A New Form of Potential Vicarious Liability

On August 23, 2013, the CFLA reported that one of its members (a finance company) was issued an order by the Ontario Ministry of Labor under OHSA for damages allegedly suffered as a result of an accident with respect to equipment that was subject to an equipment lease. Briefly, under the OHSA, and other Canadian similar legislation, a supplier of equipment to a company may be liable if the equipment is involved in an accident. The definition of the word supplier under the OHSA includes, without limitation, a lessor of goods.

The summary provided by the CFLA indicated that there were no reported cases where an equipment finance company had such an order made against them in the past. As such, this is a new area of concern for lessors generally. The impact of the order is that a lessor can be held liable for the actions of its lessee. This results in a form of vicarious liability, which has to date, generally not been considered in a credit analysis. Needless to say, this is a very troubling result which the CFLA is taking seriously. As is reported on its website, the CFLA is commencing a lobbying initiative, first with the Ontario Government, to amend the legislation to exclude leases in excess of four months, among other things. We will keep you advised as to further updates with respect to these lobbying efforts.

Unfortunately, it is not possible for the parties to contract out of the OHSA obligations and, as such, there is no provision that may be embedded into lease documents which will cause this particular risk to be eliminated. While well drafted leases have applicable covenants and indemnities, these protections are only as strong as the party providing the promise. There are, however, certain practices that can be followed which can minimize or reduce the risk, some of which can be included easily into existing procedures. Other techniques may cause burdensome procedures. We will be providing our clients with certain suggestions to modifications to their lease forms, practices and procedures, which could help reduce but not eliminate the potential of lessor liability with respect to the OHSA.

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.