“Sole and Exclusive Remedy” Provision In Commercial Contracts (Quebec Contract Law)

Businesses live and breathe contracts.

In a way, a business is made up of countless contracts with employees, suppliers, vendors, shareholders, governments, clients, and many other stakeholders.

Contracts play a fundamental role in setting the contracting parties’ rights and obligations in the context of their commercial relationship.

One important element of commercial contracts that often gets fiercely negotiated is the extent of a party’s liability in the event of a breach.

There are different types of provisions that companies can use to limit their contractual risk.

One mechanism is the use of the “sole and exclusive remedy” provision.

In this article, I will explain to you what the “sole and exclusive remedy” provision means and its implications in general and under Quebec contract law.

Let’s get started.

“Remedy” in Contract Law

To understand the meaning of "sole and exclusive remedy," it is essential to first understand the concept of remedy in Quebec contract law.

In Quebec contract law, Article 1590 of the Civil Code of Quebec generally sets out the remedies that a non-breaching party can invoke, namely (1) the right to demand specific performance, (2) the right to terminate the contract or reduce the non-breaching party’s correlative obligation, and (3) the right to take any measures provided by law to enforce contractual rights.

A party can also seek damages from the breaching party as a remedy to compensate for injuries suffered. 

“Sole and Exclusive Remedy” 

Now that you have a better understanding of the notion of a remedy under Quebec laws, let’s see how it relates to “sole and exclusive remedy”.

The “sole and exclusive remedy” is a provision used as a means to contractually define the remedy available to an injured party for the other party's breach of contract.

The idea is for the contracting parties to mutually agree on the consequences of a party's breach of contract.

In other words, the injured party will only have the ability to take the recourse contractually agreed upon as a remedy to compensate for damages suffered.

For example, if the parties agree that the client can only claim a refund, as the sole and exclusive remedy, for a vendor’s violation of warranties, then the client could only claim a refund should the vendor fail to respect the warranties.

Similarly, if a vendor agrees to give credits as a sole and exclusive remedy for failing to respect service level agreements (SLAs), then the credit offered will be the only remedy available to the client for breach of SLAs.

Limitation of Liability In Quebec Law

Under Quebec laws, the courts have determined that the parties to a commercial contract have the right to limit their liability.

Particularly, on October 15, 2021, the Supreme Court of Canada rendered a judgment relating to the validity of limitation of liability clauses under Quebec civil law. 

In the case of 6362222 Canada inc. v. Prelco inc., 2021 SCC 39, the Supreme Court determined that parties to a commercial contract (or non-consumer contract) are allowed to limit their liability if they have negotiated the terms of the contract freely.

In addition, Article 1475 of the Civil Code of Quebec states that “a notice (...) stipulating the exclusion or limitation of the obligation to make reparation for injury resulting from the nonperformance of a contractual obligation has effect (...) only if the party who invokes the notice proves that the other party was aware of its existence at the time the contract was formed.”

In other words, the “sole and exclusive remedy” provision negotiated is enforceable if the non-breaching party was aware of the stipulation when the contract was formed (which is usually the case in a thoroughly negotiated commercial contract).

Using “Sole and Exclusive Remedy" Language

If you are drafting or negotiating a commercial contract, you should be mindful the applicable of the “sole and exclusive remedy” depending on what side of the table you are sitting on.

The main benefit of using this provision is that you are essentially limiting (or scoping) your liability under the contract.

This offers you clarity, reduces risk in the case of disputes, and clearly sets out a party's exposure in the event of a breach.

Additionally, it can reduce the risk of litigation and related costs by streamlining the dispute resolution process.

Vendors in a contract will generally benefit from the “sole and exclusive remedy” as they usually bear greater risk.

On the other hand, if the “sole and exclusive remedy” is used, an injured party may not be able to seek adequate compensation for injuries suffered following a breach of contract.

For example, a client or buyer under a contract may not be able to seek fair and adequate compensation for damages suffered if the vendor has scoped the possible remedies under the contract to something insufficient.

Exceptions To “Sole and Exclusive Remedy" 

While the "sole and exclusive remedy" clause can be a useful tool for limiting disputes and clarifying the consequences of a breach of contract, there are situations where it may not be enforceable. 

For example, a merchant may not be able to invoke a “sole and exclusive remedy” provision in a consumer contract or a matter subject to the consumer protection legislation.

Similarly, if a party’s breach was intentional or caused by a gross fault (such as gross recklessness, gross carelessness, or gross negligence), the injured party may be able to seek additional remedies beyond those specified in the contract.

The “sole and exclusive remedy” language will also not be enforceable by a party trying to limit liability for bodily injuries or moral injuries or when the court considers the clause as abusive in the context of a consumer contract or contract of adhesion.

Factors Considered by Quebec Courts

It’s important to remember that the courts will generally evaluate the fact-pattern of the case and evaluate the overall circumstances of the dispute to conclude on the possible remedies available to a party. 

In commercial contracts, generally speaking, if the parties were represented by counsel at the time of the signing of the contract, were sophisticated parties, or had the ability to evaluate their risk under the contract, the courts will enforce the “sole and exclusive remedy” language.

Even if the injured party believes that the sole and exclusive remedy provided under the contract is not satisfactory, the courts will not alter the application of the contract that was freely negotiated and signed.

Takeaways

The "sole and exclusive remedy" clause is a common provision in commercial contracts that can provide clarity and certainty regarding the consequences of a breach of contract. 

Under Quebec law, parties to a contract may limit the remedies available for breach of contract, provided that the limitation does not fall under an exception provided by law.

While including a "sole and exclusive remedy" clause can reduce the risk of disputes and streamline the dispute resolution process, it may also prevent an injured party from seeking adequate compensation. 

If you are negotiating a commercial contract in Quebec and are confronted with the “sole and exclusive remedy” provision, be sure to consult a qualified attorney if you have doubts.

Remember that under Quebec contract laws, parties to a commercial contract can limit their liability and the "sole and exclusive remedy" can help mitigate contractual risk.

Good luck!