SCC Rejects Doctrine Of Fundamental Breach In Context Of Exclusion Clauses

Tercon Contractors v. British Columbia, 2010 SCC 4, February 12, 2010

In an important ruling arising out of a disputed public procurement process, the Supreme Court of Canada has unanimously rejected the doctrine of fundamental breach, substituting a three-stage test of the enforceability of an exclusion-of-liability clause that considers (i) whether the clause actually applies to the type of breach that is alleged, (ii) unconscionability, and (iii) public policy. However, before anyone celebrates the end of the ambiguity that has pervaded this part of Canadian law since the split decision in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426, it must also be reported that the Court split five to four on the application of its new three-stage test to the facts. The distinction between the majority and minority reasons will be of interest to those drafting or negotiating exclusion clauses, particularly in the context of a request for proposals (RFP)