An indemnity against “any damage or claims” may not be comprehensive. So ruled the Ontario Court of Appeal in Neely v. MacDonald [1], a decision containing important guidance for drafters of indemnity provisions.

Background

The case involved a golf cart accident. The plaintiff-passenger (“Neely”) was injured when the driver (“MacDonald”) lost control of a golf cart while driving down a steep hill on a course owned by ClubLink.  Neely sued MacDonald for negligence in the operation of the cart and ClubLink for failing – despite previous complaints – to correct the grade of the hill.

ClubLink claimed over against the tournament host, Canadian Litigation Counsel Inc. (“CLC”), on the basis of an indemnity clause in the contract between ClubLink and CCL. The clause provided as follows:

CUSTOMER IS LIABLE FOR ALL DAMAGE CAUSED BY CUSTOMER AND/OR THEIR GUEST(S)

The Customer and/or their guest(s) agree to hold ClubLink Corporation and its officers and employees free and harmless from any damage or claims of any nature that may arise from or through the use of a golf cart.

It is the Customer/s and/or their guest(s) responsibility to fully understand the safe operating instructions of the golf cart and to return it immediately following completion of the round of golf in as good condition as was received.

The motion judge held that indemnity was not limited to damage caused by the guests (as contemplated in the heading) themselves but also extended to cover ClubLink’s own negligence (as contemplated in the body).[2] Justice Myers ruled that CLC was obligated, to indemnify ClubLink for all of the plaintiff’s personal injury claims – even those which might flow from ClubLink’s own negligent course design or operation.

For further information regarding the motion decision, see Gowlings’ June 2014 case comment

The Court of Appeal

Although the Court of Appeal noted that “appellate deference to first instance deciders on points of contractual interpretation is desirable”, it reversed the motion judge’s decision. The three member appeal panel was “unable to find that the contract clearly shifted to CLC the risk of ClubLink’s own negligence.”  

First, headings can colour the meaning of contractual provisions.  Thus, the heading “Customer is liable for all damage caused by customer or guests” narrowed the scope of the wording below.

Second, if a party intends to obligate another to bear the costs of its own negligence, the clearest possible terms must be used. The Court followed Fenn v Peterborough (City) (1979)[3], which the motion judge had improperly distinguished. In Fenn, the Supreme Court of Canada held that an exemption from claims of negligence must use the clearest possible terms. In this case, ClubLink’s language was insufficiently clear.

Third, any ambiguity must be construed against the drafter. Here, because ClubLink inserted an unclear heading/wording combination, it was not entitled to a favourable interpretation.

The Court of Appeal ultimately ruled that “it was arguable that the hill was negligently designed and maintained by ClubLink, and that this caused or contributed to the accident.” Without an indemnification from its own negligence, that became a question for ClubLink to answer before a jury.

Drafting Tips

The Court of Appeal decision re-emphasizes the contra proferentem principle: any ambiguity in a contract will be interpreted against the party who drafted the contract. Drafters should consider explicit language that states the type of damages and classes of contributor that are covered.  In particular, if a party wants to be indemnified for its own negligence, it must clearly signal such an intention. Highly specific language within indemnity provisions is now par for the course.