Limitation of Liability Clauses: Are They Enforceable and Effective?

A frequent issue raised by design consultants is the extent to which they can limit liability for claims through limitation of liability clauses. Although such clauses are enforceable, recent case law raises questions as to their practical effectiveness.

Enforceability of Limitation of Liability Clauses

Canadian courts have allowed parties to limit liability for claims arising in either contract or tort through appropriately drafted exclusion or limitation of liability clauses: Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., 1993 CanLII 67 (SCC). Such clauses may limit a design consultant's liability as follows: (1) to the value of the consultant's fee for services rendered; (2) to a percentage of the fee charged for services rendered; (3) to a percentage of the construction cost of the work; (4) to the amount of the errors and omissions coverage in effect at the time; or (5) to a specified dollar amount. The latter two types are most commonly used.