Canada: An Owner May Lend A Vehicle With A Valid Prohibition Against Lending It To A Third Party

If you loan your vehicle to someone, can you impose a condition that they not lend it on to an unknown third party? In the decade since Mugford v. Weber, the law has been that owners cannot put conditions on their consent to others' possessing their vehicles that bind injured third parties. However, in its ground-breaking decision in Garrioch v. Sonex Construction Ltd., the Alberta Court of Appeal recognized an exception – an owner can validly prohibit the vehicle from being handed on to a third party.
Sonex Construction entrusted its truck to its employee Garrioch. Sonex policy designated drivers for each vehicle and prohibited personal use of company vehicles but the trial judge held that these policies were merely "paper" policies and not enforced. Garrioch felt he was too drunk to drive so he allowed Tessman to drive. Tessman got into an accident and Garrioch sued for his injuries.
At Trial
The trial judge found that Tessman was driving with Sonex's implied consent and was vicariously liable pursuant to the Traffic Safety Act, s. 187. She found that Garrioch had consented to Tessman acquiring the truck and that Tessman reasonably believed that he had permission to possess the truck. On the basis of Mugford she found that "[w]hen a vehicle owner trusts someone with the complete possession of the vehicle and the permission to drive, the owner no longer exercises control over the vehicle" such that a condition that the vehicle not be given to anyone else is not valid as against injured third parties. She also found Sonex liable for negligent entrustment of the truck to Garrioch.
In The Alberta Court Of Appeal
The Majority held "the only reasonable inference from the facts is that Sonex did not give Garrioch permission to pass on possession to other persons, at least those who were not employees." The Majority summarized several principles:

  1. "The only issue is as to whether or not the owner expressly or implicitly consented to the third party having possession of the vehicle."
  2. "Implied consent is a question of fact, requiring that an inference be drawn from all of the circumstances, including such things as the knowledge or expectation of the owner about subsequent transfers of possession, the relationship between the parties, any past pattern of conduct, any express prohibition on transferring possession, and any other relevant fact."
  3. "Consent to possession cannot be granted on conditions, such as conditions respecting the manner of driving or the occasions on which driving is consented to: Mugford. Such conditions cannot be asserted against an injured plaintiff." The Court was unanimous in concluding that "conditional consent is impermissible" and that an owner's consent "is an 'on or of' switch: either it exists or it does not." 
  4. However, there is an exception:"[a]n owner can consent to possession of the vehicle on the condition that possession will not be passed on to third parties or classes of third parties. The one condition that the statute specifically allows the owner to place on his vicarious liability is 'consent'. The owner is allowed to consent to the second party having possession of the vehicle, and limit that consent to the second party. If the third party wants consent to possess the vehicle, he has to get it from the owner. Just because the owner consents to one driver having possession of his vehicle does not mean that the owner consents to the whole world having possession."

The consent issue is easy to resolve where the owner expressly allows or prohibits the second party to transfer the vehicle to a third party. Where the owner says nothing about passing on possession to third parties, consent to do so may be implied from the context, the onus being on the plaintiff to prove it. "[T]he subjective belief of the third party driver is not directly relevant, except to the extent that it reflects the view that the informed, objective, reasonable person might have of the circumstances, as that latter view might demonstrate the existence of implied consent in fact . . .  [but] [t]he driver cannot turn his subjective perceptions into the owner's actual state of mind." Also, "the question cannot be subjectively resolved by the owner with hindsight, and a negative answer to a hypothetical question put to the owner at trial of whether consent would have been granted at the time of the accident is not conclusive". In dissent, Mr. Justice Berger did not reject the exception recognized by the Majority, but was of the view that the evidence did not establish that Sonex had prohibited Garrioch from lending the vehicle to another and that Tessman had Sonex's implied consent in the circumstances.
The Majority also held that the plaintiff failed to establish negligent entrustment by Sonex. The evidence did not establish that Sonex knew or ought to have known that Garrioch would use poor judgment in selecting alternate drivers. Importantly, the Majority held that "[w]hen the statute does not impose vicarious liability (because there is no consent for the possession by the driver) care should be taken in imposing liability through an alternative theory of 'negligent entrustment'" because "this theory has the potential of finessing the public policy that liability only arises (and the owner's insurance coverage is only engaged) if the third party driver has consent to operate the vehicle."
From a practical perspective, we expect that this will be a major case for the defence. In claims where the owner (be it an employer, rental company or otherwise) has provided consent to a person who then hands the keys to another, Garrioch may shield the owner's insurer from liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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