Supreme Court Of Canada Affirms Vicarious Liability Of Leasing Companies In Motor Vehicle Accidents Involving Leased Vehicle With Option To Purchase

The Supreme Court of Canada has confirmed that under British Columbia law finance companies may be vicariously liable for motor vehicle accidents when they finance a consumer’s acquisition of a motor vehicle through a lease with an option to purchase instead of a contract of conditional sale Transportaction Lease Systems Inc. v. Jennifer Yeung, 2007 SCC 45.

BACKGROUND

Yeung arose out of a trial judge’s dismissal of the plaintiff’s action against, among others, a leasing company. The plaintiff was injured in a motor vehicle accident caused by a youth driving a vehicle owned by his father. The father had leased the vehicle from the leasing company. Under the lease, the title to and a security interest in the vehicle was to remain in the lessor, and the father had two options to purchase the vehicle. If the father did not exercise either option, the leasing company was entitled to sell the vehicle. The leasing company’s liability turned on the proper interpretation of section 86 the Motor Vehicle Act, R.S.B.C. 1996, c. 318 (the "Act"). Section 86 of the Act provides, in pertinent part:

Responsibility of owner or lessee in certain cases

British Columbia appellate authorities had established that leasing companies were not vicariously liable under section 86 in circumstances such as those in Yeung. Accordingly, the trial judge dismissed the plaintiff’s action as against the leasing company.

COURT OF APPEAL FOR BRITISH COLUMBIA HOLDS LESSOR VICARIOUSLY LIABLE UNDER MOTOR VEHICLE ACT

The plaintiff appealed. The primary issue on appeal remained the proper interpretation of section 86 and, specifically, whether the leasing company fell within the exemption to vicarious liability in subsection 86(3). A five-member panel of the Court of Appeal for British Columbia unanimously allowed the plaintiff’s appeal and, in so doing, reversed existing appellate authorities on the scope of leasing companies’ vicarious liability. Consistent with established principles of statutory interpretation, courts interpreting statutory exemptions and exceptions must not undermine the broad purposes of the legislation. The purpose of section 86 of the Act is to extend liability to the owner of a vehicle except in two specified situations: (1) the motor vehicle "has been sold"; and (2) the vehicle is in the possession of the purchaser under a contract of conditional sale by which title to the vehicle remains in the seller until the purchaser becomes the owner on compliance with the contract. The legislature appears to have intended to extend the exemption in subsection 86(3) only to persons who had "sold" the vehicle and who had therefore parted not only with possession and control, but also effectively with title, or ownership, of the vehicle. The exemption in subsection 86(3) thus does not extend to a lessor who grants an option that might never be exercised as such a lessor remains an "owner" long after the term of the lease expires. The exemption in subsection 86(3) applies only where a motor vehicle has been "sold" pursuant to a true conditional sale agreement.

The Court of Appeal’s reasons for judgment are available on the web at http://www.courts.gov.bc.ca/jdb-txt/ca/06/02/2006bcca0217.htm

A unanimous Supreme Court of Canada (per McLachlin C.J.C.) dismissed the leasing company’s appeal. In brief oral reasons, the Supreme Court of Canada found the meaning of section 86 of the Act to be plain and for that reason agreed with the conclusions of the Court of Appeal for British Columbia. Consequently, as a result of Yeung, the exposure of leasing companies for vicarious liability in motor vehicle actions has been has been significantly enlarged.

The Court’s reasons for judgment are available on the web at http://scc.lexum.umontreal.ca/en/2007/07-10-22.3.html/07-10-22.3.html.html

The British Columbia Legislature responded to the Court of Appeal’s decision in Yeung by adding several provisions relating to leased vehicles to the Insurance (Vehicle) Act, R.S.B.C. 1996, c. 231.

Perhaps most notably, although the Legislature has maintained the vicarious liability of lessors under section 86 of the Act, it has placed limits on the liability of lessors imposed by operation of section 86. Under section 82.1 of the Insurance (Vehicle) Act (not yet in force), the maximum recoverable from a lessor of a motor vehicle in an action for loss or damage arising out of the use or operation of a motor vehicle on a highway in British Columbia in respect of one incident is the greater of: (a) $1,000,000; (b) the amount prescribed by regulation; or (c) the amount of third party liability insurance required by law to be carried in respect of the motor vehicle. The limit on lessor liability does not, however, apply to amounts payable by a lessor other than by reason of vicarious liability imposed under section 86 of the Act. Finally, the limit applies only to loss or damage sustained on or after section 82.1 comes into force.

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