils to be insured against, due to the negligence of covenantees.
A lawsuit was brought in the plaintiff’s name (whether on its own behalf, or as a subrogated claim by its insurer), to recover the amount of the inventory loss from the warehouse operator. At trial, the plaintiff denied that the draft agreement applied. However, the B.C. Supreme Court accepted the defendant warehouse operator’s evidence – based on detailed forensic and other investigations by its counsel – that the plaintiff – by its conduct – accepted the terms of the agreement. The Court nevertheless distinguished such bailment agreement from a lease or construction contract, did not apply the defence of ‘tort immunity’ pursuant to insurance covenants in that context, and (after reserving for approximately two years) granted judgment against the operator: Kruger Products Limited v. First Choice Logistics Inc., 2010 BCSC 1242 (CanLII).
This January 9th, the B.C. Court of Appeal reversed that decision in Kruger Products Limited v. First Choice Logistics Inc., 2013 BCCA 3. In addition to a ‘trilogy’ of S.C.C. decisions, and others (most if not all of which had been cited at the trial), the Court of Appeal unanimously relied upon its own decision in North Newton Warehouses Ltd. v. Alliance Woodcraft Manufacturing Inc., 2005 BCCA 309 (CanLII), a landlord-tenant insurance covenant case in which Mr. Tuytel was counsel for the successful defendant/appellant.
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