Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc.

Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc.
Collection
Supreme Court Judgments
Date
2024-05-31
Neutral citation
2024 SCC 20
Case number
40197
Judges
Wagner, Richard; Côté, Suzanne; Rowe, Malcolm; Martin, Sheilah; Kasirer, Nicholas; Jamal, Mahmud; O’Bonsawin, Michelle
On appeal from
Ontario
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20
Appeal Heard: October 17, 2023 Judgment Rendered: May 31, 2024 Docket: 40197
Between:
Earthco Soil Mixtures Inc. Appellant
and
Pine Valley Enterprises Inc. Respondent
- and -
Canadian Chamber of Commerce Intervener
Coram: Wagner C.J. and Côté, Rowe, Martin, Kasirer, Jamal and O’Bonsawin JJ.
Reasons for Judgment: (paras. 1 to 115)
Martin J. (Wagner C.J. and Rowe, Kasirer, Jamal and O’Bonsawin JJ. concurring)
Dissenting Reasons: (paras. 116 to 185)
Côté J.
Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports.
Earthco Soil Mixtures Inc. Appellant
v.
Pine Valley Enterprises Inc. Respondent
and
Canadian Chamber of Commerce Intervener
Indexed as: Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc.
2024 SCC 20
File No.: 40197.
2023: October 17; 2024: May 31.
Present: Wagner C.J. and Côté, Rowe, Martin, Kasirer, Jamal and O’Bonsawin JJ.
on appeal from the court of appeal for ontario
Sale of goods — Contracts — Interpretation — Exclusion clauses — Requirements to negative or vary statutory implied conditions — Provincial legislation providing for implied condition in contract for sale of goods by description that goods will correspond to description — Legislation allowing parties to negative or vary implied condition by express agreement — Exclusion clause in contract between buyer and seller providing that seller not liable for quality of material — Whether exclusion clause was express agreement to oust liability for breach of implied condition that goods must correspond with description — Sale of Goods Act, R.S.O. 1990, ss. 14, 53.
The buyer was hired to work on a municipal project to remediate flooding, which included the removal and replacement of topsoil for drainage. The buyer contacted the seller, a topsoil provider, to obtain topsoil with a specified composition. The seller provided the buyer with laboratory reports from different topsoil samples taken about six weeks prior, and warned against purchasing the topsoil without updated test results. However, the buyer had already missed project deadlines and urgently wanted delivery of the topsoil so as to avoid the imposition of liquidated damages. The buyer therefore waived its right to test the soil and insisted on immediate delivery. The buyer and seller agreed to add two exclusion clauses to the standard purchase order, which stated that the buyer had the right to test and approve the material before it was shipped, and that if the buyer waived those rights, the seller would not be responsible for the quality of the material once it left its facility. After the topsoil was delivered and placed on the project site, water ponding was noted. Testing revealed that there was substantially more clay in the topsoil than the test results had indicated, and the buyer had to remove and replace the topsoil. The buyer sued the seller for damages, alleging that it did not receive topsoil within the range of compositional properties that had been indicated in the test results.
The trial judge dismissed the buyer’s action. He found that the contract was for a sale of goods by description within the meaning of s. 14 of Ontario’s Sale of Goods Act (“SGA”), which sets out an implied condition that goods must correspond with their description. He further found that the buyer did not get the topsoil it bargained for, because of the variation between the topsoil that was promised and the topsoil that was delivered. However, he found that the exclusion clauses were an express agreement, pursuant to s. 53 of the SGA, to contract out of the implied condition under s. 14 of the SGA, despite the fact that the exclusion clauses did not explicitly mention that they were to oust statutorily implied terms and conditions. The Court of Appeal held that the trial judge erred on three extricable questions of law, by: (1) failing to account for how the implied condition in s. 14 of the SGA relates to the goods’ identity (or description) and not their quality; (2) failing to properly interpret the requirement for explicit, clear and direct language to exclude a statutory condition; and (3) considering the contract’s factual matrix beyond its permissible use in interpreting the exclusion clauses. The Court of Appeal held that the term “quality” cannot include “identity” and that the reference in the exclusion clauses to “quality” was not a reference to the implied condition in s. 14 relating to the goods’ identity. In the court’s view, because the exclusion clauses did not contain words that explicitly, clearly and directly covered the identity of the topsoil, they were insufficient to oust liability under s. 14 of the SGA. The Court of Appeal allowed the appeal and substituted a judgment requiring the seller to pay damages.
Held (Côté J. dissenting): The appeal should be allowed and the trial judge’s judgment restored.
Per Wagner C.J. and Rowe, Martin, Kasirer, Jamal and O’Bonsawin JJ.: To be sufficient for the purposes of s. 53 of the SGA, an “express agreement” must be comprised of an agreement to negative or vary a statutorily implied right, duty or liability and such an agreement must be expressly set forth within the parties’ contract. The determination as to what qualifies as an express agreement must also be informed by principles of contractual interpretation and the law concerning exclusion clauses, and the paramount consideration must be the objective intention of the parties. In the instant case, the trial judge made no error of law with respect to the exclusion clauses at issue. The objective meaning of the parties’ express agreement is that the buyer accepted the risk that the topsoil would not meet the previously supplied specifications concerning its composition if it failed to test what it knew was an organic and changing substance.
The law governing the sale of goods is subject to various legal rules from different sources. While subject to a host of statutory provisions in the SGA or other such statutes across the country, a sale is also an agreement that sits within the general common law of contracts and the SGA mandates that it be interpreted in conjunction with current contract law principles. Sale of goods statutes were never intended to be exhaustive or comprehensive codes; they ought not to be applied too rigidly or to the exclusion of the freedom of parties to contract within the general limits of the law. Statutory rules stemming from sale of goods legislation must be related to the law of contract as a whole and such legislation must be interpreted in light of the common law as it stands from time to time and in the present day. In particular, the principles in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, and Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, which give priority to the parties’ intentions, apply to the contracts subject to the SGA.
The SGA provides statutory protections to contracting parties by implying various rights, duties and liabilities into contracts for the sale of goods, including conditions and warranties. When goods are sold by description, s. 14 of the SGA provides an implied condition that the goods correspond with their description. By deeming this to be a condition, the SGA provides that correspondence with description is fundamental to the purpose of a contract. When this implied condition is in play, it becomes very important to determine what aspects of the goods form part of the goods’ description, which is a fact-specific determination. Not every statement made about the goods is a protected part of its description under s. 14: description is tied to the identity and only protects those terms which identify the subject-matter of the sale. The case law has distinguished between traits that go to the identity of the goods (which pertains to description), and those which go to the quality of the goods (which pertains to merchantability and fitness for purpose). The identity of a good should be limited to words whose purpose is to state or identify an essential part of the description of the goods. The question to be asked for the purpose of s. 14 is whether the buyer could fairly and reasonably refuse to accept the physical goods proffered to them on the ground that the failure of the goods to correspond with that part of what was said about them in the contract makes them goods of a different kind from those the buyer had agreed to buy.
Despite the importance of implied statutory conditions, parties remain free to take their contracts outside the presumptive provisions of the SGA. Section 53 permits parties to vary or negative obligations imposed by the SGA, including by express agreement. To qualify under the “express agreement” branch of s. 53, there must be both an agreement to vary or negative a liability under a contract of sale, and that agreement must be express. An agreement will be express if made in distinct and explicit terms and not left to inference. The parties must have expressly and unambiguously used language that signals their intention to override the SGA. Despite the requirement for an express agreement, s. 53 does not require express language; there is no requirement for particular magic words. It cannot be said that s. 53 is only satisfied if parties who agreed to an exclusion clause use the words “condition” and “identity” to oust the implied condition of correspondence to description. Applicable case law mandates a shift away from a method of contractual interpretation dominated by technical rules of construction and requires that words be understood in their factual matrix, with the paramount goal of ascertaining the parties’ objective intention.
The “agreement” part of s. 53 is often the crux of the matter and it requires a meeting of the minds about what rights, duties or obligations are being changed and how they are being varied or negatived. The terms of that agreement must also be certain and mutually agreed upon. The existence, extent and meaning of the statutory term “agreement” will be determined by reference to the common law principles concerning the formation, interpretation and enforcement of contracts. In Sattva, the Court stated how agreements should be interpreted and reviewed, and explained how the jurisprudence has shifted towards a more flexible, practical, and common-sense approach with a view to ascertain the objective intention of the parties. When seeking the meaning of a document, the focus of the court is properly on what the parties objectively intended and what they reasonably understood their words to mean. The meaning of the words of a contract can be derived from reference to various contextual factors from its surrounding circumstances, which are often referred to as the factual matrix.
Exclusion clauses, such as those under s. 53 of the SGA, are subject to their own set of legal rules because they raise distinct policy considerations. Tercon sets out three steps to help assess the enforceability of an exclusion clause. First, the court must determine whether an exclusion clause even applies in the circumstances, which necessarily depends on an assessment of the intention of the parties. It is at this step where a court should determine whether there is an express agreement between the parties that is sufficient to meet the requirements of s. 53. If the exclusion clause is found to be valid at the first step, the second step requires a court to consider whether the exclusion clause was unconscionable at the time the contract was made. Third, even if not unconscionable, a court may consider if there is some overriding public policy consideration that outweighs the strong public interest in the enforcement of contracts and if there is, the court may refuse to enforce the otherwise valid exclusion clause. The modern contractual interpretation principles from Sattva apply to contracts containing exclusion clauses, especially at the first step of the Tercon test. Sattva’s direction to consider the surrounding circumstances when interpreting the terms of a contract means exclusion clauses must be analyzed in light of their purposes and commercial context.
In the instant case, the exclusion clauses exempt the seller from any statutorily imposed liability under s. 14 of the SGA. The word “quality” in the exclusion clauses must be interpreted in a manner that is consistent with the surrounding circumstances. The buyer was a commercial purchaser with years of experience in buying large quantities of topsoil. Both parties were aware of the changing nature of topsoil and that the existing test results were dated. The parties were free to negotiate and allocate the risk of not testing the topsoil. The buyer was in a rush to receive the topsoil, given the looming threat of liquidated damages. The buyer deliberately assumed the risk through its own conscious strategic decision. The parties came to an express agreement about the allocation of risk, by using direct, clear and express language in their contract, which demonstrated that their objective intention was for the buyer to waive its right to pursue the seller for any liability relating to the topsoil. The trial judge made no error in making such findings.
Per Côté J. (dissenting): The appeal should be dismissed. The exclusion clauses are not an “express agreement” within the meaning of s. 53 of the SGA to exclude the seller’s liability for a breach of the implied condition in s. 14 that goods sold by description will correspond with their description. An exclusion clause it not an express agreement under s. 53 with regard to a particular implied condition if it requires deviating from the text of the contract to determine what the surrounding circumstances would deem the parties to have written, instead of interpreting the meaning of the words actually used by the parties. The clear and direct language chosen by the parties in the exclusion clauses limited the exclusion of liability to defects in quality within the meaning of s. 15 of the SGA, and could not be expanded to cover any defects relating to the identity of the soil.
The SGA protects buyers by implying certain conditions into each contract for the sale of goods, such as the statutory conditions that the goods will correspond with their description (s. 14), will be fit for their purpose (s. 15 para. 1), and will be of merchantable quality (s. 15 para. 2). Each of these statutory conditions is distinct, and it is important not to conflate them. Section 14 sets out an implied condition that the goods delivered under a contract for the sale of goods by description will correspond with their description. Establishing a breach of s. 14 involves a two-step analysis. It is first necessary to determine whether the contract is a sale by description within the meaning of s. 14. If so, it is then necessary to determine whether the goods delivered corresponded with their agreed-upon description. This is a fact-specific determination that turns on whether a statement describing the goods being sold was made and reasonably relied upon. Section 14 is to be distinguished from s. 15, which is broadly directed at the quality of goods. In particular, s. 15 para. 1 sets out an implied condition of fitness for purpose, and s. 15 para. 2 sets out an implied condition of merchantable quality.
The SGA does not restrict the parties’ common law freedom to shape their agreement as they see fit. They are free to contract out of implied terms, and s. 53 precisely delineates the manner in which they may demonstrate their intention to do so. One route for ousting liability arising in the context of the SGA is that the parties are free to structure their own contract as they see fit by express agreement. As set out by the Court in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426, clear, direct, and unambiguous language is required to oust a statutory protection by express agreement. Any intention to exclude liabilities arising from the SGA must be expressed in language inconsistent with the specific content of the terms implied by the statute. Reference to a different legal duty will not suffice. Parties are not required to use magic words; rather, they must use language that is clearly and directly aimed at excluding the content of the conditions they purport to vary. Where only a particular duty is excluded by the parties’ language, all other duties remain. Should the parties fail to use language that unambiguously encompasses the implied condition or warranty in question, no express agreement can be said to have been concluded. An attempted exclusion of liability may fail because the words used by the parties are directed at excluding liability with respect to the quality of the goods when the defect is instead related to their description.
In the sale of goods context, the exercise of contractual interpretation must proceed on the assumption that the parties objectively intended to accept the rights, duties, and liabilities arising under the SGA, unless the parties have clearly expressed their intention otherwise. Such an approach reflects the policy choice, enshrined in s. 53, to give primacy to legislative purposes, unless the parties have clearly expressed their intention for a different private ordering of their rights and obligations. The SGA represents the legislature’s understanding of commercial efficacy or common sense in the sale of goods context, and its provisions are designed to promote certainty and predictability. There is nothing unfair or unrealistic in assuming that the parties knew their respective legal positions in entering into the contract. Given that the parties are taken to know their legal positions in entering into a contract of sale, they must also be presumed to intend the legal consequences of the words they use. Although interpreting the words used in an exclusion clause may require reference to the whole contract or the surrounding circumstances, the legislature has indicated that the rights, duties, and liabilities arising under the SGA must be considered a vital part of the setting in which parties contract. The exercise of contractual interpretation cannot be conducted in a manner that disregards the law governing the contract.
In the instant case, it was open to the trial judge to find that the parties’ contract was a sale by description, and it was also open to the trial judge to find that the description of the topsoil for the purposes of s. 14 of the SGA included the composition established in the test results. However, the fact that the trial judge found that the composition of the topsoil went to the identity of the goods, while it could also be relevant to the fitness of the topsoil for a particular purpose, does not mean that the parties objectively intended to shield the seller from any and all liability. The parties chose to put down their agreement in writing. The court’s task is to determine what they meant by agreeing to exclude liability in relation to the “quality of the material”. The exclusion clauses did not actually state that the seller would not be liable for “any” defects, including defects in the composition of the topsoil. Rather, the parties agreed that the seller would not be “responsible for the quality of the material”. The ordinary and grammatical meaning of these words relates to the fitness for purpose of a good, within the meaning of s. 15 para. 1 of the SGA. The express agreement excludes liability only in relation to quality. In the present circumstances, the meaning of the word “quality” cannot be expanded to cover any defects relating to the identity or description of the topsoil; therefore, the language of the exclusion clauses does not express an objective intention to exclude the condition of correspondence with description in s. 14 of the SGA.
Cases Cited
By Martin J.
Applied: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; considered: Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23; referred to: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 S.C.R. 540; Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748; Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1972] A.C. 441; Bakker v. Bowness Auto Parts Co. Ltd. (1976), 68 D.L.R. (3d) 173; Bailey v. Croft (1931), 40 Man. R. 146; Rahtjen v. Stern GMC Trucks (1969) Ltd. (1976), 66 D.L.R. (3d) 566; Coast Hotels Ltd. v. Royal Doulton Canada Ltd., 2000 BCSC 857, 76 B.C.L.R. (3d) 341; Joubarne v. Loodu, 2005 BCSC 1340; Thoms v. Louisville Sales & Service Inc., 2006 SKQB 447, 286 Sask. R. 90; Baron v. Caragata, 2004 SKQB 43, 245 Sask. R. 208; Total Petroleum (N.A.) Ltd. v. AMF Tuboscope Inc. (1987), 54 Alta. L.R. (2d) 13; Palin v. Assie Industries Ltd., 2003 SKQB 57, 230 Sask. R. 234; Clayton v. North Shore Driving School, 2017 BCPC 198, 70 B.L.R. (5th) 49; Koubi v. Mazda Canada Inc., 2012 BCCA 310, 352 D.L.R. (4th) 245; Armak Chemicals Ltd. v. Canadian National Railway Co. (1991), 3 O.R. (3d) 1; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Schnarr v. Blue Mountain Resorts Ltd., 2018 ONCA 313, 140 O.R. (3d) 241; British Columbia (Attorney General) v. Le, 2023 BCCA 200, 482 D.L.R. (4th) 20; Bank of England v. Vagliano Brothers, [1891] A.C. 107; Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98; Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; Dow Chemical Canada ULC v. NOVA Chemicals Corporation, 2020 ABCA 320, 17 Alta. L.R. (7th) 83; Reardon Smith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570; Chabot v. Ford Motor Co. of Canada Ltd. (1982), 39 O.R. (2d) 162; Gregorio v. Intrans‑Corp. (1994), 18 O.R. (3d) 527; Rosenberg v. Securtek Monitoring Solutions Inc., 2021 MBCA 100, 465 D.L.R. (4th) 201; Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605; National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029; Moldenhauer v. Alberta Powersports Inc., 2009 ABPC 118; Conners v. McMillan, 2020 BCPC 230.
By Côté J. (dissenting)
Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688; Bank of England v. Vagliano Brothers, [1891] A.C. 107; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559; Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601; Celgene Corp. v. Canada (Attorney General), 2011 SCC 1, [2011] 1 S.C.R. 3; Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1972] A.C. 441; Bakker v. Bowness Auto Parts Co. Ltd. (1976), 68 D.L.R. (3d) 173; Printing and Numerical Registering Co. v. Sampson (1875), L.R. 19 Eq. 462; Produce Brokers Co., Ltd. v. Olympia Oil and Cake Co., Ltd., [1916] 1 A.C. 314; Continental Tyre and Rubber Co. Ltd. v. Trunk Trailer Co. Ltd., 1985 S.C. 163; McCutcheon v. David MacBrayne Ltd., 1964 S.C. (H.L.) 28; Attorney General of Quebec v. Carrières Ste‑Thérèse Ltée, [1985] 1 S.C.R. 831; Canada (Attorney General) v. JTI‑Macdonald Corp., 2007 SCC 30, [2007] 2 S.C.R. 610; R. v. Morrison, 2019 SCC 15, [2019] 2 S.C.R. 3; Wallis, Son & Wells v. Pratt & Haynes, [1911] A.C. 394; Advance Rumely Thresher Co. v. Lester, [1927] 4 D.L.R. 51; McNichol v. Dominion Motors Ltd. (1930), 24 Alta. L.R. 441; Gregorio v. Intrans‑Corp. (1994), 18 O.R. (3d) 527; Cork v. Greavette Boats Ltd., [1940] O.R. 352; Murray v. Sperry Rand Corp. (1979), 23 O.R. (2d) 456; Chabot v. Ford Motor Co. of Canada Ltd. (1982), 39 O.R. (2d) 162; Keefer Laundry Ltd. v. Pellerin Milnor Corp., 2008 BCSC 1119, 49 B.L.R. (4th) 222; Kobelt Manufacturing Co. v. Pacific Rim Engineered Products (1987) Ltd., 2011 BCSC 224, 84 B.L.R. (4th) 189; IPEX Inc. v. Lubrizol Advanced Materials Canada Inc., 2012 ONSC 2717, 4 B.L.R. (5th) 148; Brantford Engineering and Construction Ltd. v. Underground Specialties Cambridge Inc., 2014 ONSC 4726, 33 B.L.R. (5th) 239; Haliburton Forest & Wildlife Reserve Ltd. v. Toromont Industries Ltd., 2016 ONSC 3767; Herbert Construction Company Ltd. v. Carter Holt Harvey Ltd., [2013] NZHC 780; Moldenhauer v. Alberta Powersports Inc., 2009 ABPC 118; Conners v. McMillan, 2020 BCPC 230; Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 S.C.R. 540; Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394; Elias v. Western Financial Group Inc., 2017 MBCA 110, 417 D.L.R. (4th) 695; Luxor (Eastbourne), Ld. v. Cooper, [1941] A.C. 108; Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827; Triple Point Technology Inc. v. PTT Public Co. Ltd., [2021] UKSC 29, [2021] A.C. 1148; Stocznia Gdynia S.A. v. Gearbulk Holdings Ltd., [2009] EWCA Civ 75, [2010] Q.B. 27; Whitecap Leisure Ltd. v. John H. Rundle Ltd., [2008] EWCA Civ 429, [2008] 2 Lloyd’s Rep. 216; Seadrill Management Services Ltd. v. OAO Gazprom, [2010] EWCA Civ 691, [2011] 1 All E.R. (Comm.) 1077; Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129; Leggett v. Taylor (1965), 50 D.L.R. (2d) 516; Rosenberg v. Securtek Monitoring Solutions Inc., 2021 MBCA 100, 465 D.L.R. (4th) 201; Ecoasis Resort and Golf LLP v. Bear Mountain Resort & Spa Ltd., 2021 BCCA 285, 53 B.C.L.R. (6th) 343; Mann v. Grewal, 2023 BCCA 88; Arnold v. Britton, [2015] UKSC 36, [2015] A.C. 1619.
Statutes and Regulations Cited
Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, s. 3.
Consumer Protection Act, R.S.A. 2000, c. C‑26.3, s. 2(1).
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Sale of Goods Act, C.C.S.M., c. S10, ss. 15, 16(a), (b).
Sale of Goods Act, R.S.A. 2000, c. S‑2, ss. 15, 16(2), (4).
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Sale of Goods Act, R.S.P.E.I. 1988, c. S-1, ss. 15, 16(a), (b).
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APPEAL from a judgment of the Ontario Court of Appeal (Strathy C.J. and Simmons and Zarnett JJ.A.), 2022 ONCA 265, 161 O.R. (3d) 103, 468 D.L.R. (4th) 78, 26 B.L.R. (6th) 165, [2022] O.J. No. 1497 (Lexis), 2022 CarswellOnt 4054 (WL), setting aside a decision of Nakatsuru J., 2020 ONSC 601, [2020] O.J. No. 405 (Lexis), 2020 CarswellOnt 1113 (WL). Appeal allowed, Côté J. dissenting.
Mark Klaiman and Ian Klaiman, for the appellant.
Vito S. Scalisi and Dylan A. S. Bal, for the respondent.
Jeremy Opolsky and Lauren Nickerson, for the intervener.
The judgment of Wagner C.J. and Rowe, Martin, Kasirer, Jamal and O’Bonsawin JJ. was delivered by
Martin J. —
TABLE OF CONTENTS
Paragraph
I. Introduction
1
II. Factual Background
4
III. Judicial History
13
A. Ontario Superior Court of Justice, 2020 ONSC 601
13
B. Court of Appeal for Ontario, 2022 ONCA 265, 161 O.R. (3d) 103
22
IV. Issues
26
V. Analysis
27
A. The Applicable Standard of Review
27
B. The Sale of Goods Act
34
C. Section 53 and Express Agreements
45
(1) Section 53 of the Sale of Goods Act
50
(2) The Modern Principles of Contractual Interpretation
61
(3) The Legal Treatment of Exclusion Clauses
66
(4) Explicit, Clear and Direct Language as Applied to Statutory Conditions and Identity
74
D. Summary of the Proper Approach to Interpreting Exclusion Clauses Under Section 53 of the Sale of Goods Act
93
E. Clauses 6 and 7 Exempt Earthco From Liability Under Section 14
100
VI. Disposition
115
I. Introduction
[1] This appeal concerns a contracting party’s ability to contract out of a statutorily implied condition under the Sale of Goods Act, R.S.O. 1990, c. S.1 (“SGA”).[1] The buyer, Pine Valley Enterprises Inc., claims that the purchased topsoil involved a sale by description and seeks damages because the soil did not correspond to that description. The seller, Earthco Soil Mixtures Inc., says there was no breach of any statutory condition, arguing that the goods not only complied with their description, but also that the parties specifically excluded any such obligation by express written agreement. The SGA, like other such statutes across the country, provides that parties may contract out of any right, duty or liability that would otherwise arise by implication of law in a contract of sale (s. 53). The parties’ contract contained a clause stipulating that if the buyer chose to waive its right to test the goods, then the seller would “not be responsible for the quality of the material” once it left its facilities (A.R., at p. 201). Because the buyer chose to waive its right to test and approve the goods before they were shipped, the seller claims this clause operates to exclude any statutory condition that the goods must meet certain compositional specifications.
[2] The Court’s main task in this case is to set out the proper way to interpret exclusion clauses in contracts for the sale of goods. This involves determining what qualifies as an express agreement under s. 53 of the SGA, as informed by recent cases on the interpretation of contracts and the legal operation of exclusion clauses. The principles in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, and Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, apply to the contracts subject to the SGA. These recent restatements of contract law principles give priority to the parties’ intentions in a manner that modifies and relaxes some of the stricter and more technical approaches which found expression in certain prior cases. As this Court stated in Sattva, “the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine ‘the intent of the parties and the scope of their understanding’” (para. 47, citing Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27). All contract terms, including exclusion clauses, “should be given their natural and true construction so that the meaning and effect of the exclusion clause the parties agreed to at the time the contract was entered into is fully understood and appreciated” (Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426, at p. 510). Ultimately, when courts are faced with applying a combination of s. 53, the principles of contractual interpretation and the law concerning exclusion clauses, it is the objective intention of the parties that must be the paramount consideration.
[3] I conclude that the trial judge made no error of law with respect to the exclusion clauses at issue in the case at bar. In the commercial circumstances of this case, the objective meaning of the parties’ express agreement is that the buyer accepted the risk that the soil would not meet the previously supplied compositional specifications if it failed to test what it knew was an organic and changing substance. The appeal is allowed and Earthco has no liability to Pine Valley.
II. Factual Background
[4] Pine Valley, a municipal parks contractor, was hired in 2011 by the City of Toronto to address basement flooding in a residential area of North York. The remediation effort, called the Moore Park Project, included the removal and replacement of the existing topsoil with another topsoil more conducive to proper water drainage. While Pine Valley was responsible for the purchase and laying of the topsoil, the City’s hired project consultant and construction supervisor, CH2M Hill (“City Consultant”), assisted in the selection of a suitable topsoil.
[5] The construction contract between the City and Pine Valley called for a substantial performance date of August 19, 2011. If that date was not met, Pine Valley would be required to pay liquidated damages of $500 per working day until the Project was completed. For various reasons, Pine Valley missed the deadline and requested a series of extensions. The City extended the substantial performance date to October 3, 2011, after which liquidated damages would be imposed. Meanwhile, despite Pine Valley’s efforts to secure a suitable topsoil from various suppliers, the City Consultant did not approve any of the samples it obtained. The substantial performance date of October 3, 2011 also passed without any topsoil having been purchased, delivered, spread or graded on the Project site. The City made one further and final concession and gave notice that as of October 15, 2011, it would enforce the liquidated damages clause.
[6] On October 3, 2011, Pine Valley contacted Earthco, a large custom topsoil provider, to request information about providing them with a topsoil with a specified range of composition percentages. The City required that the topsoil be 45 percent to 70 percent sand, 1 percent to 35 percent silt, and 14 percent to 20 percent clay. Earthco’s Sales Manager, Richard Outred, provided Pine Valley’s Project Manager, Rick Serrao, with laboratory reports from three different topsoil samples received in August of 2011. The City Consultant reviewed the reports and informed Mr. Outred that two of the proposed topsoil mixes would be acceptable with certain modifications: R Topsoil 2P1 would be acceptable if the chloride was less than 100 ppm and peat could be added to increase the organics, and R Topsoil would be acceptable if peat could be added to increase the organics.
[7] To the knowledge of all concerned, the samples on which the reports were based were about six weeks old at the time the reports were sent to Mr. Serrao and reviewed by the City Consultant. Earthco and Pine Valley’s agent discussed, on numerous occasions, the need to further test the soil before delivery to Pine Valley to accurately ascertain its properties at the time of sale. As topsoil is an organic substance with properties that may change over time, Earthco typically only sold its topsoil after a multi-stage process over a four- to six-week period. In the normal course, when Earthco would first receive an order with certain soil specifications, it would review soil test reports with these specifications in mind. Earthco would then send the relevant test reports to the customer, who would either accept or reject them. If the customer approved of a particular soil, Earthco would “batch” the soil from very large piles. Ten samples would then be taken from the soil piles and mixed together into one combined sample, which was sent to an independent third party laboratory for testing. Customers would receive these test results and decide whether their desired soil specifications were still being met and whether they would place an order. Generally, Earthco would deliver soil to a customer only after the batch was specifically approved as acceptable, often on the advice of a landscape architect.
[8] By contrast, because Pine Valley urgently wanted delivery of the soil, the process Earthco followed with Pine Valley was atypical. Before any contract of sale was signed, Mr. Outred confirmed that a chloride test would take five to seven business days to per