Clauses Excluding Liability

 Hunter Engineering Co. Inc. Et al. v. Syncrude et al.

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  The parties shall be held to the terms of the agreement they have made unless that agreement is unconscionable.
  

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  Syncrude contracted with Hunter U.S. and Allis-Chalmers for gearboxes
  
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  The contracts had a 24 month limited liability warranted from date of shipment or 12 month from install
  
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  Allis-Chalmers included a clause providing that no other warranty/conditions shall be implied, statutory or otherwise
  
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  The gearboxes are shit and crack outside of warranty
  
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  Syncrude sues for damages and gets $1mil at the BCCA
  
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  Hunter and Allis Chalmers appeal
  

 Judgment:

 Reasons:

Majority Dickson CJ:

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  Takes the approach to the doctrine of fundamental breach charted in Photo Production Ltd. v. Securicor Transport Ltd.
  
  • 
    Fundamental breach is a matter of contract construction
    
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  The courts should not disturb the bargain the parties have struck
  

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  Dickson CJ would rather address the protection of the weak from the overreaching by the strong, than rely on artificial legal doctrine.
  

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  Yes, the courts should, as a general rule, give effect to the bargain freely negotiated by the parties, but the courts should have the power to refuse to enforce a clear and unambiguous exclusion clause in circumstances where the party is "trying to have his cake and eat it too." But veiling this power in "unconscionability" or "fundamental breaches" because no matter what you are saying you are trying to invalidate a properly bargained clause due to subsequent actions, and the ground for what constitutes the court enacting this power isn't clearly defined
  

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  The Court came to the stance that agreements should be enforced according to their construction
  
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  But the question remained: is there a context in which the court should not enforce exclusion clauses
  
  • 
    Like then they protect the party who committed the fundamental breach
    
    • 
      "Should a party be able to commit a fundamental breach secure in the knowledge that no liability can attend it? Or should there be room for the courts to say: this party is now trying to have his cake and eat it too."
      
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  Issues with unconscionability
  
  • 
    Unconscionability traditionally occurred when there was unequal bargaining, but in these cases there is equal so what is the source?
    
  • 
    It is subsequent events
    
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  How can there ever be certainty if both fundamental breach and unconscionability are legal tools designed to relieve parties, who bargained in good faith, from the burden of a legitimate clause in light of subsequent events
  
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  "I believe, however, that there is some virtue in a residual power residing in the court to withhold its assistance on policy grounds in appropriate circumstances"
  

  Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection

Ratio:

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  In assessing unconscionability it isn't about whether there is merely an inequality in bargaining power, but if there is an abuse of the bargaining power.
  
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  Is the limitation clause one that makes sense economically for the defendant?
  

Facts:

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  Plaintiff contracted with defendant to have an alarm system installed and monitored
  
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  Defendant installed and monitored alarm system for two years until event in question
  
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  There was a robbery and the defendant failed to respond promptly to the alarm's activation
  
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  The plaintiff is suing for damages.
  
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  There was an exclusion clause
  
  • 
    The plaintiff did not see the exclusion clause
    

 Issue:

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  Is the exclusion clause enforceable in light of the subsequent events?
  

 Judgment:

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  For the defendant, Limitation clause is enforceable
  

 Reasons:

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  Is the exclusion clause enforceable?
  

1. 
   Is there a fundamental breach of contract?
   
   • 
     The contract was fulfilled
     
   • 
     The plaintiff did not cancel service
     
   • 
     The event occurred due to a lapse/error on the part of an employee
     
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     Commercial purpose of transact was left intact
     
     • 
       THEREFORE: No, there is no fundamental breach
       

 

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  Is the clause either "unconscionable" or "unfair or unreasonable?"
  
  • 
    Mr. Gordon's not having read the contract is irrelevant
    
  • 
    The limitation clause was NOT obscure, hidden, or ambiguous. It WAS understandable and visible
    
  • 
    The question is not whether there was an inequality of bargaining power. Rather, the question is whether there was an abuse of the bargaining power
    
  • 
    The next question is whether the clause is "unusual in character"
    
    • 
      It makes sense that the defendant would not be liable for all the plaintiff's property
      
    • 
      The contract states the defendant is not an insurer, insurance should be retained
      
    • 
      The fees charged by the defendant do not relate to the type of risks taken into account by property insurance
      

 Davidson v. Three Spruces Realty Ltd.

Facts:

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  Plaintiffs' claims are for damages for breach of contract of bailment
  
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  The plaintiffs stored items at the defendants storage facility.
  
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  The defendant offered large storage as well as security boxes
  
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  The contract completely exempts the defendant from any liability
  
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  The defendant advised the plaintiffs that they did not require insurance
  
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  The defendant advised the plaintiffs that their items would absolutely be secured
  
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  The defendant did not advise the plaintiff to read the contract or make the plaintiff aware of the limitation clause
  
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  There was a theft
  

Issue:

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  Should the court uphold the freedom of contract in this case?
  

 Judgment:

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  For Plaintiffs, The liability clause amounts to a clear "abuse of freedom of contract."
  

 Reasons:

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  Quoting Denning:
  
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    "There is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused"
    
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  In ascertaining whether "freedom of contract has been abused" regard may be given to the following:
  

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  Was the contract a standard form contract drawn up by the Bailee
  
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  Were there any negotiations as to the terms of the contract or was it a commercial form which may be described as a "sign here" contract?
  
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  Was the attention of the plaintiffs drawn to the limitation clause?
  
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  Was the exemption clause unusual in character?
  
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  Were representation made which would lead an ordinary person to believe that the limitation clause did not apply?
  
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  Was the language of the contract when read in conjunction with the limitation clause such to render the implied covenant made by the Bailee to use reasonable care to protect the plaintiffs' property meaningless?
  
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  Having regard to all the facts including the representation made by the Bailee and the circumstances leading up the execution of the contract would not the enforcement of the limitation clause be a tacit approval by the Courts of unacceptable commercial practices?
  
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  Plaintiffs weren't told to read
  
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  Plaintiffs were assured of the safety
  
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  Plaintiffs were advised not to insure etc.
  
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  This sounds like a parol evidence issue in which you have a modification of contract prior to contract?
  

 Notes:

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  Talk to Alford: can this be condensed or synthesized shorter?
  

 Delaney v. Cascade River Holidays Ltd.

1983 BCCA
Ratio:

The court will look at the context of the contract and relationship within a parties to determine if a reasonable person would assume the general liability clause included certain specific considerations. Such as if liability from damage includes liability from personal injury or death in the context of a contract for a rafting trip

 Facts:

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  Plaintiff is the widow and executrix of the estate of Fergus Michael Delaney
  
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  Delaney was visiting BC on business, a friend invited him to come on a rafting trip
  
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  Delaney was added to the raft
  
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  Paid the money, then at a later time was made to sign a contract releasing defendant of liability
  
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  Delaney signed
  
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  The raft flips and Delaney drowns
  
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  The defendant was using shitty life jackets and was found negligent; BUT,
  
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  The plaintiff failed to show that Delaney would have lived if he had a better life jacket on
  

 Issue:

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  Must the liability clause be signed with the exchange of funds? Was there consideration for Delaney's signing?
  
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  Was there sufficient notice of the liability clause
  
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  Was it constructed to include liability from damages such as death
  

 Judgment:

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  For defendant, appeal dismissed; There was consideration and adequate notice. The nature of the venture would lend Delaney to understand the extent of the liability clause
  

 Reasons:

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  Arguments by Nemetz C.J.B.C dissenting:
  
  • 
    Past consideration
    
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      Delaney paid prior to signing the liability clause
      
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      The defendant was obligated to take him on the trip anyways because money had been exchanged
      
      • 
        Note: couldn't he just return the money and claim that the liability form was in fact a required aspect to the original contract?.. Could Delaney have rejected the return of the money and demanded to be taken?
        

 

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  Insufficiency of notice:
  
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    The form was signed in a hurry, likely without reading
    
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    The form was called standard which made the passenger feel safe
    
  • 
    The form did not mention risk of personal injury or death
    
    • 
      Had the true risk been disclosed in the exemption clause Delaney may not have assumed the risk to absolve the defendant of liability from negligence
      
      
      
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  Arguments of McFarlane J.A. majority:
  

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  Plaintiff failure to show that defendant's negligence was cause of death
  
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  Regarding past consideration:
  
  • 
    The immediate consideration was getting to continue with the adventure
    
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  Regarding the language of the exemption clause:
  
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    The Court looks not at the construction but at the relationship between the parties and the context within which the contract exists
    
    • 
      (a reasonable persons test of sorts?)
      
  • 
    Given the nature of the venture liability from injury and death could be assumed within the clause
    

 Tercon Contractors Ltd. v. British Columbia

Ratio:

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  The doctrine of fundamental breach is laid to rest and the Court determined that freedom of contract would prevail unless the exclusion clause was unconscionable at the time the contract was made or there is some overriding public policy concern to defeat what would otherwise be the contractual right of parties to draft their own agreements
  

 Facts:

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  The Ministry of Transportation initiated a tendering process and called for bids
  
  • 
    The process included an exclusion of liability from any claim for compensation as a result of participating in the process
    
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  The Ministry accepted a bid from an ineligible company.
  
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  Tercon is suing for … (lost profit?)
  

 Issue:

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  Did the Province breach the tendering contract by entertaining a bid from an ineligible bidder; and,
  
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  if so, does the exclusion clause bar Tercon's claim for damages for the Ministry's breach?
  

Decision:

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  For the Plaintiff, The ministry did not exclude itself from liability from the sort of breach committed by the ministry.
  
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  BUT, 5-4 split Decision:
  

 

Reasons:

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  The dissenting view expresses the courts process in determining whether an exclusion clauses apply, It is the same view as the majority but there is a disagreement on whether the exclusion clause even applies (step 1):
  
  • 
    3 part test; If step 1 and 2 succeed then step 3:
    
    • 
      I don’t remember what I was doing here so hopefully this makes sense
      

3 Step	Test for determining whether an exclusion clause applies
If 1.	As a matter of interpretation does the exclusion clause even apply to the circumstances established in evidence Depends on Court's assessment of the intention of the parties as expressed in the contract (read in light of commercial context and purpose)
And 2.	Was the exclusion clause unconscionable at the time the contract was made, "as might arise from situation of unequal bargaining power between the parties" Has to do with contract formation, not breach (unconscionability in Hunter)
Then 3.	Should the court nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy Burden lies on the party seeking to avoid the enforcement of the clause to show that the public policy overrides the public's interest in the enforcement of contracts.

 Exclusion Clause Notes/Ratios

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  Exclusion Clauses will NOT be enforced if the plaintiff's attention was not adequately drawn to the limitation clause before entering into the contractual relationship, or at least before a breach of contract or a negligent act or an omission occurred.
  
  • 
    Adequately means they must be AWARE that there is a limitation clause… if they know that a limitation clause is included in the contract then they have been made aware enough
    
    
    
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  Regarding negligence being included in exclusion clauses:
  

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  When can negligence be interpreted as being included in the exclusion clause?
  
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    "If negligence can reasonably be construed as being within the contemplation of the parties in formulating their agreement, then the clause will extend to liability for negligence"
    
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  It is unlikely that a party would absolve the other of liability regarding negligent performance on the contract, so:
  
  • 
    If an exclusion clause can reasonably contemplate any head of liability other than negligence, it is generally construed as not extending to negligence
     
    

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  Willful misconduct is separate and distinct from negligence, and does not fall under the scope of limitation clauses the limit liability relating to negligence
  

 

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  Inserting liability clauses into a contract specifically because one is operating on specific information and is trying to avoid specific liability is unconscionable conduct
   
  

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  Regarding whether a limitation clause should apply if the party didn't read the clause but signed:
  
  • 
    It is only where the circumstances are such that a reasonable person should have known that the party signing was not consenting to the terms in question that an obligation exists to ensure the party signing understands the exclusion clause
    
  • 
    The exclusion clause's relation to the nature of the contract is important… the exclusion clause cannot be contrary to the normal expectations of the signing party
    

 

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