Supreme Court of Canada clarifies the analytical framework for exclusion of liability clauses in commercial contracts

On February 12, 2010, the Supreme Court of Canada released its decision in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 ("Tercon"). The Court dealt with the question of whether, and in what circumstances, a court will refuse to enforce an exclusion of liability clause contained in an agreement entered into between sophisticated corporations with equal bargaining power. Although the 9-judge Court was split on the final disposition of the case, the Court unanimously agreed that the appropriate framework of analysis for exclusion of liability clauses in commercial contracts should involve three questions:

First, as a matter of contract interpretation, based on the parties' intention as expressed in the contract, whether the exclusion clause applies to the facts established in evidence.

Second, if the exclusion clause applies, then as a matter of contract formation, whether the exclusion clause was unconscionable at the time the contract was made and therefore invalid. Unconscionability might be found in situations involving contracting parties with unequal bargaining power.

Third, if the exclusion clause is held to be valid and applicable, then as a matter of contract enforcement, whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy that outweighs the very strong public interest in the enforcement of contracts.

To obtain a copy of this decision, please follow the link here: http://www.canlii.ca/en/ca/scc/doc/2010/2010scc4/2010scc4.html