6362222 Canada inc. v. Prelco inc.

6362222 Canada inc. v. Prelco inc.
Collection
Supreme Court Judgments
Date
2021-10-15
Neutral citation
2021 SCC 39
Report
[2021] 3 SCR 3
Case number
38904
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Côté, Suzanne; Brown, Russell; Rowe, Malcolm; Martin, Sheilah; Kasirer, Nicholas
On appeal from
Quebec
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: 6362222 Canada inc. v. Prelco inc., 2021 SCC 39, [2021] 3 S.C.R. 3
Appeal Heard: December 3, 2020 Judgment Rendered: October 15, 2021 Docket: 38904
Between:
6362222 Canada inc. Appellant
and
Prelco inc. Respondent
Official English Translation
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
Joint Reasons for Judgment: (paras. 1 to 104)
Wagner C.J. and Kasirer J. (Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe and Martin JJ. concurring)
6362222 Canada inc. Appellant
v.
Prelco inc. Respondent
Indexed as: 6362222 Canada inc. v. Prelco inc.
2021 SCC 39
File No.: 38904.
2020: December 3; 2021: October 15.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
on appeal from the court of appeal for quebec
Contract ⸺ Nonperformance ⸺ Non‑liability clause ⸺ Doctrine of breach of fundamental obligation ⸺ Public order ⸺ Objective cause of obligation ⸺ Contract by mutual agreement including non‑liability clause entered into between manufacturing company and consulting firm specialized in evaluation and implementation of integrated management computer systems ⸺ Action in damages brought by company against consulting firm for breach of its contractual obligations because of fault committed in implementing computer system ⸺ Whether doctrine of breach of fundamental obligation can render inoperative non‑liability clause that was freely negotiated by legal persons ⸺ Civil Code of Québec, arts. 1371, 1437, 1474.
6362222 Canada inc. (“Createch”) is a consulting firm specialized in performance improvement and in the implementation of integrated management systems. Prelco inc. is a manufacturing company that makes and transforms flat glass. In 2008, Prelco asked Createch for advice regarding its computer systems. A draft contract prepared by Createch under which it was to supply software and professional services in order to implement an integrated management system at Prelco was then submitted to Prelco. Prelco did not ask for any changes to the proposed general conditions, which included provisions concerning the parties’ general responsibilities. One of the provisions, cl. 7, entitled “Limited Liability”, stipulated that Createch’s liability to Prelco for damages that could be attributed to any cause whatsoever would be limited to amounts paid to Createch under the contract and that if such damages resulted from the delivery of unsatisfactory services, Createch’s liability would be limited to the amount of any fees paid in relation to the unsatisfactory services. A further stipulation was that Createch could not be held liable for any damages resulting from the loss of data, profits or revenue or from the use of products or for any other special, consequential or indirect damages relating to services and/or material provided pursuant to the contract. The parties signed the contract in April 2008.
When the system was implemented, numerous problems arose, and Prelco decided to terminate its contractual relationship with Createch in the spring of 2010. Another firm was then engaged to make the integrated management system functional. Prelco brought an action against Createch for $6,246,648.94 in damages for the reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits. Createch in turn filed a cross‑application for $331,134.42, the unpaid balance for the project.
The Superior Court granted Prelco’s application and ordered Createch to pay Prelco $2,203,400 in damages. It also granted Createch’s cross‑application. It concluded that cl. 7 of the contract was inoperative on the basis of the doctrine of breach of a fundamental obligation, according to which an exoneration clause or limitation of liability clause is without effect if it relates to the very essence of an obligation. The court found that Createch, having misunderstood the scale and complexity of Prelco’s operations, had committed a fault in its initial choice as to the approach to take in implementing the management system and had as a result breached its fundamental obligation. The Court of Appeal dismissed Createch’s appeal, which concerned the limitation of liability clause, and Prelco’s cross‑appeal, which concerned the calculation of damages and the amount representing lost sales.
Held: The appeal should be allowed.
The doctrine of breach of a fundamental obligation does not apply to the fault committed by Createch so as to negate cl. 7 of the contract. Neither of the possible legal bases for this doctrine — (a) validity of the clause having regard to public order and (b) validity of the clause having regard to the requirement relating to the cause of the obligation — applies in this case.
The rule that non‑liability clauses are valid in principle has been settled law since The Glengoil Steamship Co. v. Pilkington (1897), 28 S.C.R. 146, and it was subsequently accepted in Quebec positive law. This rule derives from autonomy of the will and its corollary, freedom of contract, both of which are general principles of the general law of obligations in Quebec civil law. However, the rule is limited by legislative and judicial public order, respect for which is set up in private law as a mandatory rule of general application on the basis of arts. 8 and 9 of the Civil Code of Québec (“C.C.Q.”).
Although art. 1474 C.C.Q. implicitly confirms the validity in principle of non‑liability clauses, it sets limits in the name of public order of direction that necessitate the absolute nullity of incompatible clauses. First of all, the first paragraph of art. 1474 C.C.Q., by prohibiting non‑liability clauses where there is gross or intentional fault, discourages recklessness, fraud, negligence and deliberate faults, including in contracts by mutual agreement. Next, the legislature made it clear in the second paragraph that, regardless of the seriousness of the fault and despite the principle of freedom of contract, no one may exclude or limit his or her liability for bodily or moral injury.
As for art. 1437 C.C.Q., it sets a limit that is of public order of protection, that is, one the purpose of which is to protect a contracting party who is presumed to be economically weaker. This article expressly recognizes the application of the doctrine of breach of a fundamental obligation in Quebec civil law where there is an abusive contract clause, but limits it to consumer contracts (defined in art. 1384 C.C.Q.) and contracts of adhesion (art. 1379 C.C.Q.), which are characterized by an imbalance between the parties. A clause that departs from the fundamental obligations of a contract to such an extent that it changes the nature of the contract is considered to be abusive, and therefore null. Although the validity of a non‑liability clause is also open to challenge in other cases specified by the legislature in relation to nominate contracts, the Code provides for no rule of general application that falls under public order of protection, including one relating to a breach of a fundamental obligation.
Public order does not have the effect, generally, of rendering a non‑liability clause relating to a fundamental obligation in a contract by mutual agreement inoperative. At the time of the reform of the Civil Code, the legislature spoke directly to the purpose of the concept of public order and intervened to validate the use of non‑liability clauses in cases to which art. 1437 C.C.Q. does not apply. Subject to the constraints provided for in art. 1474 C.C.Q., a person may exclude or limit his or her liability for material injury caused to another through a fault that is neither intentional nor gross. Everything suggests that the legislature deliberately chose not to include such a mandatory rule to regulate such clauses in the Civil Code of Québec, preferring to leave it to sophisticated parties to themselves manage the risks of nonperformance.
As for the second legal basis for the doctrine, total absence of cause, it stems from the requirement, spoken to in art. 1371 C.C.Q., to the effect that it is of the essence of an obligation arising out of a juridical act that there be a cause which justifies its existence. What is in question here is the concept of the objective cause, that is, the logical, impersonal and abstract reason that justifies a party’s acceptance of his or her obligations, or the performance of the correlative obligation in the synallagmatic contract. Thus, some contract clauses that deprive the correlative obligation of its cause within the meaning of art. 1371 C.C.Q. may affect the validity of the obligation, because the reciprocal nature of the contractual relationship is called into question. This is true, for example, of certain no obligation clauses that exclude all prestations that would normally be owed by the debtor, with the result that the creditor’s obligations lack reciprocal prestations. Two competing views are advanced by authors on the question whether a non‑liability clause relating to the fundamental obligation of a contract has the effect of depriving the obligation of its cause. The first is that an exoneration clause or limitation of liability clause cannot deprive the correlative obligation of its cause, as a debtor’s obligation does not cease to exist simply because a clause limits or excludes his or her liability in the event of nonperformance. Moreover, because art. 1474 para. 1 C.C.Q. bars a debtor from relying on a non‑liability clause in a case of gross or intentional fault, the debtor cannot arbitrarily refuse to perform an obligation. There are other authors who maintain that a non‑liability clause that is akin to a no claims clause, one that deprives the creditor of the obligation of any remedy to sanction nonperformance, can in fact deprive an obligation of its cause. The disagreement among the authors is not in issue in this case. This is not a situation in which the counterprestation is insignificant, and even less one in which it is non‑existent. The sanction for nonperformance of the fundamental obligation remains, and it cannot be said that the obligation is deprived of its objective cause. It would therefore be more prudent to refrain from answering the question in relation to the disagreement among the authors in the abstract without taking account of practical difficulties that could arise in the future.
In this case, on the basis of the rule stated by the Court in Glengoil and reaffirmed under the auspices of the Civil Code of Québec, cl. 7 is valid and the parties were free to include it in their contract. From the perspective of art. 1474 C.C.Q., Createch’s breach of an obligation of means was a simple fault and not a gross or intentional fault, one that caused material injury and not bodily or moral injury. Furthermore, there is no authority for presenting breach of a fundamental obligation as a separate category of fault, one that is more serious than or qualitatively different from a simple fault. The clause on which Createch relies is in a contract by mutual agreement that was negotiated by two sophisticated legal persons and not in a contract of adhesion or a consumer contract as under art. 1437 C.C.Q. The clause is not ambiguous, and the trial judge could not annul it. The will of the parties had to be respected. Clause 7 does not violate any rule of legislative or judicial public order, nor is there any specific rule relating to nominate contracts that applies to the facts of this case. There is nothing in the case that would require the courts to intervene to protect a party who is weak or at a disadvantage economically.
Nor could the concept of cause of an obligation justify the decision of the courts below in this case. Clause 7 is not a no obligation clause that would exclude the reciprocity of obligations, as Createch owed substantial obligations to Prelco, which Prelco does not deny. Regardless of whether the position of the authors in whose opinion a no claims clause can deprive an obligation of its cause were accepted, the clause at issue in this case could not be so characterized. The first paragraph of the clause can be equated to an authorization of specific performance by replacement. The clause permits Prelco both to keep the integrated management system and to obtain damages for unsatisfactory services, as well as to be compensated for necessary costs for specific performance by replacement. This clause excludes any reparation for loss of profits arising from a simple fault. Because Createch’s work was found to be useful, the clause barred a claim based on an overpayment for the services provided by Createch. There is therefore a cause. Moreover, the clause does not exclude all sanctions, given that, from the moment the contract was formed, specific performance was possible, and indeed contemplated, in the event of nonperformance. This contract is therefore not one that has no counterprestation whatsoever. The cause of the obligation does not permit a court to create a scheme for lesion between unprotected persons of full age; such a scheme has in fact been rejected by the legislature.
Cases Cited
Referred to: Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; National Bank of Canada (Canadian National Bank) v. Soucisse, [1981] 2 S.C.R. 339; Montréal (Ville) v. Lonardi, 2018 SCC 29, [2018] 2 S.C.R. 103; Cie Immobilière Viger Ltée v. Giguère Inc., [1977] 2 S.C.R. 67; The Glengoil Steamship Co. v. Pilkington (1897), 28 S.C.R. 146; Bruker v. Marcovitz, 2007 SCC 54, [2007] 3 S.C.R. 607; Goulet v. Transamerica Life Insurance Co. of Canada, 2002 SCC 21, [2002] 1 S.C.R. 719; Garcia Transport Ltée v. Royal Trust Co., [1992] 2 S.C.R. 499; Djamad v. Banque Royale du Canada, 2021 QCCA 371; Audet v. Transamerica Life Canada, 2012 QCCA 1746, [2012] R.J.Q. 1844; Ferme Franky 2004 inc. v. Gestions Pierre Saint‑Cyr inc. (Centrale de contrôle d’alarmes du Québec), 2014 QCCA 848; Karrum Realties Inc. v. Ama Investments Inc., 2007 QCCA 880; 9092‑3335 Québec inc. v. 4364856 Canada inc., 2019 QCCS 3666; Association pour la protection des automobilistes inc. v. Toyota Canada inc., 2008 QCCA 761, [2008] R.J.Q. 918; Quebec (Commission des normes du travail) v. Asphalte Desjardins inc., 2014 SCC 51, [2014] 2 S.C.R. 514; Churchill Falls (Labrador) Corp. v. Hydro‑Québec, 2018 SCC 46, [2018] 3 S.C.R. 101; Karsales (Harrow) Ltd. v. Wallis, [1956] 1 W.L.R. 936; ABB Inc. v. Domtar Inc., 2007 SCC 50, [2007] 3 S.C.R. 461; Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Godbout v. Longueuil (Ville de), [1995] R.J.Q. 2561, aff’d [1997] 3 S.C.R. 844; Bank of Montreal v. Kuet Leong Ng, [1989] 2 S.C.R. 429; Ostiguy v. Allie, 2017 SCC 22, [2017] 1 S.C.R. 402; Poissonnerie Bari v. Gestion Inter‑parc Inc. (National Tilden), 2002 CanLII 111; Conseil des ports nationaux v. Swift Canadian Co. Ltd., [1953] B.R. 730; Southern Canada Power Co. Ltd. v. Conserverie de Napierville Ltée, [1967] B.R. 907; Western Assurance Co. v. Desgagnés, [1976] 1 S.C.R. 286; Fenêtres St‑Jean Inc. v. Banque Nationale du Canada, [1990] 69 D.L.R. (4th) 384; Impact Graphics Ltd. v. B.P.G. Central Security Corp., [1995] AZ‑95021939; Empire Cold Storage Co. Ltd. v. La Cie de Volailles Maxi Ltée, 1995 CanLII 4828; BNP Paribas (Canada) v. Ikea Property Ltd., 2005 QCCA 297, [2005] R.R.A. 319; Samen Investments Inc. v. Monit Management Ltd., 2014 QCCA 826; Société de gestion Complan (1980) inc. v. Bell Distribution inc., 2009 QCCS 2881, [2009] R.D.I. 569, aff’d 2011 QCCA 320; Thériault v. Dumas, 2000 CanLII 5214; Pruneau v. Société d’agriculture du comté de Richmond, 2006 QCCQ 12523; Axa Assurances inc. v. Assurances générales des Caisses Desjardins inc., 2009 QCCS 862, [2009] R.J.Q. 1104; Canadian National Railway Company v. Ace European Group Ltd., 2019 QCCA 1374; Fortin v. Chrétien, 2001 SCC 45, [2001] 2 S.C.R. 500.
Statutes and Regulations Cited
Civil Code of Lower Canada.
Civil Code of Québec, arts. 6, 7, 8, 9, 424, 1371, 1375, 1378, 1379, 1380, 1381, 1384, 1405, 1410 para. 1, 1411, 1427, 1434, 1437, 1438, 1458, 1474, 1475, 1602, 1613, 1622, 1732, 1733, 1863, 1893, 1900 para. 1, 2070, 2092, 2118, 2298, 2332, 2805.
Consumer Protection Act, CQLR, c. P‑40.1, s. 10.
Authors Cited
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APPEAL from a judgment of the Quebec Court of Appeal (Chamberland, Bélanger and Rancourt JJ.A.), 2019 QCCA 1457, [2019] AZ‑51626648, [2019] J.Q. no 7622 (QL), 2019 CarswellQue 7605 (WL Can.), affirming a decision of Ouellet J., 2016 QCCS 4086, [2016] AZ‑51318171, [2016] J.Q. no 10862 (QL), 2016 CarswellQue 8027 (WL Can.). Appeal allowed.
Guy J. Pratte and Stéphane Richer, for the appellant.
Catherine Cloutier and André Johnson, for the respondent.
English version of the judgment of the Court delivered by
The Chief Justice and Kasirer J. —
I. Introduction
[1] This appeal raises the question whether a non‑liability clause in a contract is valid in respect of a breach of a fundamental obligation in Quebec civil law. The Superior Court declared (2016 QCCS 4086), on the basis that an exoneration clause or limitation of liability clause is without effect if it relates to the very essence of an obligation — the [translation] “doctrine of breach of a fundamental obligation” — that a limitation of liability clause in a freely negotiated contract for services between the appellant, 6362222 Canada inc. (“Createch”), and the respondent, Prelco inc., was inoperative.
[2] In this case, Createch breached its fundamental obligation under the contract, namely to inquire into Prelco’s specific operating needs and requirements and to propose an approach to implementing an integrated management system that would be capable of satisfying them. The trial judge concluded that Createch could not rely on the clause in question in order to limit its liability for material injury it had caused to Prelco. The Court of Appeal confirmed that conclusion, explaining that the doctrine accepted by the trial judge exists in Quebec law and that it applied in this case (2019 QCCA 1457).
[3] There are two possible legal bases for the existence of the doctrine and for applying it to this case, and they do not have the same justification. The first is that a non‑liability clause relating to a fundamental obligation is inoperative if it is contrary to a rule of public order that limits freedom of contract. The second is that a non‑liability clause is inoperative if it releases the debtor from all obligations to the creditor, because the clause thereby deprives the creditor’s correlative obligation of its cause and is therefore incompatible with the very existence of the fundamental obligation flowing from the contract as a synallagmatic act. These two bases — public order and absence of an objective cause of the obligation — are central to the dispute between the parties.
[4] Although the Court of Appeal was right to refer to public order and absence of a cause in support of its analysis of the validity of the clause at issue, we nonetheless conclude that the appeal should be allowed. Respectfully stated, neither of the legal bases for the doctrine suffices to negate the non‑liability clause to which the parties freely consented in the case at bar, as neither public order nor the non‑existence of the obligation can be successfully argued in this appeal.
[5] While it is true that the first basis for the doctrine does apply in certain specific situations provided for in the Civil Code of Québec (“C.C.Q.” or “Code”), public order does not have the effect, generally, of rendering a non‑liability clause relating to a fundamental obligation in a contract by mutual agreement inoperative. The opposite conclusion would be contrary to the scheme of the Code. The legislature, by addressing clauses that are inconsistent with higher values it intentionally associated with public order, has allowed sophisticated parties to agree to the allocation of risk in contexts to which the Code does not explicitly refer. As to the second basis, the clause at issue does not deprive the obligation of its objective cause. It is common ground that the prestation agreed to is due from the debtor, Createch, even if the sanctions for nonperformance of the agreement are undermined by the effect of the non‑liability clause. The creditor, Prelco, in fact concedes that it gave Createch a [translation] “chance to correct its errors and make specific performance” (R.F., at para. 121). An effective sanction, namely specific performance and agreed damages for unsatisfactory services, is still possible. This sanction reflects an obligation that has a cause — Createch’s contractual counterprestation — an obligation whose existence is not open to question.
II. Background
[6] The business relationship between Createch and Prelco began in 2007. Createch is a consulting firm specialized in performance improvement and in the implementation of integrated management systems. Prelco is a large manufacturing company that makes and transforms flat glass for various architectural and industrial uses. Its production operations are conducted in several plants ― all of them interconnected ― that are located in Rivière‑du‑Loup, in Montréal and in Edmundston, New Brunswick.
[7] Prelco engaged Createch to improve the company’s business processes relating to customer service. A number of projects for that purpose were carried out in 2007 and 2008, and all of them met Prelco’s expectations. While doing this work, Createch informed Prelco that its computer systems were not particularly efficient, as they were composed of a large number of programs whose databases functioned autonomously. Prelco asked Createch’s advice on this.
[8] Createch agreed to conduct a summary analysis of the systems in question. Upon the completion of that analysis, Prelco invited Createch, in late February or early March 2008, to present a proposal for the supply of software and professional services in order to implement an integrated management system in its business.
[9] A draft contract prepared by Createch in 2008 was thus submitted to Prelco. Negotiations then took place. Prelco did not ask for any changes to the proposed general conditions (Sup. Ct. reasons, at paras. 20‑22 (CanLII)), which included provisions concerning the parties’ general responsibilities.
[10] According to the provisions in question, responsibility for [translation] “implementation and deliverables” was in some instances said to be “shared” by the parties, whereas in others it amounted, for Createch only, to a “limited” responsibility that consisted in providing “ad hoc support as well as advice” (joint sch., vol. I, at p. 244). Finally there were some tasks for which Prelco was to be fully responsible. The draft contract also included an estimate of the time each of the parties was to spend on the project.
[11] The other clauses of the proposed general conditions included cl. 7 entitled [translation] “Limited Liability”, which is central to this case:
[translation] Createch’s liability to the client for damages that can be attributed to any cause whatsoever, regardless of the nature of the action, whether provided for in the agreement or delictual, shall be limited to amounts paid to Createch under the Agreement unless such damages result from gross negligence or wilful misconduct on Createch’s part. If such damages result from the delivery of unsatisfactory services, Createch’s liability shall be limited to the amount of any fees paid in relation to the said unsatisfactory services.
Createch may not be held liable for any damages resulting from the loss of data, profits or revenue or from the use of products or for any other special, consequential or indirect damages relating to services and/or material provided pursuant to the Agreement unless such damages result from gross negligence or wilful misconduct on Createch’s part.
(joint sch., vol. I, at p. 227)
[12] There were nonetheless discussions about the sharing of risks relating to cost overruns for services, and these resulted in Createch accepting a reduced hourly rate of 50 percent for the “contingency of the project” portion.
[13] In April 2008, the parties signed an agreement (“Contract”) for the implementation at Prelco of a Microsoft Dynamics NAV integrated management solution, a prestation whose estimated value was $650,574. The amount payable to Createch was approximate, because a monthly billing method [translation] “on a time and materials basis in accordance with hours used and payable upon receipt of the invoice” was provided for (joint sch., vol. I, at p. 246). Clause 7 quoted above ultimately appeared verbatim in the Contract.
[14] When the system was implemented, numerous problems arose: inconsistent invoices sent to customers, errors in putting orders into production, shipping delays, and inefficiency of the planning and production system, which was slow. Faced with these recurring problems, Prelco terminated its contractual relationship with Createch in the spring of 2010 and then engaged another firm, Irisco, to make the integrated management system functional. After Irisco had resolved the problems, the integrated management system functioned properly. Prelco was able to use the system and to manage its production, although it did not benefit from all the expected advantages.
[15] Prelco brought an action against Createch for $6,246,648.94 in damages. This amount related to the reimbursement of an overpayment, costs for restoring the system, the reimbursement of claims from customers, and loss of profits. Createch in turn filed a cross‑application for $331,134.42, the unpaid balance for the project.
III. Judicial History
A. Quebec Superior Court, 2016 QCCS 4086 (Ouellet J.)
[16] The trial judge found that the integrated management system’s performance problems could be attributed to an erroneous approach adopted by Createch on beginning the project. Rather than personalizing the NAV software, Createch should have integrated into it [translation] “proven programs that were available on the market” (para. 169).
[17] In the trial judge’s view, because Createch’s conduct [translation] “did not show gross recklessness, gross carelessness or gross negligence”, this mistake could not be characterized as an intentional fault (para. 207). He added that the “particular structure of the [C]ontract, [which required] extensive involvement of both the service provider and the client in implementing the . . . system”, meant that a gross fault could not be attributed to Createch (para. 208).
[18] He also found that the Contract, having resulted from discussions between the parties, could not be characterized as a contract of adhesion. It was a synallagmatic contract ― more precisely a time and materials contract for services ― under which Createch had an obligation of means. Having been negotiated by mutual agreement between sophisticated legal persons, the Contract was not subject to consumer protection legislation.
[19] The limitation of liability clause in the Contract was nevertheless inoperative, because Createch had breached its fundamental obligation, that is, [translation] “to properly identify and propose management software and a development approach suited to Prelco’s situation such that the integrated management system would be fully operational” (paras. 213 and 220‑25). Having misunderstood “the scale and complexity of Prelco’s operations”, Createch had committed a fault in its initial choice as to the approach to take in implementing the management system and had as a result breached its fundamental obligation (para. 215). Because of this erroneous initial choice, Createch had not understood that the system required indexes, which was a “fundamental error” whose effect had been to cause the system to freeze for several minutes when tables were being consulted (para. 225).
[20] Citing certain academic commentary and judicial decisions in this regard, the trial judge explained that [translation] “there is now a view in our civil law that a non‑liability clause becomes inoperative in the event of a breach of a fundamental obligation by the party who benefits from that clause” (para. 210). He added, in a comment he himself described as being in obiter, that the obligation of good faith flowing from arts. 6, 7 and 1375 C.C.Q. could also serve as a basis for his conclusion that the doctrine applies to the facts of this case (para. 226).
[21] The trial judge nevertheless found that liability for the damages claimed by Prelco could not lie completely with Createch, although the latter did bear the greatest share of that liability. Prelco had had human resource problems and, like Createch, had minimized the risk related to its employees’ lack of training and preparation when they had jointly decided to launch the system. The trial judge therefore apportioned liability between them, ascribing 60 percent to Createch and 40 percent to Prelco.
[22] Regarding Prelco’s claims, the trial judge began by rejecting the one for an overpayment of $1,567,325, finding that Prelco had not paid unnecessarily for the software and services provided by Createch. After the work done by Irisco, he observed, [translation] “the NAV system functioned and was used by Prelco” (para. 233). If the items “software” and “maintenance” were excluded, he stated, Prelco had not shown “what portion of the $1,520,000 represented unnecessary work from which Prelco does not now benefit” (ibid.). However, the trial judge accepted Prelco’s claim for $79,200 for fees paid to Irisco. Because those fees resulted from Createch’s error in its choice for the approach to implementation, he did not apportion liability.
[23] As to the claims from customers and loss of profits on sales made and lost by Prelco, the trial judge apportioned liability and fixed the amounts payable to that company at $189,200 and $1,935,000 respectively. Because he had found that the integrated management system functioned and was being used by Prelco, he rejected Prelco’s principal argument and granted Createch’s cross‑application.
[24] The trial judge ultimately ordered Createch to pay Prelco $2,203,400 in damages. However, because he was granting Createch’s cross‑application in the amount of $331,134, he effected compensation between the two claims. The result of compensation was that the amount Createch owed Prelco was $1,872,266.
B. Quebec Court of Appeal, 2019 QCCA 1457 (Chamberland, Bélanger and Rancourt JJ.A.)
[25] Createch appealed the Superior Court’s judgment. In Createch’s view, the trial judge had erred in finding that the limitation of liability clause in the Contract was inoperative because it had breached a fundamental obligation. Prelco initiated an incidental appeal, submitting that the trial judge had made several errors in calculating the damages related to its share of liability, the value of the services delivered by Createch and the amount representing lost sales.
[26] The Court of Appeal dismissed Createch’s appeal, holding unanimously that the mere fact that a breach relates to a fundamental obligation can suffice for the doctrine of breach of a fundamental obligation to neutralize an exoneration clause or limitation of liability clause. It concluded that the doctrine applies in a case such as the one before it. The court began by noting that exoneration clauses and limitation of liability clauses relating to material injury caused to another are valid in Quebec civil law, but that, in the words of the first paragraph of art. 1474 C.C.Q., no one may rely on such a clause to exclude or limit his or her liability “for material injury caused to another through an intentional or gross fault”.
[27] Furthermore, the Court of Appeal did not accept Createch’s argument that the rejection of the common law doctrine of “fundamental breach” in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, barred Prelco’s claim. In the Court of Appeal’s view, the doctrine of breach of a fundamental obligation is not solely a common law rule, but is also a creation of the Quebec courts drawn from civil law commentary and jurisprudence. Tercon is therefore of no consequence in the case at bar, because this means of neutralizing non‑liability clauses has an independent legal basis that is proper to the civil law. Nor does this development represent [translation] “an isolated case of judicial creation” (C.A. reasons, at para. 25 (CanLII)), as it brings to mind principles developed by this Court in other contexts, such as in National Bank of Canada (Canadian National Bank) v. Soucisse, [1981] 2 S.C.R. 339, at pp. 359‑63, and Montréal (Ville) v. Lonardi, 2018 SCC 29, [2018] 2 S.C.R. 103, at para. 85.
[28] The Court of Appeal noted that the Quebec courts and several authors have recognized that the doctrine applies in a commercial context such as this. It referred to a number of principles to justify the existence of what it described as the [translation] “rule of . . . fundamental obligati