In reasons released on January 12, 2010 the Supreme Court of Canada upheld the trial judge’s decision that the Her Majesty The Queen in Right of the Province of British Columbia (the “Province”) was required to pay damages to Tercon Contractors Ltd. for damages arising from the breach of the tendering contract and also held that it was not fair and reasonable to enforce the exclusion clause in the tendering contract in light of the Province’s breach.

The Court of Appeal reversed the trial judge’s decision on the basis that the exclusion clause was clear and unambiguous and barred compensation for all defaults.

However, the Supreme Court of Canada allowed the appeal and restored the judgment of the trial judge.  In so doing, the Supreme Court of Canada held that the doctrine of fundamental breach should be “laid to rest” and adopted a new three part analysis to be applied when a plaintiff seeks to escape the effect of an exclusion clause or other contractual terms to which it had previously agreed.

Specifically, whether,

1.      as a matter of interpretation, the exclusion clause applies to the circumstances proven.

2.       the exclusion clause is unconscionable and thus invalid at the time the contract was made.

3.       the court nevertheless should refuse to enforce the exclusion clause because of an overriding public policy.

Citation: Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69

Olanyi Parsons LL.B

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