Background

Can the cost of damaging an old used trailer come at a new trailer price tag? The BC Supreme Court says no in Kate Energy Holdings Inc. v. Energetic Services Inc., which addresses the hidden risks of leased equipment and undisclosed terms. 

The Plaintiff, Kate Energy, leased a 2005 LNG trailer from Clean Energy (the lessor). Under the lease, if the trailer was damaged beyond repair, Kate Energy was required to pay the actual cost of a brand-new replacement LNG trailer. Kate Energy hired the Defendant, Energetic Services, to transport the trailer with liquified natural gas from Dawson Creek, BC to Whitehorse, Yukon. Energetic was aware that Kate Energy did not own the trailer, but was not expressly advised of the existence of the lease and the terms of the lease including the ‘new trailer replacement price’ if the trailer was damaged beyond repair. 

During transit, Energetic’s driver was involved in a single-vehicle collision, and the trailer was damaged beyond repair. Energetic admitted liability for the accident but disputed the proper measure of damages. There was no relationship between the Defendant Energetic and the lessor Clean Energy. Energetic argued that damages should be limited to the actual cash value (ACV) of the trailer, being a used trailer in a comparable condition at the time of the collision.  

Kate Energy had paid $314,522.32 (the New Trailer Replacement Price) to Clean Energy pursuant to the lease and sought to recover that amount. Energetic argued damages should be limited to the actual cash value (ACV) of the used 2005 trailer. 

The sole question before the Court was whether Energetic must pay the new-trailer cost or only the ACV. The Court considered these arguments under tort, contract and the common law of implied indemnity.

Court’s Findings

1. Tort Damages

The Court reaffirmed that tort damages restore the plaintiff to the “original position” the Plaintiff would have been in had the tort not occurred. However, losses must also be reasonably foreseeable, following Mustapha[1] principles. The Court held that it was not reasonably foreseeable to Energetic that damaging a 14-year-old used trailer could result in liability for the cost of a brand-new trailer replacement. 

Energetic knew Kate Energy did not own the trailer, but nothing suggested the existence of an unusual lease clause requiring the purchase of a new trailer upon total loss. A reasonable carrier would consider such a consequence “far-fetched.” Thus, the new replacement price was too remote to be recoverable in tort. 

2. Contract Damages

The Court considered the two branches[2] of contractual damages: whether the claimed damages arose naturally or whether it was within the reasonable contemplation of the parties at the time of contracting. 

The Court held that the lease’s replacement-cost term was a “special circumstance” unknown to Energetic. Had Energetic been informed, it may have refused the job or renegotiated terms. Since such a consequence was not communicated, it could not fall within the first or second branch of Hadley[3]. The new-trailer cost was therefore too remote to be recovered in contract. 

3. Equitable Indemnity

Kate Energy argued it was an innocent party who paid damages caused by Energetic’s negligence, entitling it to indemnity. The Court rejected this claim, finding Kate Energy did not have a claim in equitable indemnity. 

There was no principal–agent or other special relationship that could give rise to an implied right of indemnity, nor was there any express or implied agreement between the parties regarding indemnification. The Court further noted that even if an indemnity right existed, it would extend only to the amount the wrongdoer (Energetic) would have owed the third party lessor (Clean Energy), which in this case would have been limited to the actual cash value of the trailer and not the cost of a new one.

Key Takeaways

1. Foreseeability sets the limits of liability for damaged leased property.

   When a plaintiff is bound by an unusual or onerous lease term, failure to disclose that term will often prevent shifting that financial burden to a negligent party.

2. Replacement cost is not automatic.

   Although replacement value may be a typical starting point for property damage, it remains subject to remoteness. A defendant who damages an aging asset is not readily liable for the cost of a brand-new replacement unless the risk was reasonably foreseeable.

3. Hadley v. Baxendale continues to constrain commercial risk allocation.

   Special circumstances that could dramatically increase loss must be disclosed at the time of contracting if a party wants the other to bear that risk.

4. Equitable indemnity is a narrow doctrine

   It does not provide an end-run around tort or contract where no special relationship exists and where the underlying loss would not have been recoverable by the third party against the wrongdoer.

Bottom line:

Damages were limited to the actual cash value of the used trailer, not the cost of a new one. The case is a strong reminder that commercial parties must communicate atypical contractual risk-allocation terms if they expect another party to be responsible for those consequences.