By Dean G. Giles, Fillmore Riley LLP

Contracts used in the construction and engineering fields often contain so-called “exclusion of liability” or “limitation of liability” clauses that purport to reduce a party’s exposure to certain claims that may arise in connection with a project. Clauses of this sort are a means by which parties to the contract seek to minimize risk and protect themselves from what might otherwise be a ruinous damages

award should something go wrong and litigation ensue.

In some instances, the clause in question may operate to cap a party’s exposure at a specific monetary amount, while others seek to exempt a party from liability for certaintypes of losses. A common example, often found in construction contracts, is a provision stating that the contractor “shall not be liable loss of earnings or other consequential damages howsoever caused,” or containing words to that effect.

Consequential damages are those that arise from the nature of the innocent party’s business and include such things as lost profits, lost customers and loss of reputation. This is in contrast to so-called “direct damages,” which are those that, without taking into account the particular circumstances of the party suffering the loss, one would reasonably expect to flow from a breach of contract. Still other clauses may limit a party’s exposure to damages caused by negligent acts.

The nature, scope and enforceability of these clauses has been the subject of much judicial commentary in Canada. At one time, it was generally accepted that a party who had “fundamentally breached” the contract – in other words, had committed a breach so severe as to deprive the innocent party of substantially the whole of its benefit under the contract – could not escape responsibility for the consequences of that breach, even where the written agreement included a clearly worded provision demonstrating that the parties intended to exclude such liability. This led to considerable uncertainty, mainly due to the difficulty involved in determining whether a particular breach was truly “fundamental” so as to render inoperable an otherwise valid limitation of liability provision.


Sign Up

To receive our e-newsletter in your inbox, please provide your e-mail below.

About Us

Piling Canada is the premier national voice for the Canadian deep foundation construction industry. Each issue is dedicated to providing readers with current and informative editorial, including project updates, company profiles, technological advancements, safety news, environmental information, HR advice, pertinent legal issues and more.