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Contract - Duty of Good Faith - Liability Allocation. 1401380 Ontario Limited (Wilderness North Air) v. Hydro One Remote Communities Inc.
In 1401380 Ontario Limited (Wilderness North Air) v. Hydro One Remote Communities Inc. (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal, here brought against an order for the defendant "to pay damages of $2,718,988".
Here the court considers the application of a contractual allocation clause [paras 37-45] to contractual damages, and it's further application to breach of good faith [para 46-48]:Remote’s liability is not limited by the terms of the contract
[22] Applying the test in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, the trial judge found that Remote’s liability for breach of contract was not confined by s. 18 of the contract. That clause purported to limit Remote’s liability to $50,000. However, the trial judge found the clause was ambiguous and made little commercial sense. On her interpretation, the clause served only to exclude liability arising out of “contingencies” – the need to cancel individual purchase orders from time to time in response to fluctuating fuel needs. It was not intended to limit liability for the complete removal of Wilderness as primary vendor.
[23] The trial judge added that, because parties cannot exclude liability for a breach of the duty of good faith, the clause would apply only if her finding that Remote breached its duty of good faith was incorrect.
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The trial judge erred in finding that the limitation of liability clause is ambiguous and in failing to apply it to Remote’s breach of contract
[37] Remote argues that the trial judge erred in concluding that the limitation of liability clause was ambiguous and in failing to apply it to limit Wilderness’s damages.
[38] I set out the limitation of liability provision for convenience:18. Purchaser’s Limitation of Liability
Subject to all other exclusions and limitations in the Contract documents, the Purchaser’s maximum liability to the Company, or anyone claiming through the Company, shall not exceed the lesser of the Contract Price or fifty thousand dollars ($50,000.00), and in no event shall the Purchaser be responsible for any loss or damages that are indirect, consequential, punitive or for economic loss, loss of revenues, loss of profits, loss of business opportunity, or as a result of fines levied by governmental authorities or the courts thereof. This limitation of liability shall apply where the claims are based on contract, under any statute, or otherwise. [39] Limitation of liability clauses are standard fare in contracts between sophisticated commercial parties as in this case. They know their interests and negotiate the terms of their contracts accordingly. Courts should be slow to conclude that they are ambiguous or make no commercial sense and decline to give effect to them on this account.
[40] Section 18 is clear on its face. The first part of the clause limits damages for breach of contract: “the Purchaser’s maximum liability to the Company […] shall not exceed […] fifty thousand dollars”. The second part excludes liability for certain types of damages entirely. Yet the trial judge found that the clause was confusing both as to “when it applies and what it applies to”.
[41] The trial judge appears to have interpreted the term “economic loss” in the second part of the clause to mean “monetary loss”. Consequently, if the clause were to apply, the damages at issue would be excluded entirely. She struggled to understand how to apply the $50,000 limitation in light of this interpretation. The trial judge thus concluded that the clause could have only a limited application and could not apply to limit Remote’s liability to Wilderness for removing it as vendor.
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[43] With respect, the trial judge identified an ambiguity where none exists, a problem identified by this court in Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at paras. 63-65. There is no ambiguity when the provision is read as a whole.
[44] The first part of s. 18 limits liability for breach of contract. The second part excludes liability for damages not arising directly out of the breach – in other words, consequential economic loss. The exclusion of liability for consequential economic loss does not affect the limitation on liability for damages arising directly out of the breach of contract. If it did, it would deprive the $50,000 limitation of all effect.
[45] It follows that the trial judge’s award of damages cannot stand. Section 18 clearly limits damages for Remote’s breach of contract to $50,000. This is the parties’ agreement and it must be given effect.
The limitation of liability clause applies to the breach of Remote’s duty to exercise its discretion in good faith
[46] The trial judge’s interpretation of the limitation of liability clause led her to conclude that, if the clause were to apply, it would operate to exclude liability for breach of the duty of good faith altogether, something that she noted that Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 SCR 494 prohibited.
[47] Plainly, parties are not free to exclude the duty of good faith altogether; the duty is a general doctrine of contract law that applies to all contracts: Bhasin, at para. 75; C.M. Callow Inc. v. Zollinger, 2020 SCC 45, [2020] 3 S.C.R. 908, at para. 84. But it does not follow from the inability of the parties to exclude the duty of good faith altogether that they may not limit the scope of liability for breach of the duty. They are free to do so, just as they may modify the scope of the duty of good faith: Bhasin, at para. 77.
[48] Breach of the duty of good faith sounds as a breach of contract: Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 SCR 32, at para. 62; Spina v. Shoppers Drug Mart Inc., 2024 ONCA 642, at para. 171. There is, in principle, no reason why a breach of the duty is not amenable to a limitation of liability provision. Section 18 is not tantamount to a complete exclusion of liability, and hence a contracting out of the duty itself. Nor can it be said that, in this case, the parties’ decision to limit damages for breach of contract to $50,000 compromises the operation of the “minimum core” of the duty: Bhasin, at para. 77.
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