It is not surprising so many construction law specialists have weighed in with comments and takeaways from the Earthco versus Pine Valley case, recently ruled by the Supreme Court of Canada (SCC).
At stake is the status of purchases agreements governed under a provincial Sales of Good Act (SGA) when exclusion clauses attempt to negate certain implied obligations under those acts.
The case centres on the purchase and sale of soil. However, the implications will reverberate across many commercial sectors, including construction.
Pine Valley contracted the purchase of specific grades of topsoil from Earthco as part of its undertaking with the City of Toronto to create a dry pond directing water away from nearby homes.
“Earthco had stringent and lengthy testing procedures to ensure that each soil batch perfectly matched each customer’s specifications,” write Field Law partner Anthony Burden and fellow lawyer Grant Szelewicki.
The sales agreement had taken this into account due to the changing nature of an organic compound such as soil.
However, Pine Valley was running late on the project and wanted delivery quickly. They waived their right for updated testing. Earthco reminded Pine Valley that if they shipped soil before all necessary tests had been repeated, it would be at Pine Valley’s risk.
The delivered soil had too much clay and the water pooled.
“The city directed Pine Valley to remove the deficient soil and claimed liquidated damages,” write Burden and Szelewicki.
Pine Valley sued Earthco for breach of contract, alleging the soil Earthco provided “lacked the compositional qualities indicated in the initial testing.”
The case ended up at the SCC after hearings at trial and the Ontario Court of Appeal. The trial judge dismissed Pine Valley’s action, ruling Pine Valley took on the risks of receiving soil that did not meet specifications by not testing it beforehand. The Ontario Court of Appeal overruled that, saying only “explicit, clear and direct language” can overrule a statutory condition.
However, the SCC supported the trial judge’s ruling.
“It found that the court of appeal erred by insisting on a formulaic and technical language to meet the requirement under s.53 and restores the decision of the trial judge,” Edward Lynde, partner with Fasken Martineau DuMoulin LLP, and law student Jessy Oduro-Kwachie told the Daily Commercial News.
“The Supreme Court emphasized that the focus should be on the intention of the parties and the context of the text, rather than the precise language used.”
It therefore concluded that general language used in the exclusion clauses allowed Earthco to be exempt from liability under s.14 of the SGA.
In other words, in its rush to obtain the soil quickly, Pine Valley knowingly accepted the risk that the soil could have been inadequate. Therefore Earthco could not be held liable.
“The Court highlights that the SGA is to be interpreted in conjunction with contract law principles,” said Lynde and Oduro-Kwachie. “It states that, while the SGA provides statutory protections, parties are free to contract outside its provisions.”
Given the impact that this ruling could have across vendor-purchaser agreements, the takeaways for both parties are important to note.
Any intention to exclude SGA provision must be grounded in the text, said Lynde and Oduro-Kwachie.
Furthermore, “there is no requirement for ‘magic words’. Section 53 requires an ‘express agreement,’ not ‘express language.’”
However, such an express agreement must be present.
“Silence or omission does not suffice,” they add.
Joint intentions must be declared and any attempts to override or negate statutory obligations with exclusion clauses must be worded unambiguously and in the context of an analysis of the surrounding circumstances.
“The decision highlights the significance of precise contract drafting,” concluded Lynde and Oduro-Kwachie. “Too often, parties to contracts short change the proper process for contractual formation, ostensibly with the desire to finalize the contract as soon as possible to secure the benefits of the bargain struck. However, such behaviour can be perilous and lead to certain unintended consequences.”
John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
Recent Comments