The recent decision of the Ontario Court of Appeal
in Chuang v. Toyota Canada Inc.
provides a useful insight into the current state of the law
relating to exclusion clauses.
In this case, Dr. Chuang entered into an agreement with Toyota
to build and operate a Lexus dealership in downtown Toronto.
The agreement set out a number of deadlines that Dr. Chuang had
to meet with respect to his obtaining financing, building the
facility and opening the dealership for business.
The agreement also gave Toyota the right, in its sole
discretion, to terminate the agreement if any of the deadlines were
not met or if Toyota, in its sole opinion, determined that Dr.
Chuang would not be able to meet any one or more of those
In addition, the agreement contained an exclusion clause. It
provided that in the event of the termination of the agreement,
neither Toyota nor any of its personnel would be liable for any
losses, damages or expenses of any kind.
Dr. Chuang, who was an experienced builder and operator of
luxury car dealerships, ran into a number of difficulties. Many of
them were not his fault. Nevertheless, deadlines were missed.
Toyota terminated the agreement and Dr. Chuang sued Toyota for
specific performance of the agreement and damages. By the time the
matter had come to trial, he had been able to complete the
construction of a showroom and open a different dealership on the
site. As a result, he abandoned his claim for specific performance
and pursued his damages claim only.
At trial, Toyota argued that it had acted reasonably in
terminating the agreement. However, if it had not acted reasonably,
thereby breaching the agreement, it was insulated from any damage
claim by the exclusion clause.
The judge found that Toyota had not acted reasonably in
terminating the agreement. However, he also ruled that Toyota was
nevertheless entitled to the protection of the exclusion
Dr. Chuang appealed to the Court of Appeal, arguing that the
exclusion clause could only apply in cases where Toyota had acted
reasonably. He argued further that the trial judge had not properly
considered the nature of the relationship or the commercial
efficacy of the clause. In essence he argued that the trial
judge’s interpretation of the exclusion clause would lead to
a commercial absurdity, in that no reasonable person would ever
have agreed to a clause protecting Toyota from the consequences of
its own unreasonable and arbitrary termination of the
The Court of Appeal dismissed the appeal. It pointed out that
the Court will take a three-step approach to the interpretation of
Does the clause apply to the facts?
If so, is the clause unconscionable?
If it applies and is not unconscionable, is there any public
policy reason strong enough to outweigh the public interest in the
enforcement of contracts that should persuade the Court to ignore
The Court pointed out that Dr. Chuang did not argue either that
the clause was unconscionable or that there was any public policy
reason against its enforcement. The only real issue was as to
whether or not it could apply to excuse Toyota from any damage
claim by reason of its own unlawful termination of the
The Court pointed out that parties to an agreement are free to
allocate risk as they see fit. Exclusion clauses are a means of
allocating risk. The beneficiary of an exclusion clause contracts
out of the obligation that normally follows from the breach of a
contract and puts that risk on the other party.
In this case, the clause was broadly written and made it clear
that no damage claim could be brought as a result of any
termination of the agreement. The Court rejected Dr. Chuang’s
argument about commercial efficacy by pointing out that while Dr.
Chuang would not be able to sue for damages, even though Toyota had
breached the agreement, he could have sued for specific performance
or other relief and, in fact, did not pursue such a claim to trial
only because he had been able to open another dealership on the
site. Accordingly, the appeal was dismissed.
The result of the case with respect to costs is also somewhat
dramatic. At trial, the trial judge awarded Toyota costs of $1.21
million. Dr. Chuang appealed the amount awarded and the Court of
Appeal dismissed that part of the appeal as well.
This case is a useful reminder of the fact that parties to a
contract – particularly sophisticated parties bargaining on a
relatively level playing field – will be held to the strict
language of their written commitments. Unless they are
unconscionable or void on public policy grounds, exclusion clauses
will not be treated any differently.
In Irwin v. Alberta Veterinary Medical Association, 2015 ABCA 396, the Alberta Court of Appeal found that the "ABVMA" failed to afford procedural fairness to a veterinarian undergoing an incapacity assessment.
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