Exclusion clauses

How BC law treats it

The leading case is Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4, a BC highway tendering dispute. The Supreme Court of Canada replaced the old doctrine of fundamental breach with three questions. First, does the clause, properly interpreted, apply to the circumstances? Second, if it applies, was it unconscionable at the time the contract was made, usually because of unequal bargaining power? Third, even if valid, should the court refuse to enforce it because of an overriding public policy, such as conduct so reprehensible that enforcement would be unacceptable? Reasonableness is not the test. In Tercon itself the Province lost because, on its interpretation, the clause did not cover the breach. Courts read exclusion clauses strictly, and ambiguity is often resolved against the party relying on the clause. Clear language is needed to exclude liability for negligence. No BC statute generally prohibits excluding liability for personal injury. Signed pre-activity waivers are routinely enforced, as in Loychuk v Cougar Mountain Adventures Ltd, 2012 BCCA 122, where a zipline waiver barred negligence claims. Statutes can still limit exclusions in particular settings. For example, the Sale of Goods Act restricts excluding the implied conditions of quality and fitness in retail sales to consumers. Common forms include a cap on damages, an exclusion of indirect or consequential loss, a shortened claims period, and a release of negligence. Many commercial contracts carve out fraud, wilful misconduct and gross negligence from the cap.

What it means for your business

Exclusion and limitation of liability clauses decide how much a business can lose if a deal goes wrong. Suppliers, software vendors, contractors and service businesses rely on them to keep exposure proportionate to the contract price. Customers need to know what they are giving up. A clause that is vague, buried, or does not match the actual risk may fail when it matters, leaving the business fully exposed to damages it thought it had capped. Example: A Vancouver software company caps its liability at twelve months of fees and excludes lost profits. When an outage costs a retail customer a week of sales, the cap applies because the clause clearly covers service interruptions and the customer was a sophisticated business.

Risks and common mistakes

Assuming a court will ask whether the clause is fair or reasonable, rather than applying the three Tercon questions. Drafting a cap that does not clearly cover the type of claim actually made, such as negligence or a particular breach. Hiding an onerous exclusion in fine print in a standard form contract signed without notice to the other party. Excluding implied conditions in a consumer retail sale contrary to the Sale of Goods Act. Using one template clause for every contract without matching the cap and carve-outs to the deal.