Limitation of liability clauses are common in IT service contracts, and are well accepted under Québec civil law. In 6362222 Canada inc. v Prelco inc., 2021 SCC 39, the Supreme Court of Canada unanimously held that such a clause could not be nullified based on the doctrine of breach of fundamental obligation, and therefore served to limit the service provider’s liability.
Prelco inc. (“Prelco”) contracted 6362222 Canada (“Createch”) to supply software and professional services for the implementation of an integrated management system. A limitation of liability clause stipulated that Createch’s liability would be limited to the amount of fees paid for any damages resulting from the delivery of these services. The clause specifically limited liability for damages due to loss of data profits or revenue, or from the use of products or for any other special, consequential or indirect damages relating to services and/or material provided pursuant to the contract. The relevant provisions of the limitation of liability were quoted by the court as follows:
[translation] Createch’s liability to the client for damages that can be attributed to any cause whatsoever, regardless of the nature of the action, whether provided for in the agreement or delictual, shall be limited to amounts paid to Createch under the Agreement unless such damages result from gross negligence or wilful misconduct on Createch’s part. If such damages result from the delivery of unsatisfactory services, Createch’s liability shall be limited to the amount of any fees paid in relation to the said unsatisfactory services.
Createch may not be held liable for any damages resulting from the loss of data, profits or revenue or from the use of products or for any other special, consequential or indirect damages relating to services and/or material provided pursuant to the Agreement unless such damages result from gross negligence or wilful misconduct on Createch’s part.
As Prelco considered the system delivered by Createch unusable, Prelco terminated the contract and hired another company to fix the problems. In the end, Prelco was able to use the system but lost some of the benefits originally expected. Prelco brought an action against Createch for reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits.
Prelco alleged that the limitation of liability clause was inoperative in this case, relying on the doctrine of breach of a fundamental obligation (“Théorie du manquement à une obligation essentielle”). The Supreme Court considered two possible legal bases in its application: (a) validity of the clause having regard to public order, and (b) validity of the clause having regard to the requirement relating to the cause of the obligation.
For the first legal basis…
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