On September 5, in the 6362222 Canada inc. v. Prelco inc. 1, the Quebec Court of Appeal ruled on the validity of a limitation of liability clause in a context where there is a breach of an essential obligation of the contract. This article summarizes the Court of Appeal’s conclusions in this regard.
The facts
In April 2008, an agreement was signed between 6362222 Canada Inc (hereinafter ” Créatech “) and Prelco Inc (hereinafter ” Prelco “), under which Prelco retained Créatech to provide software and professional services for the implementation of an integrated management system. Following implementation of the system, a number of significant difficulties arose, causing Prelco substantial material damage. In the spring of 2010, Prelco terminated the contract, hired a new firm to complete the work and filed a lawsuit against Créatech to claim the various costs associated with the failure to implement the integrated management system. To avoid liability, Créatech invoked the limitation of liability clause in the agreement.
The decision
In its decision, the Court of Appeal affirms that Quebec civil law recognizes the validity of liability exemption or limitation clauses for material damage caused to others. However, such clauses cannot be absolute: they cannot exclude liability for material damage caused by gross negligence or intention2.
It adds that Quebec law has for many years recognized a second limitation, namely that liability cannot be excluded for material damage caused by a breach of an essential obligation of the contract. The Court of Appeal is categorical: failure to deliver the main object of the contract renders the limitation of liability clause inoperative3.
Indeed, it would be illogical, and even contrary to the most fundamental principles of contract law, to allow a co-contractor to exclude his liability for what he is principally obliged to do!
In conclusion, it is worth mentioning that in this case, the Quebec Court of Appeal voluntarily distinguished itself from the Supreme Court of Canada’s 2010 ruling4, which had rejected the ” doctrine of fundamental breach ” applied in the common law provinces.
By Émilie Therrien
1 2019 QCCA 1457
2 Article 1474 of the Civil Code of Québec
3 Supra, note 1, par. 40-41
4 Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) 2010 SCC 4