Limitation of Liability Clauses and Summary Disposition

May 16, 2019 | Mark E. Alexander

In reasons dated April 1, 2019, a Master of the Alberta Court of Queen’s Bench summarily determined that a contractual limitation of liability clause served to limit the Plaintiff’s damages against a fire protection contractor to the cost of the inspection of the dry line fire suppression system.

The case of Bragg Creek Community Association v. Tyco Integrated Fire & Security Canada, Inc. concerned claims made by the Bragg Creek Community Association (the “Association”), owner of the Bragg Creek Community Centre, against Tyco Integrated Fire & Security Canada Inc. (“Tyco”) in relation to a water loss after one of the fire suppression pipes in the ceiling burst, causing loss and damage to the auditorium and meeting rooms at the community centre.

An application was brought by Tyco for a determination of whether the Association’s claims against it were limited to $2,208, the amount paid for the inspection of the fire suppression system, because of a contractual limitation of liability clause.

As indicated in the Court’s reasons, the facts before the Court were straightforward and the evidence was not particularly in dispute.  Specifically, it was accepted that the Association’s employee responsible for executing the agreement with Tyco and otherwise dealing with that company with respect to all fire-related inspections at the property was an experienced facility director.  Her background included graduating from a recreation facility management program and she had worked as an arena operator and youth centre worker prior to joining the Association as facility director in 2013.

The agreement between the Association and Tyco included five pages of fine print Terms and Conditions.  The evidence before the Court established that the Association’s representative could not recall whether the Terms and Conditions had been reviewed, or whether any limitations of liability had been specifically discussed.  When the agreement was executed, it was her belief that Tyco would be liable to the Association if any significant mistakes were made during the inspection of the fire suppression systems at the facility.

Additional terms of the agreement noted by the Court included the following, among others.

ATTENTION IS DIRECTED TO THE LIMITATION OF LIABILITY, WARRANTY, INDEMNITY AND OTHER CONDITIONS CONTAINED IN THIS AGREEMENT.  This Agreement has been drawn up and executed in English at the request of and with the full concurrence of the Customer…

Limitation of Liability

It is understood and agreed by the customer that Tyco is not an insurer and that insurance coverage, if any, shall be obtained by the customer and that amounts payable to Tyco hereunder are based upon the value of the services and the scope of liability set forth in this agreement and are unrelated to the value of the customer’s property and the property of others located on the premises.  Customer agrees to look exclusively to the customer’s insurer to recover for injuries or damage in the event of any loss or injury and that customer releases and waives all right of recovery against Tyco arising by way of subrogation.

Should Tyco be found liable for any loss, damage or injury arising from a failure of the equipment or service in any respect, Tyco’s liability for services performed on site at customer’s premises shall be limited to an amount equal to the agreement price (as increased by the price for any additional work) or, where the time and material payment term is selected, customer’s time and material payments to Tyco…

IN NO EVENT SHALL TYCO BE LIABLE FOR ANY DAMAGE, LOSS, INJURY, OR ANY OTHER CLAIM ARISING FROM ANY SERVICING, ALTERATIONS, MODIFICATIONS, CHANGES, OR MOVEMENTS OF THE COVERED SYSTEM(S)… TYCO SHALL NOT BE LIABLE FOR INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR ANY KIND, INCLUDING BUT NOT LIMITED TO DAMAGES ARISING FROM THE USE, LOSS OF THE USE, PERFORMANCE, OR FAILURE OF THE COVERED SYSTEM(S) TO PERFORM.

After reviewing the agreement, the Court concluded that “[e]ssentially, customers are told to get their own insurance and should something go awry, customers are able to claim back from the company only the fees paid to the company whether for monitoring or for inspections.

While the evidence suggested it was unlikely that the limitation of liability was brought to the Association representative’s attention, the Court also noted that a notification of those clauses within the Terms and Conditions was provided in bold, capital letters just above the signature block of the agreement.

The Court observed at the start of its analysis that the contract was governed by the law of Ontario.  The law on limitation of liability clauses from that province was reviewed extensively, with the 1997 Ontario Court of Appeal decision in Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co., (Fraser) cited for the proposition that an exclusionary clause in a contract negotiated between sophisticated commercial parties should prima facie be enforced according to its true meaning, and relief only granted where the impugned clause was unconscionable, unfair or unreasonable.

The Court canvassing of the available jurisprudence from Ontario and other provinces concerning similar service contracts between sophisticated parties and its relevance to the matter before it was summarized at paragraph 52 of the Court’s decision:

Where a contract is a commercial contract made between commercial entities, signed by someone such as [the director] who has been trained to manage recreational facilities, provided to others for their consideration, and the Community Association was given time to peruse and accept or reject the contract, the Court is left to look to the plaintiff to explain why it should not be bound by the contract it signed.

While the Association argued that the exclusion clause at issue was unconscionable, unfair or unreasonable, the Court noted the Ontario Court of Appeal in Fraser had expressly held that such an exclusion clause was not unusual for service contracts relating to alarm installation and monitoring, being the exact services Tyco contracted to provide.

The Alberta Court of Queen’s Bench concluded that the law in Ontario obliged the Association to read the document or to question Tyco if it required further information in order to understand what was being signed.  The agreement was between sophisticated commercial parties and was signed by a suitably trained employee who not only had time to review the document and seek out any clarifications required, but provided the contract to others within the organization including its board of directors for review prior to execution.   At no time was any clarification sought from Tyco concerning any provision of the agreement.  Accordingly, the Association was bound by the exclusion clause and its claim against Tyco was limited to the amount paid to Tyco for the inspection services provided.

This decision serves as a useful example of the willingness of courts in Alberta to summarily decide pure questions of contractual interpretation when they arise between sophisticated commercial parties.  Given the recent clarification by the Alberta Court of Appeal in Weir-Jones Technical Services Incorporated v. Purolator Courier Ltd. of the principles governing summary proceedings, parties should be encouraged to evaluate early opportunities for disputes to be narrowed or even disposed of outright through summary proceedings, particularly when there are limited material facts in dispute.

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