Exculpatory Clauses

AuthorJohn D. McCamus
Pages863-907
863
CHAPTER 20
EXCULPATORY CLAUSES
A. INTRODUCTION
The use of exculpatory clauses in written agreements is a pervasive
practice in both commercial and consumer transactions. Exculpatory
clauses are used to limit the potential liability of a party for breach of
contract. Such clauses may completely preclude liability for breaches
of certain stipulated kinds. Others may concede liability but impose a
limitation on the extent of liabil ity, such as return of the purcha se price
or a numerical cap on the extent of liability assumed. Other clauses
may impose strictures on the manner in which losses resulting from
breach are to be claimed by imposing, for example, a short period of
notice within which cla ims are to be advanced. Exculpatory clauses are
referred to by a variety of labels, such as disclaimers, limitation of lia-
bility clauses and exclusion, exceptions, or exemption clauses. When
such clauses are used deliberately by the parties to consciously allo-
cate the risk of certain kinds of losses to one party or the other, they
perform a valuable function. On the other hand, where they have been
inserted by one party in a written agreement that, for whatever reason,
is unlikely to be read by t he other party, the use of such provisions may
surprise that party and lead to what may be considered to be harsh
and unjust consequences. Such problems are most likely to arise, of
course, in the context of transactions involving the supply of goods
and services to consumers on the basis of standard forms drafted by
the supplier. Understandably, then, the courts have attempted to devise
THE LAW OF CONTR ACTS864
various techniques for effecting some degree of judicial control over
the use of exculpatory clauses.
In this chapter, we examine the development of the doctrine of
fundamental breach that has been the principal, but not the exclu-
sive means for achieving this objective. Although controversy as to
the doctrine’s precise nature has persisted for several decades, it is
widely accepted that the doctrine is, in part at least, an aspect of the
law of contract interpretation. As we shall see, this doctrine emerged
in English law but has now essentially vanished from the English legal
landscape. It also has had an unsettled career in Canadian law. In its
leading 2010 decision in Tercon Contractors LtdvBritish Columbia (Min-
istry of Transportation),1 however, the Supreme Court of Canada pre-
served a unique Canadian version of the doctrine, thereby bringing
long-awaited stability to this important aspect of contract law. On the
same occasion, though, the Court pronounced that it was t ime to “shut
the coff‌in on the jargon associated w ith ‘fundamental breach’”2 and “lay
this doctrine to rest.”3 The Court did not, however, articulate a label
for the new Canadian version of the doctrine. We will return to this
terminological point at the conclusion of this chapter. For reasons of
convenience, however, we will continue to refer to the doctrine by its
traditional label in this account of the emergence and current status of
the doctrine in English and Canadian law.
The basic idea underlying the doctrine of fundamental breach is
that there may be breaches of contract that are so severe that exclu-
sion clauses, however drafted, should be either narrowly interpreted
or otherwise conf‌ined by the courts in such a way as to withhold the
protection of the particular cl ause in such circu mstances. The doctrine
of fundamental breach emerged in the middle of the last century from
a series of decisions by the English Court of Appeal in which Lord Den-
ning played a prominent role. Over the next few decades, an extended
debate between the Court of Appeal and the House of Lords concern-
ing the nature of and proper role of the doctrine unfolded. The view
advanced by Lord Denning and the Court of Appeal was that the doc-
trine held that in circumstances of a fundamental breach of contract,
an exculpatory clause would not be permitted to protect the party in
breach from liability on the basis of a “rule of law” to this effect. The
view advanced by the House of Lords was that the proper approach
to the judicial control of exculpatory clauses is merely one of narrow
1 Tercon Contractors LtdvBritish Columbia (Transportat ion and Highways), 2010
SCC 4 [Tercon].
2 Ibid at para 82,Cromwell J.
3 Ibid atpara 62, Binn ie J.
Exculpator y Clauses865
construction of the clauses against the interests of those relying upon
them. Unsurprisingly, the views of the House of Lords were to prevail.
The course of the debate, however, reveals a number of the diff‌iculties
involved in fashioning a doctrine of this kind. Accordingly, the leading
English cases w ill be reviewed here before turning to an account of the
Canadian reception of the doctrine. As a preliminary matter, however,
it is useful to identif y and distinguish certain doct rines with which the
doctrine of fundamental breach may be confused.
B. RELATED DOCTRINES
The doctrine of fundamental breach is not the only device devised by
the courts to affect control over the effects of exculpatory clauses. As
we have seen,4 the rules relating to the incorporation of written terms
in agreements have developed in such a way as to reject incorporation
of unfair exculpatory cl auses in circumstances where the af fected party
has not had adequate notice of the inclusion of the clause i n the written
document. The requirement of special notice of unduly harsh exculpa-
tory clauses has been applied in the context of both signed agreements
and unsigned documents forming the basis of a contractual relation-
ship. It is often the case that the party not in breach will want to rely
both on the rules relating to incorporation and on the doctrine of fun-
damental breach. The effect of the two doctrines is, however, quite dis-
tinct. If the rules of incorporation apply to prevent inclusion of the
term in the agreement, t he provision should, in theory at lea st, be of no
force and effect whatsoever. The doctrine of fundamental bre ach comes
into play, however, only if the exculpatory clau se is included within the
agreement and thus appears to be potentially capable of shielding the
party in breach from liability. If the doctrine applies, it holds that an
otherwise enforceable clause does not protect the party in breach from
liability for a fundamental breach of contract.
Two further devices that may have the effect of controlling reliance
on exculpatory clauses arise in the context of the parol evidence rule.5
That rule precludes reliance on prior representations or undertakings
to supplement, vary, or contradict the terms of a written agreement
that is intended to be the full expression of the agreement between the
parties. There are a number of exceptions to this rule, two of which
4 See Chapter 6, Sect ion C. Compare DelaneyvCascade River Holidays Ltd (1 983),
44 BCLR 24 (CA).
5 See Chapter 6(D).

Get this document and AI-powered insights with a free trial of vLex and Vincent AI

Get Started for Free

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

Unlock full access with a free 7-day trial

Transform your legal research with vLex

  • Complete access to the largest collection of common law case law on one platform

  • Generate AI case summaries that instantly highlight key legal issues

  • Advanced search capabilities with precise filtering and sorting options

  • Comprehensive legal content with documents across 100+ jurisdictions

  • Trusted by 2 million professionals including top global firms

  • Access AI-Powered Research with Vincent AI: Natural language queries with verified citations

vLex

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT