THE QUÉBEC COURT OF APPEAL REITERATES THAT CONTRACTUAL LIABILITY CANNOT BE EXCLUDED FOR A BREACH OF AN ESSENTIAL OBLIGATION
On September 5, 2019, in 6362222 Canada Inc. v. Prelco Inc., the Québec Court of Appeal ruled on the validity of a limitation of liability clause in the context where there is a breach of an essential obligation of the contract. This article summarizes the conclusions of the Court of Appeal on this matter.
In April 2008, 6362222 Canada Inc. (hereinafter “Créatech”) and Prelco Inc. (hereinafter “Prelco”) entered into an agreement whereby Prelco retained the services of Créatech to provide IT software and professional services for the implementation of an integrated management system. Following the implementation of the system, several significant issues arose, causing significant material injury to Prelco. 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 various costs associated with the failure to implement the integrated management system. In order to avoid any liability, Créatech invoked the limitation of liability clause provided in the agreement.
In its decision, the Court of Appeal states that Québec civil law recognizes the validity of exoneration or limitation of liability clauses for material injury caused to another, however, such clauses are not absolute: one cannot exclude its liability for material injury caused by an intentional or gross fault1.
The Court of Appeal adds that Québec law has recognized for a number of years a second limitation, namely, that one cannot exclude its liability for the material injury caused by the breach of an essential obligation of the contract. The Court of Appeal is unequivocal: the failure to deliver the main object of the contract has the effect of rendering the limitation of liability clause inoperative.
It would be illogical and even contrary to the most fundamental principles of contract law to allow a co-contractor to exclude its liability for what it has principally been contracted to do!
In conclusion, it is relevant to mention that in this case, the Québec Court of Appeal voluntarily differed from the Supreme Court of Canada’s decision in 2010, where the latter rejected the “doctrine of fundamental breach” applied in common law provinces.
By Émilie Therrien
1 2019 QCCA 1457
2 Section 1474 of the Civil Code of Québec
3 See note 1, par. 40-41
4 Tercon Contractors Ltd. c. Colombie-Britannique (Transport et Voirie), 2010 CSC 4