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Contracts - Interpretation - Liability Exclusion Clause

Chuang v. Toyota Canada Inc. (Ont CA, 2016)

In this case the Court of Appeal discussed the factors applicable to interpreting and enforcing a liability exclusion clause, being a contractual clause purporting to limit or exclude a party's liability on breach of the contract:
[24] Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways), 2010 SCC 4 (CanLII), [2010] 1 S.C.R. 69, is the leading Canadian authority on exclusion clauses. Binnie J., at paras. 122-23, speaking for the court on this issue, but in dissent in the result, described a three-step approach to the interpretation of exclusion clauses:

• Does the exclusion clause apply in the facts as found?

• If the clause applies, was the clause unconscionable at the time the parties entered into the agreement?

• If the exclusion clause applies and was not unconscionable, should the court for policy reasons which are sufficiently strong to outweigh the public interest in the enforcement of contracts, decline to enforce the contract?


[26] The first step in the three-step Tercon inquiry engages the general principles of contractual interpretation: see Rankin Construction Inc. v. Ontario, 2014 ONCA 636 (CanLII), 325 O.A.C. 201, at paras. 57-60; 1465152 Ontario Limited v. Amexon Development Inc., 2015 ONCA 86 (CanLII), 330 O.A.C. 344, at paras. 11-18. Contractual interpretation usually raises questions of mixed fact and law. Absent a clearly identifiable error in law, an appellate court will defer to the trial court’s interpretation of the agreement and will only intervene in the case of palpable and overriding factual error or an unreasonable interpretation: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 S.C.R. 633, at paras. 49-52; Martenfeld v. Collins Barrow Toronto LLP, 2014 ONCA 625 (CanLII), 122 O.R. (3d) 568, at paras. 39-42; Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation, 2016 ONCA 271 (CanLII), at para. 93; 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409 (CanLII), at para. 44; D’Antonio v. Monaco, 2015 ONCA 274 (CanLII), at para. 12.

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