Canada: Contractual Exclusion Clauses: Have the Reports of the Death of the Doctrine of Fundamental Breach Been Greatly Exaggerated?

Last Updated: August 11 2010
Article by Geoff R. Hall, Thomas G. Heintzman, Brandon Kain, Douglas T. Yoshida, Awanish Sinha and Herman van Ommen

Most Read Contributor in Canada, September 2018

Upon reading his own obituary, which had been published in error, Mark Twain is said to have remarked that "the reports of my death are greatly exaggerated." The decision of the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 provides an odd twist on Twain's witticism.

On the one hand, Tercon has been widely touted as marking the death of the doctrine of fundamental breach. That doctrine reflected judicial hostility to contractual limitation of liability provisions, commonly known as "exclusion clauses," and precluded a party who had committed an egregious breach of contract from relying upon an exclusion clause to avoid or limit liability for the breach.

In fact, the doctrine of fundamental breach was supposed to have died over 20 years ago, when the Supreme Court of Canada rejected it in Hunter Engineering Co. v.Syncrude Canada Ltd., [1989] 1 S.C.R. 426. A decade later, the Supreme Court reaffirmed the doctrine's death in Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423. Thus the announcement of the doctrine's demise in 2010 is somewhat surprising.

On the other hand, while all nine members of the Supreme Court agreed in Tercon that fundamental breach is no longer the law, a five-to-four majority decided the case in a manner that is hard to distinguish from the apparently deceased doctrine.

So what is going on? Is the doctrine of fundamental breach really dead? Or, as Mark Twain would have said, have the reports of its death been greatly exaggerated?

Tercon involved a dispute between a construction contractor and the Province of British Columbia. B.C. issued a request for expressions of interest for the construction of a highway. Six parties responded, including Tercon and a competitor named Brentwood. B.C. then issued a request for proposals (RFP). The RFP specified that only the six parties who had responded to the original request for expression of interest were eligible to participate. In breach of that requirement, Brentwood entered into a joint venture, which made a bid and was awarded the job. Tercon sued B.C. for allowing the Brentwood joint venture to respond to the RFP and for awarding it the highway job.

In defending against Tercon's claim, B.C. pointed to what would seem to be a broad exclusion clause:

Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim.

Consider first what the court said about the law. Writing for the four dissenters, Justice Binnie decisively held that the doctrine of fundamental breach is no longer good law. He held that whether an exclusion clause applies requires three analytical steps:

  1. As a matter of ordinary contractual interpretation, does the exclusion clause apply to the circumstances established in the evidence?
  2. If yes, was the exclusion clause unconscionable at the time the contract was made?
  3. If no, should the court decline to enforce the exclusion clause because of an overriding public policy concern which outweighs the very strong public interest in the enforcement of contracts?

Applying this test to the facts, Justice Binnie found the exclusion clause to be applicable and enforceable, and would have dismissed Tercon's action.

The majority decision, written by Justice Cromwell, agreed with Justice Binnie's formulation of the legal principles, but disagreed with his interpretation of the exclusion clause.

Justice Cromwell reasoned that by allowing the Brentwood joint venture to participate in the RFP process and by awarding the work to a party ineligible to participate, the very premise of the RFP process was missing. Tercon's claim arose from the participation of ineligible parties in the RFP, not "as a result of participating in this RFP," and thus was not covered by the exclusion clause. In any event, Justice Cromwell found the exclusion clause to be ambiguous and concluded that it should be interpreted contra proferentem against the interests of the drafter of the contract, which was B.C.

So the expression of the law is clear, but difficult to reconcile with the majority's application to the facts of the case. The doctrine of fundamental breach is officially dead, but the animus underlying it — a judicial hostility to exclusion clauses — still seems to be present. It is hard to imagine a clearer and more comprehensive exclusion clause than was present in Tercon ("no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP"), and difficult to imagine two more sophisticated contracting parties than a highway contractor and a province. Yet the majority of the Supreme Court found a way to interpret the exclusion clause so narrowly that it did not apply.

McCarthy Tétrault Notes

The result of Tercon is an unfortunate uncertainty. Will courts applying Tercon do as the Supreme Court says, or as the Supreme Court does? Is the doctrine of fundamental breach really dead, as the Supreme Court has now said on three different occasions in three different decades (Hunter Engineering in 1989, Guarantee in 1999, and Tercon in 2010)? Or are the reports of its death greatly exaggerated — will future cases, like the majority in Tercon, continue to show an inherent hostility to exclusion clauses that is highly reminiscent of the supposedly deceased doctrine of fundamental breach? Tercon makes it hard to know how to draft exclusion clauses, and harder still to predict whether they will be enforced.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions