SCC to tackle vicarious liability of automobile finance companies

When the SCC resumes its hearings in a few weeks, it will handle a case concerning whether the lessor of a car can be vicariously liable as an automobile ‘owner’ to the victim of an accident. On appeal from a unanimous 5-judge decision of the British Columbia Court of Appeal (Yeung (Guardian ad item of) v. Au, 2006 BCCA 217), the SCC will have to tackle not only the nuanced nature of interpretation that the BCCA judgment turned on, but hopefully, also the social and economic implications of extending vicarious liability to organizations that had no practical way of avoiding or controlling the risk.


In December of 1998, Ms. Yeung rode as a passenger in car a driven by Henry Au, who was then 18 years old. He drove at excessive speed, lost control of the vehicle, and suffered an accident in which his vehicle was struck on the passenger side. As a result, Ms. Yeung suffered a brain injury that severely affected almost every aspect of her life. Ms. Yeung’s litigation guardian then sought damages from Mr. Au, which were in excess of the amount for which he was insured.

The vehicle was a BMW Z3 that Mr. Au’s father had leased for him from Transportaction Lease Systems Inc (“TA”). The terms of the lease were that his father was to pay a fixed amount plus taxes over a fixed number of months. At the end of this term, there would be an option to purchase the vehicle at fair market value.

BC Court of Appeal

According to s. 86(1) of the Motor Vehicle Act, R.S.B.C. 1996, c. 318, liability attached to Mr. Au’s father because he was the formal lessee in the agreement. S. 86(1) states:

(1) In an action to recover loss or damage sustained by a person by reason of a motor vehicle on a highway, every person driving or operating the motor vehicle who is living with and as a member of the family of the owner of the motor vehicle, and every person driving or operating the motor vehicle who acquired possession of it with the consent, express or implied, of the owner of the motor vehicle, is deemed to be the agent or servant of that owner and employed as such, and is deemed to be driving and operating the motor vehicle in the course of his or her employment.

Where the BCCA and trial judge differed was whether TA fell into the exemption to s. 86(1) provided by s. 86(3):

(3) If a motor vehicle has been sold, and is in possession of the purchaser under a contract of conditional sale by which the title to the motor vehicle remains in the seller until the purchaser becomes the owner on full compliance with the contract, the purchaser is deemed an owner within the meaning of this section, but the seller or the seller’s assignee is not deemed to be an owner within the meaning of this section.

After an in depth consideration of what is meant by a ‘conditional sale,’ (taking into account jurisprudence on an old definition in the now defunct Sale of Goods on Condition Act, R.S.B.C. 1979, c. 373, and the absence of a definition in the current Personal Property Security Act, S.B.C. 1989, c.36), Newbury J. found that because the lease agreement contained only an option to purchase, and not an outright sale, that it

was not …what would have been called a contract of conditional sale at common law… [T]he exemption in s. 86(3) applies only where a motor vehicle has been ‘sold’ pursuant to a true conditional sale agreement. … The consequence in this case is that TA falls outside the exception in s.86(3) and that since [Henry Au] acquired possession of the vehicle with TA’s express or implied consent, the lessor is vicariously liable for Ms. Yeung’s damages.


Despite the fact that Newbury J. explicitly pointed to a Law Reform Commission report which found that s.86(3) was included because “it would be unfair to treat a credit grantor such as a conditional seller as an owner…and expose him to risks he has no practical way of avoiding”, Newbury J. adopts reasoning whereby s.86(3) “effectively contains its own definition of ‘contract of conditional sale.’ This has the awkward effect of basing liability not on the type of relationship between the parties as is manifested by their actions, but rather merely on the financing arrangement that was carried out.

Bazley v. Curry, [1999] 2 S.C.R 534 outlines the two rationales for the imposition of vicarious liability:

i) It is right and just that the person who creates a risk bear the loss when the risk ripens into harm;
ii) Vicarious liability has the broader function of transferring to the enterprise itself the risks created by the activity performed by its agents.

Though these rationales were written in the context of vicarious liability of employers for their employees, the principles are nonetheless useful for understanding how this legal mechanism manages risk. Support for the Court of Appeal’s decision under the first prong seems a bit of a reach, but the second prong seems more tenable; i.e., underneath the technical nature of their argument, and though limited only to the leasing instrument, the decision may very well be trying to spread some of the risk of automobile accidents onto the financiers of automobiles. With ever-increasing auto-insurance costs, the financial companies benefiting from these transactions are definitely in a position to take on some of these risks by purchasing insurance themselves.

Since Newbury J. avoided any outright policy statements, this, of course, amounts to nothing more than just speculation as to what, if any, the underlying policy motive of the BCCA was. Nevertheless, it’ll be interesting to see how the SCC treats this case. Will they uphold the BCCA decision and expand the group of people who bare the risks of automobile accidents? Or, will they rein back the BCCA decision, and not hold financial companies liable for risks they can’t practically control?

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