Exclusive remedy clause

An exclusive remedy clause appears in a purchase agreement when the parties want one route, and only one, for claims after closing. A seller may ask that the indemnity be the buyer’s sole recourse for a breach of the representations. That keeps claims inside the agreement’s own limits. It can also remove other remedies, so the buyer should read the clause closely. See how indemnification claims work after closing.

How a court approaches it

In Tercon Contractors Ltd. v. British Columbia, the Supreme Court of Canada set out the analysis to apply when a plaintiff seeks to escape the effect of an exclusion clause or other contractual terms to which it had previously agreed. First, does it apply to the circumstances established in evidence, on a proper interpretation of the contract? If so, was it unconscionable when the contract was made? If it is valid and applies, a third question may be raised: should the court still refuse to enforce it because of an overriding public policy? These are common-law questions.

Where Quebec differs

Quebec’s Civil Code sets its own limits. Article 1474 says a person may not exclude or limit liability for material injury caused to another through an intentional or gross fault, and may not in any way exclude or limit liability for bodily or moral injury caused to another. This entry covers the common law as set out in Tercon and Quebec’s Civil Code only; check the rules in the province whose law governs the agreement.

What to check

• Does the clause name exceptions, such as fraud, or say nothing?
• Does it sit alongside an indemnity cap, and how do the two interact?
• Which claims, if any, fall outside it?