Canada Steamship Lines v The King  AC 192
Exclusion clauses, ambiguity in contractual clauses
Canada Steamship Lines entered into a Crown lease in 1940. The Duration of the lease was for 12 years and the lease pertained to dock property on St Gabriel Basin on the Lachine Canal. All of this was situated in the Port of Montreal. Pursuant to the Crown lease, Canada Steamship Lines became the tenant there. The property included a freight shed. The lease contained an exclusion clause which related to that shed, specifically stating that the Claimant would not have any claim for damage to goods which were stored in the shed. Nevertheless, under the lease the Defendant had the duty of maintaining the shed including bearing the costs of so doing. In the process of maintaining the shed, an employee used an oxy-acetylene torch (which was improper and negligent practice) and accidently set some cotton bales on fire, with that fire spreading and eventually burning down the entire shed. This caused significant damage, including $40,714 worth of damage to the Claimant. The Claimant wished to sue the Defendant, but the Defendant asserted that no liability existed due to the exclusion clause.
The issue in this case was whether the exclusion clause could be construed to exclude liability on the facts of the case.
It was held that the exclusion clause, as well as a different indemnity clause, were both ambiguous. In that situation, they would be interpreted in favour of the Claimant. In fact, the issue of negligence may be irrelevant, as strict liability could apply due to the Defendant’s failure to keep the shed in good repair. The following test was set out:
“(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called the `the proferens’) from the consequences of his own servants, effect must be given to that provision (2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens (3) If the words used are wide enough for the above purpose, the court must then consider whether `the head of damage may be based on some ground other than negligence” (Lord Morton of Henryton)