Limitation of liability clause no escape for defendant
In an interesting case from Ontario, Business Development Bank of Canada v Experian Canada Inc., the province’s Superior Court of Justice found that a software developer fraudulently misrepresented “vaporware” and their liability was not saved by a limitation clause.
The Business Development Bank of Canada (“BDC”) issued a request for information for a software system to manage its lending program. Experian Canada and its American parent responded to the RFI and actively participated in the procurement program. The result was a license agreement for a software product that BDC then alleged never actually existed. What was represented was a system that they planned to deliver. BDC sued Experian, alleging fraudulent misrepresentation. Experian counterclaimed for unpaid fees, defended against BDC’s claim and also argued that any liability was capped by a limitation of liability clause in the final contract.
The Court summarized BDC’s claim:
 According to BDC, Experian made the following representations regarding its RLS software:
- It existed as an “out of the box” base product.
- It was used by over 1,100 financial institutions including two non-US Banks.
- It had evolved as a whole and would continue to so evolve. Experian’s RLS software had certain specific functionalities and characteristics detailed in Experian’s response to BDC’s RFI.
- It was adaptable to BDC’s needs with minimal customization.
- Experian had the skill and experience to implement the RLS software in BDC’s environment and within BDC’s timeline.
 BDC submits that none of these representations were true. Experian did not have the software it said it did, with the attributes it said its software had. It only had the hope of developing such software in the future. According to BDC, Experian misrepresented, knowingly and intentionally, that it had a software product that currently existed when it did not.
 Because it became clear to BDC in the fall of 2009 that Experian could not deliver on its representations and perform the Agreement, it terminated its dealings with Experian. BDC then had to recommence steps to obtain the new lending software it required. BDC experienced an 18-month delay in achieving the benefits it should have had earlier if Experian had lived up to its representations and had not breached the Agreement.
 BDC submits that it suffered damages, as a result of Experian’s fraudulent misrepresentations and breach of the Agreement, of approximately $57 million for its incremental costs of dealing with Experian and its loss of net economic benefits from the 18-month delay it experienced in implementing new lending software. BDC also seeks punitive damages of $500,000 against Experian because BDC alleges that Experian deliberately misled it throughout their relationship, evidenced by Experian’s motto on the project of “fake it until we make it.”
In determining whether fraudulent misrepresentation took place, the Court followed the analysis in Queen v Cognos Inc., which requires the following elements to be proven:
- the defendant made a false representation of fact;
- knowing that it was false or recklessly without belief in its truth;
- with the intention that it would be acted upon by the plaintiff;
- which induced the plaintiff to act; and
- the plaintiff suffered damages as a result.
The Court found that each element was made out.
 I agree with Experian’s submission that the false representation required for the first element of fraudulent misrepresentation must be the representation of an existing fact not a forecast, estimate or an opinion. Although a forecast, estimate or opinion about a future event cannot constitute a false representation of fact, it is a false representation of fact to state that something is currently true or existing when it is not. The Supreme Court of Canada made this clear in Queen v. Cognos …
 In my view, Experian’s employees represented to BDC’s employees that the software described in Experian’s response to BDC’s RFI (RSL 5.1) currently existed when it did not. This was a false representation of an existing fact. This false representation of fact continued until June 5, 2009, when Mr. Daily finally told Ms. Boutin that the base product that had been described in Experian’s response to the RFI did not exist.
 I am satisfied that the first element of fraudulent misrepresentation has, therefore, been established.
 The second element of fraudulent misrepresentation requires that the misrepresentation is made with knowledge that the statement is false or recklessly without belief in its truth. The evidence establishes that when Experian responded to BDC’s RFI, Mr. Daily was aware that RLS 5.1 did not currently exist and was only under development. I am satisfied that he was aware that Experian’s representations to BDC about its base software were not true. At the very least, Mr. Daily was reckless in allowing the representations concerning Experian’s base software to be made to BDC.
 I am satisfied that the second element of fraudulent misrepresentation has, therefore, been established.
 The third element of fraudulent misrepresentation requires that the false statement be made with the intention that it will be acted upon. I have already found that Experian’s response to BDC’s RFI was meant to convey the impression to BDC that Experian’s lending software met all of BDC’s requirements when it did not. I am satisfied that Experian’s employees made the false statements about its software with the intention that BDC’s employees would rely upon them and decide to acquire Experian’s software as a result.
 I am satisfied that the third element of fraudulent misrepresentation has, therefore, been established.
 The fourth element of fraudulent misrepresentation requires that the false statement induced the plaintiff to act. Ms. Boutin’s evidence, and the evidence of many of the other BDC witnesses, make it clear that BDC was induced to deal and contract with Experian because of the false statements about Experian’s software. According to Mr. Eatock, Experian would not have even made it to BDC’s medium vendor list if the false statements about its software had not been made.
 I am satisfied that the fourth element of fraudulent misrepresentation has, therefore, been established.
 The final element of fraudulent misrepresentation requires that the plaintiff suffered damages as a result of the false statement. I accept Experian’s witnesses’ evidence about the delay it experienced in implementing new more efficient lending software because of the 18 months it wasted dealing with Experian. If Experian’s employees had been truthful about the software Experian could deliver, I find that BDC would not have dealt with Experian and would not have entered into the Agreement.
 I am, therefore, satisfied that the fifth element of fraudulent misrepresentation has been established.
With fraudulent misrepresentation made out, the Court turned to Experian’s arguments that the damages claimed by BDC were mostly barred by a limitation of liability clause. The clause in question is quoted by the Court at paragraph 165:
20.1 Neither the Supplier or BDC shall, nor shall they purport to, exclude or restrict liability for death or personal injury resulting from its negligence or that of its employees, servants or agents acting in the course of their employment, or resulting from fraud. Nothing in this Agreement will seek to or operate to limit a Party’s liability in respect of liability that cannot as a matter of law be excluded. (emphasis added)
20.2 Except in the case of liability pursuant to
20.2.1 Clause 12.4 (Intellectual Property Right Infringement); or
20.2.2 a breach by Supplier of the obligations of confidentiality in Clause 14,
in respect of which the Supplier’s liability is unlimited, and subject to Clause 20.1, the total aggregate liability of the Supplier under this Agreement in respect of each event or series of connected events relating to any of the Deliverables, Document Deliverables, or Services, regardless of the form of action whether in contract, tort or otherwise:
20.2.3 will not exceed 100% of the Development Charges payable under this Agreement in the case of any event of breach occurring before the first day of the Support Period, and
20.2.4 will not exceed 100% of the Support Charges payable in the Support Year in which the claim accrues in the case of any event of breach occurring on or after the first day of the Support Period.
20.4 Neither the Supplier or BDC shall in any circumstances be liable to the other for the following losses:
20.4.1 lost profits, loss of business, loss of goodwill; or
20.4.2 and indirect or consequential loss,
in each case caused in any way by some act, omission, or misrepresentation (excluding any fraudulent or negligent misrepresentation) committed in connection with this agreement (whether arising from negligence, breach of contract or howsoever), even if such loss was reasonably foreseeable or specifically advised to that Party. (emphasis added)
The Court concluded that there was no limitation of liability as a result based on fraudulent misrepresentation, supported by an apparent admission in oral argument:
 During oral argument, Mr. Wall conceded that the limitation of liability clauses do not apply to BDC’s alleged tort of fraudulent misrepresentation.
As a result, the Court found in favour of BDC and awarded damages. Not surprisingly, the parties disputed the calculation of damages. The Court generally preferred the submissions of BDC, but limited the “delay period” to 15 months from BDC’s alleged 18 months:
 Considering all of these factors I have concluded that the appropriate delay period that should be used for the time BDC wasted dealing with Experian is 15 months. When Mr. Rosen’s calculation of BDC’s loss of economic benefits is adjusted using a 15-month delay period, BDC’s loss is $41,140,416. In my view this is the most accurate measure of BDC’s damages for its loss of economic benefits arising from Experian’s fraudulent misrepresentations.
 There appears to be no dispute about Mr. Rosen’s calculation of the incremental costs incurred by BDC from its dealings with Experian in the amount of $3,307,037. When this figure is added to BDC’s damages for its loss of economic benefits, BDC’s total damages are $44,447,453. This amount is, of course, exclusive of pre-judgment interest.
On the question of punitive damages, the Court declined to grant such an award, concluding that the amount of more than $44,000,000 served the purposes of “ retribution, deterrence and denunciation”.