Privily of Contract

Forvest Trust S.A. v. The Devine Entertainment Film Library Limited Partnership, 2013 ONSC 3347 (CanLII)

[26] In the recent decision of the Court of Appeal in Brown v. Belleville (City), 2013 ONCA 148 (CanLII), (2013) O.J. No. 1071 (C.A.), the Court reviewed at length the doctrine of privity of contract. Cronk J.A. spoke for the Court and stated the general principle that the doctrine of privity of contract prevents a non-party to a contract from enforcing or relying upon the contract, subject to certain principled exceptions established in the case law. Cronk J.A. set out the general principle as follows (Brown, at para. 75):

The common law doctrine of privity of contract, an established principle of contract law, stands for the proposition that "no one but the parties to a contract can be bound by it or entitled under it": Greenwood Shopping Plaza Ltd. v. Neil J. Buchanan Ltd., 1980 CanLII 202 (SCC), (1980) 2 S.C.R. 228, at para. 9. See also London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), (1992) 3 S.C.R. 299, at p. 416; Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co., [1915] A.C. 847 (H.L.), at p. 853. In this case, it is common ground that the Browns have no privity of contract with the City in respect of the Agreement. They are not signatories to the Agreement and no explicit assignment or transfer of the Agreement was made in their favour. [Emphasis added.]

[27] In Brown, Cronk J.A. reviewed the “principled exception to the privity rule” (Brown, at para. 95). Cronk J.A. reviewed case law from the Supreme Court and held that the “threshold requirement” to invoke the principled exception to the privity rule is that there must be evidence that the contracting parties intended to extend the benefit in question to the third party seeking to rely upon the contractual provision. Cronk J.A. held (Brown, at paras. 99-100):

The principled exception to the privity rule introduced in London Drugs was again considered and applied, this time unanimously, by the Supreme Court in Fraser River. In that case, at paras. 28-29 and 32, the court clarified that satisfaction of the first branch of the London Drugs test is a threshold requirement: to invoke the exception, there must be a showing that the contracting parties intended to extend the benefit in question to the third party seeking to rely on the contractual provision. Further, under the second branch of the test, the intention to extend the benefit of the contractual provision to the actions of a third-party beneficiary is irrelevant unless the actions of the third party come within the scope of the contract in general, or the provision in particular, between the initial contracting parties.

The Supreme Court emphasized in Fraser River, at para. 32, as did the majority of the court in London Drugs, at p. 449, that the extension of the principled approach to create a new exception to the doctrine of privity of contract, "first and foremost must be dependent upon the intention of the contracting parties". Finally, the application of the principled approach is not confined to situations involving only employer-employee relationships or limited liability: see Fraser River, at para. 31; Madison, at para. 30. [Emphasis added.]