Avoiding Limitation Of Liability Clauses In Contracts: Lessons From Two International Arbitrations

Limitation of liability clauses in contracts are approached very differently in Canadian law and U.S. law.  Under Canadian law, such clauses are almost always enforced in commercial transactions, and are exceedingly difficult to get around for plaintiffs whose claims exceed the stipulated damages.  Under U.S. law, by contrast, such clauses are not enforceable in contracts for the sale of goods if the result would be a "failure of essential purpose".  This difference between the two legal regimes has important implications for the drafting of contracts for cross-border transactions, and for litigating cross-border contractual disputes.

Two personal experiences as counsel in international commercial arbitrations well illustrate the difference between the two legal regimes.  In both cases I acted for Canadian entities that purchased from American suppliers and suffered losses due to defects in what was supplied.  In both cases the contracts were governed by U.S. law