Let's consider that contract you're about to sign. Does
it contain a limitation of liability? And if so, are those even
enforceable? It's been several years since we last wrote about
limitations of liability and exclusion clauses (See: Limitations of Liability: Do they
work?) and it's time for another look.
A limitation of liability seeks to reduce or
cap one party's liability to a certain dollar amount - usually
a nominal amount. An exclusion clause is a bit
different - the exclusion clause seeks to preclude any contractual
whether, as a matter of
interpretation, the exclusion clause applies to the circumstances
established in the evidence;
if the exclusion clause applies,
whether the clause was unconscionable and therefore invalid, at the
time the contract was made; and
if the clause is held to be valid
under (b), whether the Court should nevertheless refuse to enforce
the exclusion clause, because of an "overriding public policy,
proof of which lies on the other party seeking to avoid enforcement
of the clause, that outweighs the very strong public interest in
the enforcement of contracts".
We can illustrate this if we apply these concepts to a recent
Alberta case. In this case, the court considered a limitation of
liability in the context of a standard form industry contract, the
terms of which were negotiated between the Canadian Association of
Oilwell Drilling Contractors and the Canadian Association of
Petroleum Producers. Anyone doing business in the Alberta oilpatch
will have seen one of these agreements, or something similar.
The court describes this agreement as a bilateral no-fault
contract, where one party takes responsibility for damage or loss
of its own equipment, regardless of how that damage or loss was
caused. Precision Drilling Canada Limited
Partnership v Yangarra Resources Ltd., 2015 ABQB
433 (CanLII) dealt with a situation where one of Precision's
employees caused damage to Yangarra's well. In the end Yangarra
lost $300,000 worth of equipment down the well, which was
abandoned. Add the cost of fishing operations to retrieve the lost
equipment (about $720,000), and add the cost of drilling a relief
well (about $2.5 million). All of this could be traced to the
conduct of one of Precision's employees - ouch.
Despite all of this, the court decided that the bilateral risk
allocation (exclusion of liability) clauses in the contract between
Yangarra and Precision applied to allocate these costs to Yangarra,
regardless of who caused the losses. The court decided that
enforcing this limitation of liability clause was neither
unconscionable nor contrary to public policy. The clause was
upheld, and Precision escaped liability.
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.
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