From Court to Contract: Navigating Recent Supreme Court and Appellate Decisions

Recent Canadian case law is reshaping how legal drafters should approach contractual clauses. Key decisions, including rulings from the Supreme Court of Canada and appellate courts in British Columbia, Alberta, Ontario and Quebec, underscore the importance of precise and context-sensitive drafting.

Five significant developments influence how exclusion clauses, arbitration provisions, and third-party beneficiary terms are now understood and enforced:

1. Exclusion clause clarity. The Supreme Court’s decision in Earthco Soil Mixtures v. Pine Valley Enterprises (Earthco) regarding the Sale of Goods Act (Ontario) clarified that exclusionary clauses should be considered using modern contractual interpretation principles focusing on the objective intention of the contracting parties. With this decision, the Court broke from a line of case law supporting the proposition that contracting parties cannot be taken to have expressly agreed to exclude liability arising from the breach of a “condition” by using other words such as “warranty”.
2. Distinct Quebec rules. While the outcome in Earthco may align with Quebec practice, the route is markedly different. The Civil Code of Quebec imposes specific restrictions on excluding liability, particularly in intentional or gross fault, bodily injury, or consumer protection. Terms standard in common law drafting (e.g., “consequential damages”) may be legally irrelevant in Quebec.
3. Stricter arbitration scrutiny. Decisions post-Uber Technologies v. Heller illustrate that standard-form arbitration clauses must be accessible and not impose undue procedural burdens. Procedural fairness and clarity in standard-form agreements remain essential to their enforceability.
4. Defining Third-party obligations. Decisions in B.C. and Alberta, including in Fraser Health Authority v. Tru-Line Technologies Ltd. and Husky Oil Ltd. v. Technip Stone & Webster Process Technology, show courts now require express language for third-party obligations and when extending or limiting rights to non-parties, particularly concerning dispute resolution mechanisms like arbitration.
5. Precision in drafting. Across jurisdictions, courts continue to favour commercial certainty —but only where contractual language is sufficiently clear. Lawyers should anticipate jurisdiction-specific constraints, define all beneficiary categories and avoid language that may undermine enforceability.

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