Table of Contents Hide
- Principles Applicable to the Interpretation of Commercial Agreements
- The Interpretation of the Research Agreement
- Was the University liable for breaching the R&D Agreement
- Remoteness Limitations to Contract Damages Claims
- The consequential damages disclaimer
Every now and then a case provides a teaching moment. The recent case, Sunsource v. University of Windsor, 2022 ONSC 6047, is such a case. Sunsource involved a dispute over a failed R&D agreement between Sunsource and University of Windsor. It provides a good refresher on important contract issues including the interpretation of agreements, contractual integration clauses, principles governing recovery of damages including remoteness principles, and disclaimer or exclusions of liability clauses including consequential damages disclaimers.
Sunsource brought a lawsuit against the University of Windsor, seeking damages of $40 million for alleged breaches of contract, misrepresentation, and intentional unlawful interference with economic relations. The dispute centered around a research agreement executed between the parties. The project, titled “Power Point Tracking Based Smart Switch Development for Seamless Transfer Between Solar PV and Grid” (the “FedDev Project”), was based on a seamless power switching concept and required the University to deliver a solar PV grid-mimicking hardware-based prototype and a novel control algorithm.
Sunsource claimed that the University failed to perform its obligations under the agreement, specifically alleging that no substantial work was performed. The University, disputed this allegation, maintaining that it made substantial progress and developed a functional control algorithm. The University argued that it was unable to deliver the hardware-based prototype due to Sunsource’s failure to supply the required components.
Sunsource also alleged that the University failed to support its patent application for its background information and efforts to attract investors. The University denied these obligations.
The impact of the alleged misconduct, according to Sunsource, was a total loss of commercial opportunities, investment opportunities, and the potential to commercialize the switch concept. Sunsource sought compensatory damages of $14.5 – $15.6 million, citing the “total loss of the value” of its business. The University contended, among other things, that the claimed damages were either too remote to be recoverable, or excluded by a consequential damages disclaimer in the research agreement.
I first deal below with the court’s approach to construing the R&D agreement. I then review the court’s reasons for rejecting SunSource’s breaches of contract claims. I then summarize the court’s important explanation of the remoteness principles for damages recovery. Following this, I provide a short overview of how damages disclaimers are interpreted under the common law. I then summarize the reasons the court found that the consequential damages disclaimer effectively excluded the loss of business damages claim asserted by SunSourice.
Principles Applicable to the Interpretation of Commercial Agreements
The court’s determination of the alleged breaches of contract mainly hinged on the court’s interpretation of the terms of the research agreement. The court summarized the legal principles applicable to construing commercial agreements referring to leading Ontario cases. The court highlighted these principles:
- Essentially, the intention of the parties is determined from the language of the written document itself.
- The court interprets contracts in a way that gives meaning to all its terms.
- The court, in understanding the objective intention of the parties, may consider the surrounding circumstances or relevant background against which the contract was concluded. The court considers the “factual matrix” or context underlying the negotiation of the contract. excluding subjective evidence of the parties’ intention. However, these circumstances cannot be used to deviate from the text of the contract and create a new agreement.
- Commercial contracts must be interpreted in accordance with sound commercial principles and good business sense, avoiding any commercial absurdity.
- In cases of contractual ambiguity, the court may consider the reasonable expectations of the parties.
- Furthermore, an ambiguous contract term can be interpreted against its drafter under the doctrine of contra proferentem. This principle, however, should be invoked as a last resort when all other construction principles fail to ascertain the contract’s correct meaning.
The Interpretation of the Research Agreement
As noted above, Sunsource, claimed that the University was contractually obliged to support its patent application and efforts to secure funding. The court applied the principles set out above and rejected these claims.
The research agreement had integration terms clearly stating that the terms in the agreement superseded all prior understandings. The list of terms in the R&D agreement included these terms:
- The language of the agreement and the documents referred to therein, constitute the parties’ entire agreement.
- The research agreement terms supersede all prior agreements, representations, warranties, statements, promises, information, arrangements, and understandings, whether oral, written, express, or implied concerning the subject matter of the agreement.
- Neither party shall be bound or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements, or understandings not specifically set forth in the agreement or in the documents and instruments to be delivered on or before execution of the agreement.
The above terms are commonly found in commercial agreements to bolster the parol evidence rule and to exclude obligations and other terms not expressly part of the agreement. Some agreements go even further to expressly exclude terms that are collateral such as collateral representations, warranties and covenants. Many commercial agreements also contain acknowledgements that neither party was induced to enter into the agreement by any representation or commitment by the counterparty to expressly disclaim reliance which is necessary to make out reliance based claims.
The contract terms in issue in the SunSource case did not explicitly mandate the University to support Sunsource’s patent application or financing efforts. The contract outlined that the University’s obligations to carry out the project. But, scope of work and deliverables made no mention of any obligations related to supporting Sunsource’s patent or funding efforts. The agreement also contained detailed IP related terms, but none mentioned any obligation related to the University’s assisting Sunsource in protecting its IP rights via any patent application or to assist it in obtaining funding from investors.
Based on the foregoing, the court refused to imply terms that the University had the obligations asserted by Sunsource.
The court rendered its decision without expressly referring to leading decisions on when courts will imply, or will refuse to imply, terms into agreement. There are three distinct bases for implying a term into a contract: (1) based on custom or usage; (2) as the legal incidents of a particular class or kind of contract; or (3) based on the presumed intention of the parties where the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test as a term which the parties would say, if questioned, that they had obviously assumed”. However, a term will not be implied into an agreement where such term would conflict with another term in the agreement.[i] In light of the extensive factual findings of the court, it is unlikely SunSource could have met any of the three tests for the implication of a term into the R&D agreement.
Was the University liable for breaching the R&D Agreement
As noted above, Sunsource alleged that the University breached the R&D Agreement by failing to deliver a solar PV grid-mimicking hardware-based prototype. The University defended this claim alleging that it was discharged from the obligation because Sunsource failed to deliver components necessary for the University to perform its obligations.
The court accepted the University’s defense based on the well established principle that a party will be discharged from its failure to perform a contractual obligation where its failure was caused by an act of the other party.
The court relied on TNT Canada Inc. v. Parmalat Dairy & Bakery Inc,[ii] where Ferguson J. reviewed the legal principles applicable to the determination of liability of one party for failing to perform its duty under a contract, where its failure was caused by an act of the other party. In summary:
- In circumstances where a condition precedent to a party’s contractual performance exists, it may be that a plaintiff’s ostensible non-performance of its own contractual performance (whether an act or a failure to act as required) makes performance by the defendant impossible. In such circumstances the defendant enjoys a complete defence to a breach of contract claim arising out of its consequential non-performance.
- In circumstances in which the contract does not render the plaintiff’s performance a “condition precedent”, the defendant may still be able to rely on the plaintiff’s non-performance as a justification for its own imperfect compliance, by establishing that it acted reasonably, in all the circumstances, in its effort to perform the contract notwithstanding the plaintiff’s breach. Any extra expenses incurred by the defendant to do so, may be compensable to the defendant as damages flowing from the breach.
Applying these principles, the court concluded that Sunsource’s performance of its obligation to deliver the components required to create a hardware prototype of the switch was a condition precedent to the University’s obligation to deliver a hardware prototype at the end of the FedDev project. Sunsource breached the contract by failing to deliver the requisite components. It made no efforts, reasonable or otherwise, to do so. As a result of Sunsource’s breach, the condition precedent to the University’s obligation to deliver a hardware prototype was not met.
Remoteness Limitations to Contract Damages Claims
The court turned next to quantification of damages that flowed from the University’s assumed breach of its obligation to deliver a complete 3 kw PV-based grid-mimicking hardware prototype. The plaintiff claimed as damages the total loss of value of its business. This was predicated on a loss of assumed future profits/cash flow from commercialized solar PV switches and VPI generator switches which the plaintiff contended arose from the University’s breach of the research agreement. The court rejected this claim as being too remote.
As a general rule, compensatory damages for breach of contract are quantified in accordance with the innocent party’s expectation interest. The legal aim in remedying a breach of contract is to give the innocent party the full benefit of the bargain by placing it in the position it would have occupied had the contract been performed.[iii] Therefore, damages for breach of contract should, as far as money can do it, place the innocent party in the same position as if the contract had been performed.[iv]
The compensatory principle expressed earlier above, is limited by principles of remoteness that preclude damages for losses that do not arise fairly, reasonably, and naturally in the usual course of things, as a consequence of a breach of the contract (given its nature), or that were not in the parties’ reasonable contemplation at the time the contract was made.
The trial judge relied on the opinion of Abella J in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc,[v] to explain that the principle of remoteness imposes on damage awards reasonable limits which are required by fairness. It aims to prevent unfair surprise to the defendant, to ensure a fair allocation of the risks of the transaction, and to avoid any overly chilling effects on useful activities by the threat of unlimited liability. The remoteness principle has also been framed as “the determination of the extent of the risk that a promisor assumes when he makes a promise.[vi]
The remoteness principle traces back to the seminal case, Hadley v. Baxendale,[vii] in which Alderson J, articulated a test for recovery and remoteness of damages in contract that has been repeatedly accepted and applied by courts in Canada. The trial judge explained the two prongs, which are often referred to as the “general damages” prong and the “special” or “foreseeability” prong, quoting from Fidler v. Sun Life Assurance Co. of Canada[viii] where the Supreme Court extracted the following principles from Hadley v Baxendale:
Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.[ix]
Applying the first branch of the remoteness test, the court concluded that, as a general matter and objectively viewed, the type of loss claimed, the total loss of the plaintiff’s business was not one that fairly, reasonably, and naturally arose “according to the usual course of things” as a consequence of a breach of a contract in the nature of the research agreement.
By its nature, the contract was a collaborative research agreement between a post-secondary institution and a private enterprise, funded by a government grant, for the conduct of highly experimental scientific research and development services and the delivery of specified pre-commercialization goods at the end of the contract’s term. This could not justify a finding that “the total loss of a business” was a type of loss that naturally arose from the University’s assumed breach.
Further, the court concluded that based on the public-private collaboration and the experimental nature of the researcher’s performance obligation, inherent in a contract of this nature, it would objectively be unfair to allocate the total loss of business value to the breaching party as a reasonably and naturally foreseeable consequence of a breach. Such an allocation would have created unfair surprise to the researcher and would likely result in a chilling effect on the willingness of post-secondary institutions to collaborate and assist with solving technical pre-commercialization challenges faced by small and medium-sized enterprises, because of the threat of potential unlimited liability.
The court also concluded that the loss of business claim was also not generally the type of loss that was reasonably foreseeable as a natural consequence of a breach of a pre-commercialization, highly experimental research agreement. The loss was also, therefore, considered to remote to be recoverable under the second branch of Hadley v Baxendale.
The consequential damages disclaimer
Although the court found that the damages claimed by SunSource for loss of its business were too remote to be recoverable, the court went on to assess whether they were disclaimed in any event in the R&D agreement. The applicable provision in the agreement (s.17) read as follows:
University and Company will have the right to damages under contract, tort (including negligence), strict liability or otherwise for damages, except for consequential damages in the event of termination or breach by the other. [Emphasis Added.]
This disclaimer is hardly a model clause to be emulated. For example, it deviates significantly from the usual disclaimers found in commercial agreements in at least the following ways:
- Liability disclaimers attempt to disclaim or exclude liability; they do not purport to create a right to collect damages (except sometimes to clarify what categories of damages can be recovered).
- Liability disclaimers generally exclude damages arising from torts (including negligence) and strict liability.
- Liability disclaimers usually seek clarity on what damages cannot be recovered. A party seeking to disclaim “consequential” damages generally expressly disclaims damages such as for loss of profits, loss of revenues, loss of expected savings, damages to goodwill, and special, loss or damages, whether or not foreseeable. They also frequently include express disclaimer terms commonly used in U.S. agreements (and now included in Canadian agreements) such as for consequential, indirect and incidental damages.
The disclaimer of only “consequential damages” creates significant contractual ambiguity. In this case, it resulted in the trial judge having to devote considerable portions of the decision to determine what the term meant in the context of the R&D agreement.
To help you understand the problem I will first provide a short primer on the interpretation of disclaimer clauses. I will then summarize the trial judge’s reasons for finding that the disclaimer applied to excluded the loss of business claims.
A primer on the interpretation of disclaimer of liability clauses.
The leading common laws authority on the interpretation of disclaimer clauses is Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways (“Tercon”)[x]. Binnie J., writing for the Court on this point, broke the new analytical approach for non‑liability clauses down into three distinct stages:
(1) the clause must be interpreted in order to determine whether it applies to the circumstances established in evidence;
(2) it must be asked whether “the . . . clause was unconscionable at the time the contract was made, ‘as might arise from situations of unequal bargaining power between the parties’”; and
(3) if the clause is held to be applicable and valid, it must be asked whether it is nonetheless inoperative “because of the existence of an overriding public policy”.[xi]
At the first step, at least for commercial contracts, courts interpret disclaimer clauses applying the modern principles of interpretation set out in Sattva Capital Corp. v. Creston Moly Corp.,[xii] giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.[xiii]
It is sometimes assumed that loss of profit claims can only be recoverable under the second prong of Hadley v Baxendale i.e. they are special damages and can only be recovered where forseeable. However, under the principles for recovery of damages established under Hadley v Baxendale and its progeny, claims for lost profits can, depending on the context, be recoverable under the first or second prongs as they could be damages that (i) in the usual course of things, arise fairly, reasonably, and naturally as a result of the breach of contract; or (ii) they were within the reasonable contemplation of the parties at the time of contract. They cannot be recovered if they are too remote under both principles.
It is sometimes also assumed that a disclaimer for loss of profit claims are always subsumed within a disclaimer of consequential damages. This is also not accurate.
As the trial judge found, the meaning of the term “consequential” damages in a disclaimer is dependent upon the words of the exclusion clause, the facts of the case and the language of the exclusion clause in its documentary and factual context. In some contexts loss of profits may be consequential. In others a loss of profit may be found not to be. The rule in Hadley v Baxendale is not dichotomous, but a spectrum or scale. In some contexts, such as a contract for the construction of a project, loss of profits may be consequential. In others involving the provision of a saleable product, a loss of profit is a direct result of a breach of a contractual duty to provide the product.[xiv]
Some authorities equate the concept of “consequential damages” to “indirect damages” which, contrasted with “direct damages”, refer to damages that are in addition to or that arise as a consequence of the direct damages of the promisor’s breach.[xv] Consequential damages have also been described as damages that do not flow directly from the act, but only from the consequences of such act.[xvi]
The Court’s ruling on why the loss of profit claims were excluded by the consequential damages disclaimer
The trial judge recognized that under the authorities, depending on the circumstances, a loss of profits claim could be considered a “direct” as opposed to a “consequential” loss arising from the breach. As such loss of profit claims could be considered as “direct” or “consequential, depending on the circumstances.[xvii]
The judge noted that the term “consequential damages” was not defined in the contract. He held that in its ordinary objective meaning, “consequential” denotes a result that does not flow directly and immediately from an act, but rather as an indirect or mediate result of the primary act. In that sense, consequential damages are awarded “to compensate for loss or injury that does not flow directly and immediately from an act of the party, but only from some of the consequences or results of such an act.”
Mindful of the foregoing principles, the judge concluded that when the disclaimer is read using the modern principles for interpreting agreements set out in Sattva, the disclaimer excluded the damages claimed, assuming they could be recovered, in any event. He found that the disclaimer was “clear, enforceable and bars any claim by Sunsource for consequential damages in the form of future loss of profits or cash flow, or a loss of business value predicated on a future loss of profits or cash flow, as a result of the University’s breach of contract that is assumed for the purpose of this provisional assessment.” According to the judge:
Section 17.1 of the contract must be interpreted in the context of the contract as a whole, its purpose and its objective surrounding circumstances, in order to determine whether it applies to the nature of the damages that Sunsource claims…
In my provisional assessment of damages, the University’s primarily assumed breach is its failure to deliver a complete PV-based grid-mimicking hardware-based prototype (with nominal 3 kW throughput). Objectively, the express language in the scope of the University’s deliverables set out in the contract, restricted its obligation to deliver a hardware-based prototype capable of switching between a photo-voltaic (PV) power source and AC grid source (as was the University’s research and development efforts). The scope of the hardware prototype delivery obligation in the contract and the research and development activities prescribed by the contract do not extend to a 100 kW AC-AC prototype switch for use with a VPI generator.
In the context of the foregoing considerations, I find that objectively through s. 17.1 of the research agreement, the parties expressed their intention that in the event the University breached its contractual obligations, a claim by Sunsource for loss of future profits or future cash flow related to a commercialized version of any form of the switch, and a claim for an associated loss of the value of its business calculated on the basis of such future profits or cash flow, would constitute a claim for consequential damages, from which the University would be exempted.
In my view, the foregoing interpretation of the exclusion clause and its application to the type of losses identified above, is further supported by the objective allocation of risk between the parties in the contract, consistent with the nature of the contract and the circumstances surrounding its formation.
The judge was also aware of risk expectations in the University research context and also took that into account in interpreting the liability disclaimer.
In my view, the exclusion of recovery for consequential damages in the form of future loss of profits or damages for loss of business value entirely predicated on such future losses, accords with the parties objective “risk allocation” expectations formed in the context of: the subject matter of the contract and the technically challenging experimental scientific research undertaken; the risk of failure inherent in the University’s scope of work; the educational, rather than strict commercial nature of the University; the student driven nature of the performance of the University’s obligations; the technology’s early stage of research and development activities; the limitless nature of the type of losses the plaintiff claims (asserts damages of $15 million); the relatively modest amount of consideration the plaintiff was required to contribute under the research agreement ($53,000 in-kind contributions); and the government sponsored nature of the parties’ contractual collaboration.
Objectively, as a result of the ordinary meaning of the language they used in s. 17.1 of the contract, I do not find that the parties reasonably expected or contemplated that the University would be liable for loss of profits that Sunsource may endure from the date of breach, in perpetuity (or consequential loss of value), in the event that the University failed to deliver a hardware-based prototype at the end of the Fed Dev project period. I find that objectively, they allocated the risk of such losses to Sunsource, through the provisions of s. 17.1 of the contract.
[i] M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd.,  1 SCR 619; Canadian Pacific Hotel Ltd v Bank of Montreal  1 S.C.R 711 (SCC); Double N Earthmovers Ltd v Edmonton (City)  1 S.C.R. 116.
In circumstances where a condition precedent to a party’s contractual performance exists, it may be that a plaintiff’s ostensible non-performance of its own contractual performance (whether an act or a failure to act as required) makes performance by the defendant impossible. In such circumstances the defendant enjoys a complete defence to a breach of contract claim arising out of its consequential non-performance.
The proper analytical focus is the determination of whether there is conduct by one party in the performance or non-performance of its own obligations, which amounts to conduct of that party, of its own motion, that brings about the impossibility of performance by the other party. If so, the conduct itself is a breach. A breach by the plaintiff in that regard is a complete defence to a claim that the defendant failed to perform its promise: see para.
The essential question that must be determined is whether the performance, or tender of performance, by one party is a condition of the duty of performance by the other party. In other words, whether the contractual duty of one party is dependent upon the fulfillment of the contractual duty of the other, or whether the former must be performed in any event of the breach of the latter.
Breach of a condition precedent may be found to either absolutely excuse the defendant from performance, or to suspend the defendant’s duty of performance until the condition precedent is met. The case-specific effect of the condition precedent turns on the court’s determination of the terms of the contract at issue.
The court must make a finding of fact as to whether the explicit or implied terms of the contract made fulfillment of the plaintiff’s duty of performance of a specific term a condition precedent. If not, the defendant does not enjoy an absolute defence in the event of the plaintiff’s non-performance.
Absent an explicit provision addressing the issue, evidence that persuasively demonstrates that the plaintiff’s failure to perform made the defendant’s performance impossible, appears to be a conclusive factor in favour of finding the plaintiff’s performance of its contractual obligation to be a condition precedent.
In circumstances in which the contract does not render the plaintiff’s performance a “condition precedent”, the defendant may still be able to rely on the plaintiff’s non-performance as a justification for its own imperfect compliance, by establishing that it acted reasonably, in all the circumstances, in its effort to perform the contract notwithstanding the plaintiff’s breach. Any extra expenses incurred by the defendant to do so, may be compensable to the defendant as damages flowing from the breach.
If the plaintiff’s conduct makes the defendant’s performance under the contract more difficult rather than impossible, the defendant still retains an obligation to act reasonably, in all the circumstances, in an effort to fulfill its own duty of performance. The defendant will be liable to the extent it fails to engage in reasonable conduct to meet its performance obligations notwithstanding the plaintiff’s breach.
[vi] See 1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802, citing with approval Angela Swan & Jakub Adamski, Canadian Contract Law, 3rd ed., (Markham, Ontario: LexisNexis Canada, 2012), at p. 480.
[vii] (1854), 156 E.R. 145 (U.K. Ex. Ct.)
[ix] The trial judge also quoted from Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited, 2018 ONCA 519, where the Court of Appeal for Ontario, collected the legal principles expressed in several decided cases applying the rule in Hadley v. Baxendale as follows:
There are two branches to the Hadley v. Baxendale remoteness test. Damages may be recovered if:
(i) in the “usual course of things”, they arise fairly, reasonably, and naturally as a result of the breach of contract; or
(ii) they were within the reasonable contemplation of the parties at the time of contract: see para. 36.
Remoteness applies to the type of loss suffered, not the quantity of a proximate loss: see para. 36.
The test under the first branch of remoteness is objective. The question is not whether the type of loss claimed was foreseeable as arising naturally in the specific case. The inquiry is whether, as a general matter and objectively viewed, the type of loss claimed is one that foreseeably and naturally arises “according to the usual course of things” from the breach of the contract, given its nature: see paras. 38 and 39.
One of the factors that could be used to define the foreseeable and natural types of losses recoverable upon breach of contract is the objective bargain inherent in the contract: see para. 39.
The analytical lens of the second branch of the remoteness principle from Hadley v. Baxendale, focuses on whether the parties contemplated, at the time that they entered the contract, that type of loss claimed would be something for which the breaching party would liable, in the event of a breach. If the type of loss claimed was not a matter that was in the reasonable contemplation of the parties at the time that the contract was entered into, it is a head of damages that is not recoverable because it is simply too remote: see paras. 41 and 42.
The relevant inquiry is not if the parties contemplated the breach.Rather, it is whether the parties reasonably contemplated that the type of damagesclaimed would be the probable result of a breach of the contract at the time of contract: see para. 44.
The requirement to assess the parties’ reasonable contemplation at the time of contract also accords with one of the objectives of the second branch of Hadley v. Baxendale, which is to allocate the risk of loss for types of damages that do not arise naturally from a breach of the contract to the party that bargained to bear it: see para. 46.
The correct approach to the second branch does not begin with the identification of the unique circumstances of the breach, and the losses flowing therefrom, followed by retrospective reasoning to determine whether the parties would have contemplated that such losses were to be borne by the breaching party. Instead, the correct analysis begins with determining whether there was evidence that, at the time of contract, the type of loss claimed, in the face of a breach, would reasonably have been in the contemplation of the parties: see para. 47.
[xi] Summarized in 6362222 Canada inc. v. Prelco inc., 2021 SCC 39.
[xiii] Dow Chemical Canada ULC v. NOVA Chemicals Corporation, 2020 ABCA 320. The trial judge recognized this stating “These principles apply equally to the interpretation of exclusion clauses. There is nothing inherently unreasonable or sinister about an exclusion clause in a freely negotiated contract: see Tercon, at para. 107. Such clauses, like all contractual provisions, should be given their natural and true construction: see Tercon, at para. 62. The objective contractual interpretation is to achieve “a fair and sensible commercial result”: see Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), 161 D.L.R. (4th) 1,  2 S.C.R. 129.”
[xiv] Dow Chemical Canada ULC v. NOVA Chemicals Corporation, 2020 ABCA 320, reversing in part, Dow Chemical Canada ULC v NOVA Chemicals Corporation, 2018 ABQB 482, Atos v. Sapient, 2016 ONSC 6852, reversed in part 2018 ONCA 374, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd,  2 KB 528 (CA), Croudace Construction Ltd v Cawoods Concrete Products Ltd,  2 Lloyd’s Rep 55 (CA), Hotel Services Ltd v Hilton International Hotels (UK) Ltd,  1 All ER 750 (Comm) (CA), Cathcart Inspection Services Ltd v Purolator Courier Ltd (1982), 139 DLR (3d) 371 (Ont CA) affirming (1981), 128 DLR 93d) 227 (Ont HC), Syncrude Canada Ltd v Babcock & Wilcox Canada Ltd. 1997 ABCA 179).
[xv] According to the trial judge:
“The distinction between “direct” and “indirect damages” is well illustrated in Angela Swan and Jakub Adamski, Canadian Contract Law, 3rd ed, (LexisNexis Canada, 2012) at pp. 383-4 as follows:
The terms used to describe the consequences of a promisor’s breach are not terms of art but are now used (and probably were developed) to set limits on a promisor’s contractual liability. One is likely to encounter in many kinds of agreements a distinction between “direct” and “indirect” damages, and descriptions of the latter as “consequential” or “incidental”. In a contract of sale, the seller may agree to be liable for “direct “damages but not for “indirect” or “consequential” damages. It is convenient to adopt a usage that corresponds to that frequently used by solicitors and by the courts. The term “direct” damages or “direct” loss or harm refers, for example, to the difference between the contract price and the market price…It is also referred to as a “loss in value”, i.e. the difference between what the promisee should have received and what it actually received. The terms “consequential”, “incidental” and “indirect” damages refer to damages that are in addition to or that arise as a consequence of the direct damages of the promisor’s breach. [Emphasis added.]
Consequential damages would have been incurred…if the seller’s breach had caused the buyer to lose a profitable sub-sale or delayed its manufacturing operations so that it incurred extra costs.”
[xvi]AWS Engineers and Planners Corp. v. Deep River (Corp. of the Town) (2005), 249 D.L.R. (4th) 478
“Trimble J. held, at para. 310:
Where a loss of profits is a direct, anticipated result of the breach of a contract, they are direct and not consequential losses (see: Dow Chemical v. Nova Chemicals Corporation, 2018 ABQB 482). Certainly, Alcos, like the parties in Dow, must have contemplated that loss of profits would be a natural and direct result in the event that the TTL did not function as specified. Therefore, looking at this clause, in isolation, I conclude that the interpretation that gives business efficacy to this clause is that “consequential damages” does not include loss of profits.