The Supreme Court of Canada recently affirmed the British Columbia Court of Appeal (BCCA) decision in Yeung (Guardian ad litem of) v. Au, which held a vehicle leasing company liable for $5.8 million for an accident involving one of its leased cars. The decision may expose leasing companies to vicarious liability for damages arising from accidents involving not just vehicles but other leased equipment.
This case was a personal injury action arising from a motor vehicle accident. The driver of a leased vehicle crossed the centre line hitting another vehicle and caused catastrophic injuries to its passenger who was awarded $5.8 million in damages. However, the driver was underinsured and subsequently left the jurisdiction. The passenger also sued the company that leased the vehicle; this suit was unsuccessful at trial but was appealed to the BCCA.
At issue on the appeal was the interpretation of a subsection of the British Columbia Motor Vehicle Act (MVA) that provided an exemption from vicarious liability for owners of vehicles which are "sold" pursuant to conditional sales contracts. As there were, at that time, no definitions in the MVA for "sold" and "conditional sales agreement" the BCCA interpreted the terms to mean that the exemption from liability does not extend to a lessor under a lease with an option to purchase because the lessee might never become the owner.
The decision created a distinction between different methods of financing automobile purchases: a lessor can only be deemed an owner — and therefore exempt from liability — if the agreement is a "true" conditional sales agreement under which the purchaser will inevitably become the owner on completion of his or her obligations under the contract. Consequentially, the vehicle leasing company in this case could not benefit from the exemption and was held vicariously liable for the $5.8 million awarded to the passenger at trial.
Since this decision the MVA has been amended to include definitions of "lessor" and "lessee" as well as an expanded definition of "owner." It now declares that a purchaser of a motor vehicle under a conditional sales contract is the owner for the purposes of vicarious liability and that a seller under such a contract is not the owner for that purpose. While the amendments are seen as a significant step forward in limiting vicarious liability of vehicle lessors and rental companies in British Columbia, the courts have not yet interpreted them.
More importantly, the common law regarding the distinction between "true" conditional sales agreements and conditional sales agreements with options to purchase may still be good law across Canada. Some jurisdictions in the United States have enacted similar legislation to B.C.’s that limits leasing companies’ liability but the same concerns persist for companies doing business in unprotected jurisdictions and sectors. Consequently, it is unclear whether lessors in other jurisdictions and other industry sectors (such as construction, agricultural and health-care equipment) not governed under B.C.’s MVA are exposed to the same potential for vicarious liability for damages as the vehicle lessor in this case.