Or, you can't get there from here that way any more, but if you go this way, you can: Tercon v British Columbia (Transportation and Highways) 2010 SCC 4
Addendum - I've added some excerpts from the reasons.
From the reasons of Cromwell J. who wrote for the majority. I have added the underling in para. 62
[62] On the issue of fundamental breach in relation to exclusion clauses, my view is that the time has come to lay this doctrine to rest, as Dickson C.J. was inclined to do more than 20 years ago: Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426, at p. 462. I agree with the analytical approach that should be followed when tackling an issue relating to the applicability of an exclusion clause set out by my colleague Binnie J. However, I respectfully do not agree with him on the question of the proper interpretation of the clause in issue here. In my view, the clause does not exclude Tercon’s claim for damages, and even if I am wrong about that, the clause is at best ambiguous and should be construed contra proferentem as the trial judge held. As a result of my conclusion on the interpretation issue, I do not have to go on to apply the rest of the analytical framework set out by Binnie J.
[63] In my view, the exclusion clause does not cover the Province’s breaches in this case. The RFP process put in place by the Province was premised on a closed list of bidders; a contest with an ineligible bidder was not part of the RFP process and was in fact expressly precluded by its terms. A “Contract A” could not arise as a result of submission of a bid from any other party. However, as a result of how the Province proceeded, the very premise of its own RFP process was missing, and the work was awarded to a party who could not be a participant in the RFP process. That is what Tercon is complaining about. Tercon’s claim is not barred by the exclusion clause because the clause only applies to claims arising “as a result of participating in [the] RFP”, not to claims resulting from the participation of other, ineligible parties. Moreover, the words of this exclusion clause, in my view, are not effective to limit liability for breach of the Province’s implied duty of fairness to bidders. I will explain my conclusion by turning first to a brief account of the key legal principles and then to the facts of the case.
From the reasons of Binnie J. who wrote for the 4 who dissented on the issue of whether the limitation of liability clause applied.
[82] On this occasion we should again attempt to shut the coffin on the jargon associated with “fundamental breach”. Categorizing a contract breach as “fundamental” or “immense” or “colossal” is not particularly helpful. Rather, the principle is that a court has no discretion to refuse to enforce a valid and applicable contractual exclusion clause unless the plaintiff (here the appellant Tercon) can point to some paramount consideration of public policy sufficient to override the public interest in freedom of contact and defeat what would otherwise be the contractual rights of the parties. Tercon points to the public interest in the transparency and integrity of the government tendering process (in this case, for a highway construction contract) but in my view such a concern, while important, did not render unenforceable the terms of the contract Tercon agreed to. There is nothing inherently unreasonable about exclusion clauses. Tercon is a large and sophisticated corporation. Unlike my colleague Justice Cromwell, I would hold that the respondent Ministry’s conduct, while in breach of its contractual obligations, fell within the terms of the exclusion clause. In turn, there is no reason why the clause should not be enforced. I would dismiss the appeal.
Binnie J's framework
[121] The present state of the law, in summary, requires a series of enquiries to be addressed when a plaintiff seeks to escape the effect of an exclusion clause or other contractual terms to which it had previously agreed.
[122] The first issue, of course, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. This will depend on the Court’s assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made, “as might arise from situations of unequal bargaining power between the parties” (Hunter, at p. 462). This second issue has to do with contract formation, not breach.
[123] If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts
Binnie J did not discuss the parameters of the 2nd issue - whether the clause is in issue was or was not unconsionable at the time the contract was entered into.
What sort of conduct are (non exclusive) examples of conduct sufficient to trigger the residual public policy based discretion? See paras. 117-121. In this respect, note the distinction that Binnie J emphasized in para. 117:
[117] As Duff C.J. recognized, freedom of contract will often, but not always, trump other societal values. The residual power of a court to decline enforcement exists but, in the interest of certainty and stability of contractual relations, it will rarely be exercised. Duff C.J. adopted the view that public policy “should be invoked only in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds” (p. 7). While he was referring to public policy considerations pertaining to the nature of the entire contract, I accept that there may be well-accepted public policy considerations that relate directly to the nature of the breach, and thus trigger the court’s narrow jurisdiction to give relief against an exclusion clause.
(Moin - we need a "Contract Law" category, no?)
(Full disclosure: I work at the BC Ministry of AG and had peripheral involvement in this case at various stages.)
Cromwell J.'s decision creates a textbook example of what American academics call a "sticky default". It would have been nice to have a fuller discussion of the trouble with these beasts, and when they are appropriate.
The majority judgment affirms that the specialized rules of tendering that have grown up since Ron Engineering can, at least in principle, be contracted out of. They are defaults. But they are obviously uncomfortable with a public body contracting out of them, so they aren't going to make it easy.
The main criticism of sticky defaults is that they are an unprincipled halfway house between limiting freedom of contract for public policy reasons (which nobody quite wanted to do here) and making the parties live with the bargain they made. Sticky defaults have their uses when something unexpected is lurking in the boiler plate, but that doesn't seem to have been the case here.
Para. 73 seems to provide a road map for tendering authorities in the future, so I guess the market will decide whether there will be exclusion of tendering damages in the future.
Posted by: Gareth Morley | February 15, 2010 at 10:55 AM
In the hopes of drawing in Graham, Interfoto shows the kind of case where sticky defaults (parties can agree to a term like that, but not easily) makes sense. The late penalty is not as obvious a term as price. Repeat parties are going to be a lot more aware of non-obvious terms than one-off parties. So there is a potential for abuse.
On the other hand, there's nothing strictly wrong with a really high late fee. If somebody wants to innovate and say, "We'll give you a discount on the rental if you agree to a huge late fee" and the customer is in favour of it, then Mr. Pareto is happy.
So sticky defaults and contra preferentem make sense.
But the issue about freedom of contract in Tercon has nothing to do with lack of information. The concern is that contracting out of tendering liability will lead to less accountability for public contracts. So the sticky default halfway house makes less sense than either of the more extreme alternatives of prohibiting the contract as contrary to public policy or letting freedom reign.
Posted by: Gareth Morley | February 16, 2010 at 05:21 PM