Consequential damages exclusion

Purchase agreements can pair an indemnity with a clause that limits what can be claimed, so that a buyer or seller knows what kinds of loss are outside the deal. A consequential damages exclusion is one such clause. What it covers is set by the words the parties chose, so the wording of the list matters.

How common-law courts test an exclusion

In Tercon Contractors v. British Columbia, the Supreme Court of Canada agreed on a framework of three issues for a clause that excludes liability. First, as a matter of interpretation, does the clause apply to the circumstances established in evidence? That depends on the parties’ intention as expressed in the contract. Second, was the clause unconscionable at the time the contract was made? Third, if it is valid and applicable, the court may ask whether to refuse to enforce it anyway because of an overriding public policy, which the party seeking to avoid the clause must prove. In Sattva Capital v. Creston Moly, the Court said the contract is read as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time the contract was formed.

Quebec differs

These are common-law rules. In Quebec the Civil Code governs, and article 1474 says a person may not exclude or limit liability for material injury caused through an intentional or gross fault, nor for bodily or moral injury. Ask which kinds of loss the clause names, whether it cuts both ways, and how it interacts with the indemnity cap. See also what happens if a warranty proves wrong.