Case information

Contracts — Damages — Duty of good faith in contractual performance — Limitation of liability — Whether Court of Appeal erred in holding that general limitation of liability clause applied to breach of duty of good faith in contractual performance

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

The respondent, Hydro One Remote Communities Inc. (“Remote”) supplies electricity to remote communities through diesel-generating stations. The applicant, 1401380 Ontario Limited o/a Wilderness North Air (“Wilderness”), is an air charter operator. Wasaya Airways LP (“Wasaya”) is a First Nations-owned air carrier that also provides fuel-delivery services. In 2015, Remote awarded Wilderness a three-year contract (“Contract”) as primary fuel-delivery vendor for five communities and secondary vendor for seven others. Wasaya participated in the bid process but received no delivery work. Wasaya and its owner communities objected. Wasaya asserted that certain communities would allow only Wasaya to deliver fuel. After owner communities issued Band Council Resolutions to this effect, Remote removed Wilderness as primary vendor for four communities and transferred the work to Wasaya and another operator not a party to this proceeding. Wilderness sued Remote for breach of contract and breach of the duty of good faith in contractual performance, and sued Wasaya for inducing the breach.
The trial judge concluded that Remote breached the Contract by removing it as the primary fuel delivery vendor for four communities. She found that Remote breached its duty to exercise contractual discretion in good faith because its authority to cancel purchase orders was intended to address operational needs, not to remove Wilderness from the Contract when it remained able to deliver fuel. She further found that Wasaya induced the breach by coordinating and advancing efforts to have Remote transfer the work to Wasaya. She awarded judgment against Remote and Wasaya. The Court of Appeal upheld the findings that Remote breached the Contract and its duty of good faith, and that Wasaya induced the breach. However, it held that the Contract’s limitation of liability clause applied to Remote’s liability for breach of the duty of good faith. The Court reduced Remote’s liability for damages to the maximum allowed under the limitation clause. Wasaya’s liability remained unchanged.