Tercon Contractors Ltd v British Columbia (Transportation and Highways)

Tercon set out the modern Canadian approach to exclusion clauses. The fundamental-breach doctrine is dead. A three-step inquiry asks: does the clause apply on its true construction; was it unconscionable when made; and even if valid, should the court refuse enforcement on overriding public-policy grounds?

BC issued an RFP and accepted a bid from a non-eligible joint venture. The contract included an exclusion clause limiting liability for non-compliance with the RFP process. Tercon, an excluded eligible bidder, sued.

How should the enforceability of an exclusion clause be assessed?

The clause did not apply on its proper construction; Tercon recovered. Court (5-4) split on application but unanimous on the framework.

(1) As a matter of interpretation, does the exclusion clause apply to the breach in issue? (2) If so, was the clause unconscionable at the time the contract was made (e.g. inequality of bargaining power)? (3) Even if valid and applicable, should the court decline enforcement on the basis of an overriding public-policy ground that outweighs the strong public interest in enforcement of contracts?

Binnie J's framework was adopted unanimously. The doctrine of fundamental breach, criticised since Hunter Engineering, is formally rejected. Public policy is a narrow safety valve — engaged only where enforcement would be contrary to fundamental societal interests, not merely where the breach is serious or the clause harsh.

The controlling Canadian authority on exclusion clauses. Ends a long-running doctrinal debate. Cited frequently in commercial litigation about limitation, indemnity, and exclusion provisions.

Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 SCR 69.

McLachlin CJ, Binnie J, LeBel J, Deschamps J, Fish J, Abella J, Charron J, Rothstein J, Cromwell J