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Contracts - Privity

. Bertrand v. Academic Medical Organization of Southwestern Ontario

In Bertrand v. Academic Medical Organization of Southwestern Ontario (Ont CA, 2024) the Ontario Court of Appeal considered an application by individual medical educators against the cessation of academic funding under the 'AHSC AFP Template Funding Agreement' made between various academic and medical bodies and the Minister of Health and Long-Term Care.

Here the court considers exceptions to the doctrine of privity of contract, which - if effective - can grant standing to 'other' parties:
[7] The appellants commenced an application in the Superior Court. They argued that AMOSO’s decision amounted to a breach of the Agreement and that they continued to be entitled to an allocation of the funds paid to AMOSO. The application was dismissed. The application judge found that the appellants, who are not parties to the Agreement, were not entitled to a contractual remedy; were not intended to receive the benefit of any of the Agreement’s provisions, in particular those that provide for mediation and alternative dispute resolution (“ADR”); and that even if the appellants had a contractual right, because AMOSO adhered to and exceeded its internal rules and the principles of natural justice, the court had no authority to review the correctness of AMOSO’s decision.


[13] The common law doctrine of privity of contract, accurately summarized in the application judge’s reasons, stands for the proposition that “no one but the parties to a contract can be bound by it or entitled to it”: Greenwood Shopping Plaza v. Neil J. Buchanan Ltd., 1980 CanLII 202 (SCC), [1980] 2 S.C.R. 228, at para. 9. The application judge recognized that there are exceptions to the doctrine, pursuant to the “principled approach” identified in Fraser River Pile & Dredge Ltd. v. Can-Drive Services Ltd., [1999] 1 S.C.R. 108, at para. 31, which required him to consider the following “two critical and cumulative factors”: 1) whether the parties to the Agreement intended to extend the benefit in question to the appellants; and 2) whether the activities performed by the appellants are the very activities contemplated as coming within the scope of the Agreement in general, or the provision in particular (i.e., access to ADR), again as determined by the intention of the parties.

[14] The application judge’s reasons address both of these prerequisites. First, he found that there was no express intention in the Agreement that an individual physician would benefit from any contractual provision, nor could one be implied. And second, he found that it “would not accord with commercial reality and common sense” if each physician had the right to commence proceedings (under either the funding agreement’s ADR provisions or in court) each time AMOSO made a decision with which they disagreed. These findings were amply supported by the record.
. ING Bank N.V. v. Canpotex Shipping Services Limited

In ING Bank N.V. v. Canpotex Shipping Services Limited (Fed CA, 2020) the Federal Court of Appeal dealt with an unusual case where a bulk oil broker required the purchaser to be bound by the terms and conditions of the supplier if the supplier so 'insisted'. After much discussion of the practicalities that that created in the commercial relationship between the parties, the Court of Appeal held the purchaser to be contractually bound to the supplier under the argument that the broker's contract with the purchaser gave them the authority to bind them to the supplier.

There was some discussion of the issue of privity, but none of the case authorities on privity. The case was split in three rulings and the concurring judge held that there was privity between the two broker clients. The case is frustrating for it's lack of discussion of privity doctrine, although it did allude it briefly:
[21] Ancillary questions were raised by the respondents, such as whether on the basis of ITO-Int'l Terminal Operators v. Miida Electronics, 1986 CanLII 91 (SCC), [1986] 1 S.C.R. 752, 28 D.L.R. (4th) 641; London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, 97 D.L.R. (4th) 261; Morris v. Martin, [1965] 2 All E.R. 725, [1965] 3 W.L.R. 276, this Court should relax the application of the concept of privity of contract in this case. ...
. Bennett v. Bennett Estate

In Bennett v. Bennett Estate (Ont CA, 2020) the Court of Appeal considered an issue of whether a third party to a contract fell into privity:
[27] The motion judge also did not err in his analysis of the privity of contract doctrine. The doctrine applies only where the contract in question confers the relevant benefit on a third party. The motion judge’s finding that the agreement did not confer a right of first refusal on anyone but the parties to the agreement is determinative of this analysis. In the absence of a benefit conferred on a third party, recent caselaw ameliorating the strictures of the privity doctrine and allowing third parties to enforce contractual provisions for their benefit – see e.g. London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, and Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 CanLII 654 (SCC), [1999] 3 S.C.R. 108 – is irrelevant and cannot assist the appellant.
. 1196303 Inc. v. Glen Grove Suites Inc.

In 1196303 Inc. v. Glen Grove Suites Inc. (Ont CA, 2015) the Court of Appeal approved some succinct and useful comments on the doctrine of privity:
[94] My holding above is sufficient to dispose of this appeal. I do, however, wish to briefly comment on the appellant’s main submission. The appellant submitted that as Glen Grove was a separate corporate entity and it was not a party to the agreement between 119 and 129, Glen Grove could not be bound by the Settlement because 119 lacked privity of contract with Glen Grove. 119’s response, a response that the trial judge accepted, was akin to an estoppel argument based on the companies’ common principal that, for the reasons already given, I have rejected. 119 did not directly address the appellant’s argument that the doctrine of privity of contract ought to apply.

[95] Privity of contract is a common law doctrine that “a contract cannot (as a general rule) confer rights or impose obligations under it on any person except the parties to it.” H.G. Beale, ed., Chitty on Contracts, 31st ed., vol. 1, (London: Sweet & Maxwell, 2012) at 18-003.

[96] The injustice of a rigid application of the doctrine was the subject of comment in Brown v. Belleville, (City), 2013 ONCA 148 (CanLII), 359 D.L.R. (4th) 658, at para. 79. Cronk J.A. on behalf of the court observed that the doctrine of privity of contract is subject to academic and judicial criticism, so much so that some Commonwealth jurisdictions have abrogated it while in other instances, “the reach of the doctrine has been significantly undermined by a growing list of exceptions to the rule" (citations omitted).

[97] The Supreme Court recognized and elaborated a principled exception to the doctrine of privity of contract respecting third party beneficiaries in Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 CanLII 654 (SCC), [1999] 3 S.C.R. 108, at para. 32. The Court held the rule could be relaxed with respect to a third party beneficiary where: 1) the parties to the initial agreement intended to extend a benefit to the third party; and 2) the activities of the third party were the very activities contemplated as coming within the scope of the contract or particular provision. John D. McCamus in The Law of Contracts, 2d ed. (Toronto: Irwin Law, 2012), at p. 324, observes:
The purpose of the exception is to confer upon courts, in cases where the traditional exceptions of agency and trust do not apply, a discretion to undertake the appropriate analysis, bounded by both common sense and commercial reality, in order to determine whether the doctrine of privity with respect to third-party beneficiaries should be relaxed in given circumstances. [Citations omitted.]
[98] Decisions imposing liability on a third party are fewer but they do exist. Examples are: Seip & Associates Inc. v. Emmanuel Village Management Inc., 2009 ONCA 222 (CanLII), 247 O.A.C. 78; Chan v. City Commercial Realty Group Ltd., 2011 ONSC 2854 (CanLII), 90 C.C.E.L. (3d) 235; Smith v. National Money Mart (2006), 2006 CanLII 14958 (ON CA), 80 O.R. (3d) 81 (C.A.), leave to appeal to S.C.C. refused, [2006] S.C.C.A. No. 267; Gasparini v. Gasparini (1978), 1978 CanLII 1598 (ON CA), 20 O.R. (2d) 113 (C.A.).

[99] In Seip, the defendant companies, Emmanuel Village Homes (EVH), Emmanuel Village Management (EVM) and Emmanuel Village Residence (EVR), were owned and operated by the same principal, Hunking. Seip entered into a contract with EVM to consult on the construction of a retirement residence complex and to manage the property for a five-year term when the first tenant moved in. The first page of the contract named EVM and EVH, but only EVM signed the agreement. EVR was not mentioned anywhere in the agreement.

[100] The defendants EVM and EVH terminated the contract and Seip sued. The trial judge found that EVM and EVH were both parties to the contract despite it being executed only by EVM. The trial judge further found that while EVR was not initially a party to the agreement, it had bound itself to the contract, through its conduct. It purchased the complex with full knowledge of the parties’ agreement. Once EVR became the owner of the retirement complex, the work continued as if nothing had changed. EVR had the same principal as the parties to the contract, and Seip was paid by EVR. EVR took the benefit of Seip’s work.

[101] On appeal, the appellant submitted that the trial judge effectively pierced the corporate veil and ignored the separate legal personality of each defendant. Gillese J.A. disagreed. She held, at para. 35:
While the trial judge noted that EVR had the same principal as the other two corporate defendants, it does not necessarily follow that the trial judge pierced the corporate veil. In my view, the trial judge treated Hunking’s role in the three corporations as one piece of evidence on which to assess whether EVR had assumed the contract through its conduct and, consequently, was bound by it.
[102] Gillese J.A. also considered article 11.2 of EVM’s contract with Seip, which permitted the sale of the project provided the new owner acknowledged in writing its willingness to assume Seip’s contract. Although EVR did not give such written acknowledgment, the role played by Hunking in the three corporate defendants, coupled with EVR’s conduct, was tantamount to such an acknowledgment. Gillese J.A. observed, at para. 38, that Hunking was the directing mind of all three corporate defendants; that Hunking was well aware that the clear intent of article 11.2 was to bind EVR, as purchaser; and that EVR by its conduct accepted the contract, and accepted the role as owner. She did not give effect to EVR’s submission that, as a third party, it had no obligation under the contract, concluding, “The conduct of all parties demonstrated a common intention that the Contract continued with EVR as an owner, in conjunction with the other corporate defendants.”

[103] To summarize, in Seip, the privity of contract rule was relaxed and liability imposed where the following three factors were present: 1) the parties to the initial agreement intended to impose an obligation on the third party; 2) the activities of the third party, upon which basis the parties sought to impose liability, were within the scope envisaged under the agreement and 3) the third party had knowledge of the provision assigning it liability and, by its conduct, the third party assumed the agreement. The first two criteria mirror the requirements of Fraser River, supra. Arguably, all three criteria are present in this case.

[104] As the argument was not made that liability could be imposed based on a principled exception to the doctrine of privity of contract, nor was the decision in Seip the subject of submissions, it would not be fair to decide the case on a point counsel did not have the opportunity to address. Consequently, the doctrinal basis for a principled exception to the doctrine of privity of contract when liability is sought to be imposed on a third party will have to await argument another day.


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Last modified: 06-05-24
By: admin