Contractual Documents used for major construction projects typically contain limitation clauses1 (“Limitation Clauses”) that cap the value of potential claims by the project owner (“Owner”) against the professionals, contractor, design-builder, construction manager or, depending on the delivery method, the integrated project delivery team (collectively referred to hereinafter as the “Debtor”).
Is the application of these clauses under the laws of the Province of Quebec as effective as one might assume?
At the outset, it should be noted that under section 1474 of the Civil Code of Quebec (“CCQ”) a party may not exclude or limit his liability for material injury caused to another through an intentional or gross fault2. This general prohibition is a matter of public order and therefore cannot be waived by contract.
In addition to this general prohibition, there are several scenarios applicable to the construction industry that deserve further consideration.
Claims against the Debtor architect or engineer
Firstly, architects cannot exclude or limit their liability for damages caused by their own work on the project.3
As this is a provision of public order, the Owner cannot waive it, at least not until their right of action arises (and then it would have no reason to do so).
No equivalent to this provision exists in the Code of ethics of engineers. It may be possible to argue that an exclusion of liability of the engineer, related to the essence of his contract, is of no force or effect4, but a recent case-law from the Supreme Court of Canada greatly diminishes the chances of success of such an argument, subject to distinctions5.
Claims against the Debtor architect, engineer, contractor and subcontractor for loss of the work
Section 2118 CCQ provides the Owner with a system of “solidary” (joint and several) liability of the Debtors for the loss of the work that occurs within five years of the completion of the work, whether such loss is the result of faulty design, construction or production of the work, or defects in the ground.
As this is also a matter of public order (doubly so in the case of the architect, as explained above), the Owner cannot waive it, at least not until his right of action has arisen (and then he would have no reason to do so).
The courts have already established that a time limit on this guarantee (i.e., to reduce its scope of five years) is contrary to public order. It can therefore be inferred that a monetary limitation would also be considered as such.
Claims against the Debtor architect, engineer, contractor and subcontractor for defects
Section 2120 CCQ, which is not of public order, provides the Owner with a system of liability of the Debtor for defects discovered in the year following the acceptance of the work.
Provided that such claims are not directed against the Debtor architect (see above, “Claims against the Debtor architect or engineer”), claims relating thereto may be subject to the Limitation Clause.
That being said, such claims are less likely to exceed the value set out in the Limitation Clause (which is generally equal to or greater than the value of the work), as opposed to claims for loss of the work (to which serious defects are assimilated, according to a liberal interpretation).
Claims against the Debtor seller, manufacturer and distributor
In several situations of claims by the Owner, the contractor can be assimilated to a seller, resulting in the application of the warranty of quality of the goods sold. Indeed, Section 2103 (2) CCQ provides that the contractor is bound by the same warranties as the seller for all the goods the contractor supplies in the performance of his contract.
Section 1733 CCQ then prohibits the Debtor, who would be qualified as a professional seller within the meaning of this section, from excluding his liability in this respect, except in certain specific cases.
This warranty, as well as the prohibition against exclusion of liability, also applies to the distributor and the manufacturer, all of whom are jointly and severally liable to the Owner.
Claims against the Debtor for penalties
The risks that (i) the amount provided for in a “penalty” type clause exceeds the value of the contract, or (ii) that if it does, a court will not conclude that they are excessive, appear to be low, especially in the presence of a performance bond which could have allowed the Owner to minimize his loss.
Claims against the Debtor’s insurer or surety
In principle, the insurer and the surety will raise the Debtor’s own means of defence, including the Limitation Clause, even if its threshold is lower than that of the insurance or bond concerned, causing an undesired effect by the Owner.
Indeed, even if the insurer or surety were excluded from the language of the Limitation Clause, they could conceivably argue that they are not entitled to rights different from those of the principal Debtor since they are only liable to the extent of the principal Debtor’s liability.
In any event, the surety (as opposed to the insurer) could look to the Debtor and his guarantors to be indemnified against the sums paid to the Owner, without the enforceability of the Limitation Clause. The Debtor must therefore take this risk into account.
In light of the foregoing, the scope of a Limitation Clause may be significantly limited by certain principles applicable in Quebec law.
It follows that the establishment, application and enforcement of a Limitation Clause in Quebec require a more elaborate level of drafting and precision than would be the case in other jurisdictions, as current clauses do not usually take into account the issues discussed here.
The Debtor would also be well advised to take these exceptions into account in establishing his risk and contingency reserves, as well as in negotiating the contract terms and any dispute resolution clauses, if any.
1 The purpose of this article is to provide an initial reflection on the issues and limits of a Limitation Clause in a contract. The wording of such a clause alone could be likely to impact the elements discussed in this article.
2 Moreover, under this same section, it is never allowed to exclude or limit one’s liability for bodily or moral injury caused to another.
3 Code of ethics of architects, CQLR c. A-21, r. 5.1, s. 17:
17. Architects must, in the practice of their profession, assume full civil liability. They must not evade or attempt to evade professional liability or request that a client or person renounce any recourse in a case of professional negligence on their part. They may not include in a contract for professional services a clause that directly or indirectly excludes all or part of such liability. Similarly, they may not invoke the liability of the partnership or joint-stock company within which they carry on professional activities or that of another person also carrying on activities within the partnership or joint-stock company as a ground for excluding or limiting their personal liability.
4 See, for instance, Axa Assurances inc. v. Assurances générales des Caisses Desjardins inc., 2009 QCCS 862, para. 266 and seq. (Appeal rejected, 2011 QCCA 584).
5 6362222 Canada inc. v. Prelco inc., 2021 SCC 39.