Tercon Travels To Quebec: The Supreme Court Of Canada Limits The Civilian Doctrine Of "Breach Of A Fundamental Obligation"

• Published date: 21 October 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Trials & Appeals & Compensation, Professional Negligence, Civil Law
• Law Firm: McCarthy Tétrault LLP
• Author: Canadian Appeals Monitor, Brandon Kain and Pierre-Gabriel Grégoire

The recent decision of the Supreme Court of Canada in 6362222 Canada inc. v. Prelco inc., 2021 SCC 39 offers a fascinating exploration of the civilian doctrine known as "breach of a fundamental obligation". Similar to the now-defunct common law doctrine of "fundamental breach", which the Supreme Court rejected in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, the civilian doctrine treats an exoneration or limitation of liability clause (collectively, a "non-liability clause") as having no effect if it relates to the very essence of an obligation. While the Supreme Court in Prelco confirmed that the doctrine exists in Quebec for certain types of contracts between parties of unequal bargaining power - i.e., consumer contracts and contracts of adhesion - it clarified that the doctrine does not apply to synallagmatic contracts that are freely negotiated between sophisticated parties (though it cautioned that non-liability clauses in such contracts may still be ineffective if the contractual breach involves gross or intentional fault, or the clause purports to exclude or limit liability for bodily or moral injury). In taking this approach, the Supreme Court affirmed the fundamental importance of freedom of contract and the autonomy of the will, bringing the civil and common law of contracts closer together. Nevertheless, the Court's decision may also raise new questions about the enforceability of exemption clauses in the common law provinces.

The Facts

The appellant, Createch, is a consulting firm specializing in performance improvement and the implementation of integrated management systems. It provided professional services to Prelco, a manufacturing company that makes and transforms flat glass. Their contract included a non-liability clause in favour of Createch which stipulated as follows:

Createch's liability to the client for damages that can be attributed to any cause whatsoever, regardless of the nature of the action, whether provided for in the agreement or delictual, shall be limited to amounts paid to Createch under the Agreement unless such damages result from gross negligence or wilful misconduct on Createch's part. If such damages result from the delivery of unsatisfactory services, Createch's liability shall be limited to the amount of any fees paid in relation to the said unsatisfactory services.

Createch may not be held liable for any damages resulting from the loss of data, profits or revenue or from the use of products or for any other special, consequential or indirect damages relating to services and/or material provided pursuant to the Agreement unless such damages result from gross negligence or wilful misconduct on Createch's part.

When the system was implemented, numerous problems arose. Prelco decided to terminate its contractual...